presentation on viet nam final (rustam-indonesia)Factory were merged to Semen Gresik, and most of its share was sold to foreign company Duopoly about Indosat and Telkom in Telecommunication

Indonesia PresentationIndonesia Presentation““Abuse of Dominant PositionAbuse of Dominant Position

(Monopolization) and(Monopolization) andSeveral Cases in IndonesiaSeveral Cases in Indonesia””

ByByRustamRustam Effendi SEffendi S

Ho Chi Ho Chi MinhMinh, Viet Nam, Viet NamAugust, 3August, 3rdrd --55thth ,2004 ,2004

IndonesiaIndonesia

Population : 211,000,000No. of island: 16,766 Coast line: 880,000 km No. of provinces: 33

Neighboring countries: • Malaysia • Papua New Guinea • The Philippines

• East Timor• Australia• Brunei

INDICATORSINDICATORS 19981998 19991999 20002000 20012001 2002 20032002 2003

GDP Growth (%)GDP Growth (%) --13.113.1 0.80.8 4.94.9 3.33.3 3.83.8 4.14.1

Inflation (%)Inflation (%) 77.677.6 2.02.0 9.39.3 12.512.5 10.0 5.110.0 5.1

Interest rates (%)Interest rates (%) 38.4 38.4 12.512.5 14.514.5 17.617.6 12.9 10.312.9 10.3

Export (US$ Billion) 48.8Export (US$ Billion) 48.8 48.748.7 62.162.1 56.356.3 57.2 61.157.2 61.1

Import (US$ Billion)27.3Import (US$ Billion)27.3 24.024.0 33.533.5 31.031.0 31.3 32.631.3 32.6

Exc. Rate (Exc. Rate (RpRp/US$) 8025/US$) 8025 71007100 95909590 1040010400 8950 85288950 8528

GDP/capita (US$) 490GDP/capita (US$) 490 700700 740740 690690 810 970810 970

MACRO ECONOMIC INDICATORS

GDP/Capita (2003)GDP/Capita (2003) : US$. 970 : US$. 970 GDP growth GDP growth (2000(2000--2003)2003) : 3.2%: 3.2%Population (2003)Population (2003) : 216 million: 216 millionPop. Growth (1990Pop. Growth (1990--2003) 2003) : 1.49%: 1.49%Unemployed rates (2002)Unemployed rates (2002) : 9.5 %: 9.5 %Total AreaTotal Area : 1,919,440 sq Km: 1,919,440 sq KmNumber of IslandNumber of Island : 18.300: 18.300Adult literacyAdult literacy : 90.93%: 90.93%Life ExpectancyLife Expectancy : 68 years: 68 years

ECONOMIC ECONOMIC ENVIRONMENTENVIRONMENT

INDONESIAINDONESIA’’S S FOREIGN TRADEFOREIGN TRADE

YearYear ExportsExports ImportsImports BalanceBalance

19981998 48.848.8 27.327.3 21.521.519991999 48.748.7 24.024.0 24.724.720002000 62.162.1 33.533.5 28.628.620012001 56.356.3 31.031.0 25.325.320022002 57.2 57.2 31.3 31.3 25.925.92003 2003 61.61.22 32.6 32.6 28.628.6

(in US$ Billion)

IntroductionIntroduction

• Economic practices in Indonesia had been contrary to the spirit of the constitution

• Law no. 5 of 1999 concerning prohibition of monopolistic practices and unfair business competition, was launched to ensure effective business competition

• The introduction of competition law did not automatically result in an improvement in conditions for consumers

The Indonesian Constitution of 1945

1. Envisaged a democratic economic system

• Article 33 states: “1. The economy shall be organized as a common endeavor based upon the principles of the family system.

2. Sectors of production which are important for the country and effect the life of the people shall be controlled by the state.

3. The land, the waters and the natural riches contained therein shall be controlled by the State and exploited to the greatest benefit of the people”.

LAW NO. 5 0F1999

Aims:

- To safeguard the public interest and improve the efficiency of National Economy

- To create a conducive business climate

- To prevent monopolistic and or unfair competition

- To create an affective and efficient business activity

RELATED POLICIES WITH LAW NO. 5

- Revoke policies concerning the decision of monopoly : e.g: Cement and wheat

- Opening the market in several sector

e.g.:pharmacy, telecommunication, mining

Number Cases Overcome by Commission Number Cases Overcome by Commission (KPPU) 2000(KPPU) 2000--20042004

Number cases had overcome Number cases had overcome -- 2828Number cases based on report 19Number cases based on report 19Number cases based on initiative Number cases based on initiative –– 99Number cases finished decision Number cases finished decision --1515Number cases need to followNumber cases need to follow--up up --77Number cases on going process Number cases on going process -- 66

Some Cases Overcome by Commission (KPPU)Some Cases Overcome by Commission (KPPU)

Semen Semen PadangPadang and Semen and Semen TonasaTonasaFactory were merged to Semen Factory were merged to Semen GresikGresik, , and most of its share was sold to and most of its share was sold to foreign companyforeign companyDuopoly about Duopoly about IndosatIndosat and and TelkomTelkom in in Telecommunication industry. It ended up Telecommunication industry. It ended up with selling with selling IndosatIndosat’’ss share by STT share by STT Singapore in 2002.Singapore in 2002.


