Investors anxiously await Temasek ruling

Guilty verdict will add to uncertainty over Indonesia's investment climate


By Salim Osman, Indonesia Correspondent
The Straits Times, November 16, 2007


JAKARTA - A VERDICT in the anti-monopoly case against Singapore's Temasek Holdings is set to be delivered on Monday, and word going round Jakarta that the ruling will go against it has set foreign investors on edge.

There is growing concern in international financial circles that such a verdict could cloud Indonesia's foreign investment climate.

Analyst David Chang of UOB Kay Hian said it 'would reinforce prevailing views that Indonesia's regulatory enforcement process as well as legal and judiciary systems are often unpredictable'.

The conduct of Indonesia's Business Competition Supervisory Commission, the KPPU, in the case has done nothing to change such views.

'Hence, enforcement and implementation of laws and regulations can be subject to considerable interpretation and discretion,' Mr Chang told The Straits Times.

The KPPU has charged that Temasek's stakes in the country's top two cellphone operators, Telkomsel and Indosat, are in breach of Indonesia's anti-trust laws.

Temasek's wholly owned subsidiary, ST Telemedia (STT), controls 75 per cent of Asia Mobile Holdings (AMH), a company that owns 40 per cent of Indosat.

Temasek's stake in Telkomsel is through SingTel's 35 per cent share in the telco.

Some early reports say that Temasek will be hit with a massive fine of possibly billions of dollars.

But the five-man council which has conducted hearings into the matter was formed by the KPPU itself. That has prompted even some Indonesian observers to question the impartiality of the proceedings.

The Federation of State Enterprises Employees Union (FSP BUMN) has suggested that the KPPU's investigation was an attempt to pressure Temasek into giving up its indirect stakes.

'We oppose the investigation because it was wrong and that it would only tarnish the country's reputation among foreign investors,' said FSP president Arief Poyuono in an interview with The Straits Times.

Oddly enough, it was a seemingly innocuous complaint by FSP a year ago that triggered the whole Temasek saga.

On Oct 18 last year, the Indonesian labour union complained to the KPPU that Temasek Holdings was charging its Indonesian customers too much for its mobile phone services.

That complaint was part of a class-action suit that the labour union planned to file against Temasek.

Now Mr Arief regrets that move.

'Unknowingly, we were being made use of by certain people with vested interests,' he said.

In fact, his union decided to withdraw the complaint on April 2 to stop itself from being used as a vehicle by 'certain parties' which he claims were interested in getting a stake in Indosat.

'We also had a weak case against Temasek and decided to call off the suit against the company,' Mr Arief added.

His complaint was made at a time when several nationalist politicians, including Vice-President Jusuf Kalla, hinted that the government should buy back Indosat, whose market capitalisation was US$4 billion (S$6 billion).

The government cut loose the former state-owned enterprise in December 2002, selling almost 42 per cent of its shares to STT during a privatisation programme.

Mr Arief said that he got wind of an alleged campaign against Temasek when Mr Suharto, the regional director of Alfa Telecom International Mobile (Altimo), a subsidiary of Russian conglomerate Alfa Group, called him to his Jakarta office.

Mr Suharto urged Mr Arief to retract his decision to withdraw the FSP's complaint.

Mr Arief told the Rakyat Merdeka daily in May that he was offered US$1,000 to do so. He accepted the money but said that he later gave it away to charity.

'Why should we proceed with the complaint if it would eventually lead to Indosat being taken over by the Russians, another foreigner?' Mr Arief said.

Despite the withdrawal of the complaint, the KPPU went ahead with its investigation of Temasek over the next six months. It accused the Sigapore company of price-fixing, cross-ownership and abusing its market dominance.

The news of the KPPU's investigation of Temasek was hailed by nationalist politicians.

Supporters of the Indonesia-Russia Friendship Forum demonstrated outside the KPPU's office, demanding that the Alfa Group be given priority to buy over the Indosat shares when the Singapore company was found guilty.

But around this time, the Indonesian media also started running stories that painted Altimo in a bad light.

The reports told of an internal Alfa document, dubbed Project Indosat, that detailed the Russian company's plan to take over ST Telemedia shares in Indosat and that it had set aside US$2 billion for the purchase.

The Koran Tempo daily, for example, gave details of Altimo's aggressive lobbying of key government and political leaders.

Allegedly, this was aimed at pressuring STT to sell its Indosat stake, either directly to the Russian group or indirectly through the Indonesian government.

Mr Muhammad Ramdhoni, the spokesman for the Indonesia Development Monitoring group (IDM), said: 'We believe that Altimo is involved in a conspiracy to force Temasek to sell its stake in Indosat using pressure from the KPPU.'

Another group, the Komisi Negara Watch, in statements to the local media and the Indonesian police, also alleged that the KPPU had underhanded dealings with the Russian company and demanded the police probe the matter.

These groups joined forces with the Nationalist Indonesian Student Alliance (AMNI), which represents students at 10 universities in Jakarta, and the National Coalition of Workers Union. Together they filed a petition with the Indonesian President and Parliament to seek the removal of the KPPU officials.

AMNI spokesman Arnold Gomez, in his remarks to the media, warned Indonesians against doing business with the Russian company. He cited foreign press reports about the company's run-ins with its business partners.

According to a recent Financial Times report, Altimo is locked in a long-simmering dispute with its Norwegian partner, Telenor, over its shareholdings in Russian mobile operator Vimpelcom and Ukraine-based Kyivstar.

Telenor has accused Altimo of running a 'black PR' campaign against it in Ukraine.

In documents presented to a US arbitration panel, the Norwegian mobile company alleged that Altimo had paid Ukrainian journalists to discredit it and hired 'false experts' to undermine it in public, among other things.

Altimo has denied those allegations.

While the Russian company may be keen to take over the Indosat shares, talk in the market is that Altimo is not the only interested party.

Some prominent Indonesian business groups may also want to buy into the telco if the KPPU finds Temasek guilty and orders the Singapore company to give up its Indosat stakes.

Thus, analysts who have been watching the saga closely said that a guilty verdict by the KPPU would have serious implications for foreign investors.

Mr Chang said that investors or shareholders would be well aware that they too might some day face unexpected expenses for legal and regulatory compliance, disruption in management focus and increased financial risk for conducting business in Indonesia.

Hs said: 'Thus, we believe the telecom sector could be out of favour among institutional investors for some time or until these issues are effectively resolved.'