Telkom ends joint operation contract with AriaWest

JAKARTA (JP): State-owned telecommunications company PT Telkom terminated on Monday its joint operation (KSO) contract with PT AriaWest International in a bid to end its protracted dispute with the subsidiary of American telecom giant AT&T.

"We sent the letter this morning to notify AriaWest about our termination decision.

"Telkom's decision to terminate the KSO agreement was made after exhaustive considerations and extensive efforts, which had regrettably failed to remedy this dispute," Telkom's director of operations and marketing Komarudin Sastrakoesoemah told a media conference here.

He explained that the declining telecommunication services in its contractual areas-- West Java and Banten--, in addition to the company's failure to pay Telkom employees in both regions -- were compelling, legitimate reasons for concluding that AriaWest had failed to honor its KSO contract.

Under the contract, either Telkom or AriaWest had the right to terminate the contract if they thought their partner had failed to fulfill its contractual obligation, Komarudin said.

"Furthermore, the international arbitration proceedings filed recently by AriaWest against Telkom demanding US$ 1.3 billion in compensation clearly indicates AriaWest's attempt to pressure us to accept a higher buyout price," Komarudin said.

He was referring to the arbitration proceedings filed by AriaWest in May at the International Chamber of Commerce (ICC) in Paris for losses incurred by Telkom's alleged breaches of the KSO agreement.

The next move to be taken by Telkom after terminating the contract was to take over AriaWest's assets, Komarudin said.

In compensation for the assets and the 15-year KSO contract, which was supposed to end in 2010, Telkom would pay AriaWest a sum based on the net book value of the latter's assets, he said.

"The final sum would of course take into consideration AriaWest's obligations such as employees' wages and so forth," Komarudin said.

This was in line with the KSO contract, he said, adding that under the contract if AriaWest terminated the contract, Telkom had to pay a compensation based on the assets' present value.

Telkom and AriaWest signed the contract in 1995.

When asked about the impact of the contract termination on the arbitration process of the companies' dispute, Komarudin said the termination of the contract would not automatically halt the arbitration process.

"If this (the termination) is acceptable to AriaWest, we will ask it to withdraw its arbitration proceedings. If it refuses to do so, we will prepare ourselves to fight at the arbitration court," Komarudin said.

Telkom had received a letter from ICC informing it of the proceedings, Komarudin said, adding that the company had until Aug. 21 to reply to the letter.

"Furthermore, we have also prepared a counter suit against AriaWest, which we will lodge at the same time as our reply," he said.

He, however, declined to give details about the counter- proceeding, saying Telkom was still hopeful that AriaWest would accept the termination settlement.

Komarudin said Telkom invited AriaWest to a meeting on Monday to discuss the termination procedures and asked it to present a list of all assets that would be transferred to Telkom for valuation.

"We could ask an independent appraisal team to assess the value of AriaWest's assets so it would not lead to more disputes," he added.

Separately, AriaWest's vice president Gatot S. Kahrmadji said the company would not accept Telkom's termination of the KSO contract, saying that the move was illegal.

"A termination cannot be unilateral like that. We will not accept it. The notice is not valid. We will only send a reply by letter and not go there (to the meeting) ourselves," he said.

If AriaWest refused to accept the termination settlement then Telkom would take legal steps against AriaWest, Komarudin warned, without elaborating.

AriaWest is 52.5 percent owned by Indonesia's PT Artimas Kencana Murni, 35 percent owned by U.S.'s MediaOne International B.V. of which telcom giant AT&T is a part and 12.5 percent owned by Hong Kong's Asian Infrastructure Fund. (tnt)