KPPU urged strongly the revision of the Decision KPPU urged strongly the revision of the Decision Letter of the Minister of Trade and Industry on Letter of the Minister of Trade and Industry on sugar import because the regulation might cause sugar import because the regulation might cause cartel practice. that the investigation revealed cartel practice. that the investigation revealed that there was indication the Antithat there was indication the Anti--Trust Law Trust Law No.5/1999 had been violated.No.5/1999 had been violated.Department of Trade and Industry gave licenses Department of Trade and Industry gave licenses to import 405,000 ton of sugar to five to import 405,000 ton of sugar to five companies: PT companies: PT PerkebunanPerkebunan NusantaraNusantara IX,X,XI, PT IX,X,XI, PT RajawaliRajawali NusantaraNusantara Indonesia, and PT Indonesia, and PT PerusahaanPerusahaan PerdaganganPerdagangan Indonesia (PPI).Indonesia (PPI).


Commission for Supervision of Business CompetitionCommission for Supervision of Business Competition (KPPU) conducted (KPPU) conducted investigation and compiled decision for case No: 08/KPPUinvestigation and compiled decision for case No: 08/KPPU--L/2003, allegation of L/2003, allegation of violation of Law No: 5 Year 1999 about Prohibition of Monopolistviolation of Law No: 5 Year 1999 about Prohibition of Monopolistic Practice and ic Practice and Unfair Business Competition which was conducted by Office of PubUnfair Business Competition which was conducted by Office of Public Accountant lic Accountant (KAP) Drs.(KAP) Drs. Hadi SutantoHadi Sutanto & Partners & Partners -- so called now KAPso called now KAP Haryanto SahariHaryanto Sahari & & PartnersPartners-- representing firm member of Foreign Public Accountant Office ofrepresenting firm member of Foreign Public Accountant Office ofPriceWaterhousePriceWaterhouse Coopers (Coopers ( PwcPwc) is hereinafter referred to as the Reported party.) is hereinafter referred to as the Reported party.This case emerged after receiving report which was basically staThis case emerged after receiving report which was basically stated the Reported ted the Reported action in purpose providing unreliableaction in purpose providing unreliable interpretationinterpretation Reported to PT.Reported to PT. TelkomTelkom, PT., PT.TelkomselTelkomsel, and US SEC concerning American Audit Standard particularly AU , and US SEC concerning American Audit Standard particularly AU 543. 543. The Reported action resulted unexpectedThe Reported action resulted unexpected--audit quality conducted by KAP Eddyaudit quality conducted by KAP EddyPiantoPianto of Consolidation Financial Statement of PT.of Consolidation Financial Statement of PT. TelkomTelkom year book 2002 so that year book 2002 so that hindering KAP Eddyhindering KAP Eddy PiantoPianto to compete with the Reported related to provider audit to compete with the Reported related to provider audit service for big companies which are registered in exchangeservice for big companies which are registered in exchange--stock floor ( BEJ).stock floor ( BEJ).

Pursuant to conclusion and fact, Commission CouncilPursuant to conclusion and fact, Commission Council decided to announce the decided to announce the Reported party isReported party is proven validly and convince violating provision Article 19 letteproven validly and convince violating provision Article 19 letter (a) r (a) and (b) Law of No.and (b) Law of No. 5/1999, and punish the Reported party to pay fine equal to 5/1999, and punish the Reported party to pay fine equal to RpRp20.000.000.000,20.000.000.000,--( twenty billion( twenty billion rupiahsrupiahs).).

Some Cases Overcome by Some Cases Overcome by Commission (KPPU)Commission (KPPU)

The process tender of selling two tankers The process tender of selling two tankers was conducted by was conducted by PertaminaPertamina, KPPU , KPPU received a report consisting allegation of received a report consisting allegation of unfair business competition in the tender unfair business competition in the tender process, having conducted a series process, having conducted a series examination and clarification to some examination and clarification to some parties, KPPU parties, KPPU –– CommisionCommision for Supervision for Supervision of Business Competition decides that the of Business Competition decides that the report is taken to preliminary report is taken to preliminary investigation.investigation.

