Telkom's partners agree to put investment on hold

JAKARTA (JP): Joint operation (KSO) partners of state-owned telecommunications firm PT Telkom have agreed to suspend investment plans until a contractual dispute with the domestic telecommunications provider is settled.

President of Cable & Wireless Mitratel Philip W. Green, who spoke on behalf of the partners, said on Wednesday evening that daily activities would continue.

"It will be business as usual on January 1 onward. However, no new telephone line development or major investment will take place until we all agree on the substantial issues, which currently remain outstanding," he said.

Telkom and the KSO partners are engaged in negotiations to settle their difference in interpreting their joint operation contract agreement.

He said KSO partners and Telkom had yet to make any deals in most major issues such as in the arrangement regarding new investment and capital expenditure.

The agreement should be made before the existing contract ends on Dec. 31.

The five KSO partners were appointed in 1995 by Telkom to finance, build and operate domestic fixed lined telephone service across the country on behalf of Telkom under a revenue-sharing scheme through 2010. They 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 itself retains control over Jakarta and East Java, the most profitable markets.

Under the 1996 master contract, KSO partners were required to install a total of two million new access line units (ALU) during a three-year construction period from 1996 to 1999.

The agreement also required the partners to pay Telkom a monthly fixed amount known as minimum Telkom revenue (MTR) and distributable Telkom revenue (DTR) based on their revenue.

The government, however, revised the figure in September 1998 to only 1.2 million ALU after the partners said the initial figure was impossible to meet amid the prolonged economic crisis.

The DTR figure was also revised last year from 30 percent to 10 percent for Telkom and from 70 percent to 90 percent for partners.

The change will be effective until Dec. 31.

Telkom is demanding its KSO partners return to the 1996 master contract beginning on Jan. 1 but the latter said an amendment in the term of the contract should be made before being readopted.

The five operators' inability to meet the target has been widely criticized. Observers also charged the government with providing too many benefits to them.

Green said it was important for Telkom and the partners to speed up the negotiations and come up with a substantial resolution.

He warned that a further delay in the finalization of agreement would result in the interruption of new line development and investment, which later would cause a shortage in new telephone lines in the partners' work regions.

He said the demand for new lines in the partners' work regions was estimated to reach between two million and three million within the next five years.

Fresh investment of between US$3 billion and $5 billion was needed from the partners to finance the lines' development, he said.

"But how can we make new investment if there is no clear terms of contract, no assurance of support for the long term and no cooperation from Telkom?" he added. (cst)