Newsletter on Indonesian competition law and policy

www.kppu.go.id

vol. 07/2010

What’s New ?The Series of Events to Celebrate aDecade of KPPU

One Decade of KPPU to BuildNational Competition Policy (KPPUNational Seminar)

Competition Advocacy

Law Enforcement

International

Price Fixing Allegations on TaxiService in Four Cities in Central JavaProvince

Indonesian Conference onCompetition Law and Policy

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Table ofContents

What’s New ?The Series of Events to Celebrate aDecade of KPPU

3

Law EnforcementRegional Owned Enterprise and sixBusiness Actors in BatamConducted Discriminatory Practiceson Sales of Insurance Services inPort Batam

Unilever Made Notification toAcquired PT. Sara Lee Body Care

Price Fixing Allegations on TaxiService in Four Cities in CentralJava Province

Bid Rigging on the Construction ofSchool Buildings and Clinic in NiasRegency

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InternationalIndonesian Conference onCompetition Law and Policy

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Competition AdvocacyOne Decade of KPPU to BuildNational Competition Policy (KPPUNational Seminar)

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LawEnforcement

The Series of Events to Celebratea Decade of KPPU

In order to celebrate oned e c a d e o f K P P Uestablishment on June 7,2010, the Commission forSupervision of BusinessCompetition (KPPU) Republicof Indonesia conducted aseries of discussion forums inits 5 (five) Regional Officewhich located in the Medan,B a t a m , S u r a b a y a ,Balikpapan, and Makasar, withtopic “Fair Competition in theRetail Industry”. While on June7, 2010, coincide with itsanniversary day, KPPU held anational seminar in Jakartawith the theme “KPPU andC o m p e t i t i o n P o l i c y i nI n d o n e s i a ’ s E c o n o m i cSys tem” by presen t ingpanelist from the CoordinatingMinistry for Economic Affairs, Ministry ofCommerce, KPPU, Indonesia Chamber ofCommerce (KADIN), and National EconomicObserver.

On June, 9-10, 2010, KPPU held anotherseminar for International level namely “TheIndonesian Conference on Competition Lawand Policy”. The seminar attended by delegatesfrom international competition agency, whichactively participated in the seminar both aspanelist and as participant. Participants wererepresentat ives from governments orinstitutions of competition from ASEAN(Cambodia, Laos, Malaysia, Myanmar,Philippines, Singapore, Thailand, Vietnam),Australia, Taiwan, Japan, Korea, Kenya,Germany, India, and America. There were alsorepresentatives of international organizationsand donors such as ASEAN Secretariat,UNCTAD, JICA, GTZ and Inwent. In addition tointernational participants, the seminar alsoattended by representatives from Indonesiangovernment, namely from the national PlanningAgency, INTRAC, the Ministry of Commerce,

Ministry of Interior, Ministry of Finance, Ministryof Industry, Coordinating Ministry for EconomicAffair, Bank Indonesia, the National Police, theCorruption Eradication Commission, CabinetSecretariat, and academicians.

This seminar became a tool to shareexperiences among the internat ionalcompetition authorities on best practices ofcompetition law and policy implementation intheir respective countries. The topics discussedinclude economic integration and competitionpolicy, competition policy and nationalcompetitiveness, challenges and appliedstrategies for competition advocacy, theintegrated institutional and information systemand the significant of financial statement data forcompetition law enforcement.

KPPU expect the implementation of severalseminars in order to celebrate KPPU’sanniversary can provide advocacy to the publicabout the importance of competition law andpolicy to contribute to society through increasedwelfare.

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LawEnforcement

Regional Owned Enterprise and six Business Actors inBatam Conducted Discriminatory Practices on Sales ofInsurance Services in Port Batam

On June 23, 2010, Commission for theSupervision of Business Competition (KPPU)read the decision of case No.32/KPPU-L/2009of alleged violations of Article 17 paragraph (1)and article 19 point (d) Law No 5/1999 in the saleof insurance services applied to the Ferrypassenger destination Batam-Singapore andBatam-Malaysia in the port of Batam. In thiscase, KPPU determined 7 reported parties,consisted of Batam Exploitation Agency(formerly the industrial development AuthorityBatam Island), 3 insurance companies and 3companies managing the International FerryTerminal at port of Batam Centre, Sekupang andTeluk Senimba.

