Antitrust body's report is an embarrassment

Opinion and Editorial - The Jakarta Post, Jakarta - October 25, 2007
by Vincent Lingga


After about four months of controversial investigations, a special team of the Business Competition Supervisory Commission (KPPU) has concluded that Singapore's Temasek Holdings Pte. Ltd., PT Indosat and PT Telkomsel conspired in price-fixing practices in the mobile telecommunications industry, thereby violating the anti-monopoly law.

However, the KPPU report is unlikely to do any damage to Temasek's international reputation. It instead embarrasses the Indonesian government and causes great concern about the quality of governance at our state companies and the competence of their managements and supervisors.

I will not bore or confuse you with all the telecommunication, cellular or financial jargon used in the KPPU report. The 109-page document looks professionally impressive, showing the hard work of the five-member investigation team, which was assisted by eight investigators and two notaries public.

The essence or central message of the report is that Temasek, through its cross-ownership in Indosat and Telkomsel, was found to have masterminded price-fixing practices by both cellular operators and that Temasek deliberately obstructed Indosat's sound growth to allow Telkomsel to maintain its market dominance.

These findings, if they prove to be true -- the final ruling will be made in the middle of next month -- would be damaging to the government, especially the state minister for state companies.

The government controls PT Telkom, which in turn owns 65 percent of Telkomsel, the country's largest cellular operator, and consequently appoints the majority of its directors and commissioners.

Temasek, through its subsidiaries, owns only 18.9 percent of Telkomsel.

On the other hand, Temasek, also through its subsidiaries, holds 30.61 percent of Indosat, the country's second largest mobile operator, with 14.29 percent owned by the Indonesian government, 10.20 percent by the Qatari government and 44.89 percent by the investing public, including foreign institutional investors.

Even though the Indonesian government owns only 14.29 percent of Indosat, it succeeded in appointing five of the nine members of the board of directors, including the president director. More than half if its nine-member board of commissioners were either representatives of the government or independent commissioners.

The government holds a golden share (A share) in Indosat which gives it veto power over important corporate decisions.

What then is the logic of the KPPU findings? Wouldn't those allegations also insult the intelligence of the investing public, including foreign institutional portfolio investors, who own 44.89 percent of Indosat and 47.77 percent of Telkomsel?

If the conclusion of the investigation team is true, which theoretically should be the case because, as the vanguard and defender of fair business competition, the KPPU is supposed to come out with an assessment that has logic and makes economic sense, that would be worrisome indeed.

But the question then is how could Temasek, despite its cross-ownership at Indosat and Telkomsel, control both companies and dictate their prices while the Indonesian government simply sat back and relaxed, acting as a seemingly innocent bystander.

What then is the function of government-appointed directors and commissioners at both cellular operators, and why did the Telecommunications Regulatory Body close its eyes to the alleged price fixing?

Has the government been ignorant or grossly incompetent in recruiting and appointing directors and commissioners?

Is the way the government treats and oversees Indosat and Telkomsel typical of its management and supervision of the other 128 state companies?

It is Telkomsel, which is 65 percent controlled by state-owned Telkom, that would benefit the most if Temasek deliberately hampered Indosat's business growth, as the KPPU team concluded.

What is the logic of this? It simply insults the intelligence of even the man on the street, because Temasek indirectly holds only 18.9 percent of Telkomsel.

These are just some of a layman's questions about the logic of the most important conclusions of the KPPU report.

But then, the events that led to the KPPU investigation of Temasek, Indosat and Telkomsel were controversial and full of political intrigue right from the outset. The KPPU also seemed to have departed from its standard procedures and practices in handling the case.

Departing from the KPPU's normal practice, Benny Pasaribu, a member of the KPPU investigation team who disagreed with the conclusions of the team, was not included in the five-member panel of judges.

Very rarely has the KPPU chairman talked to the media about a case still under investigation. But over the past few months Muhammad Iqbal has often been quoted in the media about the case even though he was not a member of the investigation team.

Given the KPPU's reputation for absurd rulings -- many of these rulings were simply overturned by district courts or the Supreme Court -- the KPPU panel of judges that is scheduled to make its ruling in the middle of next month may simply adopt the findings of the investigation team.

Temasek and its subsidiaries will certainly appeal to the district court and up to the Supreme Court, and may even bring the case to the international court if unsatisfied.

Whatever ruling the KPPU panel of judges makes next month, the controversy and political maneuvering surrounding the Temasek business group's investment in Indosat and Telkomsel has damaged the investment climate in the country.

The Qatar government, which owns 10.20 percent of Indosat, may in retrospect ask itself, "Why in the first place should I have put my money in this Indonesian asset?"

The KPPU report will not affect the international reputation of the Singapore government's investment company, given the notorious image of Indonesia's law-enforcement system and, by implication, the integrity and technical competence of the KPPU.

All in all, the biggest victim will be Indonesia's investment climate and the Indonesian government, which was made to look silly by the report.