Indonesia's competition watchdog (KPPU) ruled on 19 November 2007 that Singapore's state-linked investment company Temasek Holdings has broken the law because it controls the two largest cellphone carriers through its indirect holdings in both Telkomsel and Indosat, Telkomsel's main rival.
Temasek owns 56 per cent of Singapore Telecommunications Ltd (SingTel), which in turn has a 35 per cent stake in Telkomsel. Temasek also owns all of ST Telemedia, which together with Qatar Telecom owns a 41.9 per cent stake in Indosat. The eight other companies found guilty include Temasek's subsidiaries. Temasek owns a 54.15 percent stake in SingTel Group, which holds a 35 percent stake in Telkomsel, while Singapore Technologies Telemedia (STT) -- wholly owned by Temasek -- owns a 75 percent of Asia Mobile Holdings, which owns 41.9 percent of Indosat.
The next battlefield will be in the courts. Temasek Holdings' opinion of the KPPU charges and findings is that "it defies logic". Temasek said that it will exhaust all legal means, including international arbitration, to defend itself. The company said it was preparing an appeal which would be heard in Jakarta district court within the next two weeks. Davinder Singh, legal counsel for the Singapore state investment vehicle, said Temasek had 14 days after it receives KPPU's written judgement to file an appeal and that the Jakarta district court had 30 days to make a decision. Should Temasek fail in its appeal, it can take the case to Indonesia's Supreme Court and thereafter seek international arbitration, Singh added.
"There is simply no case to answer, and we will pursue our options wherever that may take us," Temasek Executive Director Simon Israel said at a press conference in Singapore. Temasek executive director Simon Israel questioned KPPU's evidence, insisted on the firm's innocence and said he was confident the court would prove as much. "What I want to emphasize is the common sense that the Indonesian government controls 65 percent of Telkomsel in an industry where regulators set prices," Israel said. "So, it is absolutely inconceivable that the Indonesian government would standby and allow the Indonesian consumers to suffer the consequences." "We should let this go through the due process of law and see what the final answer is before we jump to conclusions," Israel said. "I don't think we should be exceptionally cautious of the consequences of something that has not been resolved."
Temasek's lawyer Davinder Singh said the KPPU had flaws in their case position and the commission had failed to directly connect Temasek with the alleged illegal activity. "As far as Temasek's concerned, there is no evidence that Temasek is involved in any way, in any position, policy, or any actions that the KPPU found wrong," Singh said. "The KPPU has been unable to draw any credible link between the alleged activity and Temasek." Singh said there was no violation of the law from the ownership of Indosat's shares by STT and Telkomsel's by SingTel, and that the government's formal position, which allowed the change of ownership in those companies in the first place, had not changed at all. "It is the government who made the law, while the KPPU is designed to apply the law," Singh said.
Davinder Singh, lawyer for Temasek Holdings, said: "Temasek is not an investor in the telco sector in Indonesia. Temasek is outside Indonesia, so they've had to find a concept to bring Temasek within its fold. "And what they've done is create this concept of the Temasek Business Group using a legal doctrine called the single economic unit, or entity." However, Mr Davinder said Temasek Holdings does not fit into that definition.
Others have also chipped in. "I would conclude that they (KPPU) misinterpreted Indonesian law," said Freshfields Bruckhaus Deringer's competition law expert, Dr Frank Montag. "I think the judiciary should take into consideration that the judgment in this case would affect the investment climate in Indonesia. I don't think the judiciary would like to worsen the investment climate in Indonesia," said Dr Todung Mulya Lubis, Indonesian counsel for Temasek Holdings.
The KPPU ruling coincides with a key meeting in Singapore where leaders of the Association of Southeast Asian Nations (ASEAN) signed an agreement to facilitate the creation of a Southeast Asian economic community by 2015. "It's a good example of why full ASEAN integration remains a pipedream," said Citigroup economist Chua Hak Bin in Singapore. "Some Asian countries may find it difficult separating profit from political interests. Nationalist and protectionist sentiments remain strong. Investments from neighbours are especially greeted with suspicion," he said.
Some Indonesian observers have also expressed concerns about the impact of this ruling on Indonesia’s investment climate. Jakarta Post runs an article “Temasek ruling a blow to economic democracy (Jakarta Post, 21 November 2007)” The article lists out some of the flaws of studies used by KPPU. It argues that the legal violations in the investigations would add to Temasek's ammunition.
According to the same article, other ammunition which Temasek already possesses is the fact the divestment of 41.94 percent of Indosat (in December, 2002) to Temasek subsidiaries took place at a time when another Temasek subsidiary, SingTel, already owned 35 percent of Telkomsel. This fact shows that even though Temasek already owned 35 percent of Telkomsel, the Indonesian government and KPPU still invited and allowed Temasek's ST Telemedia to bid for the Indosat stake through an international competitive bid.