The case began in 1997 when chief executive ofunit industrial development authority BatamIsland of Indonesia issued a letter No.B/301/KA/V/1997 to the Head of Jasa RahajaBatam (insurance company) which establishedaccident insurance premiums of sin $1 (onedollar Singapore) to be paid by passenger toSingapore/ Malaysia, which coverage in case ofaccident during the visit about 7 days. Based onthe letter, the manager of the International FerryTerminal in the Sekupang and Teluk Senimbamade an agreement with PT. Asuransi JasaRahaja Putera, while the International FerryTerminal Manager Batam Centre make anagreement with PT. Asuransi Jasa Indonesia(Persero) to set insurance premiums inaccordance with the contents of the letter.

KPPU suspect a violation of Article 9 of thedivision of territory, article 15, paragraph (2) ofthe close agreement, article 17 of the monopoly,and article 19 letter of discrimination in handlingthe case.

Furthermore, based on a series of examinationconducted by the investigation team, theCommission Council considered that theagreement made by insurance companies,facilitated by BP Batam was not an agreement todivide the area of insurance marketing at theport of Batam Centre, Teluk Senimba andSekupang. However, the agreement betweenManagers of the Ferry Terminal with theinsurance companies has led to concentration ofeconomic power, which made the otherbusiness actors could not enter the market.KPPU also found that since BP Batamestablished the personal accident insurancerequirement for passenger/ traveler, there wasno business actor in insurance business hadenter the market, aside from the three insurancecompanies, since there was no informationavailable about the implementation of personalaccident insurance for passengers / tourists.

During the further investigation process, allreported parties conducted behavioral change.BP Batam published a letter No.B/58/KP-BP/6/2010 dated June 10, 2010, whichs u b s t a n t i a l l y r e v o k e d t h e l e t t e rNo.B/301/KA/V/1997 including any other letter

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Unilever Made Notification to Acquired PT. Sara Lee BodyCare

On May 19, 2010, Commission for theSupervision of Business Competition (KPPU)has received notification of acquisition plan ofUnilever Indonesia Holding, B.V to PT. Sara LeeBody Care, Tbk. This acquisition was part of theglobal acquisition of its holding company in theinternational level on May 19, 2010.

After evaluated the completeness of thedocuments, KPPU will conduct an initialassessment which will last for 30 working days

starting on May 27 to July 9, 2010. At this initialassessment, the team has collected relevantdata and will hold a meeting confirmation withboth PT. Unilever Indonesia and PT. Sara LeeBody Care, Tbk.

During the initial assessment, KPPU will assessthe 2 (two) things, namely: (i) Whether thereporting in the notification included in businessactors threshold who need notification on theKPPU, and (ii) View that market concentrationwill be formed before and after the acquisitiontakes place, where market concentration isformed <1800 HHI, KPPU will declare noobjection. Meanwhile, if concentrations areformed >1800 HHI, KPPU will conduct athorough examination. Thorough examinationincludes examining on calculation efficiency,barriers to business, the argument of potentiallosses, and the potential for unfair competitionbehavior.

This Pre-notification became the fourthnotification since the implementation ofCommission Regulation Number 01 year 2009on Pre-notification on Merger, Consolidation,and Acquisition enacted on May 13, 2009. Eventhough the pre-notification is voluntary, but untilJune 2010 KPPU already received 38 businessconsultation concerning merger plan. Thiscondition shows the business actors awarenessabout the importance of legal certainty oncorporate acquisition action plan.

and documents relating to the determination ofinsurance premiums. The manager of FerryTerminal also has terminated their agreementwith each insurance company and conducted afair tender to find the insurance provider forFerry passenger/ tourist accident.

Based on the evidence and facts gatheredduring the investigation process, the

Commission Council determined that the sevenreported parties was not proven violating Article9 and Article 15 paragraph (2), however, theywere legally proven violating article 17 andart ic le 19 point (d). KPPU imposedadministrative sanction to BP Batam in amountof IDR 1 billion, and to the other six businessactors with fines that varies from IDR 250 millionto IDR 1,5 billion.

