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.