KPPU · 2017. 4. 12. · Bojonegara – Cikande Distribution Pipeline are Decided to be Guilty KPPU...

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KPPUKPPUDecisions for the Interest of Consumers

Dr. Sukarmi, SH. MH (Vice Chairman of KPPU )

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WHAT’S NEWS

Dr. Sukarmi, SH. MH KPPU Decisions for the Interest of Consumers

LAW ENFORCEMENT

Bid Rigging at West Java Transportation Agency

Case on Tender for Contract Package No. 3A Bojonegara – Cikande Distribution Pipeline are Decided to be Guilty

COMPETITION ADVOCACY

Observing Polemics Behind Inefficiency in Indonesian Banking Sector

KPPU Held Discussion on Business Monopolistic Practice

Training on Fundamentals of Investigation: An Effort to Develop the Capabilities of KPPU’s Investigators

INTERNATIONAL

Measuring the Impacts of Business CompetitionPolicy

The Quantification of Harm to Competition

COLUMN

Breaking The Monopoly

WHAT’S NEWSDr. Sukarmi, SH. MH KPPU Decisions for the Interest of Consumers

LAW ENFORCEMENTBid Rigging at West Java Transportation Agency

Case on Tender for Contract Package No. 3A Bojonegara – Cikande Distribution Pipeline are Decided to be Guilty

KPPU Examines Pertamina, Kalimantan

COMPETITION ADVOCACYObserving Polemics Behind Inefficiency of Indonesian Banking Sector



INTERNATIONALMeasuring the Impacts of Business CompetitionPolicy


COLUMNBreaking The Monopoly

FLASHNEWS

SUGGESTION BOX

03kompetisia / vol. 2/2011 Newsletter on Indonesia Competition Law and Policy

WHAT NEWS?

EDITORIAL CONTENT

Board of Director Mokhamad Syuhandak Editor in Chief Ahmad Kaylani Managing Editors Deswin Nur, Yudanov Bramantyo Editorial Staff Santy Evita Irianti Tobing, Ika Sarastri, Nurul Fauzia, Dessy Yusniawati Photography Nanang Sari Atmanta Layout Dhanan Arditya

Kompetisia Newsletter EditorPublic Relation and Legal BureauCommission for the Supervision of Business CompetitionRepublic of Indonesia (KPPU-RI)Jl. Juanda 36 Jakarta Pusat 10120Telp. : 021-3507015/3507043Fax. : 021-3507008Website : http://eng.kppu.go.id/Email : [email protected]

[email protected]

COMMISSION FOR THE SUPERVISIONOF BUSINESS COMPETITION

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KPPUDecisions for the Interest of

Consumers

Dr. Sukarmi, SH. MH (Vice Chairman of KPPU )

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The existence of business competition law in Indonesia is obviously very important. We remember the disordered economic condition prior

to the enforcement of competition law. The market structure was very monopolistic. Business actors grow only for the search of rent (rent seeker). Some business actors misused their dominant positions. Like the law of the jungle, the strong become stronger and the weak become weaker. All of these were caused by the government policies which did not give equal opportunities to all business actors. Therefore, the role of business competition law is very vital to give an equality and to arrange the condition.

Within ten years of its establishment, the Commission for the Supervision of Business Competition (the Commission) has encounters lot of challenges. One of the big

challenges faced by the Commission is the different vision between the Commission and the government on the business competition law . Therefore, according to Sukarmi (the Vice Chairman of the Commission ), harmonization between the government policies and the business competition policies is therefore required. In addition, the Commission shall continuously give understanding on what the Commission is and what its roles in the government system are.

In order to give provide understanding on the Commission, the Commission has continuously conducted advocacy efforts. Some advocacy efforts done by the Commission during March are, among others, the discussion on the business monopolistic practice, basic training on investigation and observing the polemics behind inefficiency of Indonesian banking sector.

In establishing relationship at international level, the Commission has participated in various seminars, discussions or workshops concerning business competition, locally and internationally .

The Law Enforcement column will discuss about the bid rigging at the West Java Transportation Office, Tender Case of Contract Package No.3A Bojonegara- Cikande Distribution Pipeline, and examination conducted by the Commission against Pertamina Kalimantan related to the kerosene-to-gas conversion case .

Editors

04kompetisia / vol. 2/2011 Newsletter on Indonesia Competition Law and Policy 05kompetisia / vol. 2/2011 Newsletter on Indonesia Competition Law and Policy

WHAT NEWS?

“There are two reasons why the government lacks of

understanding on the roles of KPPU. ”Firstly, they don’t care

and secondly, they don’t understand,”

Learning from the experiences, the perception between KPPU and the government on business competition law within this 10 years period has not been the same. This is of course a big challenge to be faced. During 10 years, KPPU has tried to develop understandings and created same perception as well as placed competition law and policies in the national economic system. Therefore, harmonization between government policies and competition policy is needed. At the same time, it is also crucial to develop understanding on what KPPU is and what its roles in the government systems.

