Asia Times: Jakarta turns deaf ear to privatization nay-sayers


	March 29, 2002	atimes.com

Southeast Asia

Jakarta turns deaf ear to privatization nay-sayers
By Bill Guerin

JAKARTA - State Minister of State Enterprises Laksamana Sukardi told the Indonesian House of Representatives (DPR) on Wednesday that he expects the planned sale of a 45 percent stake in publicly listed state-owned telecommunications company PT Indonesian Satellite Corp (Indosat) to raise between Rp4 trillion and Rp5.1 trillion (US$409 million to $522 million).

Laksamana was updating legislators on his crucial privatization program, which he said would generate between Rp7.2 trillion and Rp9.25 trillion this year from the sale of six state-owned enterprises (SOEs). The government has listed some 24 SOEs for going under the hammer this year and also plans to divest its stakes in several nationalized banks, but the giant international call operator is almost certain to be the major proving ground for a long-brewing battle between the government and those who oppose privatization.

The stakes are high indeed, with the government badly needing the proceeds to recover from the massive amounts spent to bail out ailing banks, and the resultant gaping deficit in the state budget.

The government, which owns a 65 percent stake in Indosat, plans to sell a 45 percent stake in the company over two stages. A 15 percent stake will be offered on the Jakarta Stock Exchange in June for about Rp1.7 trillion and another 30 percent stake will be offloaded in October to a strategic investor.

There is, of course, a massive amount of interest. At least seven international telecommunications companies are lining up, including Australia's Telstra Corp, British Telecommunications PLC, Singapore Telecommunications Ltd, Telekom Malaysia Bhd, Hutchison Whampoa Ltd and even Vodafone Airtouch PLC and France Telecom's mobile unit Orange SA.

Indosat is the primary provider of international telecommunications services in Indonesia, implementing international switched telecommunications services, telephone, telex, telegram, packet switched data networks, facsimile services and services for mobile communications. The company also provides a range of non-switched international telecommunication services, such as low- and high-speed leased lines, video conferencing, telecast services and other services that transmit data or video rather than voice traffic. Switched services are routed through the domestic telephone system, and non-switched service customers connect directly to Indosat.

It was established in 1967 as a wholly owned subsidiary of the foreign International Telephone and Telegraph Corp (ITT) and began commercial operations in September 1969. A complete ban on foreign ownership of telecommunications facilities was in place in those days and Indosat was nationalized in 1980 after the government bought the whole Indosat stake from ITT for about $43.8 million.

Indosat then started operating its first submarine cable link connecting Indonesia with Singapore, and transferred its ownership in the project to Perusahaan Umum Telekomunikasi (Perumtel), the forerunner to Indonesia's current provider of domestic telecommunications services, PT (Persero) Telekomunikasi Indonesia Tbk (Telkom). Two years later, in 1982, the government transferred its ownership of Indosat's facilities to the current Indosat and separated domestic and international telecommunications networks in a complex series of asset and rights transfers between Indosat and Perumtel.

In 1993, Indosat started its international direct dialing (IDD) service via a series of domestic gateways that route international traffic to and from Indonesia using satellite, submarine cable and microwave links. Indosat went public in 1994 when the government sold 35 percent of its stake, leaving it with today's 64 percent stake in the company.

Last year's accounts show that Indosat's operating revenue grew 71.7 percent but operating expenses increased by a massive 113.2 percent. The 2001 consolidated net income dropped by 10.8 percent to Rp1.46 trillion from Rp1.64 trillion in 2000, but the company claimed that higher growth in operating expenses was driven mainly by depreciation, maintenance and miscellaneous expenses. These "other expenses" were mainly incurred by elimination of cross-ownership deals in line with the government's breakup of the two monopolies enjoyed by Indosat and Telkom.

Aside from IDD operations, which contributed 41.8 percent of revenue, Indosat's growth in income was driven by its cellular business, which brought in 36.4 percent. Multimedia, datacom and Internet (MIDI) services accounted for some 19.9 percent of total revenue. Indosat, which, with Telkom, monopolizes the international phone service, plans to invest Rp322.1 billion this year to develop its voice over Internet protocol (VoIP) business and backbone, data communications and multimedia infrastructure.

Laksmana's new estimate of the proceeds is almost twice as high as the assumed values in this year's budget, which calculated a total figure of Rp3.952 trillion from privatization.

Those lined up against Laksamana's optimistic plan are politicians, employees and their unions and some members of the public. Only last week 300 Indosat workers fired off the first warning shot when protesting the plan by urging Laksamana to resign. "Selling state assets will bring misery to the people" was the general message for the minister.

