for officiai, use oni,y

FOR OFFICIAI, USE ONI,Y
INDONESIA
FOURTH TELECOMMUNICATIONS PROJECT
Table of Contents
Page No.
iv
LOAN AND PROJECT SUMMARY
I.
1
INTRODUCTION
N. THE TELECOMMUNICATIONS
A.
B.
C.
M.
Background
Sector Organization
Network Facilities
SectorPerformance
Usage of Service
3
SECTOR
3
3
4
...
5
7
9
9
'Tl^^
I.:lrLrLJ
I ll9 Ex+i+"
Organization and Management
Staffing . .
Training
Audit
Billing and Collection . .
Accounting Systems and Financial Management
Management Information SYstem
Sector Development . . .
Sector Objectives
Key Sector Issues
THE BANK'S PAST EXPERIENCE AND ROLE
11
.
13
13
13
T4
15
15
16
20
20
Past Experience
Lessons l-earned
Rationale for Bank Involvement
10
2I
..
.
22
This report is based on rhe information supplied by TELKOM and on ttle findings of a Bank
appraisal mission comprising Messrs. A. Shanmugarajatr (Task Manager and Engineer), P. Smith
(Eionomist), and R. Piadhan (Financial Analyst), which visited Indonesia in December 1991. The
peer
reviewers for this project were Messrs. B. Wellenius, D. Joshi (ASTIF), Y. Takano (CFSPS),
-Stefan
Alber-Glanstaeftan (LA4TF), Mrs. M. Haug, Director EA3, and Mr. Peter R. Scherer, Chief
EA3IE have endorsed this report.
This document has a restricted distribution rnd may bc used by recipicnts only in thc pcrformancc
of their olficial duties. Its contcnts may not othcrwisc bc disclosed without World Bank authorization.
Table of Contents (Cont'd)
Page No.
IV.
23
THE PROGRAM AND THE PROJECT
23
Telecommunications Investment Program
Project Objectives
Project Description
Technical Assistance
hoject Costs
Projea Financing and Terms
Procurement . . .
Disbursements
Implementation . .
Performance Monitoring
Project Reporting, Accounts and Audits
Supervision Plan
Environment and Health Aspects
V.
25
27
29
30
32
33
36
36
36
37
38
FINANCIAL ANALYSIS
PERUMTEL's Historical Financial Performance
TELKOM's Opening Balance Sheet
TELKOM's Projected Financial Performance . .
TELKOM's Projected Financing Plan
vI.
24
24
37
39
.
ECONOMIC ANALYSIS
I-east-Cost Solution
Tariffs
Benefits
Rate of Return
Project Risks
VII.
AGREEMENTS REACHED AND RECOMMENDATION
Agreements Reached
Recommendation
40
42
43
43
43
45
46
46
48
48
50
lll
Page No.
ANNE)GS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
T2
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
52
Cellular Radio Mobile Telephone Service
MTPT Organizational Chart
Basic Telecommunications Sector Statistics
Supplyvs.Demand-HistoricalData
Telephone Service Issues
TELKOM Organizational Chart
TELKOM Employee Data .
International Development in Sector Organization
1992 - 1996 Investment Program
ProjeA Components . . . . . .
Terms of Reference
Procurement Packages and Schedule .
Disbursement Schedule
Implementation Schedule . . . . .
Performance Indicators . . . . . . .
Action Plan .
Historical Financial Statements
Projected Financial Statements
Assumptions Used for Financial Projections
Summary of TELKOM Tariffs
Return on Investments
Selected Documents and Data Available in Project File
53
54
:::::::
&
66
67
68
7t
75
78
81
105
107
108
110
111
Lt4
118
tzl
r23
t29
133
TABLES IN TIIE TEXT
15
2.t Key Performance Indicators . . .
""'28
4.1 EstimatedProjectCost. ....:
" " 29
4.2 Project finaniing
" ' 32
4.3 Procurement Arrangements
" " ' 34
4.4 Disbursement of Pr;posed Loan
' ' ' ' ' 38
5.1 Key Historical Finaniial Performance Indicators
' ' 40
5.2 tfirOM'S Opening Balance Sheet .
.
.
. 4l
Indicators
5.3 TELKOM's Kiy PrJjected Financial Performance
5.4 Forecasted Souices and Applications of Funds (1992-96) ' ' ' ' ' 42
MAPS: IBRD No.23237
23404
lv
INDONESIA
FOURTH TELECOMMUNICATIONS PROJECT
Loan and Proiect Summary
Borrower
Republic of Indonesia
Beneficiary
PT. Telekomunikasi Indonesia (TELKOM)
Amount
$375.0 million equivalent
Terms
Twenty years including a five-year grace period at the Bank's standard
variable rate.
$3?3 million out of the proceeds of the loan will be on-lent from the
grace
Government of Indonesia to TELKOM for 20 years including a
rate
interest
period of 5 years; the on-lending rate will be at a variable
pegged to Bink Indonesia's (BI) ttrree-month domestic money market
triint.tt (Sertifikat Bank Indonesia -- SBI) plus one percent. The rate
would be adjusted on January I and July 1 of each year, based on the
average of S-gt three-month maturity quotations during the preceding six
months. The remaining $2 million will be made available to the Ministry
of Tourism, Posts and Telecommunications (MTPT)'
On-lending Terms
Project Objectives
and Description
:
The project has two main objectives: (a) to improve sector performance by
promoting a regulatory regime conducive to competition in the provision of
ielecommunication services; and O) to meet the growing demand for
telecommunications services by enhancing ttre quality of TELKOM's
service, effective utilization of existing facilities, increasing system
efficiency and modernizing and expanding the nenvorks. It consists of both
(i) technical assistance and (ii) investments:
(i)
Technical assistance will help: (a) the Government in promoting
competition in, and developing the effectiveness of regulation of, the
professionally-run,
developing as
TELKOM
secror;
efforts O
ongoing
supporting
commercially-oriented enterpfise, by
improving
enhance human resources planning and development and by
its financial management and capaclty for invesffnent program
development and implementation (through decentralization where
appropiiate); (c) TELKOM in managing the implementation of the
pio.;eit investments. Overseas study fellowships would be available for
toth TELKOM and MTPT telecommunications staff.
o)
(ii)
in
a
Investment component, which would include: (a) provisionof switching
and cable networks to connect about 600,000 new t€lephone lines,
v
including provision of about 20,000 pay phones to serve the nonsubscribing public; (b) provision of terrestrial microwave backbone
transmission network to improve telecommunications service in Java,
Bali, Nusa-Tenggara, Kalimantan, and sulawesi; (c) rehabilitation and
replacement of obsolete network facilities; (d) provision of spares, tools
and test equipment to improve maintenance and repair facilities; and
(e) further computerization of TELKOM's operations such as directory
inquiry services and network management.
Project Benefits
and Risks
Benefits. Institutional support will assist the government to strengthen its
regulatory capability, which is critical to ttre success of the liberalization
efforts of the government. It will also assist TELKOM in improving its
performance as an effective and efficient entity operating on a sound
commercial basis. TELKOM's institutional development will be pursued in
a number of ways, including on-the-job and overseas training and technical
assistance to improve managerial, financial and technical capabilities. The
investment component will satisfy part of the unmet demand for
telecommunications services. lncreased availability of telephone service and
improved quality of service will make an important contribution to increased
business efficiency and productivity. The project will also continue to
further develop the local consultancy and outside plant construction
industries through collaboration with international firms.
Risks. The principal risk for the project rerates to TELKOM's capability
to implement the project. However, this risk is minimized by upfront
actions by government and TELKOM wherever appropriate. In this regard,
TELKOM has already shown its commitment to the project by establishing
a project implementation unit to oversee all aspects of the project on a full
time basis. In addition, adequate technical assistance is provided under the
project to assist TELKOM in the implementation and supervision of construction works. Residual risks will be minimized by agreed measures to
monitor project implementation, with corrective actions initiated as
necessary.
vl
Estimated Project Cost la
TOTAL
FOREIGN
LOCAL
BY ITEMS
(us$ MILLIOT9
--"--
36.6
40.8
t95.7
95.5
232.3
136.3
343.3
18.0
1t7.9
9.8
46t.2
15.7
103.9
119.6
13.8
36.5
50.3
Junction Network
Expansion
-
8.4
25.7
34.I
5.
Computer Support System
5.7
35.0
N.7
6.
Spare Parts, Tools
6.1
17.0
23.r
0.6
0.5
1.2
3.0
1.8
3.5
0.2
0.6
2.5
0.8
1.0
2.1
10.3
t.
Switching Exchange
Expansion
Rehabilitation
2.
Outside Plant Netrvork (OPN)
Expansion
Rehabilitation
3.
-
-
Transmission
Expansion
Rehabilitation
-
4.
&
Test
Equip.
7.
Technical Assistance
Capacity building
(i)
- MTPT
(iD
(iii)
. TELKOM
Training
- MTPT
- TELKOM
Projectlmplementation
Support
492.8
Total Base Cost
Contingencies
Physical
Price
Total Project Cost
lnterest during construction
ft
Total Financing Required
la
27.8
1.5
7.8
551.3
1-1'14.1
24.6
38.8
14.2
7.4
38.8
46.2
556.2
672.9
r.229.r
76.3
47.6
123.9
632.5
TELKOM is exempted from duties and taxes on imported items. Local
720.5
coets includc
1.353.0
VAT and otlrer taxes cetimetod
to bc about $111.8 million equivalent'
lb
*
USA (E:dm-Bank)'
Inlerest during constnrction is calculated by apply,ilg the_interest rates of ?.?3% on Bank, 3.1F
qr Frcnoh
Netherlands (igN-lrto Bank) and Spanishi 2.5% on Japanese; 7% evetage on KfW; and 5.495 rveragc
!o bc
cxpcotod
amount
avcrago
to
tho
to
TELKOM,
of
each
logn
the
onlending
to
applicable
plus
spreed
the
loans,
outstaniing in eactr yearof construction and by aiding commitment fee on thc avcrage undrewn emount of the loans.
vu
Financing Plan
FOREIGN
LOCAL
TOTAL
-----US$ MILLION-
%oF
TOTAL
TELKOM COMPONENT
Bank - IBRD
FRG
France/Credit Lyonnais
Japan (Sumitomo/OECD
Netherlands (ABN-Amro)
Spain
USA (Exim)
r34.0
24r.0
47_.5
54r'..9
1.1
720.5
r.353.0
100.0
52.0
100.0
84.0
497.4
TELKOM
GOI
50.0
75.0
1.1
Total
632.s
375.0
71.0
s2.0
100.0
84.0
50.0
75.0
28.2
5.0
4.0
7.0
6.0
3.7
6.0
40.0
0.1
7t.0
Estimated Disbursements
(Million
$)
IBRD FY
1993
t994
1995
r996
1997
1998
Annual
5.0
10.0
70.0
100.0
100.0
90.0
Cumulative
5.0
15.0
85.0
185.0
285.0
375.0
Economic Rate of Return: 23 percent
INDONESIA
FOURTH TELECOMMT'NICATIONS PROJECT
I.
INTRODUCTION
One of the key prerequisltes for a sound economic development ls the
1.1
and prlvate
avaiLabillty of adequat-e infrascructure facllltles for both publlccomponent
of
sector. Teleconmunicatlons has energed as an lnportant strateglc
IndonesLan
The lnadeguacles of the
these lnfrastructure facilities.
quantlty
and quallty, are a constralnt to
in
both
sector,
telecoumunlcation
-Four
key lssues need to be addressed
sustalned industrial and export grJwth.
Lo allevlate these constraints: (1) noblllzlng at least-cost the large
needed for massive investments to accelerate network expanslon and
""pia"f
(tl) developlng TELKOM into a nodern, conmerclalLy orlented
noiernizatlon;
organizatlon capabie of efllciently neeting telecornmunicatlon needs of prlvate
Inionesla; (111) lntroduclttg "pproprlate conpetltlon pollcy to Promote
sector entry lnto the sector; and (1v) establlshlng an effective regulatory
regime to Pronote comPetition.
As part of the evolvlng strategy GOI has demonstrated its clear
L.2
comnitnent to lnProve seccor p.riortance by funplernentlng a number of reforms
Prlvate sector
by: (i) beglnning the process of prlvatlzatlon by allowlng
equipment;
premlses
pio1rf"fort of tor,-f,"sic servlees,!1/ paglng and customer
prlvate
and
TELKOM
between
?iil lntroducing revenue sharlng agreements(f11)
lnltiatlng studies to
systems;
teLephone
cJllular
for
irr',,r""tot"
strengthen GOI,s capabillties to effectively manage the sector; and
(lv) Ihanglng pERWiEL,s legal status fron PERIIM (an enterprlse wholly owned
Uy ioverli"rrl; to a PESERO ili*tt"a liabllity conPany whoge capital ls dlvlded
called
tir fnares whlch are currently wholly owned by governnent)U now
lnportant
very
TELKOM to operate on connerclal principles. Ttris was a
nllestone in the commercializatiln of the sector. To lnprove ltsoninternal
a
efflclency, TELKOM ls restructurlng its organlzation toofoPerate
several
lnto
TELKOM
decentrallzed node to facil-itate g;adual restructurlng
reglonal subsldiary conpanies under a holding
u
u
comPany'
,,Baslc" telecommunications services are currently deflned ln government
regulatlons as telephone (lncludlng ce1lu1ar-noblle radlo telephone),
teiex, telegran and leased clrcuits; "nonbaslcr servlces are all other
network servlces, such as E-mail, Volce-rnail, lnfornatlon servlceS 9'$'
weather, share Prlces.
I
There are three categories of state-owned enterprlses ln Indonesla: a
services
PEF.JAI{ which ls primlrily oriented to the provlsion of soclal
to recover
expected
ls
(e.g.
PERImTEL)-whlch
rather than profit"; " PERUM
a PERSERO
responslbllltles;
the cosr of lervlces as well as iulfll soclal
(wlth
I
conpany
(llke P.T. Indosat) whlch ls a lirnlted llablllty
connerclal orLentatlon).
-21.3
GOI recognlzes the need to adopt further reforms to achleve l-ts more
ambltlous development obJectlves for the sector. These lnclude:
(1) developlng a second carrier to provlde modern teLecornnunlcatlons servlces
ln conpetltlon wlth TELKOTI; (fi) removing remalnlng barrlers to active private
sector partlclpatlon ln all non-basLc servlces as provlded under
TeLecomunlcatlons Law No. 3; and (i11) gradually shiftlng Government
responslblllty from ownershlp and management to pollcy and regulatl.on. Ttrese
reforms w111 be supported under the proposed Fourth Telecommunlcations
ProJ ect.
-3II.
THE TELECOI,II,TTTNICATIONS SECTOR
A.
Backcround
Sector Orcanlzatlon
The telecommunications sector in Indonesia ls dominated by PT.
2.L
Telekomunlkasl Indonesia (TELKOI{), the domestic telecommunicatlons service
provider. It is a liurlted liabillty company (para. L.2> whlch oPerates
approxirnately 1.2 nillion telephone llnes. A11 international
telecommunlcations services are provlded through PT. Indosat, also a linited
Llabi1ity company wholly owned by Government. In addltlon, cellular rnoblle
radlo telephone service ls provided ln che Jakarta-Bandung corrldor by PT.
RaJasa Hazanah Perkasa, a private linited liabillty comPany ln cooperation
wiltr tgIXOM in accordance with a revenue sharing agreement. And recently two
private lirnited liabillty companies operatlng on the (AI'IPS-A) system have also
been authorized to provide cellular service in Jakarta and East Java in
cooperation with TELKOM. Details of this service are in Annex t. VSAT
(rnainly data) satellite private network teleconrnunications services are
provided by PT. CSM, a private comPany, in accordance ltith another
interconnection and revenue-sharing agreement with TELKOM. Besldes the publtc
network, dedicated network facilities are owned and operated by the National
Elecrricity Corporation (PIlf ) , the state o11 company (PERTAI'iINA), the state
railway (PJKA), the Indonesian armed forces and by other users wlth special
requirenents. In addition, many private and public enterPrises lease circuits
from TELKOM to establish private networks. PT. Intl nanufactures or assembles
telephone i.nstruments, radio and multiplex equlpment, satellite ground statlons, and digital swltching equipment based on a Siemens license. PT. Inti
also provldes support services to TELKOM and Indosat in areas of exchange
planning and the installation, testlng and maLntenance of switching and
transrnlsslon equlpment. Recencly two private sector companles ln Jolnt
ventures with AT&T of USA and NEC of Japan respectively have been allowed to
nanufacture digital switching equipment ln conpetitlon with PT. Inti. Ttre
priee ro TELKOM, reportedly averaging about US$250 to 300 per llne (including
power suppl-y, englneering, installation, excluding taxes and duties) is
-ourparable to those prevaillng ln lnternational markets. There are also four
private lfunited llability companies rnanufacturing cables and 14 snall
prlvately owned rnanufacturers of teleconmunicatlons equlpnent. The user
cornrnunl.ty ls relatively unorganized and there ls no natlonal telecornmunication
users assoclatlon ln Indonesia at present. However, the Larger business
users, Indonesla Chamber of Commerce and computer users have begun to voice an
lnterest ln telecommunicatlons lssues.
The GOI has effective control of the sector both by vlrtue of the
2.2
Governmentrs statutory authority over public teleconrnunlcatl.ons and radLo
Ilcensing and as ordner of the maJor sector entltles, TELKOM and Indosat. Both
TELKOM and Indosat are accountable to the Ministry of Flnance. However, the
Mlnlstry of Flnance has del-egated the authority to Minlstry of Tourlsm Posts
and Teleconmunicatlons. Tariffs for public teleconmunicatlons servlces must
be approved by the Mlnlster of Tourlsm, Posts and Teleconnunlcation. The
-4Secretary General of the Ministry is responsible for administration of the
Minlstry and advises the Minister on sector policy issues. The Directorace
General for Posts and Telecommunications (DGPT) is responsible, in the area of
teleconrnunicatlons, for regulation and radio licensing. currently, the
Dlrector General is the Chairman of the Board of Comrnissioners which oversees
TELKOM operations and reviews its investment plans, budgets and tariffs.
In
additlon to MTPT, important roles are played by the Ministry of Finance, the
Natlona1 Development Planning Agency (BAPPENAS) and the State Mlnlstry for
Research and Technology (BPPT). The Ministry of Finance approves budgets and
oversees TELKOM's financial performance. BAPPENAS coordinates and controls
the goverrunent five year planning process (Repelita) and approves investment
pLan and fundlng. BPPT has a lead role in determining the tirning and
introduction of the new Eechnologies that are to be used. The organization
chart of the MTPT is in Annex 2.
2.3
rn early 1989, new telecommunications legisl-ation was passed. The
nost significant change from the previous legislation ls that TELKOM, s
monopoly in the provision of domestic telecommunications \{as nodified to
perurlt the provision of nonbasic services by other public and private
entltles. Pursuant to the new legislation, regulatlons for the provlsion of
nonbasic services by other entities were published during 199L.
Network
Facllltles
2.4
Local Exchanges. Total installed exchange capacity in IndonesLa at
the end of 1991- was L.5 million line units, of whieh 1.2 milrion were
connected --- glvlng an exchange fill ratio of 8OZ. over 93r" of 1ocal
exchange lines are automatic, of which 507. are now digital. At the end of the
proJect (end 1-997) the number of working lines is expected to increase from
L.2 nillion to 3.2 million (a L67% increase). Over 997" of the local exchange
llnes woul,d be automaEic and mostly digital. To handle rhe addltlonal trafiic
from lncreased customers and to improve the present traffic congestion
(para. 2.L4), a signlficant expansion of the interexchange network in Jakarta
and other multi-exchange areas with new and large capacity tandem exchanges
wiLl be provided under the proposed project. Existing network facllitie"
described ln Annex 3.
"r"
2,5
Outside Plant Network. 0utside plant network reliability needs to
vastly lmproved, by upgrading technology and mai.ntenance efficllncy to
exploit the potential beneflts of sophisticated technology adopted foi other
Parts of the network such as switching and transmission. Under the Third
Teleconmunlcatlons ProJect (Loan 3L82-IND), TELKOM will be establishlng twelve
out of x}:.e 27 planned outside plant maintenance centers (OPMC)--five in
Jakarta, t\to in Surabaya and one each in Denpasar, Medan, Palembang, Semarang
and UJung Pandang to offer customers in those cities significanc irnprovenent;
ln servlce provlsion and repalr time. Wtren these centers are completed in rnid
L993 and staffed with competent staff, the fault rate is expected to fall fron
about nlne faults per l-00 working lines per month Eo approximately five. At
the same time, productivity will improve from one to three faults repaired per
llne-rnan per day and the faults cleared within 48 hours of fault occurrence
w111 be ralsed from 30 Percent to about 70 percent. A similar approach also
be
-5to be taken to improve the performance of the outside plant network ln
other cltles, thereby lmproving the reliabillty and quality of service
countrywlde. TELKOM has agreed to have the remalnlng fifteen OPMCs
established by L996. Annex 3 gives data on the share of faults ln the outside
plant networlc, speed of service restoration and OPMC expanslon pl-an' TELKOM's
i.tg"t for year ZOOO i" to achieve one fault per 1"00 worklng lines,
proiuctlvity of five faults cleared per line-man per day and repalr 901 of the
iaults wlthin 48 hours. The proposed project provides for rehabilltatlon,
modernlzatlon and expansion oi the outside plant network to achleve the above
needs
obj ectives
.
Long Distance Network. The long dlstance net\tork ln Indonesia is
2.6
comprisedffingesinterconnectedthroughmicrowave,sate111te, dlrectoptical flbre, coaxial cables and open-wlre systems. Long dlstance
subscrlbers.
dial service ls avallable to most but not all autornatlc local
(LDD)
but only 841
All customers in Jakarta have long distance dlrect-diallng
of 931' Long
average
a
nationwide
of the customers elsewhere have LDD, givlng
the
under
expanded
and
distance transmission systems will be augmented
proposed
and
existlng
The
quallty.
proposed proJect to lmprove LDD service
Iong dlstance networks are ln Map 23404.
palapa Domestic Satellite Systen. TELKOM presently oPerates C\to
2.7
sarelllres, falaJ--B,-f , and Palapa-B2R, launched in 1987 and L990
Annex 3
respectiveiy. tire design-Iife time of both satellites ls 8 years' the
optlnlzed
not
sunmarizes the customer base for Palapa. TELKOM has
rnarketing and service potential of these satellites. Therefore, the current
organizaiion needs to be strengthened to increase revenues from Palapa
satellite services by: (a) establishing a well-developed rnarketlng to offer
organLzatlon and strategy for Palapa; "ta (U) developlng capablllties
value-added services wii| proportionally high custoner value and revenue
earnlng capaclty instead of merely contractlng raw transmlsslon capaclty'
The onlol"g Thita TeLecomrnunicatitns Project suPPorts a study to examlne the
options to separate Palapa operations from TELKOM and the proposed Fourth
Teleconmunications Project would provide technlcal assistance to lnplement the
agreed flndings of that study (para. 2.36>.
InternaClonal Facilitles. International teLeconuunlcatlons servlces
2,g
located in
ln Indonesia are accessed via two international gateway exchanges
satelllte
and
cables
Jakarta and Medan, interconnected through submarine
161'9 lnternatlonal
clrcuits to 1g5 countries. At rhe end of fggO, there werep.a.
International
201
circults, up from 248 Ln 1980, a growth rate of about
the rate
well-above
perlod,
traffic has increased by 261e p.a. during the same
ls
trafflc
internatlonal
of
of growth ln the number of circuirs. The naJorlty
USA'
buslness related and mostly to Japan, Singapore, and
Sector Performance
(a)
Access
to
Service
Telephone. Ar rhe end of L991 there were 1.2 mllllon worklng llnes
2.g
!n operation in Indonesia, giving a denslty 0.58 llnes per 100 population,
which compares poorLy with other countries and ls the lowest ln the ASEAI'I
-5countries (Flgure 2.L), Furthermore, telecomnunicatlons servi.ces are
concentrated ln urban areas. Jakarta, wlth only 9.41 of the populatl.on, has
about 371 of the telephone lines. Outside Jakarta, Sumatra, Sulawesi and
Maluku are better served than the rest. In 1991, penetration was 5.6 l/ per
100 populatlon in Jakarta, but averaged only 0.40 per 100 for the rest of the
country (ranglng from a htgh of 0.60 per 100 in the best served part to 0.33
per 100 ln the worst served part of the country). Regional distrlbution of
telephone servLce is given ln Annex 3. PubLic telecommunications service is
currently avallable to all- 27 provinces, 55 rnunicipalities , 236 distrlct
capitals and 2,859 of the 3,539 subdistricts. But only approxinately L0,000
villages of the 57,600 have telephone service. International direct dialing
access to 185 countries is avallable to 7 percent of subscribers ln 28 cities.
407 telephone service retail shops and 14,000 public pay-phones provide access
servlce to the nonsubscribing public. TELKOM's target is to allocate 2.5
percent of the locaL telephone llnes to provide pay-phones which will be
financed under the proposed proJect. This is comparable to the standards
folLowed by other telecommunication administrations.
Figure
*,f/
2.1:
Meln Llne/lfi) persons
.d
"ty''.,rno.oud
*d
s.nd
2.L0
Telex. Aside from telecopier (facsirnlle) that ls transmitted over
the telephone network, telex ls the most lmportanc non-voice service in
Indonesia and accounts for approximately 4l of TELKOM's operatlng revenue.
u
Conpared
wlth 25 ln
Kualalumpur and 11.8
in
Bangkok.
-7of telex llnes is expected over the next flve years because
of slgnlficant substituclon by fax and data. Installed telex swltchlng
capacity ls sufficlent to meet demand up to year 2000 and no further lncrease
Only rnodest growth
w111 be required.
Telegraoh and Data. Telegram servlce ls provlded at affordable
z.LL
prices through-a network of 680 telegraph offices. At the end of 1990, there
were aLmost 2,300 voice and about 500 data leased circuits ln the country.
There are approxlmately 260 subscribers in Bandung, Jakarta, Medan, Surabaya,
Padang and Batam to TELKOM's packet-switched data service, (Sambungan Data
packei--SKDP). SKDP is also connected through the faclliCles of PT. Indosat
to international packet-switched services Ln 26 countrles. Servlce ls saLd to
be slow and unreLiable due to poor quality of the outslde plant network (para.
2.5). Alchough a number of value-added services that are deflned as non-baslc
have been open to private operators since L989 (para. 2.3), clear guldellnes
and sirnple licensing procedures need to be developed to attract Potenttal new
oPerators.
(b)
Denand
for
and SupPl.rr
of
Services
As of December 31, 1991, only 70% of the expressed denand (worklng
2.L2
lines plus registered applicants) for telephones was satlsfled, down frorn 891
in 1980. How-ver, the total number of registered appllcants llst gren fron
45,000 to 520,000 as che 10% p.a. cumulative average network growth falled to
match the 13.51 growth in demand over the perlod. Since 1980, the gap between
expressed demand for telephone service and avallable telephone llnes has
wibened (Figure 2.2). These figures underestlmate actual demand because many
potentlal residential customers do not sign up because the backlog is so
i"rg.. One factor whlch worsens long waiting lists ln many developing
countries is low connectlon charges. However, IndonesLa has hlgh connectlon
charges. TELKOM projects expressed demand to lncrease by 191 p.a. to 5.0
nllllon by 1997, with total demand estimated to reach 8 rollllon llnes. Slnce
the conmencement of the Third Telecommunications Project, the annual groltth
rate in worklng lines has increased from about 81 ln 1989 to L81 ln 1990.
Over the perlo- 1990 - L996, the annual rate of growth of working llnes ls
expected to exceed 207. p.a. (Figure 2.3). At the end of L996,80I of the
exiressed denand wiLl be satisfied, increase fron 701 Ln L99l' (Annex 4).
Despite rehabilitation efforts and large increases ln investment and
growth durlng the decade, the supply of telecommunicatlons facllltles and
fervlces w111 remaln lnadequate relative to denand throughout 1990s.
Therefore measures to funprove the efflciency of network use are crltlcel.
Such measures were begun as a part of the Thlrd Teleconmunlcaclon ProJect
(paras, 2.5 and 2.14). Ttrey lnclude lmproved repair tlne, irnproved trafflc
engineerlng, network rehabilitation and improved tariff structure. More,
however, needs to be done. Implementation of an actlon Program to further
lnprove efficlency wiLl be part of the project (para. 4.30)
2.L3
-8(c) Ouallty of
Servlce
QuaLlty of telephone service is poor. Annex 3 presents the
call completion raEes (SCR) which were on average 40 percent for
automatlcally dialed local calls and 20 percent fu/ fox long dlstance directdlaled calls ln Indonesia. Typical call completion rates of wel-l dlmensioned
networks ln other countrles are 80 pereent and 60 percent, respecclvely.
Issues contributlng to low.call completion rates and strategy to address these
issues are presented ln Annex 5. This strategy, which is supported by the
ongoing Thlrd Telecommunicatlons Project (Ln 3l-82) gives priority to effective
capaclty utlllzatlon, replacement of old cables and obsolete swltchlng
systens, rehabilitation of local networks and increase in the traffic handling
capaclty of the sysLen. In addition to the investment component, the
technlcal assistance provided under the Third Telecommunlcations ProJect ls
developing TELKOM capacity to perform on a continuous basis measurements,
analysls and forecasting of trafflc to provlde a reliable data base for
network optimlzation. Much more needs to be done to improve the network's
trafflc handling performance. One of the key objectives of the technical
assLstance provided under the proposed proJect (para. 4.9(c)) is to help
TELKOI{ to establlsh a suitable organization for traffic planning, network
operatlon and management to detect changes in traffic flow and indlcate when
to take actlons to prevent netvrork congestion and service degradation.
2.L4
successfuL
Usase
of
Service
An analysis of the bilLing data (Annex 3) shows that 201 of the
subscrlbers (200,000) provide 75 percenc of the revenues which is conparable
wlth other telecommunications administrations. Untll the Bank's Third
Telecommunicatlons ProJect, TELKOM did not distlnguish between resldential and
buslness subscribers nor revenue generation by type of user. TELKOM
establlshed ln November 1990 in Jakarta a Customer Service Group (CSG) to give
special attentlon to the needs of key customers speedily and effectiveJ.y.
Based on experience gained, through the CSG operation, TELKOM plans to
establlsh units ln other regions to serve the speclfic needs of: corporate
custoners and maJor business customers. Bllllng data also reveals that a
large number of customers are not generating any originating pulse revenue for
TELKOM. Hence TELKOM needs to examine this category and take action to adjust
the nonthly rental so that all lines cover at least their incremental costs
2.L5
(para
. 6,4) .
U
Compared
to
Japan 71-, Malaysia 50, Singapore 70.
-9-
2.2:
Flgune
Figure
Expressed Demand vs. Waiting Applicants
Historical Data in Indonesia (1980-1990)
Annual % Growth of Actual and
Projected Number of l\rlain Lines
2.3: TELKOM -
26
20
l6
to
6
o
roSG
l9t7 l98t
toEe lgeo lo91 leo2 toeE t904 1996 l80c
N&rurt
lSSlpro1rotrd
-10B.
The
Entlty
Organlzatlon and ltanagement
24, L991, the GOI changed the corPorate status of
PERWTEL to a llmited Liability company (para. L.2), thereby reflectlng the
lncreased commercial nandate and autonomy of the conpany. At the same time
lts name changed to PT. Telekomunikasi Indonesia (TELKOM). TELKOM ls nanaged
by a Board of Directors,!,/ who are appointed by the Mlnister of Flnance and
are accountable to the Minister of Finance and headed by a President-Director.
The Presldent-Director has authority for all operations of TELKOM. In
addltion to the President-Director, the Board includes five other directors
with functional responsibility, respectively, for devel-opment and logistics,
servlces, operations, finance, and human resources. Operational
responslbillty devolves to L2 regions, and responsibillty for maJor
development proJects co 3 project-managers. Also reporting to the Board are
several staff units responsible for Corporate Planning, Research and
Development; Education and Training; Information Technology; and the Corporate
Inspectorate, an internal audit-unit. TELKOM's existing organizational
structure is shown in Annex 5. There have been no changes in the top
rnanagement, appointed in 1988, with a mandate to bring about needed reforms.
The management team is dynamic and forward looking and has inplenented a
ntgnber of reforms lncl-uding lmproving scaff comrnunications, streamlinlng
2.16
On Sepuember
procurement systems and irnproving accounting and
financial
systems.
As discussed in Section A of this chapter, TELKOM is expected to
rapldly in the 1990s. Its new customer connection race would grow frorn
over t5Z per year at present to over 207" per year by L995, and sustained at
that rate through to the year 2000. The raptd expansion of network capaclty
lnvoLves lncreasingly complex technical, financial and managerial tasks for
whlch TELKOM needs to continue to strengthen its institutional capacity.
Areas that need strengthening have been recognized and action Programs are
either already underway or planned, in many cases with assistance fron the
Bank. To bring abouE many of the necessary instltutional improvemencs,
TELKOM, under the Third Telecommunications Project, entered Lnto a twinnlng
arrangement in March 1991- wirh the Korean Telecommunlcations Authorlty
InternationaL (KTAI). The areas that are being strengthened include corporate
planning, operations, finance and project implementation.
2.L7
grow
Illth the change in corporate status to a limlted liabtllty comPany
the gradual introduction of competition, TELKOM management has
wellas
as
taken a number of policy decisions and actions to delegate decision-naking
responsibllity and accountability down to the lowest feasible levels in the
organization and to establish focused strategies for serving the needs of
dlfferent cuscomer groups, As part of these policy and organizatlonal
changes, TELKOM would reorganLze itself into six signlflcantly independent
operating reglons and 43 strategic business units (SBU) Lnstead of the current
2.L8
y
The
the
ls comparable to an executive
dlrectors are full-time employees.
Board
nanagenent
conrnlttee.
Each
of
-11
-
functlonal structure, Because of skill mix and staff avallabllicy factors, it
ls lntended to inplement the decentralization in phases. The flrst phase
would be centered on Jakarta as this account for about 407 of TELKOM's
busl.ness. Based on experience gained, TELKOM plans to extend full
decentrallzation to the remaining regions over a period of four years
beginning L992. The Bank fully supports the proposed restructuring and the
technical assisEance provided under the proposed loan will help TELKOM to
adopt a practical, structured approach to nove towards a flexlble and
responslble structure.
Stafflnq
2.L9
A sumrnary of TELKOM's staff efficiency and staff composition is in
7. With about 40,000 employees aE the end of L991, TEIXOM's staffing
ratio of 32 staff per 1000 telephone lines is high as compared with Korea (5),
Malaysia (20), Singapore (14), and Thailand (18). However, there have been
significant improvements in TELKOM's staffing efficiency in recent years, as
shown in Figure 2.4. This has been possible partly due to growth in the
number of main lines connected while holding the total number of staff
virtually constant and partl| due to contracting ouc a nunber of non core
services such as local cable network design and its constructlon, maintenance,
and Janltorial services. With the very substantlal quantities of highly
rellable dlgital equipment to be installed in the coming years, TELKOM Is
expected to achieve a staffing ratio of L6/I,000, which would be comparable to
that of the ASEAN countries.
Annex
2.20
There are also serious imbalances in the mix of TELKOM employees.
For example TELKOM's work force includes only 1,800 university graduates.
That ls only 4.5 percent of total staff, a very low figure for an entity
enploying highly sophisticated technology. This ratio would be about 10 to 15
percent ln developed telecommunications entities. To funprove lts staffing
efficlency and in order to address the staffing imbalance, TELKOM, in 1-991lnltiated a program to inprove the planning and control of hr:nan resources,
referred to as the Human Resource Model (HRlt). Work was carried out initially
in Jakarta to identify the actual composition of staff and the nature of their
work, to PrePare a forecast of staffing requirements by Jobs and to estimate
tralning and recruitment by occupational category. Preliminary findings
confirm previous assessments that staff is unbalanced, and the organization
faces a rnajor task in reallocating and retraining existing personnel. A
detailed training and recruitmenE plan will be avallabLe for Jakarta by
June 30, L992 when the consultant financed by TELKOM conpl-etes his assignnent.
Tralnins
2.2I
To address ics training challenges, TEIXOM has a separate department
for tralnlng. This department known as PUSDIKIAT pLays an lurportant role in
TELKOM's efforts to upgrade skills of its technical and administratlve staff
and managers. There are twelve reglonal training centers (RTCs) wlth a staff
about 657, lncluding 175 instructors. An upgrading program for both the
central training centre (CTC) and RTCs, initiated with UNDP-ITU cooperatlon
and supported by the ongoing Third Telecommunicatlons ProJect, is currently
being lnplemented. Under this program, TELKOM will decentralize nuch of
-L2technlcal, adninistrative, operational and supervision tralnlng to RTCs and
run the CTC as a resource center. In addition, in part because of the huge
distances in Indonesia, distance learnlng techniques are also being developed.
Computer-based training is in the early stages of development.
STAFF PRODUCTIVTTY
(Staff per 1000 malnllnes)
In addition to reforms already underway, TELKOM needs to make some
in its training program in order to move from the existing
corporate culture embedded in civil service actitudes to one which ls more
buslness orlented. The main aim is to transform TEIXOM staff into an
efflclent, educated, well-tralned and motlvated work force whlch w111 be able
to rrxr teleconmunlcattons as a connerclally orlented, efflclent enterprise.
Success will depend critically on instilling new attitudes and developing new
skllls ln all levels of nanagement. This w111 be a long-run contlnuing
process. Technical assistance provided under the proJect wlII support the
trainlng plan currently under formulation (para. 2.20). An early step ln
changlng TELKOM's corporate culture would be to recrult skilled personnel from
2.22
strateglc
changes
-13the private sector nanagers with proven managenent skilLs to some of its
rnlddLe and senlor management positions. Durlng negotlations an understandlng
was reached that TETKOM will follow this approach and will incorporate this
lnto lts recruitment obj ecti-ves.
Audlt
accounts are requlred by its charter to be
audits are carrled out following
The
audited by Government
practlces
and standards. Although PERIIMTEL's
accounting
general-ly accepted
past, special efforts rnade by
qualified
in
the
been
audit reports have
pERUMTEL,s management since L988 have resulted not only ln it receiving for
the first tlme an unqualified opinion from the audltors for the 1989 accounts,
but also in finalizing the unaudited accounts within three months of the
fiscaL year end. Audits for the 1990 accounts were also unqualified and were
submitted to the Bank within nine months of the close of the fiscaL year as
per audit covenant under che Third Telecommunications Project. During
negotiations, TELKOM confirmed that unaudited and audited corporate accounts
toi fff 1992 and thereafter will be submitted to the Bank wlthin four nonths
and slx months, respectively, after close of the fiscal year.
2.23
Bllllng
As
for
PERUMTEL, TELKOI,I'S
auditors.
and ColLectlon
bills are currently prepared uronthly and issued wlthin
period. Overall collection performance is
blLling
ten days after the
satisfactory with accounts receivable at the end of 1991- at 40 days of btlling
for the y""r. This performance has been mainly due to the good collectlon
performance for prlvate customers. The collectlon fron government users,
which was poor in the pasc, has improved with various progressive steps
introduced in 1990 by TELKOM. The accounts receivable for government
subscrlbers at the end of l-991 was about five months of bilLing. Durlng
negotlations an understanding was reached with TELKOM that to further lmprove
accounts receivable from Government subscribers, TELKOM will continue taking
actlons to ensure that the amounts owed to TELKOI{ by all government users w111
not be overdue ln the aggregate by more than two months of total blLling to
2,24
Computerized
such users.
of accounting data and preParation of
chart of accounts ltas lntroduced in early
a
new
financlaL management reports,
L989 in TELKOM,s head office and all regional offices. A cornputerized general
ledger progran was lmplemented in head office and regional offices. Ihese
iniiiatlv.i h".,re helped immensely to prepare timeLy and accurate financlal
reports. ConsequenEly, since l-989 annual financial accounts have been closed
within three months of the close of the fiscal year as cornpared to seven
months for L988 accounts. In addition to the benefits resulting from
standardizatlon of input data, the new chart of accounts allows Preparatlon of
accounts at the subregional level and facilltates budget nonltorlng and
preparation of regional flnancial statements.
2.25
To lnprove the timeliness
-L42.26
Moreover, for TELKOM to effectively operate as a conmercial entlty,
it needs to efficiently manage its financial assets and develop a strategy ior
securing and dlversifying its financing sources. Internal cash management
needs to be improved in order to reduce cash in transit and reduce nonlnterest bearing cash balances. In order to carry out these tasks, TELKOMTs
treasury function needs to be strengthened to enable it to assess the best
financing techniques for its development, issues securities, manage its cash
and liabilities and assess foreign exchange exposure.
2.27
With the planned decentralization, TELKOM needs to review and revise
its accounting policies, systems and procedures. Areas that needs attention
are (i) budget management, (ii) financial projection, (iii) cash-flow
projecclon and (iv) cost accounting systems to reflect real costs.
2.28
Financial data have not been fully used by TELKOM's management as a
tool for operational control due to the weaknesses in its internal financial
systems, lack of adequate qualified finance staff both at the headquarters and
regions and ability of management to understand financial information. The
technical assistance component under the ongoing Third Telecomrnunications
Project, through the provision of overseas fellowships and secondments to
other teLecommunications organizations for TELKOM managers and finance staff,
is assisting TELKOM to upgrade the skills of the Finance Directorate and build
TELKOM's management capacity to use financial data in the management of its
operations. However, more needs to be done both in training and ln irnproving
the financial management systems and proeedures.
2.29
During negotiations, agreement was reached to implement an action
plan (para. 4.30) to continue to upgrade and strengthen TELKOM,s accountlng
systems and procedures, and financial functions. The proposed project
provides technical assistance to assist TELK0M in its efforts,
""p"-i"lly to
introduce a cost accounting system, upgrade the management accounting
and improve the treasury function, and provide funds for the necess"iy"y"t"t
loreign
trainlng required and the software and hardware for cornputerization needs. ett
important task of the consulEants Eo be employed under the project will also
be to carry out a diagnostic study co identity ttre staffing .t"6d" and prepare
the necessary training programs and provide training in their specific areas.
Management
fnformation
System
2.30
Quality of information currently available to managers needs Eo be
vastly improved. Existing reports are primarily financial and statistical,
and virtually nothing has been done to provide information tailored to the
needs of lndividual middle and senior executives. For example, no tlrnely and
accurate inforrnation is readily available on performance in handling service
complaints or requests. The exiscing Personnel Information System (SIMpEG)
cannoc provide sufficlent information on where employees work and what they
do. This information is being provided by a parallel system, the Human
Resource Model (HRM). TELKOM recognizes that there is a very great need for
systems integration, and che provision of information which wiil allow
managers to monitor business performance. Consultancy proposed under the
proJect (para. 4.9(b)) would help TELKOM wirh an appropriare Mrs sysrem.
-15Overall,
2.3L
TELKOI{ management
is
aware
of the instltutlonal
shortcomings ouClined here and they have slgnificantly lmproved TELKOM's
performanci wlth the assistance of several donors, lncluding the Bank, over
ihe last three years. I,ltren courpleted by end L996, the ongoing Program'
includlng the proposed project, will maice a signlflcant contrlbution towards
of the
allevlatlng th; .Lrt"ot- service shortcornlngs and uPgradlng^the quallty
domestic ttleconrnunlcatlon services. A surnnary of key perfornance lndicators
to be achieved at the end of the project perlod is given ln Table 2'L'
TabLe
2.1:
KEY PERFORMANCE INDICATORS
Flscal year ending December 31
1991
Total l'lain Lines (millions)
Call cornpletion rate
- long dlstance dlrect dlaling service
3. Staffing/l,000 main lines
L.
2.
L.2
4. Rate of Return on Net Fixed Assets
5. Net Internal Cash Generation
c,
Sector
L996
3.2
20r
427
32
15
2LT
297
4LZ
48r
DeveLopment
Sector Oblectlves
The Government's policy for economic develoPment ernphasizes
2.32
(a) rnaxlnLzLng export earnings by promoting the developnent of key support
servlces to exPorters, (b) expan-dlng the opportunltles for and the capaclty of
the prlvate settor to participate in Indonesia's development, (c) increasing
the Lfficlency of the public sector, and (d) pronotlng baLanced national
development bi reducini the development irnbalance between urban and rural
areas and between Java and the rest of the country. A prerequisite for
aehieving these goa1.s is the provision of reliable and efflcient systems for
the transmission and processing of information, which in turn requires an
efficlent countrpide telecommunications network. Therefore, the Government's
obJectlves for the telecommunications sector are to:
(i)
increase access to modern and efficient teleconnunicatlons
services ln urban and rural areas, thereby contributing to
gror^rth and efficiency of the private sector and to the
achlevement of the Governmentfs soclal and econonlc obJectlves;
11)
increase the commercial orientacion and efflciency of the
entities ln the tel-ecommunications sector;
111)
improve service quality and TELKOM',s productivlty through
increased network automation, use of modern technologies,
(
(
-15lmprovement
Erainlng;
(iv)
of organization and management, and increased staff
and
:::il;iiiil',3:ffii:: ;:HIIli*il; il:::l:i:i il';"lllli
Eelecomrnunications sector.
.n"
Kev Sector Issues
2.33
To successfully meet these challenges the following key seccor
issues need to be addressed: (i) How can the massive investments, required to
meet the needs of modern businesses as well as to improve access to service in
both urban and rural areas be funded? (ii) How can Indonesia most effectively
access best management and operational practices? (iii) How should conpetitiln
policy be introduced? and (iv) What would be the most effective institutional
framework
to
promote system
efficiency and responsiveness?
2-34
Investment and Financing. TELKOI,I's I992-Lgg6 investmenr program
maximum feasible given the financial resources and
inplementation capacity. However, it falls short of what is needed to meet
outstanding applications for telephone lines, satisfy new demand forecast to
arise in the period and initial investment for the flllowing period.
Traditional project financing from ltrorld Bank, Asian oevelopmlnt Bank and
bilateral sources as well as TELKOM's internally generated funds will not be
adequate to accelerate expansion and modernization to meet all demand by 2000.
Hence' GOI/TELKOM need to actively consider complementary approaches to bring
private sector capital into the sector (para. 2.3g)
(para. 4.1) is the
2.35
Management and Operational Practices: To provide needed operational
autonomy and improved incentives for efficient and effective management, GOI
in septernber 1991 converted PERUMTEL from pERUM ro pERSERO (i.e. to a limited
liability company). This was a very important milestone in the
commercialization of the sector. With this conversion, the new company, pT.
TELKOM has the mandate to adopt a commercial (business-oriented) approaeh
and
Pursue private sector equity participation in accordance with the presidential
Decree No. 55. In a similar vein, in order to improve its institutional
efficiency and effectiveness, TELKOM has recognized the need to decenttaLize
oPerations and management from headquarters to the regional offices and
concentrate strategic decision-making and planning, possibly under a holding
comPany structure. This will enable TELKOM's regions to progressively devefop
into independent operating eompanies with little need for- day-to-day
from headquarters. Such a structure would provide a basis for comparison
"rrppott
of
performance in cerms of efficiency and service quality. Given the need for
greac improvements in performance, the ability to makl such comparisons is
likely to be of considerable value to TELKOM's management. rn the longer term
each of the regional operators may be authorized to enter into joint venture
with reputed foreign operating companies to improve their perfoirnance and
attract foreign capital. A key objective of the proposed proJect is to assist
TELKOM to oPerate effectively and efficiently as a market-oriented company.
Successful lrnplementation of these massive organizational changes will reluire
substantial technical assistance which will be supported by the proposed
project (para. 4.9(a and b)).
-L7_
Competttlon and Prlvate Sector Partlclpatlon: TELKOM presently
faces virtually no competition in the provlsion of teleconmunications servlces
and, therefore, tr"" not been pressed to improve performance. The experLence
of other countries has confirned the potential and power of competltlve
narkets (Annex 8). Recognizing the merlts of conpetitlon the GOI l.s keen on
using competition as a key pol-icy tool to promote efficiency and innovatlon.
It his alieady introduced compecitlon in uhe provlsion of termlnal
equipnent ,61/ xeLecornmunication service retail shop (I.IARTEL) and non-baslc
services. GOI ls now considering creating a second carrler, posslbly wlth
prlvate equity participatton of a reputed foreign teleconmunlcations oPerator
to provide competitive radio-based telecommunications servi.ces. Ttrere are
several r"y" oi designing and implementing Ehe second carrier which should be
revlewed. In responie to GOI's request, the Bank ls supportlng through the
Third Telecommunications Project analytical work to assess the role of the
second carrier, and to Prepare business plan.
2.36
There are many htays to increase private i.nvestment in the
telecommunlcations sector, including authorizing increased (prlvately
financed) conpetition, build/xransfer (B/T) revenue-sharlng schemes, issue of
debt or equlty securities by TELKO!{ to private lnvestors, Joint ventures wlth
private lnvestors or full privacization. At Present there are slgniflcant
2.37
irurdles to a fu|l privatization. Because of constitutlonal, politlcal and
national security tonsiderations, GOI has decided to keep TELKOI'I in the publlc
sector. However, actions have already been taken in several of the other
modallties. Both terminal equipment and non-basic services can be provlded by
the prlvate seccor in competition with TELKOM. Furtherrnore, revenue sharlng
between TELKOI'{ and private investors are ln place for two cellul-ar
"gt"Lr.r,ts
a VSAT services and three l"ocal teLephone network expanslon
systems,
tllephone
proJects for about 450,000 lines.
is actively pursuing additional sizeable infusLons of private
caplcal through consideratlon of the followlng: (a) lssuing bonds; (b)
requiring new subscribers to buy subscriber bonds; (c) Joint ventures; and
(Af farge-scale revenue sharing (B/T) schemes. The BrlT locaL network
expanslon projects referred to above have not been entirely successful and
there are some doubts about the advisability of this kind of off-balance sheet
flnancing. The best prospects for large-scale private investments in the
sector l-adlng to inproved sector performance are believed to be Jolnt
ventures with highly credible foreign telephone companles. The nerlts of the
different "ppro"-h"s to the mega-financing of TELKOI'I's investnent program is
to be the sublect of a study and comparative analysls, flnanced by the Bank
under the Technical Assistance ProJect for Public and Prlvate provislon of
Infrastructure (Loan 3385-IND)
2.38
TELKOU
.
The proposed project would focus on strengthening TEIXOM's
organlzation and management with the cenLral objective of iurprovlng lts
produeCivity and efficiency and of restructuring lC lnto a holdlng comPany
2.3g
5/
Terminal equlpment includes telephones, telex, facsinile, prlvate
automatlc branch exchange (PABK).
-18wlth reglonal subsidiaries (para. 2.35). This would al-low TELKOI{ ro offer
shares to the publlc and to forn joint ventures with the particlpatlon of
forelgn carriers. But these reforms cannot take place in a regulatory vacuum
and hence another objective of the proposed proJect is to develop Government,s
capablllty to efflclently manage the desired sector optinizatlon process.
This ls cruclal. Although the Telecommunications Law was anended in 1989 to
allow prlvate sector entry in the non-basic services areas, it has not
attracted investors because of cumbersome licensing arrangenents and other
barrlers for private sector entry, includlng availibllity of clear guidellnes.
2.40
At this tLme, telecomrnunications policy consultants engaged under
the Third Telecommunications Project are reviewing with the GoI ttrJ fotlowtng
measures to lntroduce limited competition and private sector participatlon:
(a) Establlshing TELKOM as a holding company with five subsldlaries:
(i)
Three regional companies
operaling companies;
(
11)
(iii)
in joint venture with foreign
i"H:':::l"l:"3,31;:i::",:ff I::':3
A cellular relephone
lil'llli.::i":ill":H: ::."
company.
(b) Establishing a new, majoricy Government-owned public
telecomrnunications carrier (independent from tnXOU) authorized to:
(1) operate all domestic satellite; and (ii) wireless based services
ln the local area including cellular; and
(c) Ensuring thac the provislon of value added services and customer
prenises egulpment are fully opened to the private sector.
?,4L _ Durlng negotiations, agreement was reached with GOI that it wiLl, by
June 30, 1993' PrePare and subsequently implement, a timebound action plan to
address structural issues in the telecommunications sector, inter alia, aimed
at Promoting conpetition and participation of the private seccor (para. 4.26
(a)).
2.42
rnstitutional Framework: As TELKOM takes on a more commgjsl.l
orientatlon and conpetltion is introduced, effective regulatlon needs to be
put in place, ln particular, to ensure that TELKOM does not abuse the nonopoly
narket-power lt derives frorn control of network facillties.
Such a r"gulator|
franework should comprehensively address, i.nter alia, the following islues;
(a) whlch enterprises will be permitted to compete in whlch market
segments and when;
(b)
how franchises and llcenses
awarded; and
(including for radio spectrun) wlll
be
(c) the obllgatlons of TELKOM and other carriers to provide servlces,
and to lnter-connect, and obligations with resp""t to quality of
-19services, tariffs, standards, protocols and interfaces, anticonpetitive activities, monitoring and dlspute resolution.
2.43
Telecorununications users: currently, there are no fornal
institutions that rePresent users' interest ln the teleconmunlcatlons sector.
Development of thls kind of assoclation Ls an lnportant part of the process of
creating a constituency for effective regulation and of naking TELKOM a user
oriented cornmercial enterprise. One step towards user orlentatlon was the
creatlon by TELKOM of a Special Customer Service Group (CSG) (para. 2.15) to
deal with corporate customers, to identify thelr needs and finds ways to meet
them rapidly and efficiently. A program to further develop such an approaeh
is part of the agreed Acrion plan (para. 4.30).
-20III.
THE BANK'S PAST EXPERIENCE AND ROLE
Past Exoerlence
3.1
Background: The proposed project constitutes a strategic
progression in the Bank's support to help GOI and TELKOM'S management co
address sector constraints (para. 2,34). The Bank's associatlon with the
teleconmunications sector in Indonesia started in l-97L with a credit of $l-2.8
rnilllon (Credlt 2l-0-IND). The main objectives of that projecr were ro
(a) transfer telecommunications operations from a government department to a
separate operating entity, PERUI'ITEL; and (b) help put in place procedures and
systems for PERUMTEL to manage its then small-scale operations, and to
rehabilitate and expand the network. The physical component was completed
successfully tn L976, buE except for establishing PERUMTEL as a separate
government owned corporatlon, no significant institutional progress was
achieved as such a progress would require continued efforts through a series
of well coordinated operations (para. 3.5). The project was to be followed by
a second operation that was processed in 1973 but dropped after negotlations
due to disagreement between the Bank and the GOI over (a) the issues related
to GOI's declsion to acquire a domestic Eelecommunication satellite; and
(b) adJustments needed for
telecommunications tariffs.
Telecommunications in
Indonesla were subsequently developed using domestic funds and with bilateral
assistance from Belgiurn, France, Federal Republic of Germany, Japan, the
Netherlands, spain, sweden, usA and some other donors. Although che many
positive contributions by individual donor countries to capacity building in
IndonesLa should be recognized, seccor performance fell short of requirements
because, PrinciPally, of a lack of a consistent and coherent global strategy.
3,2
Technical Assistance Project (Loan 2757-IND): In 1984 dialogue hras
resumed and subsequently, the GOI requested renewed Bank assistance for the
sector. The Bank responded wich a technical assistance telecommunications
proJect (Loan 2757-IND for $14.5 million, approved tn October 1985) with rhe
obJectives of (a) improving PERUMTEL's planning and design of cable networks,
Procurement systems and practices, project implementation, and reporting and
monitoring systems; (b) computerizing financial management information
systems; and (c) increasing PERUMTEL's capabilicy to fornulate and review
tarlffs. The proJeec closed on December 31, l-990 as scheduled and the proJect
completlon report (No. L0247 ) was complered in Decernber 1991_.
3.3
Thts TA proJect has achieved all its objecrives. Wlrh the
strategies developed for project implementation and procurement, PERUMTEL,s
capablllty has been enhanced to carry out an investment progran of about
US$600 nilLlon Per year and connect over 300,000 new customers annually, which
represents a flvefold increase in its implementation capability conpared to
the performance during the last five-year (1984-1989) development plan
(Repelita IV). Furthermore, the introduction of the integrated system
approach and competitive Procurement systems introduced have not only resulted
ln signlflcantly lowering unit network expansion costs but also ensured that
ne\r customers are Promptly connected when facilities become avallable.
Consequently, the previous problems of nonperforming assets and assoclated
financial losses have been significantly reduced. By encouraging the
-2Lassoclatlon of local consulting companies with foreign consultants, the
project paved the way to establish a reasonable base for development of
Indonesian telecommunication consulting firrns to suPPort the sector. Use of
prequalification to select competent contractors and introduction of Latge
scale single-responsibility contracting has pronoted the association of
domestic contractors with foreign companies that can provide project
construction expertise and train local workers, thereby developlng donestic
construction capacity. Improvement in financial MIS is helping TELKOM
management to use financial data in the efficient management of its oPerations
and, more importantly Co complete its audit rePorts in a tinely manner
(para. 2.23). With regard to the tariffs review, TELKOM has now a good baslc
capabllity to assess and develop tariffs.
Sector Study. Before responding Co GOI's request for Bank flnanclng
on-going investment programs, the Bank conducted a detalled
assessment of Indonesian's telecommunications sector, identifying policy
options and analyzing investment priorities co provide a framework for
technical assistance and advice to GOI on institutional asPects. The results
were published in report No. 7842-INS, June L990. The Sector Study assessed
the need for policy, legislative, regulatory and further institutional
reforms, and developed a package of actionable proposals involving sector
management and policies, investment, procurement, financlal and lnstltutlonal
developrnent to enhance productivity and support the develoPment of the sector.
3.4
of
PERUMTEL's
3.5
Third Telecommunications Project. The review of this sector study
with GOI led to an agreement between the GOI and the Bank to implernent a
series of measures to lmprove sector management and to expand PERIIMTEL's
network and services. The Third Telecommunications project ltas aPproved ln
March L990 to implement these measures. The project is progressing
satisfactorlly and the Government has initiated a number of key sector reforms
by: (a) allowing competition in the provision of value-added services, paging
and customer premises equipment; (b) permitting the private sector entry under
revenue sharing schemes with TELKOM; and (c) lnitlatlng studles to further
strengthen GOI,s capabilities to effectively manage the sector. However,
given the rapld i-nternational changes in telecommunicatlons sector
organlzaXion and continued important technological developments (partlcularly
Lhe rapidl-y declining unit costs of digital electronics, radlo and optlcal
telecomrnunlcations systems), GOI recognizes the need for further reforms to
achieve Lts more ambitious development objectives for the sector (para. 2.33).
These obJectives will be supported under the proposed Fourth TelecommunLcations ProJect.
Lessons Learned
The Lessons learned through Bank operations in the teleconnunicatLons sector Indonesia, as reflected in PPAR No. L646, dated June 22, 1977 and
PCR No, L0247 of December 1991, and from experience in other developlng
countries are that: (a) when underpinned by comprehensive sector surveys,
project interventions receive greater commitment by borrowers and donors and
cheir lnplernentation proceeds smoothly; (b) an lntegrated systems approach
shouLd be adopted to ensure that all project comPonents are tightly
coordlnaCed; (c) financing plans should be firrned uP Prior to negotlations;
3.6
-22,
(d) obJectLves for lnstltutional building should be pursued in a long-tern
horlzon through repeater proJeets to achieve naJor results; (e) advance
actlons Prlor to Board presentetion should be initiated by the implenenting
agency ln respect of selecting consultants, prequalifying bidders, finallzing
bid evaluatlon; and (f) project implementation unics with adequate authority
and competent staff should be established prior to proJect appraisal. These
lessons have been incorporated in the deslgn of the proposed proJect.
Ratlonale for Bank Involvernent
3.7
The Government recognLzes the challenges to harness fully the
benefits of advanced cechnology and modern operating practices to inprove
sector performance. Based on the success of past cooperatlon, GoI has
requested the Bank to (i) assist in the design of lts sector optimizatlon
Program and in trnplernenting it, (ii) make available to Indonesia the benefit
of sirnllar experlence and best practices from other countries and (111) to
take the lead role in coordlnating cofinancing fron donors to ensure that
future sector development proceeds in an integrated and cost-effective manner.
3.8
Ttre Bank strategy is to engage user groups, GOI and TELKOM in a
conttnulng dlalogue to develop competition policles and reform prograns that
are consistent wlth Indonesia's economic and political conditions and with
world narket outLooks. To thls end a seminar was held in Decenber 199L in
Indonesia. It focused on lnternational experience in using competition to
accelerate telecom sector development and promote privete sector participation
as well as on developlng aPpropriate regulatory mechanisms. This seminar will
be followed up with a \ilorkshop ln September L992 to agree on urodalltles to
lnplenent the concluslons of the seminar and the findings of the sector
restructurlng optlons study to be completed by May L992. The Fourth Telecom
ProJect is expected to be used as a vehicle to operationalize the agreed
actlons (para. 2.4L).
-23IV.
THE PROGRA}.I AND THE PROJECT
Telecomrunicatlons Investment Program
4.L
TELKOM's FY 92-96 investment program comprlses
(a)
ongolng works;
(b)
proposed Fourth Telecommunications ProJect; and
(c) future
the following:
works.
The total investments under this program are estimated at Rp. 7,6L4 billlon
(US$3,820 million) with a foreign component of Rp. 3,772 bllllon (US$l,893
nilllon). The lnvestments under the different components of the program and
annual lnvestments in during FY92 to FY96, are given lnAnnex 9.
of: (a) the Bank's Third Telecornnunicatlons
(b)
projects
which
are: (i) ADB's Teleconmunications
other
ProJect and
(11)
network;
and (iii) long distance mlcrowave
local telephone
ProJect;
projects
supported by Gennany, France,
network, remote and rural area network
on
inplernentatlon of the
Progress
Japan, and Netherlands respectively.
works is secured and
ongoing
for
ongoing works ls satisfactory. Financing
proJect. The
proposed
the
actlons are underway to secure financing for
program
and the nethodoLogy
investrnent
mission reviewed the composition of the
program
was
that
the
satisfied
and
\^ras
for deternining lt
Justlfled to meet
of
developnent
(para.
a
balanced
ensuring
and
for
growing demand
2.L2)
for
exchange
flnancing
Foreign
facllities.
telecommunications
Indonesia's
of
those
ln
executlon
delay
any
buc
to
be
arranged,
works
ls
still
future
works wllL not affect the implementation or the vlablllty of the proposed
Ongoing works comprise
4.2
proJ
ect.
To ensure satisfactory implementation of TELK0M's future investnent
progran, of which the Bank project forms one part, both GOI and TELKOM have
agreed that:
4.3
(a) on or before Novernber L5 of each year, conmencing on Novernber 15,
L992, and thereafter untll the completion of the ProJect, TELKOI'!
wllL (i) prepare and furnish to the Bank, for its review and
comments, its corporate plan, institutlonal developnent plans and
investment program (including Revenue Sharing Arrangements) for the
fol-lowing fiscal year; and thereafter, taking into account the
Bank,s comments, if any! carry out such plans and (11) revlew and,
if required, revise with prior concurrence of the Bank, the TELKOM
Fiscal Years L992'1996 Investnenc Progran;
will have access to adequate funds to
flnance the lnvestments agreed with the Bank; and
(b)
GOI
(c)
TELKOM
will ensure that
TEIXOM
L5, L993, prepare and furnlsh to the
lts proeurenent practlces and procedures to be followed for
will, by
November
Bank
-24of goods and services required by TELKOM in the carrylng
out of its operatlons (except for goods and servlces financed from
the Loan) and thereafter incorporate Bank's conments and adapt such
guldelines Eo ensure least cost investments.
procurement
Pro{ect Oblectl.ves
ltre proJect has two nain objectives: (a) to improve sector
perfornance by promoting a regulatory regime conduclve to conpetition in the
provlslon of teleconmunicatlon services; and (b) to meet the growing denand
for telecommunlcations services by enhancing the quallty of TELKOM's service,
effective utlllzation of existing facilities, lncreasing systen efficlency and
nodernlzing and expandlng the networks.
4.4
Prolect Descrlptlon
Ttre proposed proJect which will be partly financed by the Bank ls a
self-contalned, balanced and integrated package of high priorlty works to
support TELKOI{'s 1992-1996 investment program. Specific comPonents of the
proJect are outllned below. Full details of the project and the source of
flnancing are given in Annex 10 and illustrated in Maps No. 23237 and 23404.
The proJect includes the following components:
4.5
(a) establlshment of an environment for the functioning of conpetitive
narkets. Thls will include support for MTPT to develop effective,
transparent regulatory Processes, and to train MTPT staff;
(b) strengthening the capacity of the MTPT to design, assess and
lnplernent a consistent set of sector policles lncludlng a revlew of
telecommunications tariffs and planning for a second domesttc
telecommunlcations operator
.
(c) further institutional capacity building for
(i)
TELKOM
conprising:
a management and professional human resource development
program using a cooperative program of acadenic trainlng
forelgn unlversitles and working internships ln selected
at developed telecommunicatlons entiules;
(11) development and implementation of the operatlonal
nanagerial decentralization program;
at
fields
and
(111) enhancement of TELKOM's capability ln operatlonal perfonnance,
proJect design, englneerlng, lnplementation and supervlslon;
(iv) upgrading accounting
and financial policles, systens and
procedures and related computerization reguirements; and
(d) Support for
TELKO\IL's L992-L996 investment program ln Java, BalL,
Nusatenggara, Kallmantan and Sulawesi which would comprlse:
-25(i)
rehabilitation of existing switching equipment, Local cable
network, customer distribution network, lnterexchange network,
including the provision of spare parts, modules, tools and test
equiprnent to repair and refurblsh then as well as software
paekages to improve operational efficlency and enhance traffic
handling capacity;
(ii) installation of switching equipment, associated customer
distribution network and customer terminal equiprnent (including
20,000 pay phones) to connect about 600,000 ne\d customer;
(fii) lnstallation of fiber optic cable and microlrave transnlssion
facilities to provide interexehange junction facilities in the
Jabotabek area.
(lv) installation of terrestrial microwave transmission faclllties
(a) Java-Bali (phase I), (b). Ball-Nusatenggara phase II,
(c) Trans-Sulawesi phase II and (d) cross Kalirnanten phase II
to improve long distance direct-dialling service quality;
(v) establishment of a modern network management system to improve
network supervision and to improve traffic nonitoring and
management; and
(vi)
improvement
of the directory enquiry
systern.
Technlcal Assistance
The project provides for technical assistance to funprove the
operational performance of TEIXOM as well as to ensure tirnely implenentation
of the physical components of the project. Technlcal asslstance to be
provided under the project builds on the foundations laid under
Teleconmunlcatlons Technical Assistance Project and the Thlrd
Telecommunications Project. These projects have progressed satisfactorily and
have inproved selected aspects of TELKOM's internal organization and
management (paras. 3.2 to 3.5). Nevertheless, it wlll take several more
years, with consultants focusing on intenslve tralnlng efforts designed to
reach atl sectors and professional levels of TELKOM's staff, before TEIXOM
becomes a nodern, efficient, well-run business. The following paragraphs
provide the details of the technical asslstance supported under the proposed
proJ ect.
4.6
(a)
MTPT
regulation of the sector has nainly operated through its
of TELKOM and Indosat, radio licensing, standard setting,
minlsterial control of tariff changes and BAPPENAS control of foreign exchange
allocaclons to state-owned enterprises. Regulatory mechanisms for control of
the sector are stiLl in their infancy. As telecornmunlcations technology
continues to expand the dlversity and reduce the costs of teleconnunLcatlons
services, some increasing levels of competltlon appears lnevltable as well as
4.7
ownershlp
The GOI's
-25for irnproved sector performance. In turn, thls requlres a much
stronger pollcy and regulatory capacity ln MTPT. In this context, the proJect
will provlde technical assistance to MTPT to:
necessary
(a) build its capacity to develop and assess teleconmunicatlons
poLicies, in particular with respect to network eompetltion,
strategy for the development of cellular and other wireless public
teLecommunicatlons systems, microwave llcensing and authorizatlons
for other telecommunications facilities;
(b) develop an agenda for regulatory activities, in part by assistlng in
the organization of one or more users' conferences and the
preparation, if necessary, of publlc consultation documents;
(c) assess, recommend and implement regulatory action on prlorlty
matters that will include issues assoclated with network
interconnecLion, value-added service (includlng access to leased
llnes), cuscomer premises equipment (including the pricing of
cellular terminals), and radio licenslng policy;
(d) undertake a comprehensive analysis of TELKOM and Indosat tariffs
with respect to coscs, funds flow, demand factors, linited network
capacity, international comparacors and other relevant factors;
assess and recommend an action plan to improve tarlff structures for
TELKOM and Indosat; and assess and recommend Processes for periodic
tariff rebalancing mechanisms ; and
(e) train selected
MTPT
staff.
Consultants are expected to be appointed by January
60 person-months will be required for chese tasks.
4.8
(b)
1, 1993.
About
TELKOM
Teehnical assistance for
4.9
TELKOM
includes:
(a) Given that TELKOM is still acutely short of skill-ed and capable
staff, technical asslstance is provlded under the proJect for TELKOM
to develop full in-house capabilities in all aspects of oPerations
(through on-the-job trainlng and teamlng with consultants) so as to
reduce gradually reliance on foreign expertise. The managerlal
developmenc program will provide a total of 1,700 staff-nonths of
tralnlng for about 60 middle and senior managers durlng 1993-1996.
Two co three-year fellowshlps for MBA and MSC levels w111 use a
combined program of academlc training at forelgn universities and
worklng lnternships in selected fields at selected
telecomrnunlcations entlties
(b)
.
for technical assistance to support TELKOM to lnplenent
successfully the decentralization program was discussed ln
(para. 2.20). Terms of reference, agreed wlth TELKOM are presented
ln Annex 11. The consultants are exPected to be appolnted by
October 3L, L992. About 160 person-months w111 be requlred for the
services; and
The need
-27
(c)
The existing methods of manual monitoring and control of local and
Long distance networks in Indonesia are inadequate to exploit the
fu1-I potential of the modern systems currently under installation.
To address this situation TELKOM will establish Integrated Network
Management Systems (IMS) for monitoring the performance of the local
and long dlstance network and providlng a real time surveLllance and
control over network components so as to ninirnize disruption to
service during periods of traffic overloads or facil-ity failures.
Terms of reference agreed with TELKOM are presenled in Annex 11.
The consultants are expected to be appointed by October 31, L992.
About 100 person-months will be reguired for the services.
(d) Technical assistance will be needed to further improve and
strengthen the accounEing systems and financial function
(para. 2.29). A team of experts in cost accounting and management,
and treasury management, will be employed under the proposed proJect
to assist TELKOM in reviewing and recommending the necessary
policies, syscems and procedures as well as the appropriate
organization setup to carryout these functions. The tearn will also
be required to assist TELKOM in implementing their recomnendations.
An important task of the experts would be to carryout a diagnostie
scudy to identify the staffing needs, preparing the necessary
training programs and providing training. Terms of reference for
the experts is attached in Annex 11. The consultants are expected
to be appointed by October 3L, L992. About 96 person-rnonths will be
required for the services.
(e)
has competent engineers to undertake the engineering design
and prepare bid documents for the project. However, TELKOM's
requlrements for rehabilitation and expansion of the
telecommunications facilities are large and growing quiekly.
Therefore, TEIXOM's project management capabilities need to be
supplemented by the provision of technlcal assistance to help it
carry out these tasks. Some 400 expatriate and 500 local consultant
staff-months of services will be provided through the lmplementatlon
period. Consultant assistance would focus on (a) contract
finalization; (b) postcontract engineering works; (c) coordination
of implementation of different physical components of the project,
and (d) physical project management.
TELKOM
During negotiations, assurances \dere obtalned that GOI and TELKOM by
15, 1992 would furnish to the Bank for revlew a detailed training
program identifying the staff to be trained, areas of tralnlng, schedules and
locations and that it will implement the approved training commencing
Septenber 1, l-993, and a timetabLe, satisfactory to the Bank, to appoint the
above consultants rras also discussed and agreed (para. 4,26(c)),
4.10
November
Prolect
Costs
The total cost of the project is estimated at Rp 2,449 billlon
(US$l.,229 nilJ-lon equivalent), with a foreign component both direct and
4.11
-28lndirect of
Rp L,607
billton
(US$806.9
nillion eguivalent). Detailed proJect
costs are given in Annex 9 and summarized in Table 4.L.
Table
BY ITEMS
4.1: ESTIMATED PRO.IECT COST
LOCAL
FOREIGN
TOTAL
LOCAL
(Rp MILLIoN)
1.
2.
3.
Switchlng Eguipoent
-
Outgide Plent Network
-
4.
TransrDls!1on
- Expanslon
Rehabllltation
343.3
117.9
45L.2
18. 0
9.8
27.8
3L.2
27.4
207.0
72.7
23E.2
I
L5.7
13.8
103.9
119.6
35.5
50.3
t6.7
5L.2
67.9
8.4
25.7
34.1
81.
1
5.7
35.0
40.7
17.0
23.t
t.2
1.8
3.5
Junctlon lfetwork
Expanslon
36.
40.
5
I
234
.7
100.
Cooputer Suppori System
11.4
69
6.
Spare Parts, fools & Test
Equipoent
L2.2
33.9
46.0
5.1
1.3
1.0
3.7
0.6
Technlcal Acslltanc€
(f)
Capaclty bulldlnt
-
-
(li)
I.'TPT
0.4
TELKO'!
t.2
2.4
6.0
1.6
3.0
5.1
15.5
lnPr
IELKCI'
Tralntng
-
(111) ProJect Implementation
Support
Total
232.3
918.7
55.4
462.7
5.
7.
L95.7
.9
19.5
583.8
35.9
Rehabilltatlon
-
-------
95.5
136.3
(OPN)
Expanslon
-
(us$ MrLLroN)
27L.5
81.3
Rehabllitation
TOTAL
3E9.8
t90.2
72.9
Erpansion
FOREIGII
Base Cost
981.7
L.297.4
7 .O
n5
3.0
2.0
4 .2
0.2
0.6
0.E
1.0
1.5
2.L
.6
2.5
7.8
10.3
2.279.L
492.8
.4
24,6
L4.2
I
7.4
20
651.
3
1.144.1
Contineencles
77
.4
L4.7
92.L
Pricc
77
ProJect Cost
l3
Interect durlng conrtructlon 1!
Iotal
tb
28.5
49.
Iotal
b
1
Phy!icaI
Flnancine Reauired
1. 108.2
152.0
L.260.2
1.340.4
94.8
r,435.2
38.
2.448.6
556.2
246.8
76.3
2.695.4
532.5
ll oxeopted from dutles and taxes on lmported iteos. Local costs lnclude
trxe! elglDated Co be about S111.8 million €qul.valent.
TELKd't
38.
I
46.2
672.9
47 .6
L.229.r
720.5
1.353.0
L23.9
VAT and other
Int.rclt durlng construcglon ls calculated by applying the intere!! !et.. of 7.791 on Banl, 3.51 on
(Exto Bank), Netherlandr (ABN-Anrro Bank) and Spaniah, 2.51 on Japanere; 7I avrrage on Kfll; urd
5.41 avrrage on Frnch loans, plur the apread applicable to the onlendlng of oach loan to TELKCM,
to thc rverats arnount oxpoct.d to be outsbandlng in each year of conltructlon and by adding
comltnant fcet on ihe avorage undrawn amount of the lo!n!.
USA
-29'
The proJect cosu estlmate was prepared by TELKOU wlth the asslstance
4.L2
of consultants. ttr" estimates have been prepared on the basis of contracts of
goods and works with a detailed breakdown lnto quantltles and rates where
ippllcable, and based on price guotations recently obtained by TELKOM for
technlcal
sffiftar works ln Indonesia and experience in other countries. ForIndonesLa
and
ln
assistance, average staff-month rates for simllar assignrnents
of
tax
added
value
a
other deveioping lountries have been used. Except for
ten percenc of iotal- cost, the cost estimates are net of dutles and taxes for
inported items since TELKOI'I is exempt from them.
Contlngencles. Base prices are at December 199L Levels. Physlcal
4.Lg
contingencles art based on 5 percent for equipnent, 10 percent for setlrlces
ana ctvlL works. Price contingencies for foreign costs are based on proJected
lncreases of 3.7 percent p.a. ln 1992, and each year thereafter' Prlce
contingeneles for local costs are based on proJected price lncreases of 6.0
percent Ln L992, and each year thereafter.
Project Financlng and Terms
The forelgn costs of the project are expected to be financed on a
paral1el basis by the Bank, France (Government and Gredit Lyonnals), Federal
iepublic of Germ-any (KfW), Japan (Sumitomo Corporatlon and OECF), Netherlands
(eitl-enro Bank), Spain andUSA (Exim Bank) as detalled ln Table 4.2.
4.L4
Table 4.2: PROJECT FINANCING PLAN
FOREIGN
LOCAL
-----us$ MTLLION-
TOTAL
T
OF
TOTAL
TELKOM COMPONENT
Bank - IBRD
FtsG (KfrI)
134.0
France/Credit Lyonnais
Japan (Sunltomo CorP. /OECF)
Netherlands (ABN-Anro Bank)
Spaln
USA (Exim Bank)
TELKOM
GOI
Total
t g) .t,
l-. 1
632.s
24L.0
71.0
52.0
100.0
84.0
50.0
75.0
47_.5
720.5
375.0 28 .2
71-.0 5 .0
4.0
52 .0
100.0 7.0
84.0 6 .0
s0.0 3 .7
6.0
7s .0
s44.9 40.0
1.1 0.t
1.3s3.0 100.0
The Bank would partially finance outslde plant and nicroltave system
4.15
in Kallnantan and fulLy finance technical assistance (whlch lncludes
consultancy and training). In addltion, the Bank wouLd Partlally flnance the
coxnputer systems for operations and futly finance, tools, test equlprnent and
-30spares to effectively use the existing facilities.
The loan of US$71.0
rnillion equivalent from FRG (KFW) will f inance 139,500 line units of switching
equipment and remote area transmission equipment. The US$52.0 rnillion
equivalent loan from France and credit Lyonnais will finance the cost of (i)
the backbone transmission syscem in Bali and East Nusatenggara (US$24.5
million); (ii) Trans-Sulawesi microwave sysEem Phase II (US$10.0 urillion); and
(iii) expansion of Java-BaIi digital microwave transmission systems (US$17.5
million). The loan of US$100.0 million equivalent from Japan ($71.5 rnillion
from Sumitomo Corporation and $28.5 million from OECF) will finance 267,000
line units of switching equipment mainly for exchanges outside Jakarta and the
optical fibre transmission network to carry the interexchange traffic in the
Jabotabek area. Funding from ABN-AI,IRO Bank, NeEherlands (US$84.0 million
equivalent) and Exim Bank, USA (US$60.0 million), already effective, and Spain
(US$50.0 million) will finance 339,000 line units of the switching equipnent
for local and tandem exchanges rnainly in Jakarta and Surabaya. In addition,
funding from Exim Bank, USA (US$15.0 million), already effective will finance
cornputerized network management systems. During negotiations, assurances were
obtained from the Government that it will obtain not later than January 31,
1993 the foreign exchange financing from Germany and Spain and not later than
June 30, L993 from France or other sources on reasonable terms to complete the
project in accordance with the implementation program.
of the foreign cost of the
of the total financing requirement). The Bank loan would be
provided to the Gor for 20 years, including a grace period of 5 years, and
US$373 rnillion of the proposed Bank loan will be on-lent to TELKOM under a
subsidiary loan agreement (SLA) agreed during negotiations. The signing of
the SLA is a condition of loan effectiveness. The on-lending will be at a
variable interest rate pegged to Bank Indonesia's (BI) three-month domestic
money market certificate (Sertifikat Bank Indonesia -- SBI) plus one percent.
The rate would be adjusted on January I and July 1 of each year, commencing on
July 1, L992, and calculated based on the average of SBI three-month maturity
quotations during the preceding six months; provided, however, that the
interest on the Subsidiary Loan for the period from the date of the Subsidiary
Loan Agreement through December 31, L992, shall be determined on the basis of
the average of the per annum interesE rate of SBI three-month maturity
quotations during the six months preceding JuIy 1, L992; provided further that
on July I of each year commencing on July 1, 1993, the Government and the Bank
shall review the above-mentioned basis for determining that the on-lending
interest rate under the Subsidiary Loan Agreement reflects the commercial cost
of borrowing to TELKOM. The government would bear the foreign exchange risk.
4.L6
project
The proposed Bank loan would finance 467.
(287"
Procurement
4.L7
Goods and Works. A11 goods and works to be funded under the Bank
loan will be procured by international competitive bidding (ICB) in accordance
with Bank procurement guidelines, except for items totalling US$L7 rnillion
covering spares, software, rehabilitation of existing equipment, test
equipment and tools will be proeured by limited international bidding on the
basis of evaluation and comparison of bids obtained from suppliers of
equipment currently operating in TELKOM's network.
-31
-
4.18
A total of nine contracts proposed for
in the procurenent schedule in Annex 12. In the
Bank financing is indicated
Procurement of equipment
under ICB, domestlc manufacturers would be eLigible for a preference ln bld
evaluation of elther 15 percent or the import duty whichever is lower. A11
biddlng packages for contracts estimated to cost over US$l,000,000 equivaLent
for goods and all consultancy services and fellowshlP contracts financed by
the Bank l-oan would be subject to the Bank's prior reviews. Thls will cover
over 95 percent of total value of the Bank-flnanced contracts. Procurement of
goods and services flnanced by co-financiers wouLd be ln accordance to cofinanciers, procurement guidelines. A11 goods and services to be procured
with TELECOM's own i.nternal resources will be through local conpetitive
blddlng fol-Iowlng the government regulations which are satlsfactory to the
Bank.
4.L9
Technical Assistance and Consultancy. Selectlon of consultants and
tralning services which will be following Bank guidelines are:
(a) management training, $3.5 million (para. 4.7 (e) and 4.9 (a)) which
w111 be arranged through direct negotiations wlth internationally
recognized entities in accordance with terms of reference
satisfactory to the Bank.
(b) selection of consultants for all assignments will be frorn a short
list of at least three firms or experts for each assignment agreed
by the Bank and under terms of reference satisfactory to the Bank.
32Table 4,3:
PROCUREMENT ARRANCEIIENTS
Swltching Equipmenc
Outside Plant Network
368.3
s66 .6
L2.0
(10.0)
Computer SysCems
26.2
(20.2)
Technical Assistance
&
&
565 .6
23.0
(17.0)
r92.0
&
227.0
(27 .0)
L4.8
b
41.0
(20.2)
26.2
604.
8
3
(308.3)
26.2
(le. s)
(338.s)
b
358.
(308.3)
Telecommunications
Equipnent
Total
&
49.2
(36. s)
(le. s)
57s.L
(-)
L.229 .L
(37s.0)
Includes contingencies. Numbers in parentheses represents the amounts co
be financed by the proposed Bank loan.
For equipment, Limited International Bidding and, for consultants, in
accordance lrith Bank guidelines on the use of consultants.
(N.B.F.) Non-Bank Financed items following procedures of the cofinanciers.
4.20
Advance Procurement Accion. To ensure tirnely project
iurplementation, TELKOM has initiated advance procurement accions
to:
(a)
issue request for proposals for consultants for (i) construction supervislon
of proJect works, and (ii) eonstruction managemenL, design and planning future
development works; (b) announce bids for outside plant works, Phase I; and (c)
prequalify contractors for outside plant work, Phase II.
Dlsbursements
4.2L
follows:
(a)
Disbursements from the proceeds
of the
proposed loan would be as
1,002 of foreign expenditures (CIF) of directly lmported goods, 1OOU
of local expenditures (ex-factory costs) of locally manufactured
goods, and 65% of local expenditures for other locaIIy procured
ltems; and
(b)
1001
of expenditures for consultants
and training.
-33Table 4.4 shows the category of ltens to be flnanced out of the
of the loan, the allocatlon of the amounts of the loan to each
;ategory and the percentage of expenditure for ttens to be financed ln each
catelory. No disbursements will be made for expenditures lncurred prior to
Wlthdrawal applications will be aggregated in amounts of
the Ioan slgning.
-qulvalent
or more, prior to its subnlsston to the Bank. Annex 13
us$L00,000
glves the dlibursement schedule for the proposed loan. Dlsbursernents under
ihi" lo.n, like the Loan for the Third TeLeconmunications ProJect, ls expected
to be faster than the average Bank proflLe in Indonesla because of advance
procurement arrangements lnitiated for major comPonents of the proJect
jp"r". 4.20>. elihough physical consLructlon of the proJect would be
clnpleted by end Lgg6, the lmplementation of all" asPects would be conpleted by
Declnber 31"-, Lgg/. Ihe closing date of the Bank loan would be December 31,
4.22
proceeds
L998.
Speclal Account. In order to facilitate dlsbursenencs, a specl'al
account for MTPT will be opened in Bank Indonesia by the Mlnistry of Flnance.
The accounts would be maintained in US dol-lars and an lnltial deposlt of
US$300,000 (equlvalent to four months estimated average ellglble expendltures)
would be nade to this account co finance expendltures under category 4(a) and
5(a) (Table 4.4). However, all consultant contracts and fellowshiP Programs
will be subject to prior review by Che Bank in accordance with Bank
procurement guidellnes (para. 4.19)'
4.23
fnplementatlon
Contracting for packages of oucside plant for the proposed proJect
w111 be on a slngle-responsibility basis as folLowed ln the Thlrd
Teleconmunicatlons project. In view of its total nagnltude, the volume of
outside plant construction has been divided lnco three packages to be
implemenied in two phases. Bids for construction of Phase I, including
subscriber connections, cleared by the Bank in August 199L, was announced in
Ocrober 199L ro the l-5 prequalified contractors. Phase II w111 be tendered by
Jul-y L992 to prequalified companies to be selected by June L992, followlng
BanL guidellnes. Other comPonents of the project, namely, swltching
equipient, and microwave radio systems will be lnstalled by the respective
contractors in accordance with the implementation schedule (para. 4.27>.
4.24
Project Implementation Unit. To ensure effective proJect
management, track energing issues and address them ln a timely way, TELKOM
establlshed a project irnplernentation unit (PIU) for the proposed proJect
headed by a ProJett Director, with overall responslblllty for proJect
inplenentatlon, rePorcing to the Board of Director. The unit head and key
staff mernbers have already been appointed. The PIU w111 be glven adequate
4.25
has
financial and adrninlstracive auconomy to enable it to dlscharge lts
responslblllties effectively, have its own accountint, Pfocurenent' transPort'
lani acqulsition, administrative and technical sectlons, and keep separate and
distlnci proJect accounts for the Bank proJect as a whole as well as its
The critlcal path method w111 be used to coordlnate
indlvldual
"o*po.t"rrt..
proJect
in order to minimlze the level of non-perforning
the
of
irnplementation
-34
Table
4.4:
DISBURSEMENT OF PROPOSED LOAr'l
Amount of che
l-oan allocated
Category
(1) Outside plant
Iof
(expressed in US
dollar equivalent)
289.8
expendltures
to be financed
100% of foreign
expenditures, 1001 of
local expenditures (ex-
factory cost) 552 of local
expenditures for items
procured locally.
(2)
Telecommunications
27 .O
1002
(3)
Computer systens,
20.2
1002 of foreign
expenditures, 1-00I of
local expenditures (ex-
equlpnent, materials,
and software excluding
switching equlpment
lncludlng service
arrangements
(4)
of foreign
expenditures, 1001 of
local expenditures (exfactory cosc) and 652 of
local expenditures for
items procured locally
factory cost) and 551 of
local expendicures for
items procured locally
Consultancy
(a) MTPT
(b) TErxor{
2.0
100%
14.0
100u
(5) Tralning
(a) MTPT
(b) TELKOU
(5) Unallocated
18.s
TotaL
375 .0
1.0
2.s
1002
The term "Outside Plant" means the supply, delivery, lnstallatlon and comrnisslonlng and supervislon of local telephone network, pulse code modulatlon
cable, optlcal fiber cable, transmission equipment (inclusive of microwave
egulpment), subscriber connections (inclusive of house-wiring and telephone
set) , and associated lnfrastructure.
-35investment. Bank-financed technical assistance (para. 4.9(e)) ls provlded to
assist the PIU in project implementation and supervislon of the OSP
construction component. Based on experience gained ln the irnplementatlon of
the ongolng thlrd proJect, plans for decentralizing some of the functions of
this unit to the regions and uhe optimal set-up for underEaking investments on
a regional basis will be explored during the supervision of the proJect.
Durlng negotiations, assurances were obtalned from the GOI and
4.26
TELKO}I
rhat:
30, 1993 will develop and review wlth the Bank a
timebound action plan to address the sector policy issues, Promote
conpetitlon and further strengthen regulatory capabillties and
thereafter implement the recommendations agreed with the Bank
(para. 2.4L).
(a)
GOI by June
(b)
based on final contracts to be concluded by October 31, L992
for rnajor project components will prepare, by the critical path
method, and furnish to the Bank, by December 31, L992, a mester plan
for the implementation of the project for each of the elght regions
(para. 4.5(d)), satisfactory to the Bank, which would include
actions assigned to relevant government agencies and TELKOM
management; and thereafter implement the said plan as approved by
TELKOM,
the
(c)
Bank.
appoint consultants in accordance wlth the agreed
tirnetable (para . 4.9) under terms and conditions satisfactory to the
Bank to assisE in the implementation of itens 8, b, c and d(v)
(para. 4.5) of the project.
TELKOM w111
(d) the Goverrunent and TELKOI,I will take all actions, includlng
allocatlon of necessary financial and administratlve powers,
essential to enable the PIU to maintain the proJect lmplenentation
schedule (para. 4.25);
(e)
will maintain the PIU staffed with
project completion (para. 4.25); and
TELKOM
competent
staff untll
Irnplementation Schedule. Annex t4 shows che proJect inplementation
schedule. It takes into account TELKOI'I's current llnitations and, subJect to
agreements in para. 4.26 is realiscic. The project i.s expected to be
inplemented fully by December 31, L997.
4.27
Site Acquisition. In view of the difficultles experienced in the
4.28
past with the acquisition of sites for housing network faclLitles and rlghts
of way for the cabLe routes, advance action were initiated for this project.
As a result TELKOM has acquired all the 87 bullding sltes requlred for the
proj ect.
36Performance Uonitor ing
Performance indicators to monitor TELKOM's implenentation of the
physical components of the investment program, the quality of service and the
financial performance are given in Annex 15. During negotiations, the
proposed performance targets for the years L992 and 1993 were discussed and
4.29
wlth TELKOM; further, assurances r\rere obcained from TELKOI'I that the
indlcative targets for the years 1-994,1995, 1995 and 1997 (shown ln Annex 15)
wlll be reviewed and specific targets for each year agreed by then with the
Bank by November 15 of the preceding year.
agreed
4.30
An action plan (Annex 16) to monitor TELKOM's implementation of the
lnstitutlonal strengthening conponents of the projecc were also discussed and
agreed during negotiations. These components include measures to lmprove
TELKOM's performance in respecE of (a) accounting and flnancial management;
(b) operations; (c) human resource development; and (d) training of staff and
nanagers in management techniques and new technology.
Prolect Reportlnc. Accounts and Audits
4.31
The PIU will be required to prepare and submit a quarterly report in
an agreed format to the Bank on the status of the projeet. This report will
be the main lnstrument for monitoring project accomplishments and will lnclude
the proposed pipeline of sub-projecEs, and implementation status of contracted
sub-proJects. The PIU will maintain separate project accounts ln a form
satisfactory co the Bank for annual audits. These accounts, lncluding the
Special Account and SOEs will be audited annually by independent auditors
acceptable to the Bank and will include opinions on aII expenditures including
those nade against SOEs. In the case of SOEs, the audit report should contain
a separate opinion by said auditors as to whether the statements of
expendlture submitted during such fiscal year, together with the procedures
and lnternal controls involved in their preparation, can be relied upon to
support the related withdrawals. The PIU will submit the audited accounts co
the Bank no later than slx months after the close of each fiscal year to which
they relate corunencing calendar year L992.
Supervlslon Plan
Supervision of this project will focus upon a number of sector
optlmlzatlon and institutional development activitles. These measures w111
include: (a) continulng the ongoing dialogue with GOI to irnplenent
aPProPriate sector modernization and optimization to improve sector
performance and human resource development; (b) initiate discussion on
efflcient usage of tel-ephones through tariff rebalancing; (c) improving access
to telephone service through increased use of public pay phones and
telecommunlcatlon service retail shops; (d) improving emphasis on servicing
corporate customers through strengthened Customer Service Groups. Based on
Past exPerlence, front-end loading of supervision resources, particularly
durlng the first two years of project implementation, is necessary to resolve
basic physical lmplementation issues. Three missions annually for two years,
then two nissions Per year for the remainder of the project are foreseen as
4.32
-37
adequate supervislon for this project. The total estinated staff lnputs are
(a) telecommunicatlons regulation and policy speclallst; (b) telecommunlcaand hunan resource
tions engineer; (c) financial analyst; (d) organizatlon
go
staff weeks effort w111 be
speclali-t; and (c) an t'1IS exPert. A total oi
requlred for effective supervision of this proJect'
Envlronment and HeaLth AsPects
project will have no adverse environnental funpact or
health lmpacts. indeed, the net effect of the proJect is expected to be
posltive on both counfs since it will result ln a substitutlon of
envlronmentally benign comrnunications for environnentally danaglng
dellvery of
transportation. In addition, it will improve narglnallY lhe units
and wlth
health services through better communicatlons between heaLth
the
to
the populatlon. Howeier, glven the volurne of civll works related
to
dlsruptton
instatirng of underground cables, there ls likely to be som-e
(a)
plannlng
and
by
vehicular traffic aid pedestrians. Thls w111 be mlnlnlzed
contracts
phasi.ng of constructio; works; and (b) including in constructlon
clauses which require contractors to maintain vehicular and pedestrlan flows'
No resettlement issues are expected.
4.33
The proposed
-38v.
PERIJIfIEL's
FINANCIAL ANALYSIS
Hlstorical Financial Perfornance
PERUMTEL' s audited and unaudited financial statements and
5.L
performance indicators for FY86-91 are provided in Annex 17.
As shown by the
performance
over
financial
FY86 - 91- perlod
Tab1e
5.1-,
PERUI,ITEL's
indlcators ln
satisfactory.
remained
Ig[!g5l:
XEr EIS(IRICAL FIMNCIAL
Fllcll Year Ending
Decedrber 31
Profltability;
Billion)
(Rp
PERFoR|ANCE II{DIC'AT(nS
19 86
L987
J4.O
799.4
541.0
158.5
929.4
780 .7
148.7
83.5
111.7
103.4
Operatlng Revenue @
Lesr: Opcrating Expenses ft
Net Operating fncome
6!4.2
724.0
495.2
119.0
69L .4
N€t Plofit
r34.2
Flnanclal Ratlos:
Oparating Ratio
R€turn on A3!€t3 (Av,
Return on Av. Equity
812
262
271
NFA)
Current (Rp'000)
lelephone Revenue/Av. Main Lin€
Cash Op Costs/Av. Main Line
!!
ConEtani '90 Prlces (Rp '000)
felaphone Bevenue/Av. Maln Line
Cash Op Costr/Av. Main Line 2!!
Net Internal Cash Generatlon
ac I ol Av. 2 year Investmenis
836
560
|,2t5
ofc
41U
gsr,
5Z
13r
582
502
Debt Servica Coverage
3.4
4.8
Curreni Ratlo
3.2
J.v
Account Recelvable (Days)
t0
64
Debt/(Debt Equlty)
451
39t
/a
t!.
Ts
/.!
801
182
11r
893
526
1, 158
LegL 13
1990
1,
84''
151
132
I,292.8
L,t29.5
t63.2
L29
.5
L,737.5
1,361.8
375.8
187.0
87t
LZt
141
78t
2U
2lt
896
450
958
506
1,108
631
1,341
064
545
1, 035
545
1,108
631
L,289
52t
4.5
2.7
66
431
461
3.8
L.7
57
43t
675
28t
2,t
1.5
45
46t
649
4tt
2.3
L.7
40
541
Although PEnmfIEL nas converted to TELKOM on SepLember 23, L99I, th6 f,lnancial sia!€r06n!r
are for PERIJI,ITEL for the whole fiscal year.
farlffs wete lncreased substantially effecLive October. 1990.
Dep!.clatlon method used changed in 1987 from straight line to double declining.
Salarles were increased by an avelage of aboul 95I and 261 Ln 1990 and 1991, respectlvely,
Growth in the number of main lines, traffie growth ln international
5.2
and domestlc, lmproved revenue settlement on internatlonal traffic wlth
INDOSAT and substantial improvement in labor productivity fron 57 ernployees
per 1,000 nain llnes in 1985 to 32 in 1991 contributed to PERIIMTEL remaining
profitable durlng the 1985 to 1991- period. With the increase in cariff in
October 1990 (para. 6.3), PERUMTEL's financial performance irnproved in 1991.
The rate of return on net fixed assets in operaclon, valued on the basis of
htstorical costs, lncreased from about L2% Ln L990 co about 2LI in L991.
-39Except for l-990, PERUMTEL's net internaL cash generation after debt
service and mandatory contributions as a Percentage of average t\to year
(current and next year) lnvestments have been higher than 40 pe-rcent' Most of
pERIr!,tTEL' s internal funds for investments are provlded frorn deferred lncorne
from lnstallatlon fees, accelerated depreciation and other noncash
expendi.tures. Retained earnings contributed relatively Llttle to Lnvestment
needs as dlvidend payments and other allocati.ons of lts net proflt allow
pERITMTEL ro retaln-only 16 percent of pre-tax lncome. PERIfiTELhas been a net
contributor to the Government treasury through (1) corporate lncome tax,
(il) value added taxes on subscriber bil-ls and PERWTEL's Procurement, and
(fii) divldend payment. In 1990, the net contrlbutlon fron PERIII'ITEL to the
With the change of corporate status, the
Government was ablut Rp 156 billion.
and allocation of lts proflt each
payment
dividend
leveL of TELKOMTs annual
an
annual basls based on TELKOM's
on
year are decided by the Shareholder
perfornance and funding needs.
5.3
financial position remalned sound and llquldity posltlon
was satisfactory during the FY85-91 period. The debt equlty ratio renalned
below 60:40 and current ratio was 1.5 or higher.
5.4
PERUMTEL,s
TELKO}I's Openlnc Balance Sheet
sheet as of Septenber 24, 1991 is
of Flnance's Decree dated September
per
Minister
sumnarlzed in Table b.2. As
ls Rp 10 trllllon. Ttre pald-ln
TELKOI,[
for
23, 1991, the autho,rized capital
posltlon and llquidlty are
financial
TEIXOM's
capira1 ls Rp 2 trlllion.
satlsfactory.
5.5
TELKOM's opening balance
-40Table 5.2:
TELKOM'S OPENING BAU,NCE SHEET
AS OF SEPTEMBER 24, 1991
(Rp B1111on)
ASSETS
Cash and Bank @
588. 7
647 .5
L,236 .2
1, 902 .0
Other Current Assets
Total Current Assecs
Net Fixed Assets
tr{ork
in
Progress
874.7
498.4
Other Assets
Total Assets
4, 511-.3
LIABILITIES
Current Liabilities
Other Liabilities
Long-term Debt
Equity
Total Liabilities
and
877 .8
r82.4
Equity
Current Ratlo
Debt:Equity Ratio
b
1,451. L
.000.0
4,511. 3
2
L.4
42:58
Includes short-term lnvestments.
TEIXOI|'s Proiected Flnancial Perforrnance
5.6
TEII(OM's flnancial stacements are projected on Ehe basis of
assunptions in Annex l-9. These projected financial statements and the
flnanclal performance indicators for the period 1992 uo 1996 are provided in
Annex 18 and 15, respectively, and key financial performance indicators are
sunrnarlzed in Table 5.3. Financlal projections are based on the network
growth and productivity irnprovements to be achieved under the ProJect whieh
are: (a) nurrber of lines to increase from 1.2 milllon in L991 to 3.2 urlllion
by 1996; (b) annual growth in domestic and internatlonal traffic of 101 and
2O7., respectively; and (c) improved labor productivity fron 32 employees per
1,000 main Line in 1991 to 15 by 1996. Domestic inflation rates of 61 per
ennun were assumed durlng the period.
-4L!3!lg!.!:
Flscal Year Ending
Plofttabillty:
IElftcr{'s rSY PRoJECTED FMAICIAL
December 31
(Rp. Blulon)
2,t79
Oparatint
1,659
Expenses
Net Op€rating Incone
510
Net Plofit
224
Opelatlng Raiio
Return on Net Flxed Assets
Cullsnl (Rp'000)
Ielephone Revenue/Av Main Line
Cash Op Cbsts/Avg Main Line
Constant '91 Prices (Rp'000)
Telephone Revenue/Av Main Line
Cash Op Costs,/Avg Main Line
Net Interna! Cash Genelatlon
as I of Av 2 Yeat Investments
D€bt S€lvice Covelage
Current Ratlo
Long Term Debt
/ Total CapiLal
1993
1994
1995
1996
Forecast
Olteratlng Rsvenue
Flnancial Ratios:
5.7
L992
PERFmHAf,CE IIDIGAT{IR.S
772
24t
2,543
1,909
534
280
752
Z6t
4,303
838
3,654
2,728
936
395
433
502
3, 114
2,276
732
281
1,405 1,347
640
644
1,373
1,198
570
t,L52
L,325
607
2.9
437,
2.9
t.7
52t
L.7
572
431
64L
538
742
Z8r
3, 190
1,113
742
Z9t
1,354
551
1,354
L,072
515
1,005
653
488
3.3
3.4
48t
?.2
1,8
1.9
2.0
4Zr
592
477.
60u
502
Based on the overall productivity irnprovements (para. 5.5),
TELKOM
is projected to achieve adequate financial returns, meets its self financing
target of generating internally a minimum of 4O7" of its annual financing needs
and maintain its debt equity ratio within the government authorized linit of
50:40 until the end of l-993. However, subject to a tarlff review to be
carried out before the end of l-993 (para. 4.7(d)), it is anticipated thac
donestic tariffs will need to be increased by about l-2X effective January 1,
1994 and maincained in real terns each year thereafter, to enable TELKOM to
contlnue to meet its self-financing target and maintain its debt equity ratio
within the governmenls' requirement until the end of L996. lJith these
adjustnents in tariff, net profit is expected to increase from about Rp L87
billion in L991 to about Rp 502 billion by 1995 resulting ln an increase in
rate of return on net fixed assets in operation from about 2LI in 199L to
about 29?l Ln 1996. During the forecast period, the liquidity positlon is
expected to remain satisfactory with current ratio of at Least 1.7.
proposed major netl^tork exPanslon, TELKOM's ability to
generate adequate cash flows to finance its investment Program, to naintain a
sound financial position and to meet debt service obligations in future years
are the most crucial issues. During negotlations, agreement lras reached wlth
the Government and TELKOM that all necessary measures (lncluding tariff
lncreases) to achieve the agreed performance targets (para. 4.29) w111 be
taken to ensure that TELKOM achieves a debt servlce coverage of at least L.5
for each year and generate net internal cash afcer debt servlce, worklng
capital needs, and dividend pa)rments and contributions, of a mintmum of 40
5.8
l{lth the
-42percent of the annuaL average of Che current and next year's lnvestment ln any
one year.
TEIXOM's Prolected Flnancinq Plan
5.9
A summary of TELKOM's sources and appLlcations of funds stetement
durlng the perlod L992 to l-996 is summarLzed In Table 5.4. TELKOM is expected
to self flnance about 47I of its investment program and lnterest durlng
construction needs during the period. The forelgn loans and domestlc
borrowlng wlll finance about 531 of TELKOI{'s total flnanclng needs. Domestlc
sources of funds w111 include bank loans and fron l-993 onwards, lssue of
bonds. Local consultants financed by TELKOM are asslsting lt to prepare for
issuance
of local bonds.
Table 5.4:
FORECASTED SoURCES AND APPLICATIONS OF
Ruplah
Bllllon
FITNDS (1992-96)
I Of Total
Sources
Internal
Cash Generation
Less: Total Transfers
Less: Debt Service
Less: Change in Working Capital
I,013.5
583.5
2,547 .4
811. 3
Net Internal Cash Generation
3, 971.
3
471
Loans
4.511.9
532
8,483.2
1002
Applications:
Capltal Investnent
Interest Durlng Construction
7,609. 6
873.6
L0z
Total Appllcations
8,483.2
Total
Sources
90u
t
00I
-43VI.
ECONOMIC ANALYSIS
Least-Cost Solutlon
6.1
The technlcal means to achieve the Ft92-96 service developnent
objectlves are to a large extent determined by the characteristics of the
existing systems and declsions taken in connection wlth the thlrd proJect.
Withln these lirnits, the solutions chosen are likely to result in the lowest
costs regardlng both initial investment and total cost over the life of new
faclllties. In partlcular, the adoption of modern technology for the proposed
proJect, eLectronie digital technology for telephone swltching and associated
remote subscriber units, optical fibre and digital microwave systerns for the
lnterexchange network will result in considerable reduction of installation
and natntenance costs and swicching center space requirements.
Tarlffs
Tarlff Policies. Tariff policies for telecommunlcations servl-ces
to respond to several goals. Thus, i.n order to contribute to economic
efficlency, tariffs should reflect costs and, where unmet dernand exists, also
serve to ratlon scarce capacity. In addition, tariffs must be adeguate to
pernit the operating entity to achieve satisfactory financial returns
(lncludlng target levels of investment program self-financing). Finally,
tarlffs should take account of demand factors and be seen as reasonably fair
by the public. In Indonesia, periodic tariff changes have reflected these
goals. (An approach to establishing a systematic mechanism for revlewing and
lnplenentlng tariff changes is discussed in para, 6.5).
6,2
need
Tariff Levels. TELKOM's tariffs are shown in Annex 20. An
lnternational comparlson of TELKOM's tariff level-s, shown in Flgure 5.L,
suggest that they are at reasonable levels. TELKOM's tarlffs were last
increased in October 1990 by a revenue-weighted average of about 251. These
tarlff increases, as well as important productivity improvements being made by
TELKOM, mean that the entity is projected to achieve adequate financial
returns and generate internally a minimum of 401 of its annual flnancing needs
until the end of 1993. Nevertheless, it is anticipated that tariff lncreases
(that are less than the cumulative amount of inflation slnce the prevlous
tarlff change) will be required during L994 (para. 5.7). This proJect will
support a tarlff analysis, leading to revised tarlffs, as part of the support
of the institutional devel-opment of MTPT (para. 4.6).
5.3
-44-
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-45The last (October 1990) tariff revisLon wes not
but made some important improvements to the
increase,
an across the board
installation charges were increased by
Telephone
structure of the tariff.
and are currently the equivalent of
regions
different
between 1OOZ - 18OZ in
This high level is warranted to
area.
the
Jakarta
in
approximately US$500
Telephone service monthly
lines.
telephone
of
new
ration the scarce supply
abouC 3002-' and are now
by
increased,
substantially
rencal charges were also
usage tharges were
Teleohone
Jakarta.
per
in
rnonth
of US$5
th"
"q"i".l""i
with the price of a
331,
by
increased
were
also increased. Local taIl charges
calls
long-dlstance
for
Charges
cents.
US
5
three minute local call set at
charges
km.,
1000
over
calls
for
and,
were increased by smal-ler Percentages
were reduced by Lbout 10%. The next tariff review is expected to find that
continued rate rebalancing is desirable. Thus, monthly rental charges should
be increased, so that even low usage subscribers will cover the incremental
costs of network access service. It may be advisable to further increase
local call charges to moderate demand and, therefore, allevl'ate network
congestion. And to the extent permitted by network capacity and financial
tarlets, charges for long distance service and leased lines should be
incieased in L994 by less than the rate of inflation'
6.4
Tariff Structure.
Review Mechanism. Adequate and timely adjustnents of tariffs
At Present ln
ensure TELKOI{'s continued financlal viabillty.
telecommunicaimplementing
for
Indonesla, there is no systematic mechanism
tions tariff changes, such as rate of return regulation or price caPs. Thus,
from time to time, as financial projections and investment Programs are
reviewed, TELKOM has approached the government with tariff increase proposals.
Although this situation is not uncommon in countries where Sovernaents own the
Tariff
are important to
6.5
main telecommunications operator, iE tends to unduly pollciclze tarlff
increases and, in many countries, has led to underinvestment in the sector.
consultants currently engaged by MTPT (under the Third Telecommunlcations
project) are reviewing options for systematizLng xhe government's authorLza'
tion of TELKOM tariff changes. Furthermore, as already speclfled under the
third project, it was agreed for this project that TELKOM will be requlred to
furnish to the Bank by November 15 of each year, for review and conment'
tariff reviews and subsequently, taking into account the Bank's conments (lf
any), furnish to the government for consideration proposed tariff changes.
BenefLts
project will make a substantial contributlon to lmprovements in
the productivity of IUXOU. In addition, the proJect will make a rnaJor
contribution to lncreasing the rate of average annual growth rate of connected
nain llnes from about 107 p.a. to about 207" p.a. during Che L992 to L996
period, thereby increasing the penetration rate from 0.58 per 100 populatLon
to L.7 per 100 by L996. Given rhe limited institutlonal capacity of TELKOM
and the high demand for telecommunications services, these are naJor achievements that will benefit almost all sectors of the Indonesian economy and the
public. Furthermore, continued dialogue with the government on sector reform
wiLl contribute to improve sector performance and an expansion ln the range of
modern telecomrnunications services available to businesses.
6.6
The
-465.7
The institutional support will assist MTPT Ln lntroducing sector
reforms and TELKOM in implementing the additional measures to operate as a
business oriented enterprise as per its new mandate. TELKOM,s lnstltutlonal
developnent will be pursued in a number of ways, including on-the-Job and
overseas training and technical assistance to improve managerial, flnanclal
and technical capabillties of its staff. The investment component would not
only accelerate provision of service to meet part of the unmet denand for
telecommunications services but also substantially reduce unit costs of
investment. Increased availability of telephone servlce and lnproved quallty
of service would benefit other sectors through cornmunications-rltated irpro.nlmencs in government and business efficiency and productlvity. The proJect
would also further develop the local consultaney and outside plant conlracting
industrles through collaboration with internaEional firms.
Rate
of
Return
Based on the assumptions summarized in para. 5.6 and shown in
21, the real financial rate of return (FRR) to TELKOM is estimated at
182. The real economic rate of return (ERR) based on financial flows but
adjusted to take account of taxes including the value-added tax levied on
telephone bills, is estimated aE 23%. This is a conservative estimate of the
economic rate of return as it does not include consuner surplus, known to be
high, glven the supply constraint. In testing the sensitivity of ERR estimates, the effects of the following scenarios were considered:
6.8
Annex
(a) a delay of
12 months in connection of new subscribers resulting in a
delayed revenue stream of L2 months. This resulted in a fa1l in ERR
to
151;
(b) an increase in capitar as welr as operating cost by 102.
resulted in a fall in ERR to 20y.; and
This
(c) combining (a) and (b) . This resurred in a fall in ERR to 13r.
Even under the most improbable scenario, (c), and without taking into account
consumer surplus, the real ERR is 13%. The contract for najor
telecommunications equipment to be financed by co-financier" h".r. already been
finalized and cost estimates for major Bank financed items are based on
international competitive prices based on recent contracts for sinilar items
under the ongoing Third Telecommunications Project. To ensure tinely
implernentation of the project, single responsibility iurplementation approach
will be used and all major contracts will be signedUy ttre time of loan
effectiveness.
Prolect Rlsks
6.9
The potential risks for the project fall into two categories:
(a) delays in procurement, and (b) shortfall in TELKoM insticutlonal capaclty
to inplement the project. These risks have been recognized and actlons
lnitiated to minimize their impact,. TELKOM has already established a nucleus
proJect implementatlon unit and adequate technical assistance is provlded
-47under the proJect Eo asslst TELKOM ln the lmplenentatlon and supenrlslon of
construction works. Resldual risks will be addressed through agreed measures
to monltor proJect lmplementation with correctlve actlons lnltlated as
necessary.
-48
VII.
7.L
AGREE}.IENTS REACHED AND RECO},TMENDATTON
During negotiations agreements were reached with GOI and
the following:
I.
TELKOM on
GOI
(a) will ensure that TELKOM has access to sufficient funds, in
particular foreign financing to cover its capital expenditures as
reviewed and agreed with the Bank (para . 4.3 (b) )
;
(b) will, by November 15, 1992, prepare and furnish to the Bank, for its
approval, a training program for the MTPT staff, and, thereafter,
implement the training program as approved by the Bank para (a.10);
(c) will obtain, not later than January 31, 1993, the foreign exchange
financing from Germany and Spain and, not later than June 30, 1993,
from Credit Lyonnais or other sources on reasonable terms to complete the project in accordance with the implementation program
(para. 4.15);
(d) will on-lend
TELKOM
4.L6);
$373 million out of the proceeds of the Bank loan to
under terms and condiEions satisfactory to the Bank (para.
(e) on or before June 30, 1993 will develop and review with the Bank a
time-bound action plan to address the sector policy issues, promote
competition and further strengthen regulatory capabilities, and
thereafter implement the recommendations agreed with the Bank
(para.4.26(a)); and
(f) will take all
such actions, including annual reviews and
adjustments, if any, of TELKOM's tariffs to enable TELKOM to comply
wlth II (i) below (para. 5.8).
II.
TEIXOM
(a) will submit to the Bank audited corporate and Statement of Expenditures accounts, within six months of the close of its fiscal year
(para . 2.24)
;
(b) on or before
November 15 of each year, commencing on November 1-5,
1992, and thereafter until the completion of the Project, will (i)
prepare and furnish to the Bank, for its review and comments,
TELKOM's corporate plan, inscitutional development plans and investment program (including Revenue Sharing Arrangements) for the
following fiscal year; and thereafter, taking into account Bank,s
comments, if any, carry out such plans and (ii) review, and if
required, revise with prior concurrence of the Bank the TELKOM
Fiscal Years 1992 - L996 Investment Program (para. 4.3(a));
49November 15, 1993 review wlth the Bank TELKOM',s
procurement practices and procedures to be followed for procurement
Lf maSor goob" and services required by TELKOM in the earrying out
of ltl operations (except for goods and services financed from the
Loan) and thereafcer incorporaie Bank's corunents and adopt sueh
guidelines (Para . 4.3 (c) ) ;
(c) on or before
(d) will, by December 31, Lggz, prepare and furnish to the Bank, for lts
a masterplan for the implementation of items under 4.5(d)
"ppro.r"i,
oi-the Project, which rnasterplan co include actlons to be taken by
and the relevant government agencies and thereafter implement
the said parts of the project in accordance with such pLan approved
by the Bank (Para. 4.26(b));
TELKOM
(e) will appoint consultants according to a timetable satisfactory to
the Bank (Para. 4.26(c));
(f) will maintain rhe Project Implementation unit for the purpose of
carrying out items 4.5 (c&d) of the Project; the Project-hnplementation Unit will be headed by a qualified and experienced officer, and
vested, at all times, with such power, responsibilities' funds'
to
staffing facilities and other resources as shall be required(paproject
undertake its responsibilities in carrying out the
ra. 4.26(d&e));
(g) will take all measures to meet the physieal and financial
performance targeEs agreed at negotiations fox L992 and 1993, and
will report to ih" go.t"rnment and the Bank no later than six months
15,
after close of each fiscal year. Every year, before Novembertargets
performance
of
TELKOM will furnish to the Bank a revised set
for the next two Years (Para . 4 -29);
(h) will, by November 15, Lggz, Prepare and furnish to the Bank for it's
an action plan to strengthen TELKOM's capabilities in the
"ppro.r"i
areas of: (i) accounting and financial management; (ii) operations;
(iii) capacity management of both physical and human resources; and
(iv) training of staff and managers in management techniques and new
technology una thereafter implement such an action plan as approved
by the Bank (Para' 4'30);
(i)
will take necessary measures (including tariff adjustment) to ensure
that TEIXOM achieves debt service coverage of 1.5 and Senerates net
of
internal cash afcer debt service and contributions of a minimun
year's
next
40 percent of the annual average of the current and
planned investment in any one year (para' 5'8); and
(j ) on November 15 of each year, commencing November 15, 1992 and
thereafter until completion of the project, will furnish to the
Bank, for its review and comments its proposed tariff revisions, if
anl, and subsequently, taking into account Bank's comments, furnlsh
to GOI for its consideration, any proPosed tariff adJustnent
(para. 6.5) '
cn
Condltlon of Loan Effectiveness
7.2
Slgning of the subsidiary loan agreement between GOI and TELKOM will
be a condltlon of effectiveness of che proposed loan (para. 4.15).
Reconnendatlon
7.3
Wlth the above agreements, the proposed proJect ls sultable for a
loan of $375 nillion to the Republic of Indonesia for a perlod of 20 years,
includlng a S-year grace period, at the Bank's standard varlable interest
rate.
-51 INDONESIA FOI]RTH TELECOMMT]MCATIONS PROJECT
STAFF APPRAISAL REPORT
Table of Contents
Page No.
AT{NHKES
1:
2:
3:
4:
5:
6:
7:
8:
9:
10:
11:
12z
13:
L4:
15:
16:
t7:
18:
19:
20:
2Lz
22:
Senrice
Chart
Statistics
Demand
Issues
Chart
Cellular Radio Mobile Telephone
MTPT Organizational
Basic Telecommunications Sector
Supply vs.
Telephone Servic.e
TELKOM Organizational
TELKOM Employee Data
International Development in Sector Organization
1992 - 1996Investment Program
Project Comlnnents
Terms of Reference
Procurement Packages and Schedule
Disbursement Schedule
Implementation Schedule
Performance Indicators
Action Plan
Historical Financial Statements
Projected Financial Statements
Assumptions used for Financial Projections . .
Summary of TELKOM Tariffs
Return on Investments
Selected Documents and Data Available in Project File
52
53
54
U
66
67
68
7T
75
78
8l
105
tw
108
110
111
tt4
118
tzl
r23
129
133
-52ANNEX 1
INDONESIA
FOURTH TELECOMMUMCATIONS PROJECT
Cellular Radlo Moblle Telephone Service
Company
Startlng
Area
Date
Maxlnum
Name &
Technology
PT RaJasa
Hazanah
Jakarta,
Perkasa
Bandung
PT
Jakarta,
TEIJ<OM
Bogor
May L986
STKB.C,
NI,TT
Puncak, GanJur,
Potential No.
of Subscrlbers
15,000 + 15,000
(April,
L992)
1988
SKTB.I,
E.
1991
AI{PS A
25 ,000
E.
1991
N.TPS A
25 ,000
TACS
5,500
Bandung
Jakarta,
PT Electrindo
Nusantara
Java
PT CEntranelndo
Jakarta,
Panca Sakti
(cPs)
Jsva
-53-
AI.INEX 2
suolvu:ldo
3unrgnu$Auorv.|tlD:u
E
ac
5
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t d-s
c€
€EE€3
o=66?
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fiEE
Q=S
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=
Efis
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+
-54ANNEX 3
Page 1 of 10
INDONESIA
FOI]RTH TELECOMMUNICATIONS PROJECT
Basic Statistics
A.
B.
C.
D.
E.
F.
G.
H.
I.
Data of Switching Capacity, Subscribers and Public Telephone
Regional Data of Switching Capacity, Subscribers and Public Telephone
Share of Faults in Outside Plant and Productivity
Necessary Days for Repair
OPMC Expansion Plan
Sate[ite Facility
Successful Call Ratio
Call Loss Structure for Long Distance Direct-Dialing
Profile of Subscribers in Each WITEL by Charges Per Line Per Month
-55-
Effi
iiiiiiii
'
: ::::::::::::
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r
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ANNH( 3
Page 2 of 10
-56-
A}INEX 3
Page
3 of
t
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10
ANNEX 3
-57-
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_ 58 _
ANNEX 3
page
5 of l0
INDONESIA
FOI'RTH TELECOMI.IT'NICATIONS PROJECT
D. Speed of Service Restoration
(Unit:
Wlthin
day
a
Between
and 3
2
Between 4
and
7
Over
7
Z)
Total
days
days
days
19
23.O
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L2.4
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26.0
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30.3
32.L
29.5
29.5
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100.0
100.0
100.0
100.0
100.0
Average
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28.8
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100.0
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39.6
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20.0
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29.3
100.0
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3.8
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35.5
63.0
54.0
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13.0
12.1
1.1
5.5
4.9
15.8
3.7
7.0
5.3
0.1
1.9
50.6
48.7
17.0
28.6
17.6
37.8
24.L
28.8
4.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
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Average (JKT)
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Senarang
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Palenbang
Average
cltles)
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29.L
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23.3
18.4
71..0
58
0
ANNEX 3
-59-
Page 6 of
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-60-
AI{NEX 3
Page 7
INDONESIA
FOT]RTH TELECOMMUNICATIONS PROJECT
F. Satellite Facillty
CUSTOIIERS (Nunber)
Palapa-B2P
Nrrmber
of
Responders
2
PTT
Indonesia other
3.5
(7)
1
Macau
(1)
Malaysia
(1)
New Zealand
(2)
Papua New Guinea
2.5
1
L
(1)
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(4)
Thalland
(8)
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(2)
6.7s
0.2s
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2
1
Free
0
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3
or Backup
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(3)
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19
5
0
of
10
-61 -
AI{NEX 3
Page
Local Network
Gity
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33.0
25.0
34.0
28
Bandung
Denpasar
Jakarta
Meden
Semereng
29.O
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UJung Pandan
Average
of 50 Cltles
31.0
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8 of
Long Dlstance Network
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10.0
14.0
17 .0
8.0
19.0
16
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10
AI{NEX 3
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-68AI{NEX 7
page 1 of
IIVDONESIA
FOURTH TELECOMMIJMCATIONS PROJECT
TELKOM Staff Composition, Productivity and Education
A.
Emplovees by Cateeorv. 1985-1991-
B. Ratio Scaff ro Workine Lines- 1985-199L
- 69 -
C.
Education
Enploveee
by Educatlon
No.
of
ANNEX
(December 1991)
Enployees
7
University
L,796
4.54
Academy
2.065
5.23
23,006
58.2L
Senior Hlgh School
7
page 2
Juni.or High School
7
,4L3
18.76
Elementary School
5,240
L3.26
Total
39,520
100.00
of
3
-70ANNEX 7
page 3
of
INDONESIA
FOURTIT TELECOMUT'NICATIONS PROJECT
Ttre Nunber
Country
No
of Subscribers
of
subscrlbers
Singapore
Malaysla
Ttralland
Phtllpptnes
r89
875,672
1, 399,000
| 88
I,0o5,972
r85
477.963
24,6L2
915 ,000
Brunel
Indonesia
r90
Paklstan
Saudl Arabla
583,930
,487 , 909
1, 149, L00
Hong Kong
L,ggg,524
India
Korea (Republlc)
Japan
Australl.a
France
Geruany (F.R. )
Canada
Unlted Klngdon
3
r90
8, 625,000
54,094,000
6,964,66L
24,8O3,609
27,22L,756
L3,206,213
22,L37,OOO
and Enployees
No of
enployees
Subscrlbers/
11,989
73.O
49. 5
55.0
35.2
28,04L
L7 ,956
13,553
s93
41,000
42,790
312,303
2L,067
14,843
50, 700
258,000
92,487
163,389
2L6,02O
102,581
223,O84
enployee
4L.5
22.3
Enployees/
1,000
subscribers
L4
20
18
28
24
37
13.6
73
11. 2
90
54.5
134.0
170.1
209.6
7s.3
18
7.5
6
5
13
lsl.8
6.5
L26.O
8
L28.7
99.2
10
8
Source: ITU, rYearbook of Coumon Carrler Teleconmunlcatlon Stattstlcs (16th
Edltlon) 1978 - L987," 1989
Note: Data with no mark is as of 1987 year.
3
-
7L
ANNEX 8
page I oI
_a-.-_.
INTERNATIONAL EXPERIENCE IN
RESTRUCTURING THE TELECOMMUNICATIONS SECTOR
1.
Examples of developments in restructuring telecommunications sectors in several
countries are summarized below.
2.
North America. In the USA, the break-up of AT&T and the authorization of all
kinds of equipment, resale and facilities-based competition are well-known. In Canada,
facilities-based competition has been permitted for many years for almost all services except
public switched voice telephony. Competition in this area is expected before the end of 1993.
Furthermore, government-owned Teleglobe Canada (the monopoly provider of overseas
telecommunications services) was privatized in L987. As in the USA, cellular telephony is
provided by a maximum of two competitive service providers in each franchised area.
3.
Western Europe. In the UK, the privatization of British Telcom in 1984 and the
introduction of facilities-based duopolistic competition from Mercury has been followed now by
government proposals to authorize multiple facilities-based competitors. Moreover, the UK has
encouraged cable television companies to provide residential customers with competitive access
to the switched telephone network. In Germany in 1990 the commercial and regulatory activities
of the Deutsche Bundespost were separated. Deutsche Telekom was established as a state-owned
Posts and
the Ministry
department
telecommunications corporation and
Telecommunications was given responsibility for sector regulation. There is full competition
in the provision of terminal equipment, value-added services and data communications services.
Voice telephony and the provision of transmission paths are monopoly services of Deutsche
Telekom. However, there is freedom to connect properties in common ownership up to a
distance of 25 krns, low bit-rate satellite services are open to competition and high bit rate
services will be licensed provided they do not lead to the substitution of voice communications
in the terrestrial networks. Germany has already licensed two competing cellular telephone
networks and will authorize a third mobile network for innovative Personal Communications
Services (PCS) in 1992. Further, the German Ministry has stated its interest in seeing Telekom
privatized, in part, by 199a or 1995. In F;3ggg, in 1990, France Telecom was established as
a
an
of
independent, government-owned company outside
of
of the Ministry of
Posts,
Telecommunications and Space. Subsequently, the Ministry announced liberalization of the
terminal equipment and value-added markets and limited competition for mobile/satellite
networls and services.
4.
New Zealand and Australia. New Zealand has probably gone further in
liberalizing its telecommunications sector than any other country. In 1987, the Telecom
Corporation of New 7-ealand Limited was established as a state-owned limited liability
enterprise. In 1989, the telecommunications services sector was opened to all kinds of
competition. In 1990, Telecom New Zealand was completely privatized in a sale that gives a
controlling interest to a consortium headed by Ameritech and Bell Atlantic. Telecom New
-72ANNEX 8
page 2 of
4
7-ealand was r@rganized into regional subsidiaries and a long-distance subsidiary within a
holding company structure. In Australia, in 1991, after an extensive sectoral review, the
government sold the state-owned satellite company (AUSSAT) to a private consortium with
major foreign investors (ie. Bell South, Cable & Wireless) and awarded the consortium a second
license to provide a full range of domestic and international telecommunications services. At
the same time, the government merged its overseas carrier (OTC) with its domestic carrier.
After 1997, the government has announced there will be no restriction on the number of network
providers.
Eastern Europe. In Hungary, the Government has initiated the process of
5.
privatization and liberalization of the telecommunications sector. In January 1990,
telerommunications services were sepa.rated from postal and broadcasting services, and the
Hungarian Telecommunications Company was established as a separate state-owned enterprise.
HTC is in the process of being transformed into a joint stock company operating under the
Hungarian commercial code and supervised by the State Property Agency, an agency established
by Parliament to supervise and oversee the privatization of state-owned enterprises. Through
a joint venture with US West, HTC provides cellular service. Under the telecommunications
bill currently under review, up to 49To of the equity shares of HTC could be sold to the private
sector. It is expected that this will include the participation of a major international
telecommunications company which will act as a strategic investor in HTC. In addition, it is
anticipated that certain services, such as value-added services, will be subject to competition
from private operators. In Poland in 1989 the telecommunications operating functions were
separated from regulatory functions, with the operating functions vested in the Polish Post,
Telegraph and Telephone and the regulatory functions vested in a new separate ministry of Posts
and Telecommunications. With the telecommunications law that became effective in January
199L, telecommunications were separated from other activities and established as a separate
operating company, TPSA. The telecommunications law also grants the Minister for Post and
Telecommunications broad authorities to grant licenses, although international facilities and
public services will remain the monopoly of TPSA. A nationwide mobile cellular license has
been awarded to a consortium of France Telecom and Ameritech which would own 51 Vo of the
joint venture. TPSA would hold the remaining 49% of the venture.
6.
In I-atin America, restructuring of telecommunications sectors has either been
implemented or is under active consideration in many countries. In 1990, Argentina privatized
its poorly performing government-owned telecommunications entity, ENTEL, and divided it into
two regionally separate companies. Mexico has introduced new policies and regulations to
expand competition in the telecommunications sector. At the end of 1990, the government
reached agreement with a consortium headed by Southwestern Bell, France Telecom and their
Mexican partners to sell a controlling interest in the Mexican telephone company, TELMEX.
In Chile, Compania de Telefonos de Chile was privatized in 1988. Venezuela has opened a
process to establish a fully privatized nationwide cellular telephone system. Furthermore, in
November 1991, the government agreed to sell the state-owned telecommunications company
(CANTV) in a consortium led by GTE and which includes AT&T. Reform of the
telecommunications sector is also under active consideration in Brazil, Peru and Uruguay.
-73ANNEX 8
page 3
7.
of
4
Asia. In fapan in the second half of the 1980s a series of measures
corporatized
and introduced both service-based and
and privatized Nippon Telegraph and Telephone
facilities-based competition, while responsibility for regulation of the sector remained with the
Posts and
1990, the Ministry
Posts and Telecommunications.
Ministry
Telecommunications announced that NTT would be restructured into ten or eleven separate
autonomous divisions and a separate long-distance division. In Bangladesh the government
authorized a private company to provide cellular service, authorized there private companies to
provide rural telecommunications in respective geographic areas and established a joint-venture
between the government-owned Bangladesh Telegraph and Telephone Board and Cable and
Wireless for the provision of overseas telecommunications. In Korea, the government has
announced its' intent to privatize the major carrier, Korea Telecom, and has authorized a second
carrier to provide competitive international telephone service beginning in 1992. The data
communications and terminal equipment markets have also been substantially liberalized.
Malaysia has moved rapidly from the corporatization of Syrikat Telekom Malaysia on January
L, 1987 to a partial privatization of the company in November 1990. In Sri Ianka the
government ha announced plans to corporatize new Sri Lanka Telecommunications Corporation.
A draft new law and regulations will permit competition in the provision of terminal equipment
and in the provision of broadly defined value-added services, and would establish a regulatory
authority in the Ministry of Communications. In Thailand, competition is permitted in the
provision of VSAT networks. Furthermore, the government announced at the end of 1909 a
very large (US$5 billion) Build-Operate-Transfer deal with the British Telecom and a Thai
partner.
(IffD
In
of
of
8.
To varying degrees, the restructuring measures outlined above have been
accompanied by significant improvements in productivity resulting from the introduction of
commercial vs. bureaucratic management systems, a reduction in political interference, the input
of increased capital or better technical know-how, af,d from efficiency improving measures
introduced in the face of the threat of competition. Table A1 below gives an indication of the
enormous productivity gains that have been made by Telecom New Zealand. Significant gains
resulted from extensive contracting out of installation and maintenance work previously carried
on in-house. Similarly, impressive gains in performance have been reported by Syrikat Telekom
1987 (Table A2).
Malaysia since its incorporation on January
l,
-
74
ANNEX 8
page 4
Table
of
4
A.1: TELECOM NEW ZEALAND PRODUCTIVITY IMPROVEMENT
Total staff
1987
1990
25,ffi
15,530
65
r20
20Vo
90Vo
Customer lineslper employee
Digital switching
Table
A.2: SYRIKAT TELEKOM MALAYSIA
1987
1990
Exchange lines per employee
40
50
Operator response for directory
enquiries (% of responses within
20 seconds)
85
99
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-77 -
Amex 9
IllDollEslA
pT TELEKOTXIKASI I|DoIESIA (TELKOI)
Page
FO,RTI rELECOf,ll,lt ]lt cAT lo]ls PRoJECT
3 of
lnvestment Program (992' 1996,
TOTAL
TOTAL
(usg
(Rqiah gittion)
1992-96
By ltens
Locat Foreign Totat
I. O}IGOI}IG PROGRAII
A. Tetecom Ill Proiect
B. other ongoing Projects
Total Cost ongoing
396.4 355.4 751.E
680.0 TR.z 1,453.2
Program
II. TELECO}I IV PROJECT
1. Sritching Exchange
- Expansion
'Rehabititation
2.
3.
4.
5.
8.
7.
8.
Outside Ptant NetHork (oPN)
-
Expansion
titation
Rehabi
Transmission
-
Expansion
titation
Rehabi
Junction lletHork
Integrated l,lanagenent
System
spare Parts, Toots and Test EqPt.
Technical Assistance
.
.
I,ITPT
TELKO,I
Training
-
I,IIPT
IELKO}I
Base Cost
Physicat Contingency
Price Contingency
Totat Project Cost IELcCil lV
III.FUTURE
PROGRAil
TOTAL PROGRAII COST
1,076.4 1,128.6 2,204.9
341.3
178.4
388.2
540.3
566.6 t,l06.9
199.0
37f .4
729.5
271.5
234.9
19.5
918.7
55.4
343.3 117.9
18.0 9.8
461.2
207.0
238.2
72.7
51.2
69.7
33.9
67.9
81.1
46.0
15.7
13.8
8.4
5.7
6.1
103.9
36.5
2r.7
35.0
17.0
119.6
100.1
462.8
190.2
683.8
35.9
31.2
27.4
16.7
11.4
12.2
27.8
50.3
54.1
40.7
23.1
2.4
3.6
21.5
27.6
0.6
3.0
1.2
10.8
13.8
1.6
2.0
4.2
0.2
0.6
0.8
1.5
1.0
2.1
3.0
981.7 1,297.4 2,279.2
Tl.4
49.1 28.3
Tl.4
Total
232.3
136.3
389.8
0.4
1.2
Locat Foreign
36.6 '195.7
40.8 95.5
72.9
81.3
1.3
6.1
llitt)
1992-96
92.0
14.7
1.8
492.8 651.3 1,I44.2
24.6 14.2 38.8
38.8 7.4 46.2
1,108.2 1,340.4 2,448.6
556.3 6'n.9
1,653.4 1,302.8 2,956.1
8:t0.0 654.0 1,484.0
3,837.9
3,771
=======
==:==:E
.7
7
,609.6
====!=3
1,229.2
1,926.7 1.893.4 5,820.1
=====:E
==a==a=
=-3===a
3
-78ANNEX 10
Page I of 3
INDONESIA
FOURTH TELECOMMI]NICATIONS PROJECT
PROJECT COMPONENTS
The principal items to be installed during the project period and the source financing are
given below.
PHYSICAL COMPONENTS
SOURCE
OF
FINANCING
FOREIGN
LOCAL
Germany
TELKOM
US EXIM
Nederland
TELKOM
1.
Local Switching: 745,500 Line Units of
digital telephone switching will be installed in
about 120 locations which includes switches for
replacement of around 2,5W manual lines, 135,000
electromechanical and analog SPC lines. It
consists of the following:
a.
STDI-I Phase VII a: 139,500 Line Unit
(EWSD, STEMENS)
b. STDI-II
339,000 Line Unit
(sESS, AT&T)
c. STDI-II
(NEAX61, NEC)
2.
267
,0W Line Unit
Spain
Iapan EXIM
TELKOM
World Bank
TELKOM
Outside Plan Facilities
a. Ircal
Cable Network
This component includes replacement of
32,W0 paper insulated and worn cable
and expansion of local cable network
in about 182 locations, representing about
950,000 pairs of primary cables terminated
on MDF, 1,425,0N secondary cable pair
wiring up to the customer premises and
provision of telephone set and connecting
600,000 new subscribers including 20,000
payphones. And part of inter exchange
in Surabaya area. This consists of 2 links
Optical Fibre and 6 link Radio. Toal
channel ends would be 10,440 ch, 2 Mbps
system.
-79ANNEX IO
Page 2 of 3
PHYSICAL COMPONENTS
SOURCE
OF FINANCING
FOREIGN
LOCAL
OECF
TELKOM
a. Expansion of Java-Bali digital MW system.
France
TELKOM
b.
France
TELKOM
Construction or modification of existing
buildings complete with air conditioning,
electrical power and standby generators.
b.
function Network
Jabotabek ftansmission including connection
from the local exchange to the sub tandem of
Ialcrta Area, consists of 32links Optical
Fibre and2linls radio. The total channel
is 77,040 ch, 2 Mbps system.
3. I-ong Distance Network
This component provided for the expansion of
domestic long distance telephone facilities
to the traffic generated by local network
expansion for service to new area in East
Indonesia. The supply, installation of
equipment and facilities and one year
maintenance will be on a single responsibility
basis. Supporting facilities will be provided
under a separate contract on a single responsibility
basis. It includes the following:
Installation of Nusa Tenggara Digital MW
system to provide high capacity toll
transmission capability and to provide
high capacif toll transmission system.
It consists of 25link radio transmission,
180 system equivalent 5,400 channels.
-80-
PHYSICAL COMPONENTS
ANNEX 10
Page 3 of 3
SOURCE
OF FINANCING
FOREIGN
LOCAL
Cross Kalimantan Digital lvtw +
Supporting Facilities to extend the digital
transmission system from Banjarmasin to
Pontianak. It consists of 21 link radio
116 system and equivalent to 3,480
channel.
IBRD
TELKOM
Extension of Trans Sulawesi System
France
TELKOM
Germany
TELKOM
US Exim
TELKOM
World Bank
TELKOM
World Bank
TELKOM
World Bank
TELKOM
d.
e. Remote
Area Phase III
It's included to accommodate and
facilitate the telecommunication system
with transmission facilities in remote
areas in 200 locations to support the
interconnection of digital exchange.
It consists of 5 link F.O. 162 system and
68 link radio. The total channel is
L43.94 ch, 2 Mbps system.
4. Computerization of Operations
a.
Integrated Network Management System
b.
Modernizing the directory enquiry system
5. Maintenance Needs
Spare parts
b. Tools, software
c. Test Equipment
d. Exchange and traffic handling equipment
6. Technical Assistance
for MTPT and TELKOM
-
81
-
ANNEX ll
I of24
Page
INDONESIA
FOURTII TELECOMMUMCATIONS PROJECT
Terms of Reference for Consultancy Requirements
A.
Terms of Reference for Telecommunications Policy and Regulatory Strengthening
B.
Terms of Reference for MTPT
C.
Terms of Reference for Management and Professional Development
D.
Terms of Reference to Support Decentralization Program
E.
Terms of Reference to Introduce Integrated Network Management Systems
F.
Terms of Reference to Strengthen Finance Directorate
-82-
ANNEX
11
Page 2 of 24
A. TERMS OF REFERENCE
TELECOMMUMCATIONS POLICY AND REGULATORY STRENGTHENING
Background
At present in the Government of Indonesia, telecommunications regulation and policy is mainly
th9 responsibility of the Directorate General of Posts and Telecommunications (DGPT) in tle Ministiy
of Tourism, Posts and Telecommunications (MTPT). However, on some telecommunications policy
topics, the Minister is advised by the Secretary General of MTPT. Furthermore, in some cases,
discussions take place between MTPT, the Ministry of Finance and other ministries before
recommendations are forwarded to ttre government. Much of the activity of DGPT until now has
focused on somewhat narrow technical matters.
Several developments in recent years have created the need for a substantiallv increased and
changed telecommunications policy and regulatory capability in the GOI. These developments have
included the following:
:t
A sustained, high growth in demand for telephone service in Indonesia which has led to
an acute shortage of telephone lines in spite of large increases in the size of the local
network.
*
*
The increasing commercialization of PT. TELKOM, as reflected in its change of status
to a limited liability company from a "perum".
The increasing demand for specialized data, facsimile and other specialized business
services.
*
*
The new Telecommunications Law (Law no. 4 of 1989) which permits competitive
provision of value-added telecommunications services.
Technological developments that create the possibility of a diversified supply
telecommunications services, such as cellular terephony and vSAT.
of
These and other developments are generating regulatory and policy issues that are extremely
important for the development of the telecommunications sector in Indonesia. These issues include:
policy - how much competition can be permitted, in what ways, subject to what kind of
9o!0Detition
interconnection agreements, and with what kind of public vs. private ownirshipihow can potential
monopoly abuses be avoided; sector financing - how can private investment be used to accelerate
sector development while protecting the public interest in the quasi-monopoly areas; tariff policy what are appropriate mechanisms for periodic tariff adjustments that give inientives for investment
and efficient operations.
Objectives. Approach and Tasks
Obiective. Consultanc, financed by ttre Bank under ttre Third Telecommunications project,
have indicated ttrat (a) the capacity to deal with new regulatory and policy issues (para. xxjisiargely
absent in DGPT and O) a much expanded regulatory role is a necessary complemint to policies t6
-
83
-
ANNEx
11
Page3 of 24
expand competition in order to entrance the performance of the sector. Therefore, the objective of the
consultancy is to strengthen the telecommunications regulatory and policy capability of &e GOI over a
period of two (or more) years.
ADproach. The consultancy will provide more or less continuous full-time on'site professional
advice and assistance on telecommunication policy and regulatory matters. The on-site specialists will
have access to and be supported by the contractor's part-time team of telecommunications specialists
whose experience covers a wide range of telecommunications policy and regulatory issues, and who
may be based outside of Indonesia.
Tasks. Tasks to be undertaken by the consultancy on specific topics will depend on
telecommunications policy decisions that may be taken by GOI over the next 6-12 months.
Therefore, a detailed list of tasls is to be prepared closer to the time of bidding. Nevertheless,
consultancy tasls will include the following:
(a)
Assist the GOI in developing and up{ating a telecommunications regulatory agenda that
will identify regulatory issues to be resolved over a two-three year time frame, the
proccss for resolving the issues, and a realistic schedule.
O)
Provide, at the request of the client, a written analysis of a series of specific
telecommunications policy or regulatory issues, an assessment of options to resolve
issues and recommend plans of action.
(c)
Assist with or lead activities to undertake and complete action plans to resolve
telecommunications policy or regulatory issues.
(d)
Transfer knowledge of telecommunications policy and regulation analysis and
implementation by holding working meetings with counterpart staff and working in a
team with GOI staff on specific issues where requested by the client.
The consultancy is expected to be involved in some of the following activities:
(a) Regulatory Policy
o
o
o
o
o
Authorizations for the operation of public telecommunications networks, including the
development of carrier obligations.
Authorizations for resellers and value-added service providers,
including the development or revision of applicable conditions.
Identification of potential anti-competitive or unduly discriminatory behavior by
facilities-based service providers and development of regulatory measures to minimize
such behavior.
Development of approaches to resolve network interconnection, revenue settlement and
access charge issues, including issues related to the provision of leased lines to resellers
and/or value-added service providers or to competitive cellular operators.
Authorizations for customerowned satellite terminals.
-
84
-
ANNEX
P^gr 4
o
11
on4
Radiospectrum allocation for public telecommunications networks (including cellular
telephony).
O)
o
o
Price. Cost and Financial Analysis
Development and application of criteria for the review and approval of tariff proposals.
Development of standardized techniques to monitor tariffs and to analyze and assess
tariff proposals.
o
Review of financial projections of TELKOM, INDOSAT and cellular operators and
development of a capability to assxs forecasts of rates of return and other financial
indicators under different scenarios.
o
Review of methodologies and estimates of the costs of providing telecommunications
services.
(c)
o
o
Ouality of Service. Investment Program. Technical Standards and Terminal Equipment
Performance indicators and systems to monitor results.
Assessment of TELKOM's and INDOSAT's investment program, depreciation and
procurement policies.
o
(d)
o
o
Technical standards for networks and terminal equipment.
Administrative. Legal and Information Systems
Development of improved administrative systems for both externally-oriented needs (e.g.
processing of authorization applications, regulatory proceedings) and internal
requiremens (e.g. personnel, finance, contract payments, supplies).
Development and maintenance of information systems to support regulatory activities.
Psmith/mh/a: telcpol. tor
-85-
ANNEX 1 1
of24
Page 5
B.
TERMS OF FGFERENCE
TARIFF STUDY
Backeround
1. TariffPolicies. TariffPolicies for telecommunications services need to respond to several
goals. Thus, in order to contribute to economic effrrciency, tariffs should reflect costs and, where
unmet demand exists, also serve to ration scarce capacity. In addition, tariffs must be adequate to
permit the operating entity to achieve satisfactory financial returns (including target levels of
investment program self-financing). Finally, tariffs should take account of demand factors and be
seen as reasonably equitable by the public.
2.
Tariff Levels. TELKOM's tariffs are shown in Annex 20. TELKOM's tariffs were last
increased in October 1990 by a revenue-weighted average of about 35%. These tariff increases, as
well as important productivity improvements being made by TELKOM, mean that the corporation is
projected to achieve more than adequate financial returns until the end of 1993. Nevertheless, it is
anticipated that tariff increases will be required during 1994 (pua.6.7). This study will malyze
Indonesian telecommunications tariffs, thereby providing a basis for recommendations to the
Government to implement revised tariffs
in
1994.
3.
Tariff Structure. The last (October 1990) revision of TELKOM's tariffs was not an across the
board increase, but made some important improvements to the structure of the tariff. Telephone
installation charges were increased by between I00To -l80%o in different regions and are currently the
equivalent of approximately US$500 in the Jakarta area. The high level is warranted to ration the
scarce supply of new telephone lines. Telephone service monthly rental charges were also
substantially increased, by about 300Vo, and are now the equivalent of US$5 per month in Jakarta.
Telephone usage charges were also increased. Local call charges were increasdby 33%, with the
price of a three minute local call set at US 5 cents. Charges for longdistance calls were increased by
smaller percentages and, for calls over 1000 km., charges were reduced by about 10%. The new
tariff review is expected to find that continued rate rebalancing is appropriate. Thus, monthly rental
charges should be increased, so that even low usage subscribers will cover the incremental costs of
network access service. It may be advisable to further increase local call charges to moderate demand
and, therefore, alleviate network congestion. And to the extent permitted by network capacity and
financial targets, it is anticipated that charges for long distance service and leased lines should be
increased in 1994 but an amount less than the cumulative rate of inflation since the last tariff increase.
Objectives
4.
Objectives of the consultancy are to:
(a)
of TELKOM's current tariffs taking account of (i) longrun muginal costs (LRMC); (ii) scilrce network resources; (iii) demand factors; and (vi)
financial targets. And further to describe and justiS the structure and level of a set of
optimum tariffs, and recommend a program of staged tariff revisions that will move
TELKOM significantly towards the optimum set of tariffs within a reasonable timeAssess the structure and level
frame.
-86-
ANNEX
11
Page 6 of 24
of PT. IndoSat's current tariffs, international accounting
rates and revenue settlements with TELEKOM, taking account of (i) long-run marginal
costs; (ii) network capacity; (iii) demand factors; and (iv) financial targets. And further
to describe and justify the structure and level of a set of optimum tariffs and recommend
a program of staged tariff revisions that will move PT. IndoSat significantly towards the
optimum set of tariffs within a reasonable time-frame.
o)
Assess the structure and level
(c)
Transfer to DGPT and local consultants know-how in undertaking tariff analysis.
Scope of Work
5.
In order to achieve these objectives, the consultants will undertake the following tasks:
(a)
Describe the present tariff structure of PT TELEKOM and PT. IndoSat for all important
services or categories of services, their evolution and recent changes. Provide an
analysis of these tariffs for a five-year period in terms of (i) real (inflation-adjusted) vs.
nominal Rupiatr; (ii) US$ equivalent.
O)
Provide, for a five-year period a comparison of TELKOM and IndoSat charges for
important services and service categories within the charges for equivalent services in
Malaysia, Singapore, Korea and the USA.
(c)
Estimate LRMC of important services or service categories including: (i) initial
connection to the network; (ii) on-going network access; (iii) local call services; (iv)
domestic longdistance; and (v) international call service.
(d)
Using financial forecasting models, estimate the mark-up above LRMC necessary to
achieve financial targets, taking account of demand and network capacity factors to the
extent appropriate.
(e)
Estimate, for reference purposes, a cost-based revenue settlement (or access charge)
between TELKOM and IndoSat for the exchange of traffic.
(D
Estimate, for reference purposes, a cost-based revenue settlement (or access charge) for
the exchange of traffic between TELKOM and cellular telephone systems.
G)
Based on the above analysis, describe and justify the structure and level of a set of
optimum tariffs for TELKOM and PT. IndoSat. Recommend a program of staged tariff
revisions that will move TELKOM and Antacid significantly towards this set of optimum
tariffs in a reasonable time-frame.
(h)
Present study methodologies and findings in professional quality written reports.
-87 -
ANNEX
11
Page7 of 24
C. TERMS OF REFERENCE
FOR MANAGEMENT AND PROFESSIONAL DEVELOPMENT PROGRAM
Background
1.
The domestic telecommunication service in Indonesia is the responsibility of the wholly
govemmentowned operating company, TELKOM. To meet the balanced macroeconomic goals of
Indonesia over the five-year period 1992-1996, the Government plans more than to double the size of
the existing TELKOM telecommunications network to meet the large and growing unmet demand,
improve ttre quality of service and improve TELKOM's efficiency and productivity. The single
biggest constraint to achievement of these goals is the lack of necessary numbers and qualtty of staff
at all levels, in particular senior and middle management levels.
2.
TELKOM management has recognized the urgent need to develop the managerial skills
of its staff to implement and operate projects and systems of growing size and complexity and has
therefore decided to initiate a program to strengthen managerial and professional staffresources using
a combined progam of academic training at a foreign university and a working internship at a
distinguished foreign operating entity.
Objectives
The objectives of the envisaged training are:
3.
(a)
to acquire practical experience to technical management staff in their chosen fields while
developing their professional and technical skills, and
(b)
to upgrade the capabilities of individual managers through exposure to modern
managerial techniques.
Method of Delivery
4.
will be carried over four years commencing September 1992. Three types
of training will be provided. First, the project will fund 60 fellowships, each for 2 years, to enable
The program
middle and senior level managers and technical experts to acquire valuable experience in their chosen
fields while, pursuing an academic program at the master's degree level. By alternating periods of
academic study with similar periods of paid professional employment in which they engage in
performing productive work, participants will develop their professional and technical skills and be
better able to integrate theory with practice effectively. Second, the project will fund short-term
management training for staff at director level and above and other staff expected to be promoted to
this level in 2-3 years (750 staff-months). Third, the project will fund short-term overseas training
for selected Finance Directorate staff to build their capabilities in modern financial management,
trmsury function, and cost-accounting (100 staff-months).
-88-
ANNEX 11
of24
Page 8
Participation
5.
The selection of appropriate staff will be through TELKOM's system of job-performance
evaluation, career development and succession planning. Candidates selected for master's degree
prograilN will need to satisfy the entrance requirements for these programs. A minimum of 8
fellowships will be allocated to staff of the Finance Department to pursue master's degree courses in
business administration, with a major in finance.
-89-
ANNEX 11
9 of 24
Page
D. TERMS OF REFERENCE
TO SUPPORT DECENTMLIZATION PROCRA}I
Introduction
1.1 ?he traditional highly centraLized organization of the Indonesian
Telecommunications Authority, formerly known as PERUMTEL, proved inadequate to
cope with telecommunications development in Indonesia. Telephone availability
and service quality are unsatisfactory, and the organlzaEion has a very high
rati.o of staff to working lines. The Government has changed the legal
"taiu"
of this body to state-owned lirnited liability corporation, PT Telekomunikasi
Indonesia, or TEIXOM. The management of TELKOM has taken a number of policy
decisions and actions to decentralize management to empower regional
executives to play more effective roles in planning and providing service,
lmproving quality, and lifting productivity and overall performance.
Objective
L.2 To support the move tor,rard a flexible and responsible d.ecentralized
structure TELKOM Proposes to appoint an experienced consulting firrn to assist
it in lmplementing a program of Performance Improvement and Hurnan Resources
Development. The Consultant shall be required to undertake the following
tasks:
Task A:
Design and irnplement a system for the setting
performance objectives and the measurement of
of quantitative
results;
Task B:
Develop and implement Human Resources Managernent policies and procedures,
encomPassing organlzation, training, personal performance appraisal and
personal developnent;
Task
C:
Extend, refine and supervise the integration of the existing Manpower
Model, Employee rnformation system and payroll systern to provide
information support to other tasks and to line rnanagement;
Task D:
Develop and implement a program
of productivity and quality improvement,
critical analysis of existing working methods, i.mprovement
of operating and control systems, including management of supplier and
contractor relationships, and provide training necessary for effective
encomPassing
implementation;
Task E:
Develop systems, software and a TELKOM team to support the planning of
the developlng network capable of deallng with the issues of scoping,
flnancing and technology evaluation and selection, providing netvrork
architecture and capacity plans at two years lntervals, lnitlally through
2000.
-90-
ANNEX 11
of 24
Page 10
Human Resources
1.3 In
Planning
initiated a program to improve the planning and control of
referred to as Human Resource Model, or HRM. Work was carrled
out ln Jakarta to ldentify the actual composition of staff and the nature of
their \tork, and to prepare a forecast of staffing requirements by job and
training and recruitnent by occupatlonal category. Prelininary findings
confirn previous assessments that staffing is unbalanced, and the organization
faces a naJor task in reallocating and retraining existing personnel. One
prellmlnary forecast lndlcates that it should be possible to triple
productivlty by the year 2000, but this still requires the recruitment of some
50,000 nen norkers nationally, and up to 10,000 in Jakarta. A detalled
training and recruitment plan will be available when the consultant conmences
1991 TELKOM
human resources
work.
Management
Ipformatlon
L,4 There is very llttle useful lnfornatlon available to managers. Existing
reports are primarlly financial and statistical, and virtually nothing has
been done to provide information tailored to the needs of individual uriddle
and senior executives. No lnforrnation is readily available on performance in
handllng service complaints or requests. Statistics on faults are very
general, and unrellabl-e. The existing Personnet Information System (SIMPEG)
cannot provide lnfornation on where employees work and what chey do. This
lnfornation Ls being provided by a parallel system, the HRM, buc the HRR at
this point is still a working prototype. As a result there is a very great
need for systems integratton, and the provision of inforrnation which will
all-ow managers to nonitor business performance.
Network PlannlnE. Develooment and Maintenance
1.5 Responsibility for the network ls divided between Development, concerned
with naJor nelr proJects, and Operations and Engineering, responsible for
optfunlzlng the exlsting network. No one is clearly responsible for dealing
wlth the fundamental issues of network archttecture, scoping, technology and
financlng, sometines referred to as capacity management. Varlous groups deal
with varlous aspects, and results are often incompatible. There is an urgent
need to pull together all significant aspects of network development, and
mechanisms to ensure that new construction ls fully specified, built to
speclflcatlon, and handed over with all resources needed for ongoing
maintenance.
Scope
of llork
1.5 The lnitlal assignment w111 focus on Jakarta Region, which is expected to
cover the entlre Metropolltan Jakarta area, including the West Java cities of
Bekasl, Bogor and Tangerang. On this basis Jakarta metropolitan area will
have Just over 502 of alL working lines, a share expected to be naintained
through 2000. However, the consultant wlll, in the course of the asslgnment,
develop a program for the rollout of the work done in Jakarta to other
reglons. Rollout could conmence ln 1993.
L.7 TELKOM's Long tern goal ls the strengthening of management capabilitles
and systens throughout the country. However, lt is recognlzed that this is a
conplex task, deallng with entrenched practlces and cultural lssues.
- 91 -
ANNEx l_t
Page 11
of
24
lloreover, approaches which prove successful in Jakarta may not be directly
tfansferable to other envlronments. Based on past experlence uniformity as
such is not an obJective. Accordingly, lt will be necessary for the
consultant to allocate resources to essess the questlon of varlability, and
take lt into account when subnttting rolJ-out proposals.
1.8 Ttre detalLs
below:
Task
A:
of the indivldual tasks ln the total
Scope
of
Work are given
Performance Objectives and Measurenent
L.9 Ttre consultants shall review, analyze and deflne explicitly the
managerlal functions requlred for the deveLopment and provision of
telecornrnunicatlons servlces in Indonesia. In particular, the consultant
shall:
a)
work with
b)
on
c)
develop a management reporting systen whlch focuses on key issues,
and provides lnfornatLon needed to support qulck and declsive
action. Ihe nonitoring systems must encompess not only day-to-day
activlties, but also Longer term or leading indicators whlch reflect
achl.evenent ln long-tern developnent;
d)
lead a
e)
work with senior executives to ensure that the reporting system ls
fully understood and used in practlce; and
f)
ldentify
Task
TELKOM
Direccors and senior executlves to define and
mlssLon and obJectlves, and the key roles
artlculate the corporete
to be played;
thls basis, define the key accountabillties
TELKOM
team
in the
funplementation
of the
and inplement modifications found
B: Human Resources
Management
2,0
The consultant shall revlew
and deslgn and lnplement programs
partlcular the consultant shall:
and performance;
system;
to be necessary.
PollcLes and Procedures
all aspects of Hr.man Resources Management
to overcome existing deflclencles. In
a)
work with reglonal executlves to refine the new organizatlon in
Jakarta, whlch will also constitute an Lnput to Task A: above;
b)
lead a tean of TELKOM personnel in the preparatlon of realistic
lnforrnatlve Job descrlptlons, whLch lntegrate wlth the Manpower
Model and support the process analysls work of Task D;
c)
prepare a Tratnlng Needs Analysls, speclfylng the tralnlng lnputs
needed to recycle existlng personnel and cope with the very large
staff bulldup currently proJected;
and
-92-
ANNEX 1]24
Page L2
of
d)
design and detall prograrns co deliver the training needed;
e)
lead the
f)
set up processes to ensure that training needs and results are
monitored on an ongoing basis, and programs nodified systematically
to meet needs;
s)
design and lnplement a realistic personal performance appraisal
h)
i)
TELKOM
team charged
with delivering the
new
training;
system;
design and iurplement procedures for progression planning for
potential key executives
;
review the existing system of salary and benefits, carry out job
evaluation and grading, anat.yze relevant aspects of the general
labor market ln Jakarta, and prepare detailed recommendations for
grading and remuneration structure ;
a
J)
taklng into account all relevant information, including recycling,
historic recruitment problems and media i-ssues, prepare a program
for recruitrnent, in full detail for one year ahead, and quantified
by quarters to the lirnit of the manpower planning horizon; and
k)
examine existing recruitment methods, including advertising, forms,
processing of applications, testing and interviewing, and design and
Lead the implementation of alternate meEhods. This should include
specialized techniques for the high volume positions, such as
outslde plant technicians.
Task C: Htrnan Resource Management Model
2.L The existing protot)rpe provides needed basic information on employees,
but requires considerable developnent to neet all key needs. In particular
the consultant shall:
a) update the existing Human Resources Dictionary;
b) set up links to the job descriptions prepared in
Task B;
c) lrork with Infornation Technology Center staff to set up llnks to
enployee work histories;
d) set up links to the Task A performance monitoring system to provide
more accurate informatlon on work load indicacors;
e) provide routines to assist "what if" analysis of options in
technology/manpower/sktll tradeoffs ; and
f) prepare a functlonal brief for the developnent of an integrated
Hunan
Resources Infornation system encompassing the Human Resource Model,
SIMPEG and payroll, with links to other systems.
-93-
AI{NEK 11
Page L3 of 24
Task D: Productivity and Ouality Irnorovement
2.2 Virtually all systems and procedures are in need of renewal and
simplification, while maintaining adequate security for the company's
shall:
The consultant
assets
the high level functionat analysis of Task A, prepare a
detailed functional analysis down the level of physical work;
a) proceed from
b)
lead a team of TEIXOM personnel to prepare detailed process charts,
task ldentification, workload estimates and performance standards;
c) review and redesign project management and control systems,
encompassing contract administration procedures ;
d)
initiate and maintain an ongoing Process for the refinement of
performance standards, encompassing both volume and quality
consideratlons;
pllot new systems initiatives in customer-inpinging
activitles, technical areas and lnternal office administratlon;
e)
develop and
f)
examtne
opportunities for subcontracting and outsourcing as
alternatives to employlng additional staff, and rnake speclfic
recommendations for new initiatives and needed control procedures;
g) deslgn
niddle
and
deliver training
managers understand
managerial responsibilities
h) monitor
needed to ensure that supervisors and
the new approaches, and their own roles
;
and
and
performance and gulde managers
to take necessary actions.
Task E: Network Planning and Development
2.4 The consul-tant shall develop a computer-based rnodelling system capable
of dealing wlth a range of options, determining capacities, capital costs and
operation costs. It shall also support a range of tariff options, and be
capable of generating cash flow forecasts. In particuLar, the consultant
shaLl:
a)
specify and design the basic nodelling system, including procurement
and hardware, and the tralnlng of key TELKOM staff;
of software
b) work with TELKOM network planners
network archltecture;
to develop plausible optlons for
e) develop scenarios for L994, L996,
L998 and 2000;
d) work wlch TELKOM technical staff to ldentify plausible cechnology
options, including capital, staffing and operating costs;
e) catty out analysis and financial evaluation to allow selection of
optlnal archltecture and technology optlons;
-94-
ANNEX ].1
of 24
Page L4
f) using tarlff optlons, exanine the financial feasibility of
demand lrithln various time franes;
g) detail
and doctment the top-ranking options
naking level; and
h) set up procedures for
and
procedures.
Time Frame
for the Consultant's
train
TELKOM
meeting
for decisions at pollcy-
staff in annual update
AssiEnrnent
2.5 It ls estimated that about 160 man-rnonths of consultants' services
would be required for the totaL assignment of five tasks. The total tine
frame for each of the five tasks are assessed by TELKOM as foll-ows:
Task
A:
Performance ObJectlves and
Task B: HR Management Pol-icies and
Task C: Manpower Management
Measurement
15 nonths
Procedures
24 months
Model
Task D: Productivity and Quality
Improvement
Task E: Network Planning and Development
Inltial
Followup
development
21 nonths
21 nonths
I
months
1 nonch
-95E.
AI{NEK 1].
24
Page l-5
of
TERMS OF REFERENCE
TO INTRODUCE
INTEGRATED NET!ilORK MANAGEI{ENT SYSTEI{S
(ruS)
Introduction:
The existing method of manual monitoring and central of local and long
distance networks in Indonesia have proven inadequate under normal trafflc
condltLons, and, more so under conditions of unforseen trafflc loads' To
address this situation, TELKOI'! ProPoses to establish Integrated Network
Management Systems in Jakarta, Surabaya, Medan, Bandung, UJung Pandang and
BanJlrrnasin ior monitoring the performance of the local- and long distance
netiork and provi.ding a rJal Cime surveillance and control over network
components so as to lptinize tine call carrying capacity ln a network under
1.1.
traffic overload or facility failures.
L.2
ObJ
ectlves
To meet the above objectives, TEIXOM has decided to adopt the ATT (MFOS)
system, and now proposes to appoint an exPerienced consulting finn to assess
ii fn the courpletentation of the IMS Systern. The consultant shaLl be reguired
to undertake the following three tasks:
Task A:
Network
Define and specify system requirements, and design integrated
Management System(s)
Task B: Assist
for the local
TELKOM
in
and the long-distance networks'
acceptance
testing of the systen lnstalled by the
contraetor.
Task G: Assist TELKOI.I in irnplementation
assocLated with the IMS.
Scope
of
Che
operational procedures
l,Iork
The detalls
given below:
1.3
Task
of
A: Definition
of the lndividual tasks in
and Design
Che
total
Scope
of the Network Management
of lJork are
Systen
a-1: Appraisal of the Present Network: The consultants shall
current operational and rnalntenance practlces and
revlew the
lotal and long distance networks, lncLuding ltnks
existing
the
ln
procedures
exchanges. In particular, the consultants shall:
gateway
to the international
L,4
Task
TELKOI,I's
a)- study the existing organizational structure and operaEionaL procedures,
wlth particul-ar raference Co Ehe network management needs;
b) study the actual traffic performance of the network from sarnple
inspections and performance indicators;
c) study the current network performance targets, servlce obJectives, deslgn
crlterla and the network engineerlng nethodology ln use;
-96-
ANNEX 11
of 24
Page 15
d) study the existing
equipment types to assess the dormant facilities
available and useful for network management, and identify additional
faeilities needed for providing the necessary network management
capability, indicators and controls; and
e)
anaLyze the existing local and long distance networks to assess their
structures and the extent of network management and control facilities
currently available, the extent of their usage and their effectiveness.
1-.5 Task A-2: Suitability of Existing Facilities for IMS: The consultants
shall review and anal.yze the existing local, tandem and long distance exchange
tyPes for their suitability for the IMS and recommend on the following:
a)
b)
exchange with current
management (NM);
available facilities suitable for effective
exchanges where adequate
facilicies
modifications at reasonable cost;
neuarork
can be provided through additions or
c) trunk, tandem and key local exchanges essential to IMS which require
signiflcant redesign and modifications in order to provide NM facilities;
and
d)
their locations management where provision of
facility could be deferred pending replacement of the
exchange types and
managernent
equipment.
network
1.6 In respect of (b) and (c) above, the consultants shall assess Ehe
relative costs of providing add-on equipment versus modification of the
existing exchange equipment to provide the necessary IMS capability keeping in
view any need for rnodification of proprietary equipment of the original
suppliers, and
make appropriate recommendations.
L.7 The consultants shall make recommendations in respect of the
transmission equipment in the local inter-exchange networks and in the longdistance networks for thelr effective integration in the IMS.
1.8
Task A-3: Recommendations on Network Management Structure: Following
the analysis of the existing networks and taking into account the planned
network changes (expansion and replacements) up to 1996, the consultants shall
make proposals for structuring the IMS, including the locations of the
national, regional, and local IMS centers. The consultants shall propose
alternatives for regional, shared and hierarchical development of the IMS with
recomrnendations for a preferred option. TELKOM desires that the IMS should be
introduced from the highest to the lowest level in the network hierarchy, thaE
is, Main, Primary and Secondary centers (corresponding respectively to the
Tertiary, Secondary and Primary as per CCITT nomenclature) and terminal
exchanges. The alternative methods proposed should be fully argued and
supported by cost-benefit and other data, and the advantages and disadvantages
of each. The IMSs proposed should minimize costs and maximize effectiveness;
allow progressive evolution and improvement of the system; shall be capable of
upgradation for the ongoing digitalization of TELKOM's networks and extension
to new networks that may be established as part of the normal natlonal
developnent in future.
-97 -
With the above objectives
1.9
the followlng:
in vlew, the consuLtants shall
AllNEl( 1,1
Page L7 of 24
undertake
the most appropriate effective NeCwork Management Systen(s)
the
arrangements for the local "tta totg distance networks, keeplng ln vlew
following:
Che
to
lirnlted
current Indonesian operations, including but not
a)
recommend
i) details of the scope, structure, faeilitles for the proposed IMSs
and the associated control centers;
il) nunber location, type and hierarchy of the proposed local and Long
distance IMS centers, including the relationship between them;
local,
iii) the effect of the proposed ll,[ss on the current and planned
operatlonal
existlng
the
Iong distance and international networks and
procedures for these networks; and
iv) the methodology for the incorPoration of the different networks in
the flrst Phase Il{S;
types of IMSs wlth
b) provlde cost estimates for different options for the
introduced;
be
different degrees of sophistication, etc. that could
ln -the exlstlng
c) assess the modifications and improvements required
for srrccessful
proeedures
local and long distance networks and operational
introduction of network management;
the- It'[s from the
d) recornmend the types of data that would be needed bystaff;
methods
management
on-slte malntenance, traffic, engineering and (keeping ln viewthe
the
current
and procedures for collecting the requir"d d"t"
of
each
for
requirenent
minimum
network elements); and an indication of the
the data sets;
the method and degree of data analysis and dlssernination'
lncludlng the nodification of the existing or the need for a new Management
Information SYstem; and
f) recornmend minimum functional requirements for the equipnent at the IMS
e)
recommend
centers.
The consultants, reconnendations for the locaL and long distance IMSs,
of the exlstlng
the associated data analysis sysEems and for the upgradation
cost benefit
a
by
supporCed
or new Management Inforn;tlon Systems must be
must be glven
analysis and rate of return estimates. Adequate Justlficatlon
posslble'
not
are
estLmates
if consultants believe reliable raEe of return
2.0
2.L
Task A-4
consultants shall eover the following in their proposals:
and I'ong
a) ldentify the Potential problem areas ln the existlng local
IMS and
the
lnto
dlstance networks which maY fntriUfc their incorporatlon
current
thelr
to
specify, where necessarY and needed, the modiflcations
-98-
ANND( I.1
Page L8
of
24
structures to make them suitable for the proposed IMS, but ensure that these
are restrlcted to only the mosE essential;
. b) specify new operational procedures and techniques specific to the
existing and proposed TELKOM networks and operating -pto".irrr.s necessary
for
effective operatl-on of the proposed IMS;
c) ldentlfy aspects of the existing organizational arrangements
operatlonal procedures which may inhibit effective operatio; of theand
proposed
local and long distance Network Management centers, and recommend improvements
and new equipment and facilities needed for introducing such improvements; and
d) specify responsibilicy and line of command for the Network Managenent
Centers;
techniques and responsibilities for coordination; procedures (normal,
for planned bearer outages and for unplanned outages);
organization.
(Note: The consultants should keep in view the existing "r,a
rnaintJnance
organizatlons and procedures when proposing new arrangenents).
2.2
2'2'L
TELKoM will review the consultants' proposals and recommendations
on
the above aspects and, after discussions with th"
decide on the
scoPe and tlpe of local and long distance Network Management
"orrs.rltants,Systems to be
introduced, the associated data analysis to be ernployel, incorioration
data into the existing exchanges and Management tnforrnation System, andofthethe
extent of nodifications co the existing n6twork structures and equlpnent
would undertake to make them suitable ior incorporation into the agreed it
Network
Management Systems.
2.2,2 fhereafter, based on the consultants' estimates of the costs of the
lntroduction of the agreed local and long-distance Network Management systexns
and the avallability of funds, TELKOM wiil decide on rhe target networks
to be
covered by the IMS in the initial phase which may or may not cover all
the
networks specifled ln para. l-0 above or that recornmend"a uy the consultants
(para.L1-). Based on this decision, the consultants shall proceed with
nanely the preparation of the technical specifications and schedule of Task B,
equlpment quantitles.
Task B:
2.3 The consultants shall be required to assist TELKOM in general
supervision of the supplier's performance of the contract to ensure that
the
faclllties and equipment being installed are in accordance wlth the contract.
The consultants shall arso be required to assist TELKol,t in the flnal
acceptance testing of the system as it is offered by the contractor before
connissl'oning and to ensure that the performance of the equlpment meets
specified criteria, and confirm to the TELKoM that ir can'siin-off on rhethe
perfornance guarantee provided by the contractor.
-99-
AI{NHK 11
of 24
Page 1-9
Task C: Assistance to TEII(OM Staff in Implementation of the New Operetlonal
procedures assoclated wlth the Intesrated Network Manaeement SYstem
of operatlonal procedures are envlsaged, for both of whlch
be required to assist TELKOM, namely (a) those that
will
the consultants
the hardware of the IMS; and (b) chose that lnpact on
of
operation
relate to
the existing organlzatlonaL structure and operatlonal procedures. The latter
would include any changes required ln the existlng or planned networks for
effective lncorporatlon lnto Ehe IMS. The above two requlrements may
necessitate changes in the reporting procedures within the TELKOM and could
also preclpltate some organizatlonal changes. Ttre contractor for the hardware
will Le required as a pait of his contract to assist TELKOM wlth the Il'tS
operatlon iot 6-L2 months after its conmlsslonlng. However, the TELKOM nay
requlre the consultants to asslst in fine tuning the new Il'[S and in
funplenentlng the nelf oPeratlonal procedures and any chang.: -t" the TELKOM's
framework proposed by the consultants
2.4
Two types
organizatioial structure and operational
and accepted by TELKOM.
It is estlmated that about L00 man-months of consultant servlces
be requlred for the total assignment of three tasks.
2.5
would
-100-
ANNEX 11
of 24
Page 20
F. TERMS OF REFERENCE
TO STRENGTHEN FINANCE DIRECTORATE
Backsround
1.
PT Telekomunikasi Indonesia (TELKOM) was established as a goverrurenu
owned limited liability company under Notarial deed Mrs. Imas Fatinah Jakarta
on September 24, l-991, with the responsibility for the planning, construction
and operation of domestic telecommunications facilities.
As a lfunited
liabllity company, TELKOM is accountable to the Ministry of Finance. However,
the Ministry of Finance has delegated the supervisory authority to the
Ministry of Tourism, Posts and Telecommunications. TELKOM is managed by a
Board of Directors, headed by a President-Director. The President-Director
has authority for all operations of TEiXOM. The Board currently includes five
other directors with functional responsibili.ty, respectively, for development,
engineerlng and operations, finance, administration and logistics.
Operatlonal responsibility devolves to 12 regions, and responsibility for
naJor development projects to 3 project-managers. Also reporting to the Board
are several staff units responsible for Corporate Planning, Research and
Development, Educacion and Training, Information Technology, and the Corporate
Inspectorate, an internal audit-unit.
2.
The Finance Directorate consists of four subdirectorates, Budgeting,
Financial Accounts, Treasury and Financial Administration. To improve ihe
timeliness of accounting data and preparation of financial management reports,
a new chart of accounts based on the concept of responsibility accounting was
introduced in early 1989 in TELKOM's head office and all regional offices. A
computerized general ledger program was implemented in head office and
reglonal offices. These initiatives have helped to reduce the time and effort
required to prepare financiaL reports and financial accounts for L989 and l-990
were closed within three months of the end of the year.
3.
Although the financial accounting function has improved in the past
three years, financial data have not yet been used effectively by TELKOM, s
management as a tool for operational control due to the weaknesses in TELKOM,s
lnternal financlal and management systems and a lack of adequate qualified
staff in the Finance Department both at the headquarter and regions. Current
nanagement accounts are being prepared in a piecemeal basis with each
subdirectorate preparing their own management accounts and information
rePolts. There is no one unit under the Finance Department responsible for
Preparing corPorate management accounts. In addition, TELKOM does not have
cost accounting system in place and cherefore does not have accurate
lnformatlon on the cost of different services and activities and cannot
ldentlfy accurately the profitability of the telephone offices and the
regional offices. In light of the change in status as well as the TELKOM
management's decision to teorganize into six independently operating regions
and 43 Strategic Business Units instead of the current functional siruciure,
lt is important that a cost accounting system be established ln TELKOII. In
addition, the treasury function in TELKOM needs to be strengthened to operate
as a cotnmerclaL entity so that ic can assess the best financing techniques for
lts development, issue securities (eventually equity), manag" its cash and
llablllttes and foreign exchange exposure.
-101 -
AI'INEX
Page 2L
of
11,
24
The technical assistance component under the llorld Bank financed Ttrlrd
Telecommunicatlons ProJect is asslsting TELKOI"I to upgrade the skills of the
Finance Department and bulld the capaclty of TELKOM's management to use
4.
financial data in the management of its operations through the Provislon of
overseas fellowships and secondments to other telecommunications organizations
has also
for TELKOM managers and Finance Department staff. Financial exPertforecasting
financial
been provided under the projecu co help improve TELKOM',s
and management in cash management. In addition, financial consultants
financed under bi-lateral sources as well as TELKOM's own funds are also
assisting TELKOM to review and develop financial systems and procedures '
A team of four exPerts will be required for a period of two years with
the possibility of a six months extension to assist TELKOM to strengthen its
management accounting and treasury functions and establish a cost accounting
systJn. The team alJng with key inrxou staff will review and recommend the
,,""""""ty policies, "y"t"t" and procedures as well as the aPProPriate
organizitlln setup to carry ouc these functions. The tearn will also be
ref,uired to assist TELKOM in irnplementing the agreed reconmendations '
5.
expert will be the team leader and will be responsible for
coordinating the work of the team and ensure that the tasks are carried out
effectively. The other three leam members wlll consist of a management
accountant, a cost accountant and treasury management expeft. Each exPert
will be attached to a deputy direcCors in the Finance Department in the be
will
headquarters. Review ani imptementation of systems and procedures
and
carried oug wlth TELKOM counCerParts staff from the headquarter tothe
undertake
reglonal offlces. In addition, each expert will also be required
to
assigned
are
they
an! other related tasks that the deputy dj-rectors
6.
One
requesfs.
Transfer of Know-how and Training
An essential and key elenent of the consultants' total
be the upgrading and deveiopment of TELKOM's human resources
of know-how and training of TELKoI'1's staff in all aspects of
undertaken by the con"uit"rrts ln Indonesia. The transfer of
tralning of tftXOt'l,s staff shall cover but not be lirnlted to
shall lnclude urode of updating these systens and procedures.
7.
assignment shall
through transfer
the work
know-how and
technlques and
shall Prepare a detailed plan for transfer of know-how
and trainlng which is a major task of their assignment. The transfer of knowhow can be through trainlng courses to be conducted in TEIXOT'I's trainlng
school and/or chiough on-the-job training. The tralning plan should be
designed wlth the objective that, on completion of the consultants',
assilrunent, the TELKOM staff shall have devel-oped lrrtrerent capabillty of
8.
The consultants
irnplJnentlng independently the consultants' reconmendatlon and managing the
lrnplernent"a rtttont substantial further external technlcal assistence'
"y"t"r"
g.
The consul-tants shall revlew the availability of TELKOM's staff to act
as countetparts, specify the required quallfications for each such staff,
assist TELKOM in selecting such staff fron within TELKOM or through outside
recruitment and, if necessary, recommend foreign tralning of TELKOI'I staff ln
speclfic disclplines.
-r02-
ANNEX 11
24
Page 22
of
10.
t'he specific tasks and the responsibil,ities associated with the three
experts and their quallficatlons are set out below.
Expert 1: Team Leader
The teern leader wtll be responsible for coordinatlng the work of the
team and ensure that the tasks are carrLed out effectively by the other three
team members and report directly to Director Finance. In addLtlon, the team
leader wtll be fully responsible to ensure that transfer of know and training
of TELKOM staff are carried out effectlvely. The speclflc task and
l_1.
responslblllty wllL inc)-ude, lnter alia, the following:
- coordinate the work of the team;
- prepare and coordinate the transfer of know and training and ensure it
ls carrled out successfully;
- prepare the monthLy/quarterly progress reporEs for the assignment, wlth
targets and achievements, problems and future targets;
- other related work to ensure successful implenentation of the tasks of
the team;
- other related work as assigned by the Director Finance.
L2.
Requlrements: A quallfied accountant or an MBA graduate with over
years
five
experience es a financlal nanager in a telecornmunications entlty
and relevant work experience ln a developing country. The assignment is
expected to start on January 1, 1993 and be for a period of about two years.
As the position regulres an unusual amount of time and resources for staff
development and training, candidates with a track record and/or capacities in
these areas would be preferred.
Expert 2: Management Accountant
13.
ObJectlve: The obJective of the task is to strengthen the management
accounting system to ensure that management reporting and control systems are
ln pLace to nonltor TELKOM's perforrnance and to enable TELKOM's management to
take the necessary and tlnely corrective actions.
14.
Scope of Work: The expert will lead a group of
earrying out, lnter alia, the following:
TELKOM
staff in
- revlew of the budgeting process and reports and assist in
funplenentation of the agreed recommendatlons ;
- review of the existlng policles, systems and procedures in nanagement
accounting and assist in inplernenting the agreed recommendations;
-
revl.ew the flnancLal management systems and procedures
control the actuaL perforrnance agalnst budget targets:
and
establlsh a perfornance monitorlng system for Strategic
Units for senior management;
reconmend and
Buslness
to monltor
-103-
AI{NEK 11
24
Page 23
of
- revlew approprlate organlzation setup to carry out these functions and
asslst ln the inplenentation of agreed recommendations;
- carry out a Job analysls to ldentlfy the staffing needs to naintaln
alcounting systems and related functions and prepare the
training Prograns and provlde the training;
management
- assist ln preparing nonthly, quarterly and annual operational
development menagement rePorts for senior management'
and
In carrying out the above tasks, the exPert should review the work
being undertaken is well as have been undertaken to funprove the systexn by
15.
TELKOM
and external consultants.
Requirements: A quallfied accountant wlth over ten years experlence
and relevant work experience ln a teleconnunicatlons
as managet"rrt
"."oattttant
entity ind developing country. ltre assignment ls expected to start on January
1, 19-93 and be for a perlod of about two years. As the posltlon requlres an
unusual amount of tirne and resources for staff development and tralning,
candidates wlth a track record and/or capaclties ln these areas would be
preferred.
15.
Expert 3 - Cost Accountant
Objectlve: lhe obJectlve of thls task ls to establlsh a cost
accountlng system to enable TELKOM to account cost by elements, different
actlvitles and services and regional offices and UPTs in order to carry out
cost and profltablllcy analysls and control.
Scope of Work: The expert will lead a grouP of TEIXOI! staff carrylng
18.
out, lnter alla, the foLlowing:
- review poLlcles, systems and procedures in setting up cost accountlng
and asslst in the implenentation of agreed recomnendations;
- revlew cosg and profitabillty analysis and controL system and asslst ln
the lnplernentation of agreed recornmendatlons;
- review appropriate organizatlon setup to carry out these functions and
asslst ln the lnplernentlng of agreed reconnendatlons;
- carry our a Job analysis to identify Che stafflng needs to establlsh
L7.
a cost accounting system and reLated functlons and PrePare
the tralning programs and provlde che tralnlng;
and malntain
- asslst ln preparlng the cost accounting reports for senlor
management.
-
An approprlate organizatlon setup
be reconmended and lmPlemented
to carry out this functlon needs to
-
19.
104
-
ANNEX
Page 24
of
1_1
24
In carrylng out the above tasks, the expert will review any work belng
well as have been undertaken to setup a cost accounting the
undertaken as
system by TELKOM and
external consultants.
20. Requirements: A quallfied accountant wlth over ten years experience
as cost accountant and relevant work experience in a telecomnunications entity
and developlng country envlronment. The asslgnment is expected to start on
January t, 1993 and be for a period of about two years. As the position
requlres en unusuaL amount of tine and resources for staff development and
trainlng, candldates wlth a track record and/ot capacities in these areas
would be preferred.
Expert 4: Treasury Managernent Expert
Obiective: The obJective of thls task ls to strengthen TEIXOM's
treasury function to enable it to operate as a conmercial entity so that it
can assess the best flnanclng techniques for its development, issue securities
(eventually equlty), manage lts cash and liabilities and foreign exchange
2L.
exPosure.
22.
Scope of Work: The expert will lead a group of
out, lnter a1ia, the followlng:
TELKOM
scaff to carry
- revlew the exlsting policies, systems and procedures in treasury
management and assist in the inpleurentation of agreed recommendations;
- revlew approprlate organlzation
assist in the lnplernentatlon of
secup to carry out these functlons and
agreed recommendaclons;
- carry out a Job analysis to identify the staffing needs for treasury
management and prepare the tralning programs and provide the training;
- asslst ln preparing the reports related to the functions to
carried out for senior management.
be
23.
In carrying ouc this task the expert will review work being undertaken
as well as have been undertaken to improve the system by TELKOI'I and external
consultants.
24.
Reouirements: A qualified accountant \rith over five years experlence
as a treasury manager and relevant work experience in a developlng country.
The assignment Ls expected to start on January 1, 1993 and will be for a
perlod of about t\to years. As the posltlon requlres an unusual amount of time
and resources for staff development and tralning, candldates wlth a track
record and/ot capacities in these areas would be preferred.
_105-
INDONESIA
FouRTH TELECoMMUNICATIoN PRoJEcr
PROCUREMENT PACKAGES AND SCHEDULE
OSP -'lst Phase
Suppordng Fadlltice
a
Bldding
b. Evaluation
c. Approval
d" Contract Dlscusslon
e. EDC
PQ 2nd Phase
a
Bldding
b. Evaluatlon
a
Approval
-552 K 2nd Phase
a
Bidding
b, Evaluatlon
c. Approval
d. Contsact Discusslon
e. EDC
Bali Nusa Tenggara Dlgital
MW + Supporting hclllde
a
Blddlng
b. Evalualon
c. Appoval
4 Contact Dlsc{$lon
e. EDC
Trans Sulawesl Phaee
a
ll
Biddlng
Evaluation
b.
c. Appoval
d
Conract Discusglon
e. EDC
Goss Kallmantan DQhal Ph ll
MW + Supportlng Facllldco
a
Biddlng
b. Evaluatlon
a Appmval
d Contract Discugcion
e.
EDC
Jabotabci< Transmissltn
a
Bldding
b. Evaluatlon
q. Aprproval
d. Contact Diecugdon
e. EDC
Rcmote Al€a Proicct
a
Bldding
b. Evaluatlon
a
Apprcval
d. Conract Dlccuglon
e. EDC
ANNEX 12
Pase
I
or
-106_
INDONESIA
FOURTH TELECOMMUNIGATION PROJECT_
PROCUREMENT PACKAGES AND SCHEDULE
ANNE1 12
ffir
YEAR
BID PACKAGES
FUNO
I
2 a 1 5 6 7 E
taa F(
1993
t992
991
OF
I
2 3 1 5 6
f
z
6 0
I
5
2 3
7
I
I
ERD
9
Construcdon Supervlsor
forOSP
a
Blddlng
b. Evaluatbn
c. Apppval
T
I
d. Conrad Diecusslon
c.
I
EDC
ERD
to Computcdzailon
Blddlng
b. Evaluatlon
a
c. Apppval
d. ConoactDbcusslon
c.
tl
t
EDC
Maintcnancc Equhmed
BRO
a. Blddlng
b. Evaluatbn
a
T
Appoval
I
d. Conta€t Dlccussion
e.
l?
EDC
m
Java - Ball ProPa
MV\l + Suppotilng
a
r{cE
hc{ldc
I
Blddhg
b. Evalu*bn
6; lppotral
d.
c.
3
Conuact Dlcculdon
EDC
IMS Consuhant
Bldding
b. Evaluarlon
ERD
I
a
I
I
c. Appovd
I
d. Conract Dlccurclon
c.
a
CS
EDC
br
Trancmbslon
BRD
Mtif + Suppottlng Fac[lde
a
Blddlng
b. Evaluatlon
c. Appovd
t
d. ConFact Dbcurclon
c.
6 CS
a
EDC
br Swltdlng
KRY
Blddlng
b. Evalsatbn
a
I
Appovd
d. ConEact Dlrcurrlon
c.
l3
CM
a
EDC
brall
prcJcc{
3BO
Blddlng
b. Evduatbn
c. Apptovd
d. ConhEct Dlrcurcloo
e.
EDC
l(,Wna.b
-107-
ANNEX
INDONESIA
FOURTH TELECOMMUMCATIONS PROJECT
Disbursement Schedule
(US$ Million)
Asia
Bank
FY
Semester
No.
Ending
Disbursement
Cumulative
Semester
Cumulative
Telecom.
To
Sector Profile
Vo
0.0
5.0
0.0'
0
trJune 30, 1993
0.0
5.0
1.3
10
I Dec. 31, 1993
II June 30, 1994
5.0
5.0
10.0
15.0
2.6
4.0
30
45.0
85.0
12.0
1995
30.0
40.0
22.7
31, 1995
30, r996
50.0
50.0
135.0
36.0
62
185.0
49.3
74
t997
I Dec. 31, 1996
II lune 30, 1997
50.0
50.0
235.0
285.0
62.7
76.0
82
86
1998
I Dec. 3L,1997
II June 30, 1998
40.0
50.0
325.0
375.0
93.0
100.0
98
1993
1994
1995
1996
I Dec. 31,1992
I Dec. 31,
II June 30,
I Dec.
II lune
1994
I4
42
54
100
13
-108ANNEX 14
Page
-mr
INDONESIA
FOURTH TELECOMMUNICATIONS PRo.J ECT
lmplementatlon Schedule
1.
SWITCHING
Yeer
lb, / Pntleci
Codc
101 STDI - l/Dlg.Ph.VnA
loa LTc-c(DlgitdTrunk)
ros strDr-2(ctTRA)
l0l
STIX
-2 (+)
105 STD|-3(NUSA)
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
(.) : Tcndedng
: lmpbmctrldon
(fron EDc)
-
2
OSP (Local Network + Junc'tlons + Supportlng Facllltles)
Year
code
201
lur,
1992
1901
1993
ib. /Proleci
Bdl & NuaTenggra
202 Kdlnantsn
2G! (bluecl, lldrku & lftn J.
+ (lat)
+@tQ
0)
+ (lcl)
+ (2nd)
(.)
+ (lal)
+ (2nQ
(.) +
+
+
+
(.)
+
+
+
+
+
(.)
+
+
(.)
+
2Of 94podn9 Fdlnlct
205 Conrtrrdon Srrpclldon
For20l, N2.& 209
E(/!tr&[r
-r09-
A}INEX 14
INDONESIA
lltcanons
" imFtementatton Schedule
Fou RTH TELEc6ir-M0
3. E(PANSION
Codc
PRo'l
ffirz
Ecr
.?
OF TIIIJLTI. E(CHANGE AREA
Y'rr
19ei
ltb./P.€lct
3OI JABOTAEEK
4. TRAt{SlrlssloN
Yxr
(Dlsltrl R.do)
+
a0l adJ.wr' E.lUErPtnlbn
4oil
B.t' Nu.rTdEgr'/Ph'
I
Tranr' (tuld.dfPh' I
4O4 Cro.. Krlmrrln / Ph'll
zltEt
4o5
R.|not
+
A,. Ph'lll
106 Con!ffircdon
,o7
+
+
+
suPPor{ng
+
StP'flldofl
Fdd"
5. ilAIiITENANCENEEDS
Y.-
SprtPro
t)
502 TooL
5(' TcatECrlPm..r
F)
501
(.)
+
a--
+
+
-
6. Coi,lPUTERlZATloN
Y{t
+
601
Tcleomnmlcdonr
+
lnqdrY
Syttdn UPgr.d.
+
tr,bn.g.m.nt N.hiod( (lM{i) +
602 Olttclo.Y
+
(')
+
+
+
+
+
+
+
fu..rc.tUr.rt""]
7. TECHNICALASSE TANCE
Ycar
ml FClod.tf/Trdnhg
S.vla.r
7!2
7!3 Drccrtrlzatbtt
oonrultrncV
+
+
+
+
(.) : Tenardng
-''lPHtff
a(,w3tltr
-i10_
Annex
15
IIIDONESIA
PI
TELEKOIUIilKASI IltDoltESIA (TELKoil)
F(URTH TELECOIII,IU}I I CATIO}IS PROJECT
Performance lndicators
1992 1993 1994 1995
Fiscat Year Ending DecerSer 3t
2,015 2,515
30
10
2,045 2,525
300 350
(15) t7'
285 343
1,509 1,859
227
1,531 1,W
1. Automatic Exchange Capacity
llaruaI Exchange Capacity
Total Exchange Capacity (,000s)
2. Additionel Auto Lines Connected
Additionat llanual Lines Comected
Totat llain Lines Comected (,000s)
3. Totat Auto tlain Lines
Totat llarual llain Lines
Totat llain Lines Exc. RSA ('000s)
4. other Services
5.
(per 100 sub,/month)
Effective Catt Conptetion Rate
- Local
- llational
6.5
(l)
30u
Tetephone Rev./Av lrlain
Line
Costs (Rp. ,000)
0p Cost/Av llain Line
25t
27
Constant ,91
1,480
Current
Constant ,91
1,569
1,325
Current
1,405
Constant ,91
Current
Cash 0p Cost/
v llain Line
Constant ,91
Cument
Staff Cost/Av lilain Iine
gonstant
,91
Current
9.
Return on Av.
6.0
3,015
3,515
0
0
0
3,015
3,515
4,015
400
450
500
0
0
0
400
450
500
2,259
?,709
3,209
0
0
0
2,259
2,709
3,209
?.0
75.0
1.0
2.5
90.0
1.0
105.0
5.8
5.5
5.0
4,015
3.0
1.0
Jakarta
Long Distance
6. Staff ing/ 1,000 lrlain Lines
7. Revenues (Rp. ,000)
0p Reverue/Av llain Line
8.
1.0
1.5
45.0 60.0
0.8
1.0
Data Subacribers (r000s)
Payphone (,000s)
UARTELS (,000s)
Quatity of Service
llo. of Fautts
1996
llet Fixed Assets
10. llct lnternal Cash Gen./Avg 2 Years tnvest.
11. Debt Servicc Coverage
12. Cument Ratio
13. Debt/(Debt+Equi ty)
35t
301
23
1,3f,3
1,497
1,198
1,347
4?Z
48r
50/
352
39t
4?/
21
19
16
1,29
1,168
1,510
1,475
1,072
1,354
1,087
1,454
1,152
1,373
1,134 1,000 927
870
1,202 1,124 1,104 1,098
607 570 538
515
&4
&0
&1
651
357 341 328
320
378 383 391
404
24t
26/
28r
28r
43X 43t
421
47X
2.9
2.9 3.5
3.4
1.7
1.7 1.8
1.9
521 57t 59',
60x
1,005
1,345
806
1,079
488
653
309
413
297
48t
3.2
2.0
60x
===:=a:=====Et!=:==3===E===t===E=======::::=======================:3;========3=========:===:-
-
111
ANNEX 16
-
INDONESIA
FOURTH TELECOMMUNICATIONS PROJECT
Action Plan
I.
Target or Indicator
Plan of Implementation
Objective
Accountine Svstems and Financial Manaeement
1.
Upgrade Finance
Department staff skills.
Based
on ongoing conzultants'
recommendatiors, agree on the
domestic and overseas training
program.
2.
Develop accounting
policies, sYstems
procedures
and
for
decentralized oPeration.
Review and imPlement revisions
to tle existing accounting
policies, systems and Procedures
in light of the Planned
lmplement agreed Prograrn from
FY92 onward. Progress to be
monitored according
to
agreed
reporting requiremeuts throughout
the project Period.
Review the accounting Policies,
systems and procedures bY June
1992. Implement the revisions
required by December 1992.
decentralization.
3.
Develop cost accounting
system.
Improve
managemetrt
accounting system.
Review and imPlement Policies'
Expert to be emPloYed bY August
organizational setup anil training
for a cost accounting system.
recommendation bY June 1993.
Review and imPlement Policies'
Expert to be emPloYed bY August
organizational setr,rp and training
recommendations bY June 1993.
systems' Procedurest
systems, Procedurest
to improve
1992.
1992.
ImPlement
Implement
the
agreed
the
agreed
management
accounting system.
5.
Improve accounting
financial
and
(a) Implement SIMAK
information sYstems
management
in
all
WITEI.s.
information systems.
Systems to be imPlemeoted
in
10
WITEIT by December 1992 and
in
remaining
2 WITELs
bY
December 1993. ImPlementation
to be completed bY December
t993.
O)
Develop treasurY function
to operate on
basis.
commercial
Convert PC-based accounting and MIS sYstems at the
telephone offices to oPerate
on main frame.
Review and imPlement Policies,
systems' Prosedures,
organizational setup and training
to improve treasurY function.
Expert to be emPloYed bY August
L992.
Implenent the
agreed
1993.
June
bY
recommendations
-TT2Objective
7.
ANNEX
Plan of Implementation
16
Target or Indicator
Develop financial
Integrate TELKOM's financial
forecasting and planning.
model into corporate planning and
budgeting cycle. Implement
financial model at WITEL level.
Expert employed under the Third
Telecommunications Project to
assist TELKOM
financial model
to
develop
1992.
by luly
Model to be integrated
into
TELKOM plannilg by December
1992 afi, implemented at WTTEL
level by June 1993.
8.
Continue improvement in
billing efficiency.
Implement phased billing.
Implement phased billing in six or
more locations by March 1992
and all locations by December
1993.
9.
Reduce levels of
government receivables.
Continue actions taken by
TELKOM in line with
Government decree
receivables
from
to
improve
Government
Reduce receivables
for
all
government subscribers to a
maximum of hvo months of
billing for the year from 1993.
subscribers.
II.
1.
Institutional Strengthenins
Design and implement
a
management information
system.
to assess needs, using
technical assistance, develop and
implementation plan of action.
Study
Study according to agreed TOR to
be completed by June 30, 1993,
& implement pilot project in
Jakarta to proceed thereafter.
)
Further develop technical
operations (traffic
monitoring
and
engineering)
Srudy methods using technical
assistance, develop
action
to
a plan of
improve quality of
Appoint consultants by October
31, L992, implementation to
proceed thereafter and monitored
according
service.
to
agreed reporting
requirements.
IIL
1.
Human Resources Develonment and Trainins
Develop a long-term human
resource development plan
Study
initially for fakarta.
mix
to
assess existing staff
resources in relation to future skill
requirements including
Appoint consultants by December
31, 1992 to implement
agreed
recommendations.
training, career development and
finalize recommendations by
June
30,
1992
to
successfully
implement decentralization
program.
plan.
Increase availability of
Prepare training
competent, trained expert
needed in (a) digital technology
O) outside plant maintenance and
be
(c) nenvork management.
reporting requirements.
staff.
Skills
Upgrade training facilities by
December 31, 1993. Progress to
monitored through
agreed
-
Develop a career
zucceesion Plan
100
-
ANNEX
(a)
Decide on the field
numbers to
each field.
for the toP
management in
16
Target or Indicator
Plan of ImPlementation
Objectivc
3.
113
and
be trained in
Training to commetrce beginning
September 1993. Progress to be
monitored through agreed
reporting requiremente.
TELKOM.
o)
Arrange language training.
Complete language training
(c) Execute plan for sel€ction and
training.
Ianuary 31, 1993.
Complete selection bY SePtember
30,1992.
IV.
1.
Ooerational Performance
Further develoP efficiencY
of
(a)
operation, qualitY of
Set network
Performance
targets, monitor and review
Agreed indicators given in
Annex 5.
perfornance comPared !o
services and resPonsiveness
to u8er8.
targets
&
determine cor-
rective measures
where
appropriate.
(b)
2.
To reduce faults on Plants
which cause hiCh fault
(c)
3.
To improve service to
commercidlY imPortant
cuslomers.
Decentrdization starting witb
Ialcrta to begin lune 1992.
Reduce number of
5
faults/ 100 phones/month.
incidents: DroPwire, DP
and Indoor Facilities.
Decentralize managenent to
the regions
(d)
Reduce the time for rePair.
80% within 4t hourc of rePorting.
(e)
Provide intensive training.
5/1000 working lines.
(0
Prepare network masterPlan
for Repelita M.
(a)
Prepare
list of
(CIC)
customers by account.
Draft plan to be completed by
October 7,1992 and final Plans to
be completed by APril 30' 1993.
Ianuary 1993 for lakarta and
Surabaya. June 1993 for other
major cities.
o) Improve staff skills
in
customer orientation.
January 1993.
-114-
AI|NEX 17
Page 1
txDo0rEsIA
PERUSAHAAX
of
4
tDf,N TELEXOT,XIXASI (PERI'ITEI)
FCT,,IRTH
TETECOilJTICATIOIIS
PROJECT
Historicel lnccr|E Strte[Ents
(Cument Rp. Bi t t ions)
Fiscat Ycar Eding
Decenber 31
1986
1987
1988
1989
1990
1991
-1/
=:==-==-====:=la!--a==-==taE==::==========::======t==:===================!=g======E3!=====================================
Opcrating Rcvcrue:_Z/
Tctephonc
1,038.2
527.2
47.0
623.2
53.4
690.6
56.2
8.8
9.9
11.2
Leased Charnel,
22.3
27.?
29.'
Othcr Revcilrcs
8.8
10.3
12.0
614.2
724.0
799.4
929.4 1,292.8
166.6
181.2
254.4
13.0
87.3
267.9
| 12.0
108.8
51.t
55.0
2r1.9
7.1
42.t
t4.3
23.8
10.7
294.1
43. t
495.2
691.4
&1.0
7E0.7 1,129.5
119.0
32.6
158.5
14E.7
38.7
30.6
71.0
22.3
97.4
&.7
91.5
16.2
31. I
(51.5)
(9.7,
187.9
104.1
T.lcx
Tclegrs
Totel
ReYeflJc
Operating Expenses:
Pcrsorncl
152.0
116.2
Generet & Adninietration
Repair & llaintenance
u.7
Dcprcciatlm_3/
Amrti zation
108.0
27.2
Proviaions
Totlt
ExpcrEGs
llet Operating
lncomc
lnter$t-ITD
Xet Xon-Operating
lncome
Extrr ordinary c6in
(LosB)
Pr.-tax lrcqne
lncdrF
f,et
Tax
53.8
1
20.7
134.2 83.5
lrrc€||p
792.3
59.9
11.4
44.4
21.5
25.3
88.9
1E.0
41.8
66.5
1,737.5
447.3
236.5
81.4
518.1
63.9
14.6
1,361
163.2
n.1
107.6
.8
375.8
171.0
83.0
1.7
161.3
70.4
,7.9
195.4
66.0
103.4
129.5
287.8
100.8
1E7.0
=3==================:===============:E======3=:=====A::====:=3====:=====-==========:===========
PERIXiTEL ras converted to TELKOI on Septeflber ?3,1991, the financiat statemnts are
-1l
Atthought
_2/
Iariffr rerc incrcased
-3l
Dcprcclation mthod used changed in 1987 from straight l,ine to doubtc dectining.
for
,521 .0
90.2
384.1
144.3
62.7
409.5
115.3
13.6
182.1
111.7
1
67.8
14.7
55.9
116.2
PERIIIIE!
for thc
rrtrote
flscat year.
substantiatl,y effective October
1990.
-115-
AXXEX 17
Page
txDotEslA
PERUSA$AAi|
U|tI
2 ot
4
IELEKOT'XTKASI (PERI'IITEL)
tilnTfi IEtECO0lrXlc llofls
PRoJECT
Hiatorical, Sourccs and Uscc
of
Ftnde
(currcnt RP. Bittions)
====:==============-====-3====-=====a=a===3=S:=:===3'=-===-=:a==5=t===!Et3-==t=E==-==t=3:a=a-aa=43=========A==:3==--==aa=
Fiscal Year Endirlt
Decen$er
31
198S
1989
134.2 E3.5 111.7
to8.o 267.9 251.9
27.2 42.t 8.8
14.3 10.7
7.1
22.t
30.6
t8.7
21.4
25.4
22.2
105.4
84.1
a3.l
25.3
6.7
4.5
1986
1987
:==========================-=======:====-=3==E-==a:==========3=3====-=:a==aaE
SdIRCES:
llet
lncoop
Depreciation
Amrtization
Provisione
Intercat
Differed tnstat tation
Internat
Charge
Cash Generation
Other
Liabitities
Loano
337.4 4&.0 441.8 537.1
524.0
TOTAL SCI|RCES
3t-taa=
APPLICATIO}IS:
835.1
-at-=aa
Sociat Objectivc
67.'
12.3
9.E
2.5
Total frsnsferg
92.0
100.6
38.7
GOI DevetoFnent Furd
Boilrs
to
u?.0 980.0
a33ata-
EnptoYcee
Peneion Ptan
73.8
13.6
10.7
2.7
4r.9
8.f,
6.7
1.7
Intercst
Prircipat
Totat Debt Scrvicc
in llorking CaPitat
TOTAT APPLIC
Ttofls
for
65.9
14.5
7l.l
171.0
(50.0)
38.9
694-9
993.4
157.5
36.3
1.2
48.0
560.4
I ,005.3
1,461.0
2,036.2
E=3Aa!t
1,134.7
Er,z-t
61.5
11.2
56.8
0.0
t6.5
20.7
8.9
2.1
2.2
2.1
2.6
2.6
Tt.s
25.9
22.3
60.1
6r.7
73-6
n.1
6.7
?5.1 26t.8
253.1
98.9
96.3
95.9
141.8 358.9
424.1
101.4
10.6
7!.3
122.9
44.3
(6.1)
242.1
t71.0
(65.7)
268.1
524.0 E15.1 842.0 980.0 1,461.0
237.3
214.1
2,036.2
llltlllt-tlt'tllt""
ras converted to TELrO,l on scptdber 23, 1*)1, thc flnancilt stttcments arc
for the *rote fiscal ycar.
pERt ITEL
PERIIITE!
13.6
50.6
rEaS=rrlllltaarllatlrrtltt:t3ttlaa=aaar-attattrrlla:lttatllltlttaalaalallllllllllatlll!"llttll"lE
_1/ Atthought
518.1
8tr.8
20.5
Dcffercd Chargcs
187.0
129-3
409-5
115.3
62.6
Debt Servlcc
Change
ata-==-
211.4 504.6 568.9 51E.3
Capitat lnvestiFnt
1991
-11
===att=-===Et33a=====-a====:::::=======-a==3
18.2 176.1 120.6 u.6
49.7 (42.1) (33.4) 2.9
fi8.7 ?37.1 313.0 355.4
Equity & Reservas
1990
-
115
-
ANNEX 17
tlr0oltEsIA
PERUSAHM}I U'T,,I
TE
Page
LEKOI.II'II T KAS
I
( PERUI4TE L
3 of
4
)
FqJNTH TELEC0.{I{UNICAT IONS PROJECT
HistoricaI Eatarre
Shects
(Current Rp. Eitl,ion)
Figcat Ycar Endlrp Dccefter
1986
19E7
1988
1989
15.9
445.7
62.5
464.5
83.5
558.5
62.2
619.6
31
CurrGnt As8.tg
Cagh & Sankr
r
Short Tarn lnvcrtfiFnt
Accorsts Rcccivablc
129.9
129.5
Other Rccclvrbtcs
45.0
lnvcntories
83.1
53.5
106.9
69.7
69.5
Advancc Pa)rmnts
Fir.d Agects-2/
Lcgs Accrmllatcd Dapreclation-z/
147.4
146
17.0
13.0
4.7
60.6
65.9
52.8
159.2
3,558,5
2,044.7
1.,472.2
1,523.9
2,090.1
715.8
796.1
500.9
651.3
898.1 1,096.3
714.5 740.5
Dcfenrcd Chargcs
48.0
128.7
149
.2
,794
.8
1
Total Currcnt Liabi titieg
Lont tGnn Debt
ocferrcd lncilF(lnstat l. Charge)
othar Long Tcm Liabilities
GovarmEnt Equfty
Rrscrvcr & nctlincd Earnings
Totat Eqllty
TOTAT
LIA8ILIlIES &
,
680.
1
2
,326
.8
2
348.'t
3
8.7
94.2 't28.9
130.0 144.5 180.7
65.7 73.6 8.1
271
.4
,238.2
EOUITY
3,837.2
-21
4,942.0
299.8
269.3
263.2
3',t2.3 384.8 622.9 707.1
832.3
563.8 727.4 965.2 1,058.9 1,3&.2 2,108.1
63.8 89.2 10.6 15.1 65.1 105.9
107.5 65.5 32.0 34.9
83.0 U.2
1
1
2,221
.3
3,128.9
471.4 565.9 1,190.0 1,153.0 1,310.2 1,418.2
202.1 566.6 112.2 253.4 305.7 395.0
673.6 1,',132.5 1,302.2 1,406.4 1,615.9
1,8,13.2
1,680.1 2,326.8 2,n4.E 3,238.2 3,837.2
4,942.0
llaa:aallllaallltlallllll::aaSltala!:3:=aatlaa:ta-lr3==t3=t==a3!!=======-==3:=============:===
-fl
2,382.0
271.4
182.6
253.1
135.0
226.2
261.8
f,006.5 1,194.3 1,492.6 1,831.8
Totat Lirbititics
EWity
496.6
1,943.4 2,256.3 2,710.8
1,106.1 1,358.2 1,&4.5
837.4
458.3
Currcnt Portion LT debt
I
368.9
1,028.8
586.6
442.2
oth.r P.ysbt.r
164.
1,404.5
316.7
Accornts Payablcs
53.9
04.0
1,066.6
ilet Fixcd Ass.ts
Curr.nt Lisbititlas
1
192.5
902.4 1,035.0 1,053.1
gork in Prograss
TOTAL ASSETS
95.2
102.2
873.1
Totst CurrGnt Asscts
Gross
89.5
340.3
160.2
1
1991 _1/
1990
Atthosght PERiIIIEL ||.c convcrted to TELKo,l on Scpten$cr 23, 1991, thc finsncial
for PERUITEL for th. rhote fiscat ycar.
Ar,sott revrtucd in 1967 and rccctcretcd dcpreciation mcthod adopted.
statmntg
are
-
117
-
AIlrEx 17
Page
IlDollEslA
P€RUSAH^^X
UTH TETEKOilJIIIKASI
4 of
4
(PERIXITET)
F(IJRTH TELECCIIT'IIICATIOTIS PROJECT
Higtorical Pcrfonnrrcc lrdicators
Fiscat Yesr Endiru Dcccnrbcr l1
1986
198E
1987
1991 _11
1989
(Rp. rqg6",
Tetcphonc/Av l{ain Lirc (Currcnt)
8:t6
895
E96
95E
Constent r9O Priccs
1,215
l106/
1,035
974
1,158
1,037
l,o3E
1,124
1,416
1r3l+5
1,232
1,214
560
526
6
506
631
El3
82
546
5t6
631
241
239
235
308
410
350
310
2T)
332
410
ReYGm,r.8:
Linc (CuFrcnt)
Op RevcnuG/il.in
constant '90 Prices
Costs: (Rp.'000s)
cesh 0p
c6t/Av l-ltin Line (current)
Constant '90 Priceg
Steff Cost/Av llain Linc (Curont)
Constant r90 Prices
Staff
Cost/C€sh 0p
C€t (I)
opcrating Rltio
Retc of R.turn on Av llFA
Tr€mfcr to Gol
E$/ity froo Got
llet Transf.r to
Gol
Tramfer to Got ! of Equity
llct Transfcr to
Gol
I of Equity
lGt
IGC/ v 2 Ycarc Invcst[Fntt
Debt Servic. Covcregc
currcnt R.tio
Rcccivabtc (DaYc)
Accourt
Debt/(Dcbt + Equity)
_1/ Atthoright
for
PERIf,ITEL
PERI {TEL
4.tl
45t
51X
Elx
26X
95/
,t
80r
130.6 104.9 129.E
19.2 81.8 602.1
111.4 8.1 (712.t)
10r
9/
192
a
'361
17r
411
5.4
50x
4.E
2.9
3.2
76&s
t$t
3%
cag convertcd to TELXOI on Scptcnbcr 23,
for thc rlrotc fiecal ycar.
l8r
1991
54
1,t41
1,289
1,532
1,473
6E
&9
394
379
6't1
65r
5Er
4X
15t
E'n
18
7U
21r
244.2 38.2
0.0 157.2
2tA.2 166.0
20/
171
10r
fia
16r
4.6
l.E
2.7
1.7
57
43t
1,108
1,108
1,380
1,3E0
43'.
zEt
2.1
1.5
45
tst
, th. flmncist 'tat'[rntr rrl
274.6
0.0
274.6
15r
151
41X
e.3
1.7
40
54',
-118-
Amex
TIIDO}IESIA
PT TELEKoUIIIK
18
SI t[DolEsIA (TELKO,|) page I of
J
FCTJRTH TELECOHN,XICATIOTS PROJECT
projected Inccme Statements
(Curent Rp, Bittions)
Fiscat Ycar Erding Dccenber 3l
==E===r=======t=======a===a====3=====:=====:==========:=======:===========
---:::-,-
''t"
1994 1ee5
1es6
Forecsst
3=-====E=-!a-ll'r3-!llall:a:=!aaat-a=!==g:8tala!g:3===E=====83:=3==;========-=============-=======r=============
0peratfng Revenrc:
Tetcphonc
Tetcx
Telegrqn
Leased Chancls
Other Scrviccg
Total
Revenuc
1,955.7 2,302.9 2,852.2 3,383.5 4,000.6
89.5
19.4
46.0
6.2
89.1
20.4
50.6
80.1
99.0 104.6
21.4 22.5
55.7 61.2
85.9 92.5
111.8
23.6
67.4
99.8
2,179.9 2,543.1 3,114.1 3,664.3 4,303.3
Operating Experucc:
Salarles erd llagee
General & Adninistration
Repalr & llelntenancc
Depreciatlon & ftprtization
Provisione
Totat
Expe'nscs
Operating
lncm
lnterest-!TD
l{on-operlting Incme
Pre-tax
Ircom
lncome
Tax
llet Incq|p
525.0
262.5
106.1
743.2
31.8
650.6
292.8
144.0
795.0
26.3
805.2
1,004.8
322.5 351.7
194.2 259.6
921 .7 1,073.8
t1.8 38.1
1,222.9
366.8
343.1
1,213.1
44.5
1,68.6 1,908.7 2,276.4 2,T2g.o 3,190.2
510.3 634.t 837.7 936.3 1,1,t3.1
196.0 220.7 255.8 280.8
30.8 16.E 5.4 to.s
368.0
27.3
315.2
f 20.8
772.3
270.3
430.5
150.7
607.4
212.6
666.0
233.1
224.4 279.8 394.8 432.9
502.0
aa==-!--a-taal=:3:!allatrt=at!Ealt-tt:8att:tlaStt-::E=r-===E==:-E=3===:==:=======:==::======:==:=========:======
Rstios:
operating REtlo(t)
7n nI
24r 261
T3Z 74t
28X 282
ZOI ZOZ Z1Z Z1l
Itllttl'l'llrlStttarlr"aa3lta:rlSlaa=:laalratrt-rt3:aE==!:E-=E=:==a=E===aEt===============a=:==================
Return on llct Fixed Aseets (pre-tax)
Return on XGt Fixcd Aesetg (After Tax)
74/
2%
ZS1.
-119-
Arncx t8
ItoorEslA
PI
TELEKoIJIIIrASI tllDo|l€slA
Fd,RTII TELECOf,{JXI CATIOXS
Projcct€d sourcca ard Ugcc
(Cur.nt
=rat-EtaaalalaatttllaaaLlttul8atllslalttastglaatatrattttlltlllllallaatlalltarrtSttlall'8ltlt""'ll'lttltl
Fiscrt Yaar Erding Dccobcr
PROJECT
of
Fudg
Bittione)
RP.
19p,4 1995
1992 199!
ll
(TELKor) Prgr 2 of
1996
Forcclst
,:aaraarataraaltaaaaat.tslglEllmlltagttalttalraaattttlraalltattratalalataaaa!altsalalalla!s!lllt!a!'
Sourcaa:
llat lncqn
Dcprccictlon &
Aprtlzrtlon
lnter.3t
Defeffed Instaltation chlrgrs
tnternal
Caeh
(I.t)
224.4
743.2
196.0
18.1
271).8 l%.8 432.9 502.0
?95.0 921.7 1,0'7l.8 l,21l.l
220.7 2!5.8 280.E 368.0
17.0 33.8 29.4 33.2
1,181.6 1,312.5 1,586.1 1,816.9 2,116.3
Gcncretim
Pomion Pl.n
Sociat Obicctlvc
46.8 56.1 70.0 98.7
29-9 35.9 44.8 61.2
7.9
4.5 5.6
t.7
7.9
3.7 4.5 5.6
Totrt lrrnsfcrs
u.2
D€vetofnt Ft''ld
Bonus to ErPtoy..a
GOI
Debt Sorvica
lnterast
Principat
Totat Dcbt Servlcc
llet lnt€rmt
Cesh Gtn
rltio|t
Lornt
69.3
8.7
8.7
101.0 125.9 171.7
194.8
196.0 220.7
207.6 234.6
235.E
242.8
280.8
259.3
368.0
302.0
403.5 455.2
478.6
540.1
670.0
693.9
7',6.t
981
918.6
972.9
943.5 876.2
.6
1,612.5 1,729.2 1,925.2
ToTAL SqJncEs
108.2
a3l:aa3
aalrla:
lcetlonc:
Capitat lnv.strFnt
lEtsaat
1,099.1
1,?51
.5
800.6
1,98.3 2,052.2
|ta3Sat
l3::a=a
Appl
El1.5
Locat CoiFoncnt
Forcign ccnporprt
692.0
676.8
810.9
853.6
8.6
U2.2
717.4
1,503.5 1r536.6 1,t87.7 1,522.2 1,559.6
Totat
Q7.6' 45.5 280.3
136.7 147.1 157.2
ch.no. in tlorklng GrPltrt
ocfforcd Chrgor (lDC)
TOTAL
653.7
882.9
247.2
245.3
1,612.5 1,729.2 1,925.2 1,92i.3 2'032.2
APPTICATIilS
n.tiot!
Ict lntlrn l C$h/
2&.0
187.2
Av 2 Yrar
D.bt ScrYlc. CovarrSa
l|w.ttlFltts
431
2.9
4tt
2.9
4U
3.1
47r
3.4
4&l
t.2
3
-120-
Amex
I[00]lESlA
PT TELEKO{JIIKASI I}lDollEsIA
(TELKdl)
Pagc
tc[nYH TELECof,lr{ilICATIOXS PIoJECT
Projectcd Batance Shectg
(Curr.flt Rp. Bi tl.ions)
att!:!aalt3lattratatrtatattltaaata:a8tltralatlla3-==:aaSlltatalat!aatlaaaaEat:a=3=t=======aaaltl-!!atag=l=3-a
Fiscal Ycar Erdiru Deceobcr
31
1992 1993 1994 1995
1996
Forecast
Currgrt A3sats:
Cash
rrd Short T.ril lnvcstflEnt
Accornts Rcccivablc
othcr Rcccivcbhs
lnvcntorics
Pr.pa),mnt
344.8 296.5 346.8
220.2 26a.4 32E.E
87.2 127.2 202.4
250.4 305.9 367.6
544.7 635.8 n8.5
390.1 402.4
386.2 453.6
274.8 322.7
433.6 502.9
916.1 1,075.8
Totsl Curr.nt Ass.ts
1,147.2 1,633.8 2,024.1 2,400.8 2,757.4
Grosg Fixcd A3scts
Less Accunrtatcd Dcprccirtion
5,258.0 6,124.5 7,719.5 9,105.4 10,560.8
3,027.5 3,719.0 4,530.6 5,487.3 6,572.8
ll.t
2,230.4 2,705.6 5,188.9 3,61E.1
1,942.5 2,078.8
1 ,379.7 I ,749.8
Fixcd Asscts
fork in
Progr.sa
ll.t D.f.rrcd chargc.
690.3
733.9
781
.0
la:=3:=
liebi titlc!:
Accourts Payabtce
oth.r
Psy.btcs
Curr.nt Portion
LT Dcbt
Iotrt Currqtt liabititicc
Long Tcnn Dcbt
Dcfcrrcd Rcvcnp
Totst
851.0
96a.7
5,747.7 6,823.0 7,936.5 8,948.8 9,897.3
TOTAL ASSETS
Cumant
3,986.1
2,183.1
Llrbltltl.s
360.4 445.1
240.t 296.7
234.6 242.8
dt5.2
98/.6
t-=!Eat
==:==3=
51r.1 577.5
340.7 385.0
259.3 302.0
643.2
42E.8
331.8
1,111.1 1,2&.5 1,403.7
?,453.4 3,183.4 3,U7.7 4,442.0 4,910.9
233.6
250.6
2U.4 313.6
t47.0
3,522.2 4,(18.6 ,,263.2 6,0110:2'6,661
:5
Equity:
cov.rmrnt P!ld- in-C.plttl,
R.s.rv.s I Rrtrlned Emnlngr
Totat Ectrrity
ToTAL
uAElurtEs & Eq,lTY
2,000.0 2,000.0 2,000.0 2,000.0 2,000.0
225.5 404.4 673.3 92E.5 1,?3r.7
2,225.5 2,404.4 2,675.3 2,928.5 3,235.7
5,747.7 6,823.0 7,936.5 8,948.8 9,9)7.3
n!ti03:
Cumqrt Rrtlo
D.bt/(Drbt + E(pfty,
1.7
52r
1.7
574
1.E
7n
1.9
601
2.0
60:
18
I of 3
-T2IAnnex 19
Page 1 of
INDONESIA
PT TELEKOMT'NIKASI (TELKOM)
FOI]RTH TELECOMMTJNICATIONS PROJECT
Assumptlons Used
for Flnancial
ProJectlons
Prlce Levels and Tariffs
1. prlces. The forelgn and domestlc lnflatlon rates of 3.7I and 6.0I
p.a., respectively, were assumed for the proJection period. Ihe exchange
rate of Rp. L992 to the US dollar was used.
Tariffs. Tarlffs schedules as shown ln Annex 20 were used subJect to
the followlng: Domestic tariffs were assumed to be increased by 121
effective January l-, 1994 and naintal-ned in real terms thereafter to enable
TELKOM to self finance a ninLnum of 401 of lts financing needs and
maintaln its debt equity ratio within the government ltnit of 60:40 through
2.
L996.
Future Facllities. Staffing and Ouallty of Service - The nurnber of
connection for telephone, staffing ratio and quality of service for the
proJectlon perlod are shown in Annex 15..
3.
Incone Statements
Operating Revenues. The operatlng revenues were calculated
4.
as
follows:
(1)
- Traffic revenues are calculated by
nultiplying the toral traffic (pulses or minutes) by the price per
pulse or ninute for local, long dlstance and lnternational calIs.
lssr.rnptlon of trafflc growth are as follows: domestic automatle
grow at L01 p.a, domestic manual to fall at 10I p'a' and
lnternatlonal traffic to grow et 201, p.a.. For lnternational
revenue proJection the revenue sharlng wlth INDOSAT ls assumed at
35I (to iffXOU) throughout the proJection perlod. The rental
revenue is calculated on the basls of existing 1lnes and additlonal
Lines installed durlng each year. The lnstallatlon revenue charge
for each year ls cal-cu]-ated on new llnes lnstalled durlng the year
with 501 shown as revenue for the year and rest as revenue for the
Telephone and Telex
followlng yeer,
(11) Telegraph - It ls forecast to growth at 5 pereent Per annum.
5.
Operatlng Expenses. The operatlng expenses ere asslaed as foLlows:
(1)
ls calculated as the average nrrmber of enployees
lncludlng beneflts, P€f enployee. Ttre total
tlmes
"alary,
"t"r"ge
n1mber of ernployees ls expected to increase, but the stafflng ratlo
ls expected to decrease as measures are taken to lnprove
Personnel, Cost
-t22Annex 19
Page 2 of
2
operational efficiency. Annual salarles are proJected to lncreased
by 10 percent p.a. in real terms, to account for lncrease Ln
proportion of skilled staff and better incentives.
(
(
General and Admlnlstrative Cost ls a percentege of personnel cost
and ls projected to decrease fron 501 to 301 by L996.
11)
RepaLr and Maintenance Cost is celculated as the average number
nain lines tlmes repair and maintenance (R&II) per average rnain
l!ne. R6il per rnain line is assurned to increase by 51 per annqn
real terms.
lii)
(1v)
(v)
(vi)
of
ln
Bad Debt Provision is a percentage of billed revenues and !s
proJected at 51 of outstanding accounts receivables.
Depreciation ls on a double declinlng rnethod and ls about 301 per
annun on net fixed assets ln operation the prevlous year.
Amortizatlon of deferred charges is about 202 per ennu! on net
deferred charges the previous year.
Balance Sheet Items
gross Flxed Assets reflect the lnvestment program ln Annex 9 and
transfers from work-in-progress.
6.
is neasured as the number days of total operating
revenue. It ls assumed to remaln at 40 days of bllllng durlng the
7.
Accounts Receivable
proJectlon perlod.
Inventories are estlmated as a percentage on gross flxed assets ln
service and are proJected to remaln at 51.
8.
g.
Other Recelvables are assumed to remain
10.
Prepayrnents ere assumed
work ln ptogress.
at 51 of operatlng
revenue.
to remaln ax 251 of cash oPeratlng cost end
Long-terrn debt and current portlon are based on the proJect flnanclng
plan and proJected debt servlce.
11.
L2. Accounts Payable is a percentage of cash operating cost and work ln
progress. It Ls expected to decrease to 15I of cash oPeretlng cost and
work ln progress by 1993 and remaln at that level.
13. Approorlatlon of Net Proflt Durlng the proJecclon Perlod, bonous to
employees, socl.al obJectives and pension plan contrlbutlons ere assumed to
contLnue as for PERWTEL. Divldend pa)ment ls assuned to remaln at L992
1evel of 25I.
-r23Annex 20
Page 1 of
INDONESIA
PT TELEKOMI'NIKASI (TELKOM)
FOI]RTH TELECOMMT'NICATIONS PROJECT
of
Sunnary
TEIXOI!'s
Tarlff
- -Rp- -
A.
Telephone
Installation
Charges
1. Category I of TelePhone
(a) Main connection
(b) Branch connection
Exchange
2. Cateeory II of TelePhone
(a) Maln connection
(b) Branch connectlon
Exchange
3. Category III of Telephone
(a) t'lain connection
(b) Branch connection
4. Category IV of TelePhone
(a) Maln connection
(b) Branch connection
5.
Exchange
Exchange
Category V of TelePhone Exchange
(a) Maln connection
(b) Branch connectlon
VI of
6.
Category
7.
Category VII of TelePhone Exchanee
(a) Maln connectlon
(b) Branch connectlon
(a)
(b)
TelePhone Exchange
ltain connection
Branch connectlon
8.
Category
VIII of
9.
Gategory
XI of
10.
CategorJr X
of
TeLePhone Exchange
Teleohone Exchange
TelePhone Exchanee
1,000,000
63 ,000
750,000
32,000
500,000
L9, ooo
350,000
13 ,0oo
300 ,000
L0,000
250,000
7 ,000
225 ,000
3,750
200,00
175 ,000
l-50,00
-r24-
B.
Monthlv Rent
of
Annex 20
Page 2 of
- -Rp- -
Teleohone Gonnection
1. Automatic Telephone Exchange
(a) Category I, II, III and IV
(1) Maln connectlon
(11) Branch connection
(b) Category V, VI, VII and VIII
(1) t[ain connectlon
(il) Branch connection
(c) Category IX and X
(i) MaLn connectlon
(il) Branch connection
2.
3.
c.
10,000
5 ,000
7,500
3, 500
5
2
Autonatlc Telephone Exchange up to 500
(a) Main connection
(b) Branch connection
Autornatic Telephone Exchange Over 500
(a) Main connection
(b) Branch connection
,000
,500
Nurnbers
1,000
s00
Numbers
,000
1,000
2
Telephone Conversation Rate
1. Automatic Telephone
(a) Local pulse of 3 ninutes
(b) Local call of 3 ninutes frorn PCO
(c) Internal region per pulse
(d) Interregion per pulse wlth duratlon
up to 100 kn
(e)
2.
L00-200 kn
200-300 kn
300-1,000 kn
over 1,000 km
Card telephone per pul-se
Nonautomatlc Telephone
(a) Local
(b) Local fron PCO per call
(c) Internal reglon per minute
(d) Long-distance (normal servlce) :
up to 100 km
100-200 kn
200-300 kn
300-1,000 kr
over 1,000 kn
100
50
100
100
6 seconds
5 seconds
4 seconds
3 seconds
2 seconds
75
IncLuded in nonthly subscription
(e) Long-dlstance urgent servlce
(cwlce the races shown ln (d) above)
50
35
750
l_,000
1,200
1,500
2 .000
-L25-
Annex 20
Page 3 of
- -Rp- -
D.
TelegraPh Rate
1-. Presentatlon rate per telegram gerrrice
2, Domestic rate Per word, normal
E.
350
(nininum L0 words)
Telex Rate
1. Installation
fee
Same as
telephone
main exchange
15 ,000
100
12 seconds
8 seconds
6 seconds
3 seconds
2. Monthly subscriPtlon
3. Pulse rate wlth duration:
up to 50 kn
50-300 kn
300-750 kn
over 750 kn
F.
25
Private Leased Clrcults
1. InstaLlation fee Per Pair
(inslde service border area)
Category I
CategorY II
GategorY III
250,000
175 ,000
100 ,000
87 ,000
52,000
45 ,000
37 ,500
CagetorY IV
CategorY V
Category VI
GategorY VII
2.
Monthl.',r Charges
(a)
(1)
circuit
(analog)
(Per
Local
Palr withln one
service border area)
Te1ePhone
local area inside
600 ,000
_126_
Annex 20
Page 4 of
(1f)
Long dlstance and trunk
Zone Distance
(kn)
I
rr
rrr
rv
V
100
L00-200
200-300
300- 1,000
over 1,000
up to
Government
(Rp)
900,000
l_,090,000
1, 350,000
l_ , 900,00
2,
700,000
Business and
privare
(Rp)
5,052, 500
6 , 750,000
8 , 100,000
l_0,000,000
13 , 500,000
- -Rp- -
(b)
TeLegraph and Data Circuits
Leased telegraph circuics are available up to a maximum
transmisslon rate of 50, 100 and 200 baud.
Leased data etrcults are availabl-e for transmission race
fron 300 bps.
(i) Within one l_ocal area:
Prlnter, per pair per connection
Data cornmunicati.on, per pair
75,000
10O,OOO
6
-t27-
(11)
Long distance and
Trans-
trunk leased circuits
mlsslon
Zone Distance
50 baud
I
II
III
rate
(full
speed)
IV
v
75 baud
I
II
III
IV
v
100 baud
I
II
III
IV
v
200 baud
I
II
III
IV
v
300 bps
I
II
III
IV
v
Annex 20
Page 5 of
up to
100
100 - 200
200 - 300
300-1,000
over 1- ,000
Government Business and
prlvate
L80,000
215 ,000
270,000
360,000
540,000
420,000
504,000
530,000
840,000
l,260,
o0o
462 ,000
198,000
237 ,000
297 ,000
396,000
594,000
554,000
693 ,000
924,000
1, 396 ,0oo
215,000
259 ,000
324,000
432 ,000
648 ,000
504,000
604,000
755,000
1,008 ,000
1, 5l_2,000
288,000
345 ,000
432,000
576 ,000
854,000
672 ,000
805 ,000
900,000
1,080 , ooo
1 , 350,000
L,800,000
2,700,000
1,008 ,000
L, 344,000
2,0L6 ,000
,100,000
2,520,000
2
3 , 15o, ooo
4, 2oo, ooo
5 ,300,000
-t28Annex 20
Page 6 of
NOTES
1. Location
Categories
Category I
Category II
Category III
Category IV
Cagetory V
Category VI
Gategory VII
Jakarta area
Medan, Surabaya
Bandung, Denpasar, Palernbang, etc.
Yogyakarta, Bogor, Anbon, etc.
Madiun, Sabang, Cianjur, etc.
Kendal, Soingaraja, etc.
Cianis, Banjar, etc.
2. Telegraph circuits are for the following operating
HaIf-duplex
Full-duplex (4-wire connection)
modes:
6
-L29Annex 21
Page L of
INDONESIA
PT TELEKOMI'NIIGSI INDONESIA (TELKOM)
FOI'RTH TELECOMMT'NICATIONS PROJECT
Return on Investmentg
Assumptions
to
The assunptions made in derlvlng the beneflt and costs streams used
1n
and
below
calculate the economic rate of return on lnvestments are outllned
Tables 21.1- and 2L.2-
Capltal
Cost
TELKOM,s investment program over the perlod L992-L996 has been
lncluded ln
eategorllzed as lnvestments under'(ii ongolng works, (il) tnvestments
for
Investments
the Fourth Telecornmunications ProJect ana ifff) future works'
the
in
investments
the first two categorles are closlly related. In contrast,two categories and,
third category, fulure works, are independent of the first works' In assesslng
since funding ls still uncertal'n are consldered as future
investments
return on investments, the capltal costs considered therefore include
over
together
under ongoing works and the Fourth TelecommunLcations Project taken
the period L992-L996.
Operatlno Costs
Incremental operatlng costs streams were speclfled as the expected
The expected
operat,ing costs wlth and wlthout the proposed lnvestments'
income tax
corPorate
and
plr"orrr"I, repair and maintenance, other operatlng coststhe
financial
in
resultlng frorn the proposed investments have been reflected
projectl;ns (Annex {g) uasea on assumptlons ln Annex L9.
would
Without the proposed investments lt was asstrmed that the network
per
costs
continue to deterlorat;, ihereby leading to increased maintenancelncrease 101line
per
wouLd
in service. More speciiically, naLntenance cost per llne
to
annum in real terms. staff in 1993 ls assuned to lncrease ProPortionally
remain
to
continue
increase ln number of main lines added without the progran and
to increase
at that level Chereafter. Average staff cost Per staff is expected costs
would
other oPerattng
as in the case with the proposed lnvestnents.
decrease proportlonally wlth respect to total. personnel cost.
Revenues
and
Incremental revenues were Calculated as the dlfference ln revenues wlth
of
the
resuLt
\rithout the proposed lnvestments. Incremental revenues are the lnstallatlon,
lncLuding
additional revenues from new telephone subscrlbers,
exlsting subscribers
from
revenues
lncreased
the
and
fees
rental and usaje
of telecommunicattons
resultlng frorn" hlgher trafflc due to modernizatlon
The fxpected changes ln revenues resultlng frorn the proposed
faclllties.
investments have been reflected ti the flnanclal proJectlons based on assutnptlons
in
Annex 19.
contlnue to be
wlthout the proposed lnvestnents, nelt subscrlbers wouLd
subscrlbers
connected untll 1993 and frorn 1993, the traffic growth for existlng
due
to network
growlng
stop
finally
and
rate
would increase at e snaller
-130-
Annex 21
Page 2 of 4
congestlon and line faults. Both i-nternatlonal and domestlc trafflc are assrrmed
to gron at 10I and 5I per annun, respectlveLy, untll L994, with no growth fron
1995 onwards.
Tarlffs
of L2I
It was assumed that donestlc tarlffs would be Lncreased by an average
on January 1, 1994 and nalntalned ln real terms tn 1995 and 1995.
Tlne Horlzon
The time horizon for the proJect cost and beneflt stre'ms extends from
l-992 to 2OO7. At the end of this period it ls estlmated that on average all
equlpment provlded under the proJect would have completed lts useful life. From
1995 onward all costs and beneflts related to the 1992 -L996 investments, ate
expected to remain constant in real terms.
Rate
of
Return
Input cost and benefit data used in calculatlng the incremental cost
and benefLt streams for estlmating the rate financlal rate of return (F'RR) are
provlded ln Tab1es 2L.L. The lncremental costs and beneflts for estlnating the
economic rate of return are derlved by adJusting capltal cost for 101 value added
tax, operatLng cost for corporate income tax and beneflc stream for L01 valueadded tax levled on telephone bills to telephone subscribers. The cost and
beneflt streams for estlnatlng the real economlc rate of return (ERR) are showrr
in Table 21.2. The cost and beneflt streams have not been shadow priced since
the procurement of most ltems are on competitive basls, skllled labor is nalnly
used and Indonesta has an open foreign exchange market. Ttre net beneflt strean
was deflated to reflect constant l99L prlces.
Based on these assunptl-ons, the real flnanclal rate of return to TELKOM
is estlnated at 181. The real economl.c rate of return ls estimated at 231. Thls
is a conservatlve estlmate of the economLc rate of return as it does not reflect
the consurner surplus which ts high given the supply constraint. A sensltlvity
analysls carried out to proJect the effect on the economic rate of return of
possible changes ln key varlables ls sunnarlzed below:
ERR
(a) a delay of L2 months in connectlon of new subscribers
resulting ln a delay in revenue of 12 nonths;
(b) 101 increase ln capltaL and operatlng costs;
(c) a delay of L2 nonths ln connectlon of new subscrlbers
101 increase ln capltal and operatlng cost.
(u)
15
20
13
the most inprobable scenarlo, (c), and wlthout taklng lnto account
consumer surplus the real ERR would be 13I.
The contrects for naJor
telecomnunlcatlons equlpnent to be flnanced by co-flnanclers have already been
flnallzed and cost estinetes for naJor Bank flnanced ltems are based on recent
contracts for sinllar ltems under the ongoing Thlrd teleconnunicatlons ProJect.
Even under
To ensure tlnely lnplenentatlon of the proJect, slngle responslbtllty
lnplenentatlon approach w111 be used and all rnaJor contracts wlll be stgned by
the tlne of loan effectlveness.
-131 -
TIELE 21 .1
tircrl
Yeer Endine
tlnt|rcl.t Rrtc of l.turtl
(npljt slltlct)
199i2 19l[t 1gr1 1995
Dcc*cr 3l
r.06 r.r2 l.l9 l.u
t,tct.5 1.5:t5.6 lrlgr.a r2,.E
Dcfl.tor
Cepitrt ExFrdltur.
11r% 19p7-m07
l.:14
El.6
1,046.2 1'26I..1 1.167.2 t,tEi7.l 2.U7'4
rlth Proerr (lnctudr l.rcf)
(lrrtudc
I'W6.2 1,247.t 1,497.t 1r6E6.a t,Dlt.6
lrxc)
Coct rlthout Proerr
OpGrrtiry Cort
Operrtiry
Incrtl'Fntll OpGrrtlng
0.0 17.1 &9.9 200.9
Cost
351.9
rlthout Progrn
lncrcmntrt lavctua
2,178.9 2,54t.1 3,114.1 t,8., 4,30:t.l
2,7TE.9 2,4t6.9 2,5t7.0 2,614.9 2,76.E
0.0 2t$.2 597.1 l,lrg.a 1,556.t
Iet
(t,50:1.5)fi,307.6)
(641.D
(l,alE.4)(1,163.7)
(tlS.E) 9.7
Rcvcrr!
rlth Proorl
Roveilra
lrrcrcilE|rtll E.ncflt
xct lrrr.mnt.l S.nGflt (1991 lcrr)
tinancirl
lrtc of R.turn
'
tEr
td8r.7 I,123.0 1,204-6
t89.2
900'1
-r32-
TABLE
21.2
Economic Rete
of Retrql
(RWiah Bittion)
===a==-!aaallt-==a!tag--!-t--=31!====31-==:==!=3===r=======:==================3!===============-===========-===
1992 1993 1994 1995
Fiacat Ycar Erding Dcccnbcr 5l
1996 1997-2007
E==:E=t!:aa-a---!!!ta-ltaaa!E-====tt-=====g============:=======:=====:===================-==================-==
l.o6
Dcftator
Crpltrt Expcfdlturc (IGt Of V T)
1,365.8 1,396.9 1,062.7
Operating Cost r.ith Proeren
rith
0.0
progrqn
rithout
Econcrnic
0.0
Rrtc of
4.8
76.6
1,977.1
1,608.6
219.5 368.5
24.6 59.7 104.9
155.6
(f,366.8)(1,130.9) (482.5) 50tr-.9 1,269.5 1,343.6
Bcncflt
Xrt Incrqrpntsl Bcncfit
74.1
2,178.9 2,543.1 3,114.1 3,664.3 4,303.3
2,178.9 2,296.9 2,517.0 2,614.9 2,746.8
0.0 246.2 597.1 1,049.4 1,556.4
Program
lncrcmcntrt Rcvcnr
Ptug: Valu. Addcd Tex (|il)
tet IncreFntrt
329.9
925.3 1,115.8 1,354.6 1,654.2
925.3 1,108.9 1,27E.0 1,434.7
oper.tirrg Co3t rlthout Progrsn
IrrcrcrFntrt 0pcrating Cost
Rcvcnrc
Rcvcnrc
1.12 1.19 1.26 I.y
(1991 Tenns)
Rcturn
a
(1,289.4)(1,006.5)
ztr
-==:::=!t-lltala!!!!allll:l!s-3a!a33-E-ta-===-a=a-===a=====*!=t===::====:====3t-=:=====-=======a==-========-=
(405.1) 479.2 948.6
t,OO4.()
-133-
AT.INEK 22
INDONESIA
FOIIRTH TELECOMMT'NICATIONS PROJECT
Selected Documents and Data Available
Plan
ln ProJect FlIe
1.
TELKOM
2.
Report on I,IITEL VIII Management and Operation
3.
Final Report on Sumatra Teleconnunlcatlons ProJect
4.
Pellta V Development Progra'm February 1991
5.
Pelita V Development Program
6.
Pellta V Development Program Septenber
7.
Network Perfonnance
8.
Study Report on Java Second Fiber Optic System
9.
Supporting Doctrments
L0.
Strategic Plan for Organizatlon Through 2000
lL.
Fourth TeLecommunicatlons ProJect Outslde Plant Gornponent Planning
L2.
TELKOM Manpower
13.
Contract with Booz Allen Hanllton for
Corporate
Strengthening
1992'1996
May 1991
in Jakarta
1991
MultiExchange Area
for Telecon IV
ProJect
Master PLan L992'L996
DGPT
Institutlonal
MAP SECTION
1992
^,IARCH
125.
|
PI'JILIPPINES
Bondo Aceh
35.
IN DON ES IA
T.\
.\
\\.j..4.)
kcngon'J
\oa
Topokluo$a
WITEL
I
EXISTING AND PLANNED
TERRESTRIAL LONG DISTANCE
NETWORK AND EARTH STATIONS
BRUNET
o
\.
('
.o
I
o
/
Sibolgo
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)
o
0.
o
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d,
.>
o
rU
\
\!
IT EL
Podo ng
\
I
tl
o
Jombi
o
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&
o
o
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HAII'/AHERA
a
.;/
Sorong
/'
i
.,
--"n-'
Polcnbong
Rontepoo.--.-z'
o
i
o-
)
o
EELIrUNG
Bonior
niormosin
o
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O
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ill
Monodo.7/t
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KALIMANIAN
wITEL lx
somorindo /
.o
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o
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M"rouL"oo
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Bcror
a
SUlvl&A
FUTURE:
MtcRowAVE ROUTES (ANALOGI
SUBMARINE OPTICAT FIBER CABTE
TROPOSCATTER ROUTES
PKS INDOSAT
cRoss
PROPOSED:
SUMATERA
SATELLITE EARTH STATIONS
,
MtcRowAVE ROUTES lDtGtTALl
(CAPACIW BEING EXPANDEDI
OPTICAL FIBER ROUTES
Vll
UNDER CONSTRUCTION:
MrcRowAVE ROUTES (DlGlTAtl
frt
=
i
Molong
EXISTING:
o
c
---_-
---_-_
_.-_
MrcRowAVE ROUTES (DrGtTALl
SUBMARINE OPTICAL FIBER CABTE
OPTICAL
FIBER, CABLE
MrcRowAvE RouTEs lDrGrTALl
REMOTE AREA-3
PROVINCEHEADQUARTERS
0
INTERNATIONAI. BOUNDARIES
0
WITET BOUNDARIES
r00
200
300
400
400
600
200
il0.
AUSTRALIA
s00 MrrEs
800 KIIoMETERS
I
l5i
MARCH I992