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Anti-monopoly or anti-Singapore – the KPPU case against Temasek

Updated On: Nov 20, 2007

Indonesia's anti-monopoly probe into Temasek came to a foregone conclusion on Monday (19 November). 

Temasek was found guilty of breaching competition law, fined US$2.8 million, and had been ordered to sell stakes in two major mobile phone firms within two years, and a directive to cut mobile phone tariffs by at least 15%.

The five-member panel from Indonesia's anti-monopoly agency, Komisi Pengawas Persaingan Usaha (KPPU), said Singapore investment firm Temasek Holdings and its subsidiaries were guilty of monopoly practices through their cross ownership of two of Indonesia's largest mobile phone companies – Telkomsel and Indosat. Temasek owns 56 percent of SingTel, which has a 35 percent stake in Telkomsel.  And Singapore Technologies Telemedia, which Temasek fully owns, controls 75 percent of Asia Mobile Holdings (AMH). AMH, in turn, owns 40 percent of Indosat. Indonesia's competition law stipulates that a foreign company or business group cannot have more than a 50 percent share in an Indonesian business outfit. Temasek has argued that it does not directly hold majority shares in each of the Indonesian mobile phone companies, and maintained that the Indonesian government actually holds majority stakes in Telkomsel and a golden share in Indosat. But the panel is maintaining that Temasek had violated cross-ownership regulations and, as a result, dominates 80 percent of the market.

The ruling came just after a former KPPU chairman, Mr Pande Radja Silahai told Channel News Asia that KPPU’s probe into Temasek and its subsidiaries is a test case for the agency.   Rumours of a biased investigation by the KPPU were growing louder because of the unusual circumstances in which the investigation was carried out.

According to Mr Pande Radja Silahai, there have been irregularities and serious flaws in the application of the law during the three-month investigation. 

Mr Pande Radja said: "If we use only what we have done before, I think I can say Temasek didn't break the law number 5 Article 27A on cross-ownership." He added, "We have a decision before (which was) related to the cineplex here. The majority share is if it is more than 50 percent…People will accuse Indonesia. It's the discriminatory action of the KPPU. And I'm worried about the future of the case forIndonesia. Everybody will make a report to the KPPU. How about the banking sector?" (The Indonesian government holds majority stakes in a number of banks in the country.) 

International competition expert Frank Montag said that while Indonesia's anti-monopoly law draws heavily on the competition law in Europe, the KPPU has not been clear in its application of the law against Temasek. Mr Frank Montag said: "There's a distinction between control and majority shares. Where the law says 'majority of shares', it means majority and not control. It means there's no legal certainty." 

And sources close to the anti-monopoly watchdog claim that some KPPU members themselves know that the case against Temasek is weak but they are continuing with it due to external interference. There have been many reports in Indonesian media that a Russian company is interested in buying ST Telemedia's shares in Indosat. The reports quoted analysts in Indonesia as saying that the investigation is aimed at pressuring ST Telemedia to sell its stake. 

Following the announcement of the decision by KPPU, Temasek lawyer said the ruling  would plunge Indonesia into a crisis of confidence in the country’s legal system and would send caution and concern for all investors.  PT Danareksa chief economist Purbaya Sadewa commented that the ruling “will be bad for Indonesia’s image in the eyes of international investors”.

In a statement, Temasek’s executive director, Simon Israel, said the decision “makes no sense and ignored the facts” and that Temasek would file an appeal to the country’s district court within two weeks. (20 November 2007)

Sources:

Temasek vows to fight guilty verdict by Indon watchdog (20 November 2007)

Indonesia’s KPPU fines Temasek US$2.8m for competition breach law (Channel News Asia, 19 November 2007)

From Russia, not with love (Today, 17 November 2007)

KPPU investigation on telecoms sector nearing end (Jakarta Post, 17 November 2007)

Indonesia's anti-monopoly probe into Temasek seen to have negative impact (Channel News Asia, 16 November 2007)

DEALTALK-Indonesia's Indosat attracts telecoms, TV suitors (Reuters, 15 November 2007)