Some Cases Overcome by Some Cases Overcome by Commission (KPPU)Commission (KPPU)

Investigations process began on Investigations process began on January 5, 2004 for allegation of January 5, 2004 for allegation of violating monopolistic practices and violating monopolistic practices and unfair business competition on unfair business competition on monopolizing loadingmonopolizing loading--service of service of copra and copra and copexcopex on on BelawanBelawan port, port, North North SumateraSumatera, and finally it enters , and finally it enters to decision formulation.to decision formulation.

Before Competition LawBefore Competition LawDominance in sectors of the economy by Dominance in sectors of the economy by individuals and certain familiesindividuals and certain familiesControl of huge conglomerates by individuals Control of huge conglomerates by individuals and certain families. These conglomerates and certain families. These conglomerates dominated various business branches from dominated various business branches from initial production through to sales in related initial production through to sales in related industries. This was indicative of inequitable industries. This was indicative of inequitable distribution of development results. distribution of development results. Economic progress in Indonesia was enjoyed Economic progress in Indonesia was enjoyed by certain groups of peopleby certain groups of peopleAvailability, quality and price controlled by Availability, quality and price controlled by dominant market playersdominant market players

Before Competition LawBefore Competition LawPolitical elite involved in business and the Political elite involved in business and the creation of monopoliescreation of monopoliesThe The ““abuse of powerabuse of power”” was apparent at every was apparent at every level: whoever, whenever, wherever!level: whoever, whenever, wherever!Corruption, Collusion and NepotismCorruption, Collusion and Nepotism

Increase in Political Power of EliteIncrease in Economic

Power of Elite

After Competition LawAfter Competition LawCommission for the Supervision of Business Competition (KPPU):Established in July 1999 as an independent institution to supervise the implementation of Law no. 5 of 1999

Since its establishment the KPPU has received 144 cases and an additional 8 cases which were initiated by the KPPU. The KPPU has given 22 rulings since its establishment. 4 of these rulings were appealed by the companies. In 3 of the 4 appeals the court found that there had been “procedural violations” and set aside the rulings of the KPPU. The court never considered the substance of the cases.

After Competition LawAfter Competition LawCommission for the Supervision of Business Competition (KPPU):The other 18 rulings of the KPPU were accepted by the corporations at stake. In the case of the Airline Rates War theKPPU succeeded in changing the policy relating to ceiling prices so that the ceiling price is now determined by the government rather than the association of Airline providers.

The commission is hampered by lack of adequate infrastructure, funding and human resources

KPPU needs to be seen as taking action against violations if potential violators are to be deterred

After Competition LawAfter Competition LawAirline Rates War:Minister of Transport decree based on up and down corridors to be obeyed by airline operators in fixing the rate

Unfair business competition in ticket sales for the Jakarta-Surabaya route - prices dropped from Rp. 600,000 to as low as Rp. 333,000. PT Garuda has a dominant position in Indonesian Airline markets

KPPU sent a letter to the Minister of Communication and Transportation to stop tariff fixing made by INACA (Airline Providers Association) as it considered the tariff should be setby the Minister for Transportation

After Competition LawAfter Competition LawAirline Rates War:The result of KPPUs ruling:

ACCESS

- Number of domestic passengers:

in 2000 = 7.6 million in 2003 = 15.3 million

-Number of fleet:

In 2000 = 148 In 2003 = 244

-Operation fleet:

In 2000 = 122 In 2003 = 192

After Competition LawAfter Competition LawAirline Rates War:The result of KPPUs ruling:•AVAILABILITY-Number of Airline companies:From 1950 to 1971 = 5 After 2000 = 20

-Quantity of aircrafts:2000 = 122 2003 192

-Number of daily flights, Jakarta-Surabaya:2000 = 24 flights (5 companies) 2003 = 46 flights (9 companies)

After Competition LawAfter Competition LawAirline Rates War:The result of KPPUs ruling:AFFORDABILITY-Price, Jakarta-Surabaya2000 = Rp 600,000 2003 = Rp 250,000 – 300,000

-Price, Jakarta-Medan2000 = Rp 700,000 2003 = Rp 460,000

-Price, Jakarta-Solo2000 = Rp 460,000 2003 = Rp 270,000

After Competition LawAfter Competition LawCompetition in the Sugar Industry:Competition in the Sugar Industry:Sugar manufacture and distribution was previously state Sugar manufacture and distribution was previously state controlled with tariffs to support local sugar farmerscontrolled with tariffs to support local sugar farmers

Opening the market up to competition resulted in significant Opening the market up to competition resulted in significant rises in the domestic price of sugarrises in the domestic price of sugar

Competition policies and open market practices also Competition policies and open market practices also resulted in crisis in access to sugar for consumers living on resulted in crisis in access to sugar for consumers living on islands other than Sumatra and Javaislands other than Sumatra and Java

