Telkom ends joint operation contract with AriaWest

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)