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)