Conditions necessary for Conditions necessary for ImplementationImplementation

Conducive Business CultureConducive Business Culture-- In Indonesia as a hangover from corruption, In Indonesia as a hangover from corruption, collusion and nepotism there is a tendency for collusion and nepotism there is a tendency for businesses to seek unfair advantage and quick businesses to seek unfair advantage and quick profitsprofits

-- Unfair methods will likely remain a part of the Unfair methods will likely remain a part of the business culture of Indonesia for a while yetbusiness culture of Indonesia for a while yet

-- A switch to a new culture of respect for the law is A switch to a new culture of respect for the law is required if competition principles are to be adopted required if competition principles are to be adopted amongst the business communityamongst the business community


Determining which sectors government Determining which sectors government involvementinvolvement-- Each nation has specific characteristics which Each nation has specific characteristics which determine what industries require state intervention determine what industries require state intervention

-- In Indonesia many consumers are living below the In Indonesia many consumers are living below the poverty line hence a concentration on access to basic poverty line hence a concentration on access to basic needs such as rice, sugar and salt is imperativeneeds such as rice, sugar and salt is imperative

-- Need explicitly identified indicators to be used in Need explicitly identified indicators to be used in determining when a particular sector no longer determining when a particular sector no longer requires government interventionrequires government intervention


Inventory of national laws that contradict Inventory of national laws that contradict principles of competition lawprinciples of competition law-- Competition law is new and there is a need to Competition law is new and there is a need to identify contrary laws and then move towards identify contrary laws and then move towards harmonizing these with principles of competition lawharmonizing these with principles of competition law

-- In Indonesia we see that this role is best carried out In Indonesia we see that this role is best carried out by KPPU as it possesses both a law making and by KPPU as it possesses both a law making and judicial function in that it can make regulations and judicial function in that it can make regulations and issue guidelines related to competitionissue guidelines related to competition


In Indonesia specifically:In Indonesia specifically:KPPU needs judges who really understand KPPU needs judges who really understand the antithe anti--monopoly lawmonopoly lawThere needs to be better coThere needs to be better co--operation with operation with police, the Supreme Court and the Ministry of police, the Supreme Court and the Ministry of Justice and Human RightsJustice and Human RightsA special antiA special anti--trust court should be trust court should be established by the KPPUestablished by the KPPU


Inventory of cases handled by Competition Inventory of cases handled by Competition AuthorityAuthorityEmpowering community participation in Empowering community participation in monitoring of unfair competitionmonitoring of unfair competitionNGOs and Public monitoring of Competition NGOs and Public monitoring of Competition AuthorityAuthorityNeed for studies into competition issuesNeed for studies into competition issuesEducation of consumers, businesses Education of consumers, businesses government officials and judicial officersgovernment officials and judicial officers

Is Competition Law the Way to Is Competition Law the Way to Go?Go?

Dilemma of determining whether inefficient Dilemma of determining whether inefficient monopolies created as a result of corruption, monopolies created as a result of corruption, collusion and nepotism should be made to change collusion and nepotism should be made to change behind a protective wall wiped out by foreign behind a protective wall wiped out by foreign competitioncompetitionBoth competition and consumer law are new to Both competition and consumer law are new to Indonesia and are not known or understood by Indonesia and are not known or understood by much of Indonesian Societymuch of Indonesian SocietyResearch over time is required to determine Research over time is required to determine whether competition law has resulted in overall whether competition law has resulted in overall benefits to consumersbenefits to consumers


• In assessing the viability distinction needs to be made between basic needs and non-essential products and services

• At this stage based on consumer experience in Indonesia there needs to be exemptions made for industries that supply the basic needs of countries consumers.


• The Indonesian consumer experience demonstrates that competition law does not automatically guarantee an improvement in conditions.

• Much rests upon effective administration, education of government officials and an informed judiciary.

•These are preconditions to ensuring that competition law is implemented and those breaching such law are brought to account.

ConclusionConclusion

The KPPU, after learning from the research of NGO The KPPU, after learning from the research of NGO and other parties, introduced a new scheme for and other parties, introduced a new scheme for Indonesia called Indonesia called ““Regulated CompetitionRegulated Competition”” a change a change from the previous strategy called from the previous strategy called ““Free CompetitionFree Competition””because in practice actually because in practice actually ““Free CompetitionFree Competition”” = = ““Anarchist competitionAnarchist competition””

ConclusionConclusion

• From a consumer organizations perspective it is better to start the process towards enactment of competition law now as in time implementation problems can be addressed.

• Learning from Indonesian experience its better to have competition law from the beginning. In time one can recognize what is the good and bad for the country.

Thank YouThank You

Documents

presentation on viet nam final (rustam-indonesia)Factory were merged to Semen Gresik, and most of its share was sold to foreign company Duopoly about Indosat and Telkom in Telecommunication