Barking up the wrong tree

The Straits Times, October 26, 2007


THE anti-trust body's questionable ruling against Singapore's Temasek Holdings, its subsidiaries and Telkomsel on Monday just added more evidence of the legal uncertainty that has kept most foreign investors away from Indonesia.

The Business Competition Supervisory Commission (KPPU) is supposed to play a vital role in a market economy, as it is responsible for preventing monopolistic practices and unfair business competition, which were rampant during Suharto's administration through collusion between big corporations, officials, politicians and Suharto's cronies and relatives.

The KPPU was greatly welcomed upon its establishment in 2000 as an independent body responsible for enforcing the 1999 law on competition, which serves as the constitution for market mechanisms. A properly functioning KPPU is a strong deterrent keeping big businesses from abusing their market dominance or engaging in other cartel-like practices.

However, an anti-trust body that does not posses high standards of technical competence and integrity is not only impotent to defend fair market competition, but could damage the business climate through absurd decisions that create a new legal black hole for investors.

Even more devastating would be if the KPPU could be manipulated by vested interests to harass particular business entities through negative media campaigns or unnecessary investigations.

These are some of the apprehension we felt upon learning of the KPPU's decision on Monday and the background events, intrigue, rumours and controversy that preceded the KPPU's investigations into allegations of monopolistic practices by Telkomsel and Indosat, the country's largest cellular operators, which together control more than 80 per cent of the market.

The legal technicalities and the market and business theories used by the KPPU investigation team in building an anti-trust case against Temasek, its subsidiaries and Telkomsel are for the legal experts to analyse.

Legal matters, however complex they may be, should make sense, should have a logic. But we find it hard to understand why Temasek from the outset was picked on as the primary defendant while the case centred on charges of abuse of market dominance by Telkomsel, the largest cellular operator, and price-fixing by Telkomsel and Indosat to keep mobile service prices lucratively high and to bar new players from entering the market.

It should have been the Indonesian government, which owns 65 per cent of Telkomsel, examined as the primary defendant. The Indonesian government also owns 14.29 per cent of Indosat, while Temasek indirectly holds only 35 per cent of Telkomsel and almost 31 per cent of Indosat.

Moreover, the government appointed five of the nine members of the board of directors at Indosat and most of its commissioners (supervisors). The government also owns a golden share in Indosat, which gives it veto power over important corporate decisions. The Telecommunications Regulatory Body also is dominated by government appointees.

So how could Temasek, despite its cross-ownership at Indosat and Telkomsel, control both companies and fix their prices for the benefit of Telkomsel?

This seems entirely illogical because it would be the Indonesian government and not Temasek that would benefit the most from Telkomsel's 'monopolistic prices'.

Temasek subsidiary ST Telemedia was one of only two telecommunications companies - Telekom Malaysia is the other one - that submitted final bids in October 2002 for shares of publicly listed Indosat put on sale by the government soon after the terrorist bombings in Bali killed hundreds of people.

ST Telemedia paid more than a 50 per cent premium over the market price to bag the stake through what was then described by many national and foreign media as a transparent transaction.

The deal also was processed under the political scrutiny of the House of Representatives, the stock market watchdog (Bapepam) and the Investment Coordinating Board (BKPM).

But suddenly, five years later, Temasek came under an endless wave of smear campaigns, public opinion harassment and many other allegations, which was capped with the KPPU investigation and decisions that ordered the Singapore business group to sell its entire stake in either Indosat or Telkomsel.

Temasek and its subsidiaries will certainly appeal the decisions at the district court and the Supreme Court, but entering the justice system will plunge the Temasek group into another legal black hole because of the notorious reputation of Indonesia's courts as one of the most corrupt public institutions.

This editorial appeared in The Jakarta Post on Tuesday.