Rift between Telkom, its KSO partners continues
By Christiani S.A. Tumelap
JAKARTA (JP): The rift between state-owned PT Telkom and its five partners in the joint cooperation scheme (KSO) continues as the deadline nears for a settlement of their differences.
A source in the telecommunications industry said a compromise was very hard to reach since both Telkom and its partners have come up with strikingly different demands.
"Telkom insists it only wants to make a slight adjustment to maintain its clout in the contract. While the partners have quite a lot of demands ... enough to overhaul the whole contract," he said over the weekend.
He said talks were running very slow because only two of the five partners had been contacted by Telkom with only six weeks until the Dec. 31 deadline.
The five KSO partners are PT Pramindo Ikat Nusantara, which operates in Sumatra, PT Ariawest International in West Java, PT Mitra Global Telekomunikasi Indonesia in Central Java, PT Cable & Wireless Mitratel in Kalimantan and PT Bukaka Singtel International in parts of Eastern Indonesia. Cable & Wireless Mitratel and Bukaka Singtel are now in negotiations with Telkom.
The partners were appointed by Telkom in 1995 to finance, build and operate domestic fixed line telephone service across the country on behalf of Telkom under a revenue-sharing scheme through 2010.
Telkom retains control over the most profitable markets of Jakarta and East Java.
Under the existing contract agreement, KSO partners are required to install, during a three-year construction period from 1996 to 1999, a total of two million new access line units (ALU).
The government, however, revised the figure in September 1998 to only 1.2 million after the partners said the initial targets were impossible to meet amid the economic crisis.
The Distributable Telkom Revenue (DTR), which is part of the revenue-sharing agreement, was also revised last year by the government from 30 percent to 10 percent for Telkom and from 70 percent to 90 percent for partners.
According to the initial contract, KSO partners must pay Telkom a monthly fixed amount known as a Minimum Telkom Revenue (MTR) and DTR based on their total revenues.
The revision in the contracts is valid for only one year until Dec. 31, but KSO partners have refused to return to the original if some of the contract's terms are not amended.
Performance
An official in Telkom, who spoke under the condition of anonymity, told The Jakarta Post on Saturday that one of the important issues Telkom wanted to settle was a proper mechanism to measure the partners' performance.
"For example, there should be a strict guideline on the procedures and number of access line units (ALU) the partners must build so that they can never find an excuse to revise the terms whenever they wish," he said.
Stephen R. Dowling, director and chief financial officer of AriaWest International, said the most important issue of the contract that the partners wanted to revise was the clarification of who was in charge and in control of the daily management and operational activities.
"It has been like one boat with two captains. The contract says we are in charge of the financing, developing and operating and the staff, too. But the reality shows that Telkom rules over all," he said during the weekend.
Separately, Philip W. Green, the president of Cable & Wireless Mitratel, one of the two partners which have started talks with Telkom, said substantial adjustments to the contract were necessary to ensure the continuation of the investment the partners had made in Indonesia's telecommunications industry.
He, however, declined to reveal what kind of amendments his company or Telkom had to offer.
"I'm not prepared to talk about that. All I can say is that the talks are ongoing and that we have not reached any agreements," he told the Post.
Negotiations for the future KSO arrangement started last month after Telkom president A.A. Nasution said that Telkom would make necessary amendments to the KSO initial contract so that the cooperation could continue until it finishes in 2010.
He urged KSO partners to cooperate in the talks.
"We are going to impose a penalty if they refuse to cooperate," he said as he criticized the partners earlier suggestion to terminate the current scheme and replace it with a joint venture.
The partners recently proposed what they called a win-win solution to the dispute by replacing the KSO scheme with a joint venture between Telkom, the partners, the government and Indosat, another state-run telecommunications firm, which owns a 30 percent stake in MGTI and 13 percent in Pramindo.
Telkom's strong objection and the vague responses from the government and Indosat have apparently pushed KSO partners into a corner.
The partners recently expressed their flexibility, saying that they were very much open to go into any form of negotiations and any type of cooperation with Telkom.
The KSO scheme has been under fire since its establishment in 1996 with much of the criticism leveled at the five partners, questioning their performance in meeting terms of contracts and the allocation of profits to Telkom.
"KSO partners demand a bigger share of the revenue-sharing agreement even though they have never been able to meet the installation targets. They always ask the government to bail them out whenever they fail to perform their tasks. And they (the foreign partners in KSO) still call themselves world class operators?" a critic said.
Dowling said his company was considering to propose an elimination of MTR and change the DTR share to 50-50 for Telkom and its partners to ensure both share the equal risks and profits.
"But other partners may have a different stance on this revenue-sharing matter," he said, suggesting Telkom accelerate the talks with a more comprehensive approach.