There are two reasons why the government lacks of understanding on the roles of KPPU. ”Firstly, they don’t care and secondly, they don’t understand,” said Sukarmi. This lack of care ends up with ignorance and lack of understanding. Otherwise, lack of understanding results in lack of care. It occurs as competition law is a new thing. Different from the business competition institutions at other countries which had been established since hundreds years ago, where fair business values have been internalized in their legal

and economic policies. At our country, KPPU is still seen as a specter to certain business actors who are used to receiving special facilities from policy makers. Why? Because it is KPPU which supervises the grant of such facilities. This will of course result in a clash. Therefore, we must affirm that the existence of Law Number 5 Year 1999 and KPPU is not to hinder the business, but to arrange business activities to run fairly and clearly.

There are not a few government policies which do not support fair competition. Therefore, KPPU shall harmonize and optimize the competition policy which is in line with the competition law. Again, this is a big challenge to KPPU. In addition, we have to show the performance in accordance with the objectives set out in Article 3 of Law Number 5 Year 1999, namely to improve national economic efficiency, safeguard the interests of the public, and improve the people’s welfare through fair business competition. This is of course not an easy work. However, it seems that the impacts of the existence of the business competition law have existed. For example, the decision

of KPPU on PT Temasek and SMS Cartel. The decisions of KPPU on the monopoly of PT Temasek in telecommunication sector and on the SMS cartel have resulted in lower telecommunication and SMS rates in Indonesia. So far, KPPU has been going on the right track. If there are external parties say that the decisions of KPPU hinder the investment, it is their rights to say so. As KPPU makes its decisions on the basis of the prevailing Law and in the support of the strong evidences, facts and analysis. Obviously, it has been in accordance with the existing corridor. The legal remedy does not stop until there because business actors can still file an objection to District Court, Cassation to the Supreme Court, even can file a Judicial Review. Therefore, before saying that the Decisions of KPPU hinders the investment, it is better to see the considerations made by the Commission’s Assembly. ”Because KPPU not only defends the interest of the business actors who suffer loss, but also the interest of fair business competition and interest of consumers,” she added. So, if any parties

say that KPPU hindered the investment, they should describe in what kinds of hindrance they are.

In the context of execution of the Decision, it has been described clearly in Law Number 5 Year 1999 that KPPU is not an executorial institution and has to ask the execution fiat to the court. In practice, however, this is not absolute as the penalized party can voluntarily fulfills the sanction. Although, this is a very rare case. However, by law, we have to ask for the assistance from the court for the execution of the decision. Until now, there are still business actors who have been punished with a fine with permanent legal force, but they are unwilling to pay for the fine.

So far, the cooperation between KPPU and court in relation to the execution has not been optimum. As a matter of fact, according to the system, the cooperation shall have been run automatically. Like at the Criminal Justice System at the international level. The matters which have been regulated in the Law shall be automatically implemented. In

order to overcome this matter, KPPU is better to establish an MoU with the Supreme Court in relation to the execution. Based on this fact, we can see that KPPU is actually not a super body because it is not an executorial institution. Therefore, for the execution, KPPU remains to have to ask for the assistance from the Court. So, if any parties say that KPPU is a super body, it is not true.

KPPU itself as a law enforcement body needs supports from all parties. The visions as described in the Law can be achieved not only by the hard work of KPPU, but also by the assistances rendered by other parties. It is also my mission together with Pak Nawir Messi (the Chairman of KPPU, ed.) to develop a Communication Forum Among Institutions in order to put KPPU to have important roles in the government system and national economic system. Therefore, in the future, we hope that the performance of KPPU will be optimized with optimum supports as well.


Case on Tender for Contract Package No. 3A Bojonegara – Cikande Distribution Pipeline are Decided to be Guilty for Bid Rigging Activity

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BID RIGGING

“The results of examination indicate that horizontal conspiracy has occurred between DMU and LND

which was conducted by arranging the bid price and area division to determine certain bidders as the bid

winner”

LAW ENFORCEMENT

KPPU has decided the Tender Committee, PT. Djoyokusumo Margo Utomo (DMU), and PT. Lintasmarga Nusantara Djaya

(LND) as the bidders to be guilty for violating Article 22 of Law Number 5 Year 1999 in a bid rigging case for Procurement and Installment of 40,000 M’ Road Marks at West Java Transportation Agency.

The results of examination indicate that horizontal conspiracy has occurred between DMU and LND by adjusting the bid price and area division to determine certain bidders as the tender winner. The horizontal conspiracy between DMU and LND are also seen in the same format and composition of the bid documents, the same mistyping in the bid documents and the same share ownership and management between DMU and LND.

In addition, a vertical conspiracy is also found between DMU and LND and the bid committee, in which the tender committee has facilitated the bidders to conduct the horizontal conspiracy by way of qualifying these two companies, despite of the fact that they are affiliated. In this case, the bid committee qualified DMU and LND up

to the qualification evaluation phase and qualification verification and then proposed DMU as the prospective winner.

Based on the evidences, facts and conclusion, the Commission Assembly comprising of Tadjuddin Noersaid (assembly leader), Yoyo Arifardhani, and Benny Pasaribu states that PT. Djoyokusumo Margo Utomo (DMU), PT. Lintasmarga Nusantara Djaya (LND),

and the Bid Committee for Procurement and Installment of 40,000 M Road Marks at West Java Transportation Agency in the Fiscal Year 2009 are legally and convincingly proven to have violated Article 22 of Law Number 5 Year 1999, and punish the reported parties to pay a fine in the amount of Rp 25 million against DMU, Rp 10 million against LND and Rp 50 million against the Tender Committee.