The article questions: “So if SingTel's ownership (35 percent) in Telkomsel and ST Telemedia's holding (41.94 percent) in Indosat was considered a monopoly, thus violating the anti-monopoly law, why did the Indonesian government invite ST Telemedia to tender for Indosat in the first place?” It continues: “In the final bidding process, the government notified ST Telemedia that Indosat shares were free and clear (having no legal problems). The government had also notified a joint commission of the House of Representatives that state-owned Telkom controlled the majority of the shares of Telkomsel. This clearly shows the status of Temasek's indirect ownership of Indosat and Telkomsel was cleared in late 2002 and was not considered majority control of both mobile operators until recently.”
The writer who is Director of the Legal Aid Body for State Owned Enterprises questions: “During the final process of Indosat's divestment, the Indonesian government publicly explained that SingTel and ST Telemedia management teams operate autonomously and independently of Temasek management and are free to compete against each other in the cellular market. So why did KPPU insist on investigating Temasek after four years.”
In yet another article titled “Anti-monopoly body shoots Temasek, hits govt (Jakarta Post, 21 November 2007)”, the writer highlights the controversial decisions that KPPU has made in other cases. It states: “the [Indonesian] market has become too familiar with the many questionable or even absurd rulings of the Indonesian antitrust body. In fact many of the KPPU's previous decisions in high-profile cases, though seemingly constructed from well-documented evidence, have been overturned by appellate courts either on technical or procedural grounds.”
In a third article by Jakarta Post titled “Temasek now faces legal black hole (Jakarta Post, 21 November 2007)”, some in Indonesia now worry about the ramifications of the decision. It argues that “an antitrust body that does not possess high standards of technical competence and integrity is not only impotent to defend fair market competition, it could also damage the business climate through absurd decisions that create a new legal black hole for investors” and “it would be even more devastating if the KPPU could be manipulated by vested interests to harass certain business entities through negative media campaigns or unnecessary investigations”.
Despite all these reasonable appeals, top politicians in Indonesia have stepped out to voice their opinion on the topic. Vice President Jusuf Kalla has asked Temasek Holdings to respect Indonesian law, including the anti-monopoly agency's controversial recent ruling that requires the Singaporean business giant to divest its stake either in Indosat or Telkomsel, and pay penalties for breaching the Monopolies Law. "Whoever wants to do business in Indonesia has to comply with Indonesian law. Other people often tell us to obey the law, so they must do the same as regards Indonesian law, Kalla stressed.
"They shouldn't be angry if they are subjected to sanctions and then go about saying our investment climate is bad," Kalla was quoted as saying by Antara. (Kalla once floated the idea that the government stake sold to Temasek's subsidiary, Singapore Technologies Telemedia (STT), should be bought back). "So, this is not about the government supporting the KPPU ruling or not. This is more about enforcing the law for the sake of healthy business competition in Indonesia. If we don't have a law (on that), then we will be considered as being ignorant of the law."
Separately, Trade Minister Mari E. Pangestu was also quoted by detik.com as saying that the KPPU ruling would be unlikely to have a significant affect on Indonesia's investment climate. Mari, who is inSingapore to attend the ASEAN summit, concurred with Kalla in stating that the ruling had been decided upon according to the law, and that the law now allowed it to be appealed against.
Most significantly, President Susilo Bambang Yudhoyono himself told the Indonesian media at the end of the ASEAN Summit meetings that the Temasek verdict “will boost business climate as it shows rule of law”. He added that there was “no government intervention behind the KPPU ruling, and the legal process took place transparently and duly based on the presumption-of-innocence principle” and that “the Temasek case should serve as an example to anyone doing business in the country of why they should shun corruption, collusion and nepotism”.
Nevertheless, despite this episode, the company will not give up on the Indonesian market. Temasek also said it would maintain its faith in Indonesia's efforts to improve the country's investment climate. "I think the ruling is something that we will reflect upon, but again I would put my confidence in Indonesia, in the belief that the government is working to improve the investment climate," Israel told a media gathering in Singapore.
With nationalistic sentiments rising not only in the region but elsewhere, Temasek as a sovereign wealth fund is rethinking its overall investment strategy when investing abroad. (23 November 2007)
Investments won’t suffer: Yudhoyono (Straits Times, 23 November 2007)
Respect RI's monopoly law: Kalla (Jakarta Post, 22 November 2007)
Temasek challenges KPPU but vows to maintain faith in RI (Jakarta Post, 21 November 2007)
Indonesia's Telkom asks Telkomsel to appeal anti-monopoly ruling (Channelnewsasia, 21 November 2007)
Temasek ruling a blow to economic democracy (Jakarta Post, 21 November 2007)
Anti-monopoly body shoots Temasek, hits govt (Jakarta Post, 21 November 2007)
Temasek now faces legal black hole¡@(Jakarta Post, 21 November 2007)
Temasek Holdings to fight Indonesia ruling in int'l court if needed (Channel News Asia, 20 November 2007)
Temasek says to contest Indonesia ruling on telcos (Reuters, 20 November 2007)
Temasek’s strategy to counter nationalism (Straits Times, 23 November 2007)