Bill Guerin, Jakarta – The man behind the first efforts to privatize Indonesia's state-owned enterprises, and a staunch critic of the slow pace of the program, has been brought back into the fold to bring state-owned PT Telkom, the country's largest company, back into line after chronic audit problems and market uncertainty.
A shareholders meeting on Wednesday, called to seek approval for reaudited financial results for the years 2002, 2001 and 2000, approved a government-proposed reshuffle in the company's board of directors and appointed Indonesia's first ever state-owned enterprises minister, "Mr Privatization" Tanri Abeng, as president commissioner.
Telkom, the largest telecommunications company in Indonesia and the largest counter on the Jakarta Stock Exchange (JSX), is also listed on the New York Stock Exchange (NYSE). Though last year it booked Rp5 trillion (US$588.2 million) in revenue, Telkom has had problems with the US Securities and Exchange Commission (SEC) over earlier results. The company took some seven months to complete a reaudit process of its 2002 accounts demanded by the SEC, much to the annoyance of Jakarta.
The implied threat to delist one of the country's last remaining crown jewels from the New York bourse caused uncertainty ahead of this year's upcoming elections and aroused the ire of current State Minister for State Enterprises Laksamana Sukardi.
Problems with the 2002 financial report first surfaced when the SEC threw out the initial filing because the report was audited by an Indonesian accounting firm, KAP Eddy Pianto, which was not an affiliate of a US-registered auditor.
Pianto last week filed a Rp7.84 trillion ($922 million) lawsuit against Telkom and Bapepam at the South Jakarta District Court, claiming that both Telkom and the Capital Market Supervisory Agency (Bapepam) had reneged on their initial endorsement of the audit conducted by Pianto. His lawyers said the decision made by both parties had tarnished their client's reputation and caused financial losses, as other clients were taking their business elsewhere. The SEC had demanded that Telkom resubmit the accounts as soon as possible or risk being delisted from the NYSE, thus blocking Telkom's US depositary receipts from trading.
The Telkom audit committee, headed by independent commissioner Arief Arryman, after the sudden resignation of Ernst & Young in November 2002, had appointed Pianto.
Arryman claims that Telkom had no other choice but to reject the "big four" auditors, including PricewaterhouseCoopers (PwC), due to a conflict of interest because PwC is also an auditor of Telkomsel, the company's mobile subsidiary.
The revised accounts were audited by Drs Hadi Sutanto and Rekan, a member firm of PwC, and were signed off by Hans Tuanakotta Mustafa, a member firm of Deloitte Touche Tohmatsu, which had also audited the earlier results at one stage.
The reaudit, completed last month, revised Telkom's consolidated net profit for that year downward by 3.7 percent to Rp8.03 trillion ($968 million) from Rp8.34 trillion under the earlier version. There was also a downward adjustment to net profit figures for 2001 and 2000 by 4.3 percent and 7.8 percent, respectively.
As early as last November minister Sukardi had called on Telkom to explain the audit problems to the public to ease investors' concerns, as the information coming out was still "confusing".
"I have officially requested Telkom management to immediately conduct a public expose as currently investors and the public are getting worried over the negative impact of the reaudit, and the fact that the information circulating is confusing," he said.
Last month the minister disclosed his plans to reshuffle the board members. "The government, since it has 51 percent of the company, has the right to demand accountability," he said. "We are planning to replace them to refresh the company, and because of the accounting problem," the minister said after meeting with House of Representatives Commission IX on financial affairs.
Some 30 candidates were fielded and it was made known that Sukardi would determine who would be appointed. Though reports said that the president of another state-owned telecom firm, PT Indosat's Widya Purnama, and the president of cellular operator PT Telkomsel, Bajoe Narbito, were among the candidates for the top post, current President Director, Kristiono, remains in post after the shuffle.
Kristiono, however, drew the short straw and had to tell reporters the company's auditing and reporting problems were far from over. He warned after Wednesday's meeting that even more delays with regulatory authorities were possible because an audit being done on the report, an audit on an audit as it were, by the company's public accountant – KPMG (Klynveld, Peat, Marwick and Goerdeler) – would not be completed before May.