In addition to the fine, The Commission Assembly also provide suggestions to the Governor of West Java to impose sanction against the Bid Committee for its negligence in performing its tasks and to order the direct superior thereof or competent officer to impose administrative sanction against the Bid Committee and asks the Governor of West Java to instruct the Head of Transportation Agency of West

Java Province along with agencies under its control to establish and implement the tender regulations in accordance with the applicable laws and regulations and with due observance of the principles of business competition. •

Monday, March 7, 2011, KPPU pronounced the Decision of Case No. 38/KPPU-L/2010 concerning

the alleged violation of Article 22 of Law Number 5 Year 1999 concenring Prohibition of Monopolistic Practice and Unfair Business Competition in relation to the conspiracy in the Tender for Contract Package No. 3A Bojonegara – Cikande Distribution Pipeline (Tender No. 024200.Peng/24/PPBJ-SSWJ/2009).

The Commission Assembly in this case comprises of Dr. Sukarmi, SH., MH. as the Assembly Leader, Ir. Dedie S.Martadisatra, SE., MM and Prof. Dr. Ir. H. Ahmad Ramadhan Siregar, MS. respectively as the Members.

The business actors who are allegedly to have committed the violation and decided to be the Reported Parties are PT. Kelsri (Reported Party I) and PT. Perusahaan Gas Negara (PGN) Tbk. (Persero) (Reported Party II).

Based on a series of examinations, The Commission Assembly assesses that

PT. Kelsri has been given an exclusive opportunity by PT. PGN Tbk. (Persero) by way of keeping qualifying PT. Kelsri despite of the fact that its bid documents do not meet the requirements, i.e. failure to submit the qualification documents in the form of the Ratification from the Ministry of Law and Human Rights, State Gazette of the Republic of Indonesia and Company Registration Certificate on the latest amendment of the company’s articles of association and the last three months’ Statement of Account, and the delivery of the financial statements which is not in accordance with the requirements.

In addition, PT. PGN (Persero) does not have a good faith by delaying the explanation to the bidders on the reasons of the disqualification until the last day of objection period. This has caused other bidders not have sufficient reasons to file the objection, meanwhile, to file the objection, a bidder shall have the objection guarantee in the amount of Rp. 2,000,000,000,- (two billion Rupiah). The Commission Assembly is in the opinion that PT. PGN (Persero) has

intentionally done this in order that other bidders cannot file the objection.

Based on the evidences, facts and conclusion, and bearing in mind of Article 43 paragraph (3) of Law Number 5 Year 1999, the Commission Assembly decides that PT. Kelsri and PT. PGN (Persero) are legally and convincingly proven to have violated Article 22 of Law Number 5 Year 1999; and punishes the reported parties to pay a fine in the amount of Rp. 4 billion against PT. Kelsri and Rp. 6 billion against PT. PGN (Persero).

Related to this case, the Commission Assembly recommends the Commission provide advice and suggestion to the Government of Indonesia, c/o. the State Minister for State Owned Enterprises to revise the objection process in the Regulation of the State Minister for State Owned Enterprises Number 05 Year 2008 in order that it is in line with the fair competition climate in the procurement of goods and services. •


Observing Polemics Behind Inefficiency of Indonesian Banking

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COMPETISION ADVOCACY



Currently, Indonesian banking structure is controlled by 14 large banks. In mid of September 2009, these 14 banks fulfilled the

appeal of Bank Indonesia (BI) to decrease the interest rates for the third party fund closing to BI rate. However, during the years 2010-2011, it is believed that there is no significant changes in the composition of Indonesian banking structure, particularly at these 14 large banks.

For example, when BI Rate is stabile at the range of 6.5 – 6.75% and the interest rate of the third party fund has been stabile at the range of the LPS’s (Indonesia Deposit Insurance Corporation) interest rate; therefore, credit interest rate shall be ideally under 10%. However, an anomaly occurs in which the credit interest rate is generally above 10%. The condition affects the NIM range of the Indonesian banking, which still falls within the range of 6% or the worst level at ASEAN 5 region.

KPPU sees this condition as an indication of the existence of unfair business competition practice in Indonesian banking industry. As the Chairman of KPPU, Muhammad Nawir Messi, said in the Journalist Forum held on March 9, 2011 at Central KPPU Building, there were some indicators in measuring the inefficiency of banking. “The first indicator is Net Interest Margin (NIM), where the current banking NIM is at the range of 5.7% - 6%, categorized as very high. The Indonesian Banking NIM is twice higher compared to that of other ASEAN countries, except the Philippines. Then, the second indicator is the Earning Ability Ratio (BOPO) which falls at the level of 80% which is also too high, while for other countries, the Earning Ability Ratio is only 50%”.

Based on the above facts, KPPU will soon establish a special team to monitor the movement of credit interest rate and continuously collects other required information, especially in relation to the law enforcement and policy advocacy.