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LawEnforcement

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Price Fixing Allegations on TaxiService in Four Cities in Central JavaProvince

KPPU has been suspected price fixing practiceconducted by 23 business actors on taxi servicein 4 cities in Central Java Province.

Business actors who allegedly infringing thecompetition law consisted of business actorson taxi service , taxi cooperative and RegionalOffice of the National Employers Organizationon the Road Motor Transport (abbreviated asOrganda). Based on investigation conducted bythe investigation team of KPPU, it was knownthat taxi tariffs applied in the 4 cities was agreedbetween each taxi entrepreneur in each city,facilitated by the Organda in each city.

From the regulation aspect,Article 151 letter (a)law No.22 year 2009 on Road Traffic andTransportation stated, “Passenger tariff forpublic transportation non route using taxiassigned by the Public TransportationCompany with approval from government inaccordance with their respective authorities

based on minimum service standards applied“.However, there are no further technical rulesfrom the central or local government to regulatethe establishment of taxi tariff. Furthermore, itwas note that since March 2010, the CentralJava Provincial Government and theGovernment of Surakarta and Tegal city hasissued an approval letter to determine taxi tariffset by the taxi business actors, as mandated bylaw No.22 year 2009.

Related to this arrangement, the Commissiondid not find any price fixing effort that violated thecompetition law. Considering this matter, theCommission sent advice and recommendationto the central government, particularly theMinister of Transportation, to accelerate thepublication of regulations in central governmentlevel to be a guidance to set the taxi tariff, as wellas to local governments to accelerate thepublication of technical rules concerning theimplementation of the taxi tariff on each regions.

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LawEnforcement

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Bid Rigging on the Construction of SchoolBuildings and Clinic in Nias Regency

KPPU affirmed 4 (four) reported parties hadproven in violating Article 22 concerning tenderconspiracy on the tender of school buildings andclinic construction in Nias Regency. For theviolation, KPPU imposed fine in amount of IDR200 million to PT. Taramulia Setia PratamaLuhur, that became the tender winner.

8 reported parties were involved in this case,consisted of 3 business actors, the tendercommittee, the tender commitment official(PPK), and head of Nias Rehabilitation andReconstructionAgency. They had been reportedto the commission for allegedly madeconspiracy during the tender process in order towin PT. Taramulia Setia Pratama Luhur astender winner. The allegation proved by thesimilarity on the administrative documents andsimilar name on the management among the 3business actors. KPPU also considered that thetender committee actions that have ignored the

similarities in the administrative documents ofthe three business actors indicated that thecommittee has helped facilitate the tenderconspiracy.

Based on the facts and evidence, theCommission Council decided the three businessactors and the tender committee proven inviolating article 22 Law No.5 Year 1999. Whilethe two other reported party has not proven toviolate the law. In addition to the administrativefine imposed to PT. Taramulia Setia PratamaLuhur, the Commission Council also forbadethe two business actors to participate in anytender held in North Sumatera Province for 1(one) year since this decision have permanentlegal force. The Commission Council also sentrecommendation to the Bid Committeesupervisor to give administrative sanctions tothe Bid Committee for his violation in breachedarticle 22 law No.5 year 1999.

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LawEnforcement

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One Decade of KPPU to Build National CompetitionPolicy (KPPU National Seminar)

June 7, 2010 was the date on which KPPUestablished for 10 years as a State Commissionto supervise the business competition based onLaw No.5/1999 regarding Prohibition ofMonopolistic Practices and Unfair BusinessCompetition. KPPU and Law No.5/ 1999, cannotbe separated from the nation reformation effortto implement fair business competition as part ofeconomic reform in order to revise the businesspattern after the reformation.

In addition to commemorate one decade ofKPPU, KPPU held a national seminar withtheme “KPPU and Competition Policy in theNational Economic System” as a forum forreflection and identification of future agenda inorder to develop better competition policy. Thepanelists who attended the seminar wereDeputy Minister for Trade, Senior Advisor ofBusiness Competition from CoordinatingMinister for Economy, Economic Observer,Deputy Chairman of the Chamber of Commerce

and Monetary Affairs, Public Policy and fiscal,and KPPU’s Commissioners.

