U92750 [B/E] BOM
B. Related party transactions
TELKOM is a party to certain agreements and engages in transactions with a number of entities that are related to the Company, such as joint venture companies, cooperatives and foundations, as well as the Government and entities that are related to or owned or controlled by the Government, such as state-owned entities. See Note 45 to the Company’s consolidated financial statements. The most significant of these transactions include:
Indosat
At the time TELKOM acquired Pramindo in August 2002, a 13% of the issued and paid up share capital of Pramindo was owned by Indosat, a company that, at that time, was majority owned and controlled by our major shareholder, the Government of Indonesia. Since December 20, 2002, Indosat has been controlled by Singapore Technologies Telemedia Pte. Ltd. TELKOM still considers Indosat as a related party because the Government can exert significant influence over the financial and operating policies of Indosat by virtue of its right to appoint one director and one commissioner of Indosat.
Following the merger of Indosat, PT Indosat Multimedia Mobile (“IM3”), Satelindo and PT Bimagraha Telekomindo on November 20, 2003, with Indosat as the surviving entity, all the rights and obligations of Satelindo and IM3 arising from their agreements with TELKOM and Telkomsel, as the case may be, were transferred to or assumed by Indosat.
The Company has an agreement with Indosat for the provision of international telecommunication services to the public. The principal matters covered by the agreement are as follows:
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• The Company provides a local network for customers to make or receive international calls. Indosat provides the international network for the customers, except for certain border towns, as determined by the Director General of Post and Telecommunication of the Republic of Indonesia. The international telecommunication services include telephone, telex, telegram, package switched data network, television, teleprinter, Alternate Voice/Data Telecommunication (AVD), hotline and teleconferencing. The Company receives compensation for the services, based on the interconnection tariff determined by the Minister of Communications of the Republic of Indonesia;
• The Company has also entered into an interconnection agreement between the Company’s PSTN network and Indosat’s cellular network in connection with the implementation of Indosat
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In 1994, the Company transferred to Satelindo (now Indosat) the right to use a parcel of Company-owned land located in Jakarta that had been previously leased to PT Telekomindo Primabhakti. Based on the transfer agreement, Satelindo is given the right to use the land for 30 years and can apply for the right to build properties thereon. The ownership of the land is retained by the Company. Satelindo agreed to pay Rp.43.0 billion to the Company for the thirty-year right. Satelindo paid Rp.17.2 billion in 1994 and the remaining Rp.25.8 billion was not paid because the Utilization Right (“Hak Pengelolaan Lahan”) on the land could not be delivered as provided in the transfer agreement. In 2000, the Company and Satelindo agreed on an alternative solution by accounting for the above payment as lease expense up to 2006. In 2001, Satelindo paid an additional amount of Rp.59.9 billion as lease expense up to 2024.
Telkomsel also entered into an agreement with Indosat for the provision of international telecommunication services to GSM mobile cellular customers. The principal matters covered by the agreement are as follows:
Telkomsel also has an agreement for the usage of Indosat’s telecommunication facilities. The agreement, which was made in 1997, is valid for eleven years and subject to change based on an annual review and agreement by both parties. The charges for the usage of the facilities amounted to Rp.17.9 billion, Rp.19.1 billion and Rp.19.1 billion (US$1.9 million) in 2003, 2004 and 2005, respectively, or 0.1%, 0.1% and 0.1% of total operating expenses in 2003, 2004 and 2005, respectively.
Other agreements between Telkomsel and Indosat are as follows:
Telkomsel, Lintasarta, Satelindo and Indosat entered into the Construction and Maintenance for J-S Cable System Agreement. The parties formed a management committee consisting of a chairman and a representative of each party, to direct the construction and operation of the cable system. The construction of the cable system was completed in 1998. Based on the agreement, Telkomsel shared
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Multimedia Mobile services and the settlement of the related interconnection rights and obligations; and
• The Company’s compensation relating to leased lines/ channel services, such as International Broadcasting System, AVD and bill printing is calculated at 15% of Indosat’s revenues from such services. Indosat also leased circuits from the Company to link Jakarta, Medan and Surabaya through year-end 2003.
• Telkomsel’s GSM mobile cellular telecommunication network is connected with Indosat’s international gateway exchanges to make outgoing or receive incoming international calls through Indosat’s international gateway exchanges;
• Telkomsel receives as compensation for the interconnection, a specific percentage of Indosat’s revenues from the related services made through Indosat’s international gateway exchanges;
• Billings for international calls made by Telkomsel’s customers of GSM mobile cellular telecommunication are handled by Telkomsel.
Telkomsel is obliged to pay Indosat’s share of revenue regardless whether billings to customers have been collected; and
• The agreement dated March 29, 1996, was initially valid for one year, but extendable as agreed by both parties. The latest amended agreement is valid until March 2008, but extendable as agreed by both parties. Pending negotiations on a new agreement, Telkomsel and Indosat have entered into an interim agreement with terms similar to those set forth above. Under the terms of the interim agreement, Telkomsel will receive 27% of the applicable tariff for outgoing international calls from Telkomsel subscribers and Rp.800 per minute for incoming international calls to Telkomsel subscribers. The interim agreement became effective on March 1, 2004 and continues until such date that Telkomsel and Indosat enter into a new agreement.
Agreement on Construction and Maintenance for the Jakarta-Surabaya Cable System (“J-S Cable System”)
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19.325% of the total construction cost. Operation and maintenance costs are shared based on an agreed formula.
Telkomsel’s share in operation and maintenance costs amounted to Rp.1.4 billion, Rp.2.1 billion and Rp.1.2 billion (US$0.1 million) in 2003, 2004 and 2005, respectively.
Indefeasible Right of Use Agreement
On September 21, 2000, Telkomsel entered into an agreement with Indosat for the use of SEA — ME — WE 3 and tail link in Jakarta and Medan. Based on the agreement, Telkomsel was granted an indefeasible right to use certain capacity of the network commencing from September 21, 2000 to 2015 by prepaying compensation amounting to US$2.7 million. In addition to the prepayment, Telkomsel is also charged annual operation and maintenance costs amounting to US$0.1 million.
Interconnection Revenues
The Company and its subsidiaries earned net interconnection revenues from Indosat (including Satelindo and IM3 before their merger with Indosat) of Rp.235.7 billion in 2003, representing 0.9% of total operating revenues in 2003. The Company and its subsidiaries were charged net interconnection charges from Indosat of Rp.158.3 billion and Rp.52.8 billion (US$5.4 million) in 2004 and 2005, respectively, representing 0.5% and 0.1%, of total operating revenues in 2004 and 2005, respectively.
Leased Lines
The Company provides leased lines to Indosat and its subsidiaries, namely Indosat Mega Media and Lintasarta. The leased lines can be used by those companies for telephone, telegraph, data, telex, facsimile or other telecommunication services. Revenue earned from these transactions amounted to Rp.43.6 billion, Rp.109.8 billion, and Rp.126.4 billion (US$12.9 million) in 2003, 2004 and 2005, respectively, representing 0.2%, 0.3% and 0.3% of total operating revenues in 2003, 2004 and 2005, respectively.
Satellite Transponder Lease
Lintasarta utilizes the Company’s satellite transponders or frequency channels. Revenue earned from these transactions amounted to Rp.23.7 billion, Rp.14.5 billion and Rp.8.1 billion (US$0.8 million) in 2003, 2004 and 2005, respectively, representing 0.1%, less than 0.1%
and less than 0.1% of total operating revenues in 2003, 2004 and 2005, respectively.
Data communication network
Telkomsel has an agreement with Lintasarta and PT Artajasa Pembayaran Elektronis (“Artajasa”) for the usage of data communication network system. The charges from Lintasarta and Artajasa for the services amounted to Rp.11.0 billion, Rp.21.4 billion and Rp.23.1 billion (US$2.4 million) in 2003, 2004 and 2005, respectively, representing 0.1%, 0.1% and 0.1% of total operating expenses in 2003, 2004 and 2005, respectively.
Agreement with Government agencies and associated companies
The Company provides telecommunication services to Government agencies.
The Company has entered into agreements with Government agencies and associated companies, namely, CSM, KSO VII, and Patrakom, for utilization of the Company’s satellite transponders or frequency channels. Revenues earned from these transactions amounted to
Rp.73.2 billion, Rp.51.0 billion and Rp.66.8 billion (US$6.8 million) in 2003, 2004 and 2005, respectively, representing 0.3%, 0.2% and 0.2%
of total operating revenues in 2003, 2004 and 2005, respectively.
The Company provides leased lines to other license operators such as CSM, Patrakom and PSN. The leased lines can be used by these companies for telephone, telegraph, data, telex, facsimile or other
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BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 41653 Name: PT TELKOM
Date: 23-JUN-2006 10:35:39.88 Operator: BOM99999T
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telecommunication services. Revenue earned from these transactions amounted to Rp.44.7 billion, Rp.25.7 billion and Rp.30.7 billion (US$3.1 million) in 2003, 2004 and 2005, respectively, which was 0.2%, 0.1% and 0.1% of total operating revenues in 2003, 2004 and 2005, respectively.
The Company purchases property and equipment including construction and installation services from a number of related parties. These related parties include PT Industri Telekomunikasi Indonesia (“PT INTI”), Lembaga Elektronika Nasional, PT Adhi Karya, PT Pembangunan Perumahan, PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya Karya, PT Waskita Karya and PT Gratika, which are all state-owned companies, and Koperasi Pegawai Telkom, a related party cooperative. Purchases made from these related parties amounted to
Rp.127.0 billion, Rp.268.9 billion and Rp.337.7 billion (US$34.3 million) in 2003, 2004 and 2005, respectively, representing 1.1%, 2.4% and 2.5% of total fixed assets purchases in 2003, 2004 and 2005 respectively.
PT INTI is also a major contractor and supplier providing equipment, including construction and installation services, for Telkomsel. Total purchases from PT INTI in 2003, 2004 and 2005 amounted to Rp.52.3 billion, Rp.217.7 billion and Rp.67.6 billion (US$6.9 million),
respectively, representing 0.5%, 1.9% and 0.5% of total fixed assets purchases in 2003, 2004 and 2005, respectively.
Telkomsel has an agreement with PSN for lease of PSN’s transmission link. Based on the agreement, which was made on March 14, 2001, the minimum lease period is 2 years since the operation of the transmission link and is extendable subject to agreement by both parties. The lease charges amounted to Rp.40.5 billion, Rp.49.7 billion and Rp.95.2 billion (US$9.7 million) in 2003, 2004 and 2005, respectively, representing 0.3%, 0.3% and 0.4% of total operating expenses in 2003, 2004 and 2005, respectively.
The Company and its subsidiaries carry insurance (on their property, plant and equipment against property losses, inventory and on employees’ social security) obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT Persero Asuransi Jiwasraya, which are state-owned insurance companies. Insurance premiums amounted to Rp.159.5 billion, Rp.148.3 billion and Rp.58.3 billion
(US$5.9 million) in 2003, 2004 and 2005, respectively, representing 1.1%, 0.8% and 0.2% of total operating expenses in 2003, 2004 and 2005, respectively.
The Company and its subsidiaries maintain current accounts and time deposits in several state-owned banks. In addition, some of those banks are appointed as collecting agents for the Company. Total placements in form of current accounts and time deposits, and mutual funds in state-owned banks amounted to Rp.2,116.0 billion and Rp.3,315.4 billion (US$337.3 million) as of December 31, 2004 and 2005, respectively, representing 3.8% and 5.3% of total assets as of December 31, 2004 and 2005, respectively. Interest income recognized during 2003, 2004 and 2005 was Rp.274.0 billion, Rp.150.4 billion and Rp.124.0 billion (US$12.6 million), representing 74.9%, 47.3% and 36.0% of total interest income, respectively.
