Telkom partners threaten to end KSO contracts

Telkom partners threaten to end KSO contracts

JAKARTA (JP): PT Telkom's five foreign partners have
threatened to pull out of their Joint Operation Schemes (KSO)
contracts if the telecom giant fails to come up with a more
reasonable deal.

Stephen Dowling, the chief financial officer of AriaWest
International, said on Thursday the company and the other four
firms had given Telkom the option to create a new and better
business scheme or end the existing deals and reimburse all the
investments the partners had made.

"All the KSO partners are basically looking to get a divorce
from Telkom if they don't see any satisfying resolution," he told
The Jakarta Post.

He said the partners demanded that Telkom change the current
scheme, which they called flawed, with something new such as the
establishment of joint ventures in order to create a more
conducive working and investment environment.

An executive from another KSO partner, who asked not to be
identified, supported Dowling's statement, saying that all the
five partners preferred to quit and demand that Telkom pay back
all the investments they had made if Telkom insisted on keeping
the current cooperation scheme.

"It will never work with both of us if we continue working on
the current scheme. Establishing a joint venture with a totally
new arrangement is a better choice," he said.

He said the foreign partners had appointed independent
financial advisors to value their assets to anticipate the
possibility of early termination and Telkom's buy-back of their
assets.

Dowling said AriaWest, which is partly owned by American
telecoms giant AT&T, estimated Telkom would have to pay US$1.28
billion in compensation if it refused to change the scheme and
instead opted for the termination of contract.

"We'd be happy to take the proceeds from the termination and
invest in other telecoms business in the country," he said.
"Although we're still open to the possibility of investing in
Telkom's other projects, such as mobile telephone services."

Telkom's director of operations and marketing Komarudin
Sastrakoesoemah said the company was still studying the most
applicable solutions for its dispute with each of the partners.

He told the Post that in the case of AriaWest, a partner with
whom Telkom was having the toughest negotiations according to
analysts, there was a possibility that Telkom would solve the
problem by terminating the contract earlier than the schedule in
2010.

"But, this is not yet final. We'll still try to do our best to
find a win-win solution with AriaWest, and other partners,
without having to cease the contract before time," he said.

Komarudin said Telkom and AriaWest had agreed only on some
minor issues, such as the appointment of a new general manager
for the joint operating firm and the transfer of disputed funds
to the foreign firm.

Telkom and its five foreign partners have been engaged in
tough negotiations since November last year, trying to solve
their differences, but haven't been able to reach an agreement
thus far.

They have been embroiled in a dispute over the management and
operation of Telkom's work areas, which were put under the
management of the partners in 1996.

Telkom appointed in 1996 five companies representing world-
class telecoms firms such as France Telecom, Singapore Telecom,
Australian Telstra and Japanese NTT to finance, build and operate
domestic fixed line telecommunications services across the
country under a revenue-sharing scheme through to 2010.

The five KSO partners are PT Pramindo Ikat Nusantara, which
operates in Sumatra, PT AriaWest International in West Java, PT
Mitra Global Telekomunikasi Indonesia in Central Java, PT Cable &
Wireless Mitratel in Kalimantan and PT Bukaka Singtel
International in eastern Indonesia.

Telkom, which controls the most profitable markets in Jakarta
and East Java, has accused the partners of failing to meet the
infrastructure installment requirements.

The partners have not made any new major investments since
late last year as they are still waiting for Telkom to come up
with a mutual and significant resolution to the dispute.

AriaWest's Dowling said the government had given Telkom a
deadline on Oct. 9 to come up with the resolutions.

He said his company was considering filing a lawsuit against
Telkom if the latter kept dawdling on the negotiation process.
(cst)