Telkom, however, would "do its best" to meet the SEC deadline of June 30 for submitting the reaudit. The company's financial report for 2003 would also be late in being submitted to Bapepam, as it would not meet the agency's March 31 deadline, said Kristiono.
On the positive side, Telkom booked a reverse provision worth Rp332 billion gained from the acquisition of PT AriaWest International last year. The company had a very public run-in with AriaWest, a telecommunications firm that runs fixed-line operations in West Java, in late 2001 after the latter's disclosure of a forensic audit issued by PwC. In a lengthy press release Telkom said AriaWest's disclosure of the PwC findings was improper and "part of its continuing efforts to use the press, through dissemination of negative, misleading information about Telkom, to pressure Telkom to increase its offer price for AriaWest's interest in the KSO System".
AriaWest was one of five joint ventures set up in the mid-1990s by foreign and local investors to develop Indonesia's fixed-line services. Telkom, which until last year had a monopoly on local call services, took 30 percent of the revenues from these joint ventures, known locally as KSOs, in return for giving them exclusive rights to build and operate lines.
Telkom has so far reached agreements with three KSOs to buy out their telecommunications assets, but in AriaWest's case, negotiations were acrimonious and the management of both companies refused to budge. Legal suits were filed and the whole deal was heading south until December 2001, when shareholders got rid of AriaWest's management.
The shareholders of AriaWest, Mediaone International (part of AT&T Wireless), the Asian Infrastructure Fund and PT Aria Infotek took over the negotiations from the company's management.
However, last August Telkom finally acquired AriaWest International for almost $365.5 million. A total of $58.67 million has already been paid in cash. Another $109.1 million will be paid over five-and-a-half years in promissory notes secured against the company's assets. Telkom will also repay AriaWest's current debt of $196.97 million over a four-year period.
Though the audit issue had earlier depressed sentiment over Telkom's shares, US regulators never imposed any penalties, and the concerns faded. However, Abeng, who left office in October 2000 but remains politically well connected, has clearly been brought in to shake up the state enterprise and its top management. Interestingly enough, he replaces Bacelius Ruru, who had been a key member of his own privatization team back in 1998.
Former president Suharto had brought Abeng into the government in April 1998 after the latter's highly successful spell with Bakrie and Brothers. Suharto believed he could avoid having to rely on increasing the country's foreign debt by selling off state enterprises to finance the ballooning budget deficit, by then already $1.5 billion for the 1998-99 fiscal year.
Consequently, Abeng's simple brief as the first ever minister of state-owned enterprises (SoEs) was to head the drive for privatization. Within days of his appointment Suharto agreed with the International Monetary Fund (IMF) to privatize 12 SoEs within a year, including five already listed on the JSX.
With the fall of Suharto the priorities remained the same – fill the government deficit, get the economy moving again and take SoEs out of the control of corrupt politicians. Under his new master president B J Habibie, Abeng maintained the momentum toward privatization, and by the end of April 1999 $1.035 billion had been raised in revenues from the privatization program.
But things started to get nasty. Habibie's political opponents, capitalizing on his weak legitimacy, used privatization as an issue to criticize and tarnish his administration.
There were allegations that the government was pursing the privatization program in a less than transparent manner so that election funds could be channeled to Golkar, the ruling party and political vehicle of Suharto's New Order regime. Abeng was alleged to have played a part in the 1999 Bank Bali scandal because of his presence at a meeting on February 12, 1999, when a group of the country's elite met at the Hotel Mulia to discuss how to raise funds for Habibie's presidential re-election campaign.
Though he was named a suspect, Abeng was never brought to trial. Later investigations into allegations of "abusing his position" when a minister, in appointing global coordinators for the privatization of PT Jakarta International Container Terminal (JICT), were dropped by the attorney general last August.
In his book launched in 2001, Indonesia Inc, Abeng praised Suharto's management of the country but described privatization as a flop.
Some maintain there was no strong reason for the Telkom shakeup other than political motivation with parties looking for funds ahead of the elections, but that is the point – Abeng's presence may very well ensure there will be no "Telkomgate", at least not for the time being.