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The Business Competition Supervisory Commission's (KPPU) questionable ruling against Temasek Holdings, its subsidiaries and Telkomsel on Monday is the latest example of the legal uncertainty that has kept most foreign investors away from Indonesia.
The KPPU is supposed to play a vital role in Indonesia's economy. It is responsible for preventing monopolistic practices and unfair business competition, which were rampant during former President Suharto's administration through collusion between big corporations, officials, politicians and Mr Suharto's cronies and relatives.
The KPPU was greatly welcomed when it was established 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 that prevents big businesses from abusing their market dominance or engaging in other cartel-like practices.
However, 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.
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.
These were some of our fears when we learnt 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.
Telkomsel and Indosat are the country's largest cellular operators and 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 antitrust case against Temasek, its subsidiaries and Telkomsel are for legal experts to analyse.
However complex the legal issues, they should be logical. But we find hard it to understand why Temasek was named as the primary defendant while the case centred on charges of Telkomsel's abuse of market dominance, and price-fixing by Telkomsel and Indosat to keep mobile service prices high and bar new players from entering the market.
Instead, the Indonesian government and state-controlled Telkom, which owns 65 per cent of Telkomsel, should have been examined as the primary defendants. 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.
The Indonesian government appointed five of the nine members of the board of directors at Indosat and most of its supervisors. The Indonesian government's golden share in Indosat also gives it veto power over important corporate decisions. The Telecommunications Regulatory Body is also dominated by government appointees.
So how could Temasek, despite its cross-ownership of Indosat and Telkomsel, control both companies and fix their prices for the benefit of Telkomsel? This seems illogical because the Indonesian government, not Temasek, 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 Indosat shares that had been put on sale by the government soon after the terrorist bombings in Bali killed hundreds.
ST Telemedia paid a premium that was more than 50 per cent above the market price to bag the stake through what was then described by many national and foreign media as a transparent transaction. The deal was also processed under the scrutiny of the House of Representatives, the stock market watchdog (Bapepam) and the Investment Coordinating Board (BKPM).
Suddenly five years later, Temasek is facing an endless wave of smear campaigns, public harassment and many other allegations, which has been capped by the KPPU investigation and its decision to order the Singapore business group to sell its entire stake in either Indosat or Telkomsel.
Temasek and its subsidiaries will certainly appeal the decision in the District and Supreme Courts, but entering the justice system will plunge the Temasek group into another legal black hole because of the courts' notorious reputation as one of Indonesia's most corrupt public institutions.
This editorial was first published in The Jakarta Post yesterday. The Jakarta Post
- TODAY/so
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