The Company’s subsidiaries have loans from a state-owned bank. Interest expense on the loans for 2004 and 2005 amounted to Rp.9.1 billion and Rp.5.1 billion (US$0.5 million), representing 0.7% and 0.4% of total interest expense in 2004 and 2005, respectively.
The Company (a) leases buildings, (b) purchases materials and construction services and (c) utilizes maintenance and cleaning services from Dana Pensiun Telkom and PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra Telkom (a foundation managed by Dharma Wanita Telkom). Total charges from these transactions amounted to Rp.32.8 billion, Rp.24.9 billion and Rp.39.1 billion
(US$4.0 million) in 2003, 2004 and 2005, respectively, representing 0.2%, 0.1% and 0.2% of total operating expenses in 2003, 2004 and 2005, respectively.
The Company purchased encoded phone cards from Perusahaan Umum Percetakan Uang Republik Indonesia, a state-owned company. The cost of the phone cards amounted to Rp.7.7 billion, nil and nil in 2003, 2004 and 2005, respectively, representing 0.05%, 0% and 0% of total operating expenses for 2003, 2004 and 2005, respectively.
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CRC: 43356 Name: PT TELKOM
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The Company and its subsidiaries earned (were charged) interconnection revenues (charges) from PSN of Rp.19.0 million, Rp.(5.5) million and Rp.1.1 million (US$0.1 million) in 2003, 2004 and 2005, respectively, representing 0.1%, (0.02)% and less than 0.01% of total operating revenues in 2003, 2004 and 2005, respectively.
In addition to revenues earned under the KSO Agreements, the Company also earned income from building rental, repairs and maintenance services and training services provided to the KSO Units, amounting to Rp.23.1 billion, Rp.18.4 billion and Rp.26.8 billion (US$2.7 million) in 2003, 2004 and 2005, respectively, representing 0.1%, 0.1% and 0.1% of total operating revenues in 2003, 2004 and 2005, respectively.
The Company has a revenue-sharing arrangement with Koperasi Pegawai Telkom (“Kopegtel”). Kopegtel’s share in the revenues from these arrangements amounted to Rp.20.6 billion and Rp.31.9 billion (US$3.2 million) in 2004 and 2005, respectively, representing 0.1% and 0.1% of total operating revenues in 2004 and 2005, respectively.
Telkomsel has operating lease agreements with Patrakom and CSM for the usage of their transmission link for a period of three years, subject to extensions. The lease charges amounted to Rp.25.0 billion and Rp.123.9 billion in 2004 and 2005, respectively, representing 0.1%
and 0.5% of total operating expenses in 2004 and 2005, respectively.
Kisel is a cooperative that was established by Telkomsel’s employees to provide car rental services, printing and distribution of customer bills, collection and other services, principally servicing Telkomsel. For Kisel’s services, Telkomsel paid Rp.109.5 billion and Rp.78.7 billion in 2004 and 2005, respectively. Telkomsel also has dealership agreements with Kisel for distribution of SIM cards and pulse reload vouchers.
Total SIM cards and pulse reload vouchers sold to Kisel amounted to Rp.816.6 billion and Rp.1,158.6 billion in 2004 and 2005, respectively.
Infomedia provides electronic media and call center services to KSO Unit VII based on an agreement dated March 4, 2003. Revenue earned from these transactions in 2004 and 2005 amounted to Rp.5.5 billion and Rp.9.2 billion (US$0.9 million), respectively, or 0.02% and 0.02% of total operating revenues in 2004 and 2005, respectively.
The Company provides a defined benefit pension plan and a post-retirement health care plan for its pensioners through Dana Pensiun Telkom and Yayasan Kesehatan Pegawai Telkom. See Notes 42 and 44 to the consolidated financial statements in Item 18.
The Company has also seconded a number of its employees to related parties to assist them in operating their business. In addition, the Company provides certain of its related parties with the right to use its buildings free of charge.
C. Interest of experts and counsel