Labor experts have advised the government to intensify public awareness of the privatization policy so as to gain more support from the people and workers of the enterprises. They have warned Laksamana not to press ahead with his selloff program without support from employees of the SOEs and other stakeholders. One economist, Mubyarto, with no apparent ax to grind, speaking at a seminar on Wednesday, advised, "The government has to be patient and must talk with all stakeholders. Don't force it, because it's very dangerous." He also warned that selling state assets to foreigners would make the country's economy vulnerable to foreign interests.

Bambang Sudibyo, a previous minister of finance, took up the baton of protest when saying that the government had often neglected stakeholders. "The voice of the employees and the public in general must be heard," he said. He urged the government not to sell a controlling stake in Indosat to foreigners in the interests of national security.

Another legislator, Sri Bintang Pamungkas, pointed out that SOEs had long been treated as cash cows by the government. There had been no consideration of the hardship endured by the underpaid employees who had fattened up these cows ready for milking.

The 2002 state budget deficit is estimated, depending on who issues the figures, at 2.5 percent of gross domestic product.

Telecommunications and postal workers have threatened to go on strike over the plan with employees from the labor union of state-owned postal and telecommunications firms (ISP Postel) forcing the pace by giving the government until the end of this week to agree to their demands. The union is setting up a master plan to stage a strike that could cripple telecommunication services unless the government backs off the planned sale of Indosat. The employees fear they would lose their jobs if Indosat falls into foreign control.

Laksamana said on Wednesday that he planned to hold talks with stakeholders, including employees, and legislators to gain support for his privatization program but declined to comment further.

"If no agreement is reached, then we will call an all-out strike," said the union's head, Abu Syukur. The strike could begin as early as next week, with services cut off gradually until they reach the point of an all-out strike.

ISP Postel includes all Indosat and PT Telkom employees, as well as their subsidiaries, cellular-phone operators PT Telkomsel and PT Satelindo, and workers of the country's postal company, PT Pos Indonesia. The union claims nationwide support for the strike and, although local and international telephone services function automatically, a moratorium on maintenance work would quickly cause major disruptions. Postal workers may also refuse to deliver mail.

A spokesman for the Office of the State Minister of Communications and Information, Gatot S Dewa Broto, said the office would also hold talks with the management of the companies about preventing the workers from calling an all-out strike. "There is a consumer-protection law that bans full-scale strikes by public-utility employees, like the one they [workers] are planning," he said.

Ismail said the union wants the resignation of Laksamana, otherwise some 100,000 workers from ISP Postel were ready to take to the streets of Jakarta to protest the privatization of Indosat. "We aren't fighting for higher salaries or to save our jobs. We are just speaking out against the [privatization] plan to protect state assets from falling into the hands of foreigners," the statement from the union said. Anti-privatization protesters claim that selling off state assets to foreigners means reverting back to colonial rule.

ISP Postel head Abu Syukur Nasution said that the 100,000-member union would seek the support of legislators and even factions within DPR to block the planned sale of Indosat, which he described as one of the country's most valuable assets that must not be sold to foreigners. "We need to convince the parliament that the divestment is not suitable under the current strained business climate," he said.

Laksamana reaffirmed this week that he would press ahead with the privatization program, including the sale of its Indosat shares despite the union protest. He admitted the protest could slow the sale but said it would not be significant.

Last year, Laksamana failed to complete plans to sell a majority stake in cement maker PT Semen Gresik to Mexico's Cemex SA de CV because of opposition from various quarters, including the company's union. Semen Gresik employees, with the backing of many politicians, denounced the planned sale, saying it would deal a serious blow to the country's pride.

A major benefit if Laksmana were to succeed would be a newfound credibility in the global investor community and international creditors in the Paris Club, who could be expected to get the message that the Megawati administration really was committed to fighting for economic reform. But the threat from ISP Postel indicates opposition from labor unions to the government's privatization and asset-sale program. Last year's failed sale of Semen Gresik was because of similar opposition from company employees backed by regional politicians and community leaders.

A massive protest by the Bank Central Asia employees almost killed the recent sale of Indonesia's prize retail bank, which eventually went at a knock-down price to a consortium led by US investment firm Farallon Capital. The government's 51 percent stake was officially sold but analysts believe that the bank's thousands of workers, fearing job losses, are likely to cause continued problems.

The BCA sale was seen as crucial for the government to win support for rescheduling of more than $5 billion in sovereign debt maturing in 2002 and 2003.

ISP Postel planned to upgrade the scale of protest on Thursday, threatening to mobilize some 10,000 members to warn Laksamana to back off.

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