Anti-monopoly body shoots Temasek, hits govt

Wednesday, November 21, 2007 Vincent Lingga, The Jakarta Post, Jakarta

The market may simply ignore the Business Competition Supervisory Commission (KPPU)'s ruling against Temasek, its subsidiaries and Telkomsel. It will most likely be business as usual for Telkomsel, which was found guilty of breaching the anti-monopoly law on Monday by a panel of KPPU judges.

The KPPU ruling that Temasek and its subsidiaries shall divest themselves entirely of their stake in either Indosat or Telkomsel will not either have an adverse impact on the shares of these two mobile operators.

After all the 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.

We understood that some bizarre rulings were unavoidable during the first few years after its launch in 2000, as KPPU staff and commissioners were still learning the ropes of their jobs. But the KPPU should have by now built up an adequate body of expertise to competently judge anti-monopoly cases.

However, its latest verdict, on the high-profile antitrust case against the Temasek group and Telkomsel, which is majority-owned by government-controlled Telkom, raises a lot of questions not only about its technical competence but also the integrity of KPPU commissioners.

Certainly, Temasek will appeal to the district court and the Supreme Court, though entering the court system in the country may plunge the Singapore government-owned investment company into another imbroglio.

The problem is that, unlike in many developed countries, there are no specific district courts here assigned to handle antitrust cases, which usually involve complex business deals. Hence, there is not a single court which has enough judges with an adequate body of expertise to examine cases related to the law on business competition.

But simply paying the fines and divesting its indirect stake in either Indosat or Telkomsel means acknowledging it has committed business sins and such an admission will damage its reputation all over the world.

A ruined reputation would adversely affect Temasek investment operations overseas on which this government's investment holdings have relied increasingly for incomes.
The KPPU ruling indeed puts Temasek in a very delicate position.

Therefore there is no other alternative for Temasek but to fight it out up to the Supreme Court, even with all the uncertainty about the legal proceedings and final results.

Since the KPPU ruling also requires divestment, this case may also be eligible to be filed with the World Bank's arbitration body, the International Center for the Settlement of Investment Disputes (ICSID) in Washington. The question, though, is whether Temasek -- which in the perception of the Indonesian government and general public is synonymous with the Singapore government -- is willing to pursue such a lawsuit at the risk of causing severe strains on bilateral relations.

But the KPPU's decisions are also a rebuke to the Indonesian government, as they reveal how utterly incompetent it has been in appointing directors and commissioners (supervisors) to Indosat and Telkomsel.

The fact is the government-controlled Telkom owns 65 percent of Telkomsel and 14.5 percent of Indosat, while Temasek, through its subsidiaries, holds only around 19 percent of Telkomsel and around 31 percent of Indosat. In addition, the government also owns a golden share in Indosat that provides it with a veto right over major corporate actions.

How could the government-appointed directors and commissioners, which make up the majority of the boards at both mobile telecommunications companies, allow Temasek to collude with Telkomsel in abusing its market dominance and committing other monopolistic acts?

But all in all, we should give credit where credit is due. The KPPU should be commended for its ruling that each buyer of the stake Temasek and its subsidiaries will sell either in Indosat or Telkomsel cannot acquire more than five percent.

This ruling at least will kill the rumor that a big foreign investment company, eagerly looking for investment opportunities in telecommunication in Indonesia, was behind the KPPU move on Temasek.

However, national and foreign investors eying stakes in Indosat or Telkomsel should have patience because, based on the KPPU ruling, Temasek shall complete its divestment within two years after the KPPU rulings become final and binding. This means more than 27 months from now (after all of the appeal process is completed) or even much longer if Temasek brings the case to the ICSID in Washington.

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Oil prices only going up, analysts warn

Wednesday, November 14, 2007 Vincent Lingga, The Jakarta Post, Jakarta

Shell International BV analysts Choo Khong and Peter Snowdon forecast here Tuesday that international oil prices would go nowhere but upwards, and that fossil fuels -- oil, natural gas and coal -- would continue to dominate the energy mix until 2025.

"What matters is not the actual number, whether it is US$100 or something else, but the direction of oil prices, which is firmly upwards with some volatility," noted Choo when presenting Shell Global Scenarios to 2025.

They shared the views of the International Energy Agency that China and India, given their sheer sizes and robust economic growth, would play increasingly important roles in the international energy markets.

The Shell report says that China, having doubled its oil demand over the last decade to 6.4 million barrels per day at the present time, has become the world's second largest oil consumer, accounting for almost 40 percent of the increase in global oil demand.

Yet more worrisome in terms of oil demand is that the energy intensity of China's economic growth, like that of most other developing nations, will continue to increase until the next decade, reaching as high one barrel of oil equivalent for each US$1,000 of output.

So what governments do in the policy field now in order to improve energy efficiency will determine the global energy landscape, energy security and rate of climate change ten years down the road, Snowdon said.

"Measures to improve energy efficiency are the cheapest and fastest way to curb demand growth," he said, while urging governments to put in place incentives and policies that stimulate energy efficiency measures and investment in fuel conservation.

According to the Shell report, the annual increase in proven oil reserves in the world has slowed down from 4.5 percent in the 1980s to one percent in the 1990s, and new oil discoveries have been getting smaller in size.

Hence, Snowdon added, there is now a tightening in the supply-demand balance.
The message from the IEA's World Energy Outlook, which was issued last week, is even starker.

It warned that if governments around the world stick to existing policies, the world's energy needs could well be more than 50 percent higher in 2030 than today, with China and India together accounting for 45 percent of the increase in global energy demand.

Snowdon said that fossil fuels -- oil, gas and coal-- continue to dominate the energy mix worldwide. Of these, coal is set to grow most rapidly, driven largely by power-sector demand in China and India.

The IEA predicts that the consuming countries will come to increasingly rely on imports of oil and gas from the Middle East and Russia, while net oil imports in China and India combined will jump from 5.4 million barrels/day in 2006 to more than 19 million barrels/day in 2030, which is larger than the combined imports of the U.S. and Japan today.

According to Shell, the question now is which price mechanism can be relied upon to generate the appropriate signals, investment and technological developments.

The IEA is more blunt in its policy recommendation, urging governments to let market forces do their job more effectively by removing fuel subsidies that hide the true energy costs.

In many countries, including Indonesia, oil prices often do not reflect the real and full costs of the energy because of government subsidies, thereby hindering the viability of investments in energy efficiency and renewable energy.

Government subsidies keep the gasoline price in Indonesia half the price as that paid by people in Singapore.

But because of the generous subsidies for oil fuels, the oil market in Indonesia has failed to function well as there is no significant demand response to price signals.

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