Telkom partners propose earlier end of contracts
JAKARTA (JP): Joint operation (KSO) partners of state telecommunications company PT Telkom Indonesia have suggested an early termination of the contract and establishment of a new joint venture firm to solve the disputed KSO contract.
Stephen R. Dowling, director and chief financial officer of Ariawest International, one of the five KSO firms, said setting up the joint venture would financially be more attractive for both parties' shareholders and also "less conflicting" than moving on with the current edgy KSO scheme.
"The early termination of the joint scheme contracts with Telkom will be parallel with the government's plan to eliminate the current monopoly practices of the country's telecommunications sector," he told The Jakarta Post.
The House of Representatives is currently debating the government-sponsored telecommunications bill, which will replace the current outdated telecommunications law.
The new bill will, among other things, abolish the exclusive rights held so far by domestic telecommunications provider PT Telkom and international telecommunications provider PT Indosat.
But the government said the companies would be still allowed to carry out their exclusive rights until their contracts ended.
According to existing contracts, Telkom will still control local fixed line and fixed wireless telecommunications services nationwide until 2010 and local long distance telecommunications services until 2005; and Indosat, together with its subsidiary Satelindo, will control overseas long distance services until 2004.
In offering fixed line telephone services, private companies should cooperate with Telkom under a profit-sharing scheme, also known as a joint operation scheme (KSO). This operation also involves telecommunications infrastructure already built by Telkom.
Stephen said the proposed joint venture firm would require Telkom to inject its assets and liabilities under the KSO scheme into a new entity. This new entity will be solely owned by Telkom shareholders.
KSO partners' shareholders, on the other hand, should also inject their KSO assets and liabilities into another new entity, he said, adding that the new company would then be merged with Telkom's.
With the merging of the two new companies, Telkom would no longer be required to pay back partners for the larger part of the investment they made for construction of telecommunications facilities and services from 1996 to 1999.
"Telkom is also not liable to pay compensation fees to us because the contract is canceled upon both parties' willingness. So, Telkom has nothing to lose," he said.
The KSO contract started in 1996 with the appointment of the five consortia of local and foreign firms -- PT Ariawest International, PT Pramindo Ikat Nusantara, PT Mitral Global Telekomunikasi Indonesia (MGTI), PT Cable & Wireless Mitratel and PT Bukaka Singtel (BSI) -- to finance, build and operate domestic fixed lined telephone service across Indonesia under a revenue- sharing scheme through year 2010.
Under the 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), a figure that was then revised in September 1998 by the government to only 1.2 million due to the economic crisis.
The agreement also requires the partners to pay Telkom a tri- monthly fixed amount known as Minimum Telkom Revenue (MTR) and Distributable Telkom Revenue (DTR) based on their revenue.
The KSO scheme has been under fire since the beginning. Some officials and analysts said the scheme should be canceled due to its failure to benefit Telkom financially and technologically.
The House of Representatives has never fully supported the scheme due to its ambiguous concept, said Ais Anantama Said, a member of House Commission IV for telecommunications, tourism and transportation.
"The scheme is a product of corruption, cronyism and nepotism (KKN) practices. We doubted it would work well," he said, adding an immediate solution should be made to end the conflict.
They said Telkom would be better off to cut the KSO contracts they manage. But Telkom said it should reimburse all the investment made by its KSO partners if it cuts the contracts earlier.
Stephen said KSO partners had presented the joint venture proposal to the State Ministry for the Empowerment of State Enterprises, World Bank, Indosat and Telkom.
"All but Telkom gave a positive response," he said.
Telkom's spokesperson Dodi Amirudin said the company preferred to continue with the present KSO arrangement.
"Why don't we stick to the agreement and finish what we have started. We can talk about other possible arrangements after we finish the contract in 2010," he told the Post recently.
The government said it was currently evaluating the performance of KSO partners' during the first three years of the 15-year KSO contract and that the State Ministry for the Empowerment of State Enterprises would decide on a solution for the KSO dispute. (cst)