In general, this seminar discussed on the role ofKPPU in Indonesian economy system withvarious new challenges such as Internationaltrade. KPPU faced its own challenges whenIndonesia was required to enter the Free TradeAgreement (FTA) era, because Indonesia wasstill underdeveloped in term of education,infrastructure, technology and businessinnovation. Therefore, to support the creation ofan efficient economy and competitiveness, thereshould be a synergy between the government aspolicy maker, and KPPU in the competition lawenforcement and compet i t ion po l icyharmonization.

In international competition, there were some bigthreat in the form of cartels, mergers anddominant position. Therefore, any form of

CompetitionAdvocacy

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intervention and protection by governmentshould be ensured in line with the faircompetition principles and protect consumers,public, and domestic business actors.

In the past 10 years, the effectiveness of adviceand recommendations based on the study ordecision sent by KPPU to the Governmentcannot be separated from the important rolefrom Ministry, regulator sectoral, and localgovernment. It seems that the advice waseffective because of the willingness from theregulators to consider the fair competition,especially law No.5/ 1999 in every economicpolicy decision. This is reinforce from theexpansion of the power to take part inoverseeing the implementation of partnershipagreement based on law No.20 year 2008 onMicro, Small, and Medium Enterprises(MsMEs).

The seminar also discussed the role of KPPU indeveloping competition policy into nationaleconomic system during the past 10 years, aswell as to develop common understanding onpublic issue concerning 3 main topics, namely :(i) whether the government subsidy was justifiedin competition law regime, (ii) whether the tradepolicy system means the government shouldinterference product distribution or determinethe fair price for products, and whether thecompetition policy is identical to the businessliberalism.

In carrying out its duty to supervise the LawNo.5/ 1999, KPPU has the authority to enforcethe case handling, to determine sanctions, andto deliver advice and recommendations to thegovernment. Up to now, KPPU already sent 81advice and recommendat ions to thegovernment on various strategic sectors, likeenergy, transportat ion, retai l , harbor,commodity, etc.

As many as 60 % or 47 of 81 advise and

considerations sent by KPPU have beenaccepted and followed up by the Government.Based on 10 years of experiences in supervisethe competition law, KPPU realized theimportance of cooperation and coordination withother law enforcement agencies within the lawenforcement framework, as well as cooperationwith ministry, regulator and local governmentwithin the competition policy framework. In otherwords, the implementation of KPPU duties wasdependent with support of other institution.KPPU also realize that law enforcement is morecasuistic and its only effect in improving thebusiness system if it is supported by appropriatecompetition policies. Through this seminar,KPPU once again emphasized the importanceof coordinating between KPPU with regulators,at both national and local government to buildfair business competition policy in the nationaleconomic system.

Within this framework, KPPU expect to developseveral objectives, namely: :- The understanding of fair competition

policies among policy markers in the nationaland regional levels

- The communication continuity- The coordination with government agencies

and regulators- The standard mechanism of cooperation with

government institutions and mechanism forcompetition policy harmonization intogovernment policies.

Thereby, the national competition law and policycould be developed not only because itsmandated in the act, but also because of thecoordination and mutual awareness of theimportance of fair competition to strengthen thenational economic pillars. Establishing justice isone of the government vision related to faircompetition. Fair competition condition willsupport the creation of investment climate andfair business climate as one of the priorities ofnational development.

CompetitionAdvocacy

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International Indonesian Conference onCompetition Law and Policy

“..I am proud to note that the baby is nowgrowing as an independent and dynamic child.The competition law and policy is developedvery rapidly over the past decade. Our intensiveand systematic endeavors shows thatcompetition law and policy is an enfitable part ofhighly competit ive national economicdevelopment..” (Chairman of KPPU – RI,Professor Tresna P. Soemardi)

This statement issued by the chairman of theKPPU at the opening ceremony of theIndonesian Conference on Competition Lawand Policy held on June 9-10, 2010 in Bali,Indonesia. The international conference washeld in order to celebrate one decade of KPPUon June 7, 2010. The conference that held withinthe framework of 10 years of KPPU, attended byinternational competition experts, namelyCommissioner William E. Kovacik (US-FTC),the Commissioner Hamada (JFTC), GeorgeKamencak (ACCC- Austral ian), Si lke

H o s s e n f e l d e r(Bundeskartellamt),Sang Min Song(KFTC, Korea) ,C o m m i s s i o n e rL a w r e n c e L e e(TFTC- Taiwan) andDr. S. Chakravarthy( I n d i a ) . T h econference wasalso attended byrepresentatives ofI n t e r n a t i o n a lc o m p e t i t i o nagencies, donora g e n c i e s ,g o v e r n m e n t ,academicians, andbusiness actors.

