Telkom partners propose earlier end of contracts

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the current outdated telecommunications law.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)