Telkom ends year-long dispute with Ariawest

Telkom ends year-long dispute with Ariawest

Rendi A. Witular, The Jakarta Post, Jakarta

State-owned telecommunications company PT Telkom said Friday it
had reached an agreement with PT Ariawest International to
purchase the latter's fixed line assets in West Java and Banten
in a deal costing Telkom US$479.5 million.

The buyout deal ends the year-long dispute between Telkom and
Ariawest, its joint operating contractor in the fixed-line
telephone project. Ariawest International is 35 percent owned by
American telecommunications giant AT&T.

Under the deal, Telkom would pay $184.5 million in cash for
the Ariawest assets plus taking over the latter's restructured
debts worth $295 million.

Telkom will pay $64.5 million in cash later this year and the
remaining $120 million in 11 equal semi-annual installments,
without interest, over five-and-a-half years.

The company, in a press statement, said of the $64.5 million
in cash, $20 million would be paid on or before May 17, with the
remainder to be paid on the closing date of August 30, 2002.

Mursyid said that Telkom would use its revenue from the West
Java and Banten operation, reaching Rp 1.3 trillion (about $137
million), to help finance the deal. As for the debt, Telkom would
still wait for AriaWest to restructure it.

"The conditional purchase contract stipulates that Telkom will
wait for the debt restructuring of AriaWest, and at the same time
to seek approval for this buyout at a shareholders' meeting
scheduled for June 14," said Mursyid.

The deal will end a heated disagreement between the two
companies and ward off a $1.3 billion arbitration claim against
Telkom filed by AriaWest at the Geneva-based International
Chamber of Commerce (ICC). Telkom had also filed a Rp1.5 trillion
complaint against Ariawest at the ICC.

"Both parties had agreed on a settlement relating to all
claims between both parties, and to terminate all on-going
arbitration proceedings in connection with such disputes," said
Telkom president Muhammad Nadjib.

In 1996, AriaWest landed a deal with Telkom to operate and
manage fixed-line telecommunication facilities in West Java and
Banten provinces under a joint operation scheme (KSO). But the
contracts turned sour following the 1997-1998 Asian financial
crisis and the government's decision to end Telkom's monopoly in
the domestic call industry sooner than originally planned.

This created complications as the two companies feuded for
more than a year on what they saw as a fair settlement.

The completion of the deal will help Telkom consolidate its
position in Indonesia's domestic call market before deregulation
in the industry next year. Under the changes, state-owned
international call operator PT Indonesian Satellite Corp.
(Indosat) will be allowed to compete with Telkom in domestic call
operations.

The deal with Ariawest is the third buyout deal for Telkom. It
had previously signed a deal with two former contractors
including PT Pramindo Ikat Nusantara, which had a contract to
develop one million fixed lines across Sumatra; and PT Daya Mitra
Telekomunikasi, which was responsible for developing fixed lines
in Kalimantan.

Telkom will still have to negotiate with two other
contractors, but the company has previously said it would not
seek more buyout deals this year.

Meanwhile, Telkom also said Friday that it has set the size
for the dollar-denominated and rupiah-denominated bonds it plans
to issue in July.

Telkom announced that it had decided the dollar-denominated
bonds would amount to $100 million, while the rupiah-denominated
bonds would be Rp 1 trillion.