In addition, KPPU also supports several efforts taken by BI to improve the efficiency and transparency in banking industry, especially in relation to the determination of the credit interest rate. It is also expected that BI rate can be maintained within reasonable range with reference to the core inflation. In order to optimize the cooperation between KPPU and BI, some discussions will be done in relation to the Memorandum of Understanding to enable KPPU to obtain more specific information concerning products and profile of competition level in banking sector. •

Friday, March 4, 2011 taking place at Regional Representative Office, BRI Building, 7th Floor, Jl. Jend Sudirman, Balikpapan, KPPU held discussion with Balikpapan Husada Hospital (RSBH). The discussion related to the Government Regulation Number 57 Year 2010 concerning Merger or Consolidation of Business Entities and Acquisition of Company

Shares that that Could Result in Monopolistic Practices and/or Unfair Business Competition.

On the opportunity, Taufik Ahmad as the Head of Merger Bureau of the Central KPPU said that the objectives of the discussion was to discuss and ensure that there is no element of unfair business competition in the acquisition process of Balikpapan Husada Hospital (RSBH) which is affiliated with Lippo group. KPPU also takes an effort to collect preliminary data, whether the shares of Balikpapan Husada Hospital (RSBH) have been acquired by Lippo group. Therefore, information obtained is accurate and can be used to make a proper conclusion. The activity is also as a means of dissemination of information and to identify how far the understanding of the public, particularly business actors concerning the Government Regulation Number 57 of 2010.

It was also stated that the Government Regulation stipulated that merger and acquisition which meets the threshold shall be reported to KPPU. Business Actor shall deliver notification to KPPU if the merger reaches the assets of Rp. 2.5 trillion and turn over of Rp. 5 trillion. In case the merger may lead to monopolistic practice and unfair business competition, KPPU shall have the authority to annul the merger. It is necessary to be done in order that merger or acquisition decision does not violate Articles 28 and 29 of Law Number 5 Year 1999 concerning Prohibition of Monopolistic Practice and Unfair Business Competition.

Meanwhile, Anang Triyono as the Head of the KPPU Balikpapan Regional Representative Office said that his office was handling some business competition cases occurred at Kalimantan region, among others, the development of Juwata Airport Apron, Tarakan City; road development project in Tenggarong, Kutai Kertanegara; and some other cases. The majority of the business competition cases relate to the bid rigging activities in order to win a business actor in the government or private project tender. •

Law enforcement is one of the main function of KPPU which relies on the capabilities of its investigators in assessing data and collect information in relation to any alleged violation of Law Number 5 Year 1999. In a view to develop the capabilities of the investigators and optimize the effectiveness of case handling as stipulated in the

Commission Regulation Number 1 Year 2010, KPPU held a training on the Fundamentals of Investigation at Alila Hotel, Jakarta.

The training was held from March 2 to March 4, 2011 and opened by the Secretary General of KPPU, Mokhamad Syuhadhak and Head of Investigation Bureau, Mohammad Reza. For three days, the investigators were provided with knowledge concerning the techniques of investigation, hearing, tasks and function of clerks, as well as technique of decision formulation. The training materials were delivered by speakers from the Indonesian National Police, Attorney General of the Republic of Indonesia and State Court of the Republic of Indonesia.

According to Police Adjunct Senior Commissioner (AKBP) Asep Adisaputra, S.H.,SiK,M.H.,M.Si., there were several differences between investigation technique conducted by the Indonesian National Police and KPPU. The most significant different laid on the authority to carry out the search as owned by the Indonesian National Police, but not by KPPU. Responding to this difference, AKBP Asep Adisaputra said that KPPU could optimize the cooperation with the police by virtue of a Memorandum of Understanding.

In the future, it is expected that the cooperation between KPPU and the Indonesian National Police, Attorney General of the Republic of Indonesia and State Court of the Republic of Indonesia can be sustained in order that a solid business competition law enforcement system can be established. •


INTERNATIONAL


Measuringthe Impactsof Business CompetitionPolicy

Yusuke Sakurai and Yasushi Kudo

INTRODUCTIONMost of provisions in Indonesian competition law use rule of

reason approach in concluding the existence for violation of the law. The measurement for the rule of reason will be the creation of monopolistic practices and unfair business competition. Unfair business competition defines by Article 1.6. as competition among businesses in conducting business activities for the production and or marketing of goods and or services in an unfair or unlawful or anti-competition manner. Based on the article, the quantification of harm to competition (as whole) may not be measured, so the competition agency may focus only on the specifications of unfair business competition and or damages occur as the result of competition violation.

It is well-acknowledged that every competition violation may lead to the loss of consumer and or business welfare. Therefore in some decisions, the commission often considers the economic losses as the result of reduced consumer welfare in calculating the administrative (financial) fine, as well as losses by other business actors inflicted by such violation to calculate the financial damages.

Determination of losses needed for some reasons, such to replace the losses suffered by rivals, harm to consumers or the public, and provide a deterrent effect against the businesses that violate. The legal basis for the determination of compensation by the Commission granted by Article 47 of the law, which states that the Commission has authorities to determine losses from the infringement of business actors. Compensation is defined as the compensation to be paid by the offender against losses incurred due to any anti-competitive behavior. The definition of compensation can be distinguished to several categories. First is the nominal compensation, which is a form of compensation for a sum of money, although the actual losses could not be measured with money, or even no material losses. The second idea involves the indemnity (punitive damages), representing a large amount of damage exceeds the amount of actual loss and intended as a punishment for the business. The third meaning is the actual damage, which are the really suffered losses that can easily be calculated until the nominal value. The last one is the remedy meddling, a variation of techniques where the companies try to increase their right when the borrower disobey the contract and lessen or abolish the obligation when being sued by other parties within the contract.