This conferencealso marked thei m p o r t a n c e o fcompetition law andp o l i c yimplementation inthe development of

a countrry’s economy. Through the competitionlaw, the Indonesian people can have a selectionof airlines with competitive price as it is now.Since the Government implemented KPPU’srecommendatition, there was a significant tarrifreduction in aviation services industry and therewas also a significant increase in variety ofservices offered. The estimation of savingsincome in flight services during the advocacyperiod of KPPU was approximately USD 1,9trillion per year. In addition, related to theexcessive fuel surcharge practice conducted byairlines, KPPU dismiss the consumer loss for atleast IDR 5,1 trillion up to 13,8 trillion for period2006-2009.

Moreover, after the decision announcement ofSMS cartel, KPPU had stopped the priceagreement between telecommunicationsoperators, and public in general could felt thedirect impact of price reduction in SMS tarrifs by50-70 % (from IDR 300 during 2004-2008 to IDR

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International

100 in 2009). This rate reduction providessavings income around IDR 5,5 trillion per yearto more than 150 costumer. As for cooking oilcommodities, KPPU had stopped the consumerloss in amount of IDR 1,2 trillion for cooking oilcontainers and IDR 374 for bulk cooking oil.

One of the speaker at the Conference was Dr. S.Chakravarthy from India, dur ing thepresentation he stressed on the implications ofcompetition law and policy implementation,namely:1. the price decrease due to fair

competition could improve the public’sincome savings

2. fair competition could improve theopportunities to create business and tocreate employment opportunities

3. the new employment opportunitiescould decrease the poverty levels

4. the decrease of poverty levels will effectthe economic growth

These conditions was parallel with theperformance and outcome that has beenaccomplished by KPPU, where thoseperformance can not be separated from the 3(three) simultaneous activities conducted by theKPPU, namely:1. The excellence law enforcement2. The excellence policy advocacy3. The sustainable development ofKPPU’s credibility as institutional andorganizational

Within the framework of law enforcement, for adecade KPPU has received 3043 reports andhandles 237 cases, where 73 % or 24 of 47KPPU decision that filed an appeal has beenupheld by the Supreme Court (MA). It shows thatthe courts already the same opinion with KPPUregarding the truth of evidence, the examinationprocess which fulfill the due process of law andthe dictum of the decision that has beenimposed.

As for competition advocacy activities,Commissioner William E. Kovacik from US. FTC

said that the competition policy institution canprovide support and role in policy developmentthrough advocacy and education activities.Some important point in this activity was toprovide advice and recommendation on the draftof government regulations, and participates inthe preparation of a study conducted by theregulator, especially on the competition policypart.

On the same occasion, CommissionerLawrence Lee from TFTC also explained thecompetition advocacy strategies to raise publicawareness, which can be done through:a. educational program of business competitionb. guideliness publicationc. publication of competition law enforcement

issues

In line with the opinion of the Commissioner,KPPU itself had issued 81 advice andrecommendations to the government where 60% of the recommendations already got apositive response from the government.

In addition, KPPU also published a textbook ofBusiness Competition Law as a reference forcompetition law curriculum and for businessactors, KPPU also issued 10 (ten) guidelines ofLaw No.5 Year 1999 in order to increasetransparancy in the judicial procedure of KPPUcase handling procedure. The transparency alsoimpacted on the increasing number pf publicaccess and consultation by 10 % every yearwhich represented the public awareness ofcompetition law.

Forum “Indonesian Conference of CompetitionLaw and Policy’” also became the medium toexchange best practices among internationalcompetition authorities, which explained thatthrough a combination of competition advocacyand law enforcement that supported byinstitutional strengthening, competitionauthorities such as KPPU may conduct its dutiesin more effectif and efficient way.

Competition is about price, supply, selection and service. It benefits consumers bykeeping prices low, avaibility, quality and choice of goods and services high.

KