'Project Indosat'

The Straits Times, May 5, 2007
By Azhar Ghani, Indonesia Bureau Chief


Two-phase strategy allegedly hatched to force ST Telemedia to give up prized stake in Indonesian telco

JAKARTA - THEY called it 'Project Indosat'.

This referred to a two-phase plan for a public relations offensive to discredit Singapore's ST Telemedia and pressure it into giving up its prized stake in Indonesia's telecommunications company Indosat.

ST Telemedia's majority-owned investment vehicle Asia Mobile holds a stake of about 42 per cent in Indosat, making it the single largest shareholder in Indonesia's No. 2 mobile phone operator.

Evidence of this plan comes in the form of a copy of slides said to be from an internal presentation made by executives working on the Indosat buyout bid, obtained by The Straits Times.

The executives were said to be the staff of Altimo, the telecoms arm of Russian conglomerate Alfa Group, one of Russia's largest companies with diverse holdings in sectors including oil and gas, financial services, retail and commodity trading.

Altimo set up an office in Jakarta in December, saying that it intended to invest up to US$2 billion (S$3 billion) in the local mobile telecoms market. In January, a spokesman said Altimo was aiming for a controlling stake in one of the top three local mobile phone operators, but did not name a target.

The Project Indosat slides showed a budget of US$126,000 for the smear campaign.

This was to be done through the media in reports or commentaries, either by highlighting any signs of Indosat's poor performance since ST Telemedia's involvement or by stoking nationalist sentiments opposed to the foreign ownership of Indonesian companies.

Getting the nationalists fired up would not be too difficult.

ST Telemedia's controlling stake in Indosat has always been a source of unhappiness among the nationalist crowd who believe that companies in strategic sectors, such as telecoms, should be in local hands.

Indeed, when ST Telemedia bought into Indosat in 2002, the deal was greeted by street protests and populist political opposition.

In late 2005 and early last year, the government also made an attempt - later aborted - to regain control of the company.

According to the documents, Phase Two of Project Indosat would kick in after ST Telemedia decides to divest - either in the face of the public relations onslaught, or if a suitable reason could be found to legally force it to do so.

It would involve either Altimo buying out ST Telemedia directly or via a roundabout arrangement with the government.

The second option, thought to be more in line with populist Indonesian public opinion on foreign ownership, would see ST Telemedia's shares being 'nationalised' first before being handed over to Altimo.

The planned government buyback would be funded by Altimo, claimed the document. It said the Russian company would get about 27 per cent of the shares in return for its role and would eventually be allowed to buy up more than half of Indosat.

And, if this plan were to succeed, a sum of US$40 million had allegedly been promised to those involved, including some top government officials and aides.

Alfa's interest in Indonesia's potentially lucrative telecoms sector is no secret.

Sources from both Altimo and ST Telemedia confirm that the Russian group approached Temasek directly to discuss a possible deal last year, but was told to approach ST Telemedia instead.

It did, and was rebuffed.

When contacted, Altimo's representative in Indonesia, Mr Soeharto, would not confirm if the overture was made.

But he insisted that it would not resort to the kind of underhand tactics that the company is being accused of.

'We're always looking for investment opportunities and Indosat is certainly a possibility.

'But we would not do anything illegal,' he said.

Word on Project Indosat has been making the rounds in Indonesia in recent weeks - but the stories are always told in parts, never in whole. No one can say for sure who is behind the latest expose.

Allegations that officials and lawmakers had been induced to pressure ST Telemedia into giving up its stake have been made by a local non-government business think-tank, the Institute for Analysis of Information and Technology Businesses (IA-ITB).

It alleged that some legislators were paid to press Indonesian competition watchdog KPPU to go ahead with investigations into anti-competition complaints against Temasek.

The complaints against Temasek were filed last October by the Federation of State-Owned Enterprises Employees' Union (FSP) .

IA-ITB coordinator Musarman told The Straits Times: 'That is why they'll press on with the investigations even though the FSP has withdrawn their complaints.'

FSP withdrew its complaints on April 2. At that time, its president Arief Poyuono had said that it had a weak case and could not prove that Temasek had violated anti-monopoly law.

More recently, he disclosed to The Straits Times that the move was made because he had heard about Altimo's alleged plans and did not want to be made use of.

He asked: 'What is the point of buying back Indosat only to give it away to another foreign company?'