In this regard, compensation may be determined by the Commission on the actual damages. Principle used similar to a damage valuation in civil law, where the burden of proof lied with the applicant. The Commission then will analyze the reliable or the possibility of such compensation on the basis of its appropriateness, fairness and decency. If it is true that there are losses, then the Commission will stipulate it in the decision. Total losses of these violations may be an accumulation of loss experience by the injured party.

In the context of the damage claim on competition case, the submission can only be made to the competition agency if it’s indicated the existence of losses in the reported cases. This submission can only be made to the district court (private action) and can not be performed if the case is being handling by the Commission. This private action only can be made the Commission has decided this case and prove that this business is legally violate competition law.

The damage claim also could be made through the Commission. However, the complainants will loss their confidentiality treatment by doing so. Their identity will announced to the public during the examination (trial) as they prepare their own defense on the suffered losses.

Different things take place at the losses or harms of established by the Commission itself. The Law No. 5/1999 gives authority to the Commission to stipulate the existence of harms or damages. In this context, the Commission generally considers the economic consequences of such violations, for example, by calculating price increase as the result of such competition violation.

CALCULATION OF DAMAGESIn many cases, the Commission uses various methods for

calculating damages for business breached the competition provisions. In one of the bid rigging case on the stocks divestiture (initial public offering), the competition harm is measured by the difference between the sales price at the auction and the normal price (fair price) on the basis of calculations made by the financial adviser. In the case of conspiracy in asset divestiture, the approach is very similar, which is based on the winning price with the prevailing market price at the same time. Approximate the market price in this case is derived from various sources, namely third-party studies, market price on the basis of information from relevant web sites, as well as the testimony of expert witnesses.

In the case of non-procurement cartel, the approach used in knowing the harms is quite similar, mainly in the form of indirect losses suffered by consumers. In the case of SMS (short message service) cartel, the Commission counted the consumer loss in several ways, namely (i) the opportunity loss by consumers to get lower SMS prices, (ii) the opportunity loss by consumers to use more SMS services at the same price, (iii) other intangible losses by the consumer, (iv) and consumers limited choice for alternatives during the period of cartel implementation.

At other cartel cases, the calculation is based on the actual price and imposed to the cartelists at the fair price during the cartel period. We believe this methodology is a common way used by other competition agencies.

The case of cross ownership by Temasek Group is an interesting case for the quantification of competition harms. Under complex finding and comprehensive economic approach, the Commission calculated consumer loss based on financial analysis resulting from the assumption on satisfied return on investment (ROE). The harm is calculated by the different of actual ROE and minimum ROE that could satisfied its stakeholders. The ROE used as the representative of excessive pricing by the company. Actual ROE which accounted between 45% and 55% during the violation period is concluded as an excessive attempted, due to lower fair ROE (20% to 35%). Based on the excessive ROE, the Commission estimated excess revenue enjoyed by the alleged parties and potential price reduction. It has been concluded that a fair 30% ROE, will result on potential price reduction of 21.32%; while for a fair 35% ROE, the potential price reduction will be 15%. These potential price reductions will be subtracted with actual revenue of the alleged parties, to apprehend the amount of excessive profit which may represents the consumer losses.

Thursday, March 17, 2011, KPPU in a collaboration with the Japan International Cooperation Agency (JICA) held a discussion at the KPPU’s

Building under a theme of introduction to “Competition Policy Research Center (CPRC) and Quantitative Analysis on Economic Effectiveness on Business Competition Policy in relation to Cellular and Broadband Service Penetration”. The speakers in this discussion were Yusuke Sakurai, an Advisor at the Japan Fair Trade Commission (JFTC) and Yasushi Kudo, an economist from the Japan Fair Trade Commission (JFTC) and Mr. Odagiri, the Director of CPRC.

CPRC which stands for Competition Policy Research Center was established by the Secretariat of JFTC in June 2003. CPRC is aimed at strengthening the theoretical

basis required in implementing the Anti Monopoly Act (AMA) and formulating the business competition policy.

According to Mr. Odagiri, the Director of CPRC, CPRC plays four roles, namely as a facility to meet among theories, practices, and policies, academicians and policy-related parties, law science, economics and management.

There are 9 main activities carried out by CPRC, i.e. research collaboration; discussion paper publication; workshop; informal workshop; open seminar; international symposium; employee education and training; and student fellow.

A day before, KPPU in a collaboration with JICA and the Institute for Economic and Social Research (LPEM) of Faculty of Economics of the University of Indonesia (FEUI) also held a seminar on “Estimating The Impact of Competition to Consumer

Welfare” at Borobudur Hotel, Jakarta. This seminar discussed the results of the research conducted by LPEM FEUI which shows positive impacts of the KPPU’s decision on SMS Cartel case.

The results of the research conducted by LPEM FEUI indicate that the decision of KPPU increases the SMS-rate competition significantly. By applying the compensating variation (CV) calculation method, the total consumer welfare reaches approximately Rp. 1,959,000,000,000 (1.9 Trillions Rupiah) for all 6 (six) operators in the period from 2007 to 2009.

Meanwhile, the experience in Japan also indicates that the market of cellular and broadband services keep increasing. It is due to the business competition climate

which is supported the competition policy, more varied services due to competition among business actors and changes of business competition and technology.

Quantitative analysis on the roles of competition policy in the market expansion of cellular and broadband from the aspect of economic effectiveness, the cellular and broadband market keep increasing, although not too significant from year to year.

Business policy taken in relation to the cellular service market are, among others, mobile number portability (MNP) in cellular market, business actor facility as mobile virtual network operator/MVNO in the market, classification of device price and telecommunication rate, and not included in PHS market. Meanwhile, business policy taken in relation to the broadband market are among others, the development of unbundle rule, collocation rule, decrease

of connection cost, network facilities and infrastructure, and not included cable internet market.

The analysis method applied is the economic effectiveness analysis with consumer surplus analysis. This analysis is aimed at estimating the increase of consumer surplus resulting from the decrease of the rate, in consideration of the benefits to big consumers as the social benefit of the policy, estimation of demand function for telecommunication services. Then, deducting the total surplus consumer paid by the consumer actually from the total amount to be paid by the consumers.

Consumer Surplus Analysis Procedure is done through the estimation of the economic model of phone proliferation

based on the demand function and in consideration of the increase of the number of consumers through the competition policy.

The analysis of economic effectiveness is directly done by using the AHP analysis by considering the comparison of the importance with questionnaire survey, calculation of relative importance and comparing the relative importance from various factors. Meanwhile, the contribution of competition policy is calculated from the estimation of the consumer surplus increase and ripple effect at other industries in consideration of the total increase of market scale of cellular and broadband services.

Based on the results of this research, JFTC and LPEM FEUI encourage KPPU to consider the technology advancement which may change the competition pattern in the industrial sectors. •


COLUMN

By Ahmad Kaylani*)BREAKING THE MONOPOLY

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CALCULATION OF FINANCIAL FINESIn determining the amount of the fine, the Commission

will take two steps. Firstly, the Commission will determine the basic amount of the fine. Secondly, the Commission will make an adjustment by increasing or reducing of such basic amount of the fine.

In the determining the basic value of fine, the Commission uses the amount of the sales as its basic consideration. The sale value uses in this regards is the amount of sales/procurement of goods and services of the reported party at the concerned (relevant) market. In general, the sales will be calculated on the basis of the total sales in the year before the violation was committed. It is aimed at facilitating the estimation of the sales of the business actors involved in a violation when the data on its annual sales are not available. In a bid rigging case, determining the sales is not based on the calculation of the sales of the year prior to the violation was committed, but based on the price of the bid winner.

In the violation committed by a group of reported parties, the sales will be calculated by accumulating the total sales of the members of the group. As in determining the amount of the sales of the reported party, the KPPU will use the estimated value of sales which mostly reflects its actual sales. The amount of the sales will be determined before VAT or other taxes directly related to such sales. If the data furnished by the reported party is incomplete or unreliable, then the KPPU may determine his sales on the basis of such incomplete data and/or other relevant and factual information.

The basic value of the fine will relate to the proportion of the sales, depending on the degree of the violation, multiplied by the years of violations. Determining the degree of violation will be specifically done case by case for each type of violation, by considering all situations related to the case. To determine whether the proportion of the sales considered in the case shall be at the highest or lowest level of the scale, the Commission will consider some factors such: the size of the company; type of violation; combined market shares of the reported parties; geographic coverage of the violation, and violation having been committed or not.

Agreement on horizontal price fixing, market segmentation and production limitation which are entered into in confidential manner as well as bid rigging is the most serious violation in the business competition. Therefore, such agreement shall be subject to highest fine. In this regard, the proportion of sales to be calculated shall be the highest proportion in the above stated scale.

In order to consider the period of violations committed by each reported party, the above amount will be multiplied by the years of violations. A period of less than 6 months shall be calculated as a half year period, while the period of more than 6 months but less than a year shall be calculated as one year. If the sales of the reported parties in the violation are similar but not identical, the Commission may determine the same basic value of the fine for each reported party, while in determining the basic value, the Commission will use a rounding method.

Furthermore, in determining the amount of the fine, the Commission may consider circumstances which may lead to the increase or deduction of the basic value of the fine, on the basis of the comprehensive assessment, in consideration of all related aspects. These aspects will involve the repetition of violation, cooperation during the examination/investigation, and the role of reported parties (leader or follower) in the case. As the mitigating factors, the Commission also considers several factors such self termination of violation after the investigation; unintentional commitment; minimal involvement; cooperation during the investigation, and they willingness to change his attitudes in relation to the violation. Interestingly, the Commission on the

basis of request by the reported party can consider the capability to pay of the reported party within certain social and economic context, specifically when the business will face bankruptcy as the result of imposed fine.

The Commission will give special attention to the requirement to assure that the fine will produce sufficient deterrent effect. Thus, it will improve the amount of the fine to be imposed to the reported party who has a turnover higher than the sales of goods and services in relation to such violations. The Commission will also consider the requirement to increase the amount of the fine with an objective to exceed the amount of the profits generated from the violation whose value may be calculated. Nevertheless, all financial fines must not exceed those stipulated by law (IDR 25 million). However, there is no limit for any compensations or damages by law.

Over the past ten years, the Commission has imposed fines for IDR 950 billion and damages for IDR 920 billion to the businesses. Among which, the affirmed decision is accounted for IDR 182 billion, where the 10.5 billion of which was paid to the States account for competition violation.

OBSTACLE IN CALCULATION OF FINANCIAL FINES AND DAMAGESThe main obstacle in defining the competition harms or

damages or fines is the market data and information which supported the stipulated harms. The actual calculation of fines and damages will require depth economic analysis supported by relevant data. In many cases, the Commission uses several reliable sources as its basic reference. For instance, in SMS cartel case, the Commission uses data obtained from the third party, such international research agency; sector regulator’s study; and expert testimonies. As in bid rigging case (for example on the procurement of very large crude carrier/VLCC), the Commission used price indication from several sources such third party’s report, market price from relevant website, and expert testimonies. The most reliable data by the Commission in defining the competition harms mostly secondary data obtained from the reported parties, witnesses, and routine report published by the businesses to the government and sector regulator. In the cross ownership case (Temasek Case), the Commission used financial data extracted from company’s financial statement as the basic reference in determining the consumer losses. Basically, the most important part was, the Commission will always try to avoid the use of single source to assist their calculation of harms.

ACCEPTANCE BY THE JUDICIARY AND BUSINESSIndonesia experiences that the acceptance of judiciary

on the economic evidences in valuating competition harms or damages is increased. The economic evidence has become new phenomenon as there is the need for new approaches consider by the judges at the objection level. Especially when faced by the lack of commission’s authority in forcing the alleged parties to provide applicable data and information.

Currently, the Commission recorded that over 190 decisions by the Commission, 78 of which are objected to the District Court. The result is quite significant, where it showed that 43.6% of objected decisions were in favor of the Commission. At the Supreme Court level, the number is higher. We noted that over 59 appealed decisions to the Supreme Court, 52.5% of which were affirmed in the favor of the Commission. This shows that the judiciary acknowledged the Commission’s approach on applied evidences, due process of law, and the correction order it self.

The affirmed decision can be executed through an order by obtained from the District Court. Some businesses are welcome at the order, as other might slower the payment process. It even sometime the business whom willing to comply with the fines and damages, try to negotiate the fines, while some tries to paid by installments.

Business is not about competition, written by Millind M. Lele in his book, Monopoly Rules (2005), but about the monopoly. Therefore, added by the alumni of the Harvard University, only silly persons are willing to sunder the

monopoly when it is on their hands.

Millind is right. This was what John D. Rockefeller did when his business octopus was disturbed. The man who developed his business at the age of 23 and sold all of his businesses to engage in oil refinery industry, was very angry. In oil business, Rock becomes big, rich and famous. At the same business, Rock was disturbed and resisted.

When Rockefeller was young, he was very good at using the momentum. When he entered the business, oil industry was booming. In 1862, he established Standar Oil and engaged in refinery in New York. As the transportation cost was very expensive, he lobbied train company extensively and succeeded. The Exclusive Dealing obtained was able to press the cost. Within a period of 4 years, 20 competitors were removed. Soon, Rock was succeeded in monopolizing the refinery throughout the US. In 1890, Rock started to conduct unfair business practice. As Adam Smith, the writer of The Wealth of Nations said, “people in the same business rarely met, but the conversation ended up with a conspiracy which loss the public or the idea to raise the price”. Rock fixed the price arbitrarily.

It is Ida Minerva Tarbell who made Rockefeller angry. Ida Tarbell was born in Erie County Pennsylvania, USA in 1857. Tarbell grew at oil areas and studied at Sorbon University, French. His father, Franklin S. Tarbell, also engaged in oil business, but removed by the expansion made by Rockfeller. As a “son of oil businessman”, Tarbell also felt the suffer of his father. As a journalist, he could feel how are the impacts of monopoly to the community economic life. The power of Rockfeller had made people not dare to speak, but not to Tarbell.

Then, he started an investigation. However, it was not easy to Tarbell to unmask the unfair practices committed by Standar Oil. The power,

wealth and influence of Rock and Standar Oil were very dominant throughout the United States. As described by Joel Bakan, in The Corporation (2004), corporations are used to removing any barriers which hinder them. Through lobbying, political contribution and sophisticated public campaign, they has changed the political system and collected public opinion to resist the regulations. Corporations also has philanthropic attributes. Through Rockefeller Foundation, Rock appeared as a philanthropist. The wealth and philanthropy of Rock appear very perfectly.

However, Tarbell was persistent. He knew he was not facing an ordinary person. In his book, Ida Tarbell, Patron Saint, Steve Weinberg noted the investigation style of Tarbell. He applied the Investigative Journalism. He used the paper trail from various documents such as transcript of hearing with the Congress (parliament), court files, validation documents and land certificates. He also searched various documents and hundreds of work papers which spread across countries. In addition, Tarbell also conducted interviews with some executives and owners of companies, competitors, government regulators, anti-trust law experts and academicians. He produced a surprising result. His paper on the monopoly of Standar Oil published in volumes on Mc. Clure Magazine from 1902 to 1904. This paper was then also compiled into a book, entitled The History of Standar Oil. Many people were surprised.

The disclose of the unfair practice committed by Rock made Tarbell a legend. Among journalists, he was called as the Muckracer. Rock was angry. His reputation dropped and he was embarrassed. He called Tarbell as ”Miss Tarbarell”. Based on the investigation, the U.S. President, Theodore Roosevelt punished Standar Oil by virtue of Anti Trust Act. Under Sherman Act, Standart Oil was split into 36 parts. Standar Oil may be broken into pieces, but his power was not. Until now, the inheritance of Rock is still triumphant. In Indonesia, Exxon Mobil is one of them. Breaking up the monopoly is not an easy work. It needs extra efforts as”Miss Tarbarell” did. Then, how about our investigators?

* Ahmad Kaylani, Head of Institutional Cooperation and Publication Division KPPU RI.

14kompetisia / vol. 2/2011 Newsletter on Indonesia Competition Law and Policy

FLASHNEWS

International Cooperation

Examination Hearing Open to the Public Audience with the Vice Regent of Bantaeng, at Bantaeng Regency, South Sulawesi Province

On February 9, 2011, taking place at the Working Room of the Vice Regent of Bantaeng, the KPPU Regional Representative Office (KPD) of Makassar conducted an audience with the Regencial Government of Bantaeng. The audience was conducted to establish relationship and improve the understanding on the business competition law at the region. The visit was conducted by the Head of the KPPU Regional Representative Office of Makassar, Mr. Abdul Hakim Pasaribu and staff and they were welcome by the officers of the Bantaeng Regency, directly led by the Vice Regent of Bantaeng, Mr. H. A. Asli Mustadjab.

During February-March 2011, in the framework of the international cooperation, KPPU have participated in the following activities:

OECD Competition Committee Meeting, held in Paris, France on February 14-18, 2011. KPPU contributed in the Roundtable Session - on the Quantification of Harm to Competition by National Courts and Competition Agencies (COMP), and also participated in the Global Forum on Competition. In this event, the Commissioner, Tresna P. Soemardi presented the report on the development of the competition agency in Indonesia.

JICA Country Focus Training, held in Osaka and Tokyo, Japan on February 20 – March 12, 2011. The activity constitutes a training for - the staff of KPPU on the theory and implementation of business competition law, policy and institutions in Japan. Eleven (11) staff of the Secretariat of KPPU were appointed to attend the said training.

Senior Officials’ Meeting I and Related Meetings – Competition Policy and Law Group (CPLG) Meeting, held Washington DC, USA on - March 11, 2011. In the event, KPPU was represented by the Commissioner, Anna Maria Tri Anggraini, who presented the advocacy in ASEAN and merger transparency.

KPPU-JICA Seminar on Estimating the Impact of Competition to Consumer Welfare, held at Borobudur Hotel, Jakarta, on March 16, - 2011.

Discussion on CPRC and Research Methodology, held at KPPU Building, Jakarta, on March 17, 2011.-

Roundtable Dialogue with Prof. Frank J. Sacker, held in Jakarta, March 22, 2011. The event was a lecture on indirect evidence and - evidentiary at the court.

The ICN Roundtable on Enforcement Cooperation, held in Washington D.C. USA, on March 29, 2011.-

In response to the ICN Steering Group Chair’s Second Decade initiative, ICN members expressed broad support for the ICN to continue to facilitate and possibly expand international cooperation. The ICN will hold a one-day roundtable (hosted by the U.S. Federal Trade Commission and U.S. Department of Justice) aimed at deepening the discussion of enforcement cooperation within the network. The program will address enforcement cooperation in merger, unilateral conduct, and cartel matters, and seek to identify cooperation-related issues for further ICN attention.

The 58th ABA Section of Antitrust Law Annual Spring Meeting, held in Washington D.C., USA, on March 30 –April 1, 2011. -

KPPU in the case on the tender for the Class C Patrol Vessel in the Export Credit Program at the Indonesian National Police has entered the Advanced Examination phase. Present as the Reported Parties are PT. Krida Kreasi Tirtasarana as the Reported Party I, PT. Mitra Usaha Logindo (Reported Party II), and the Indonesian National Police as the Tender Committee for the Class C Patrol Vessel of Export Credit Program (Reported Party III).

The hearing was open for the public and attended by the mass media and public. The examination hearing was divided into three different phases. The first hearing was conducted at 10.00 Western Indonesian time, examining the Reported Party I, PT. Krida Kreasi Tirtasarana. the second hearing was done at 13.00 Western Indonesian time by summoning PT. Mitra Usaha Logindo (Reported Party II) to be examined. Meanwhile, the third hearing was held at 15.30 Western Indonesian Time by inviting the Indonesian National Police as the Tender Committee.

The event which discussed the consumer protection antitrust was attended by Sukarmi (Commissioner) and Zaki Zein Badroen (Head of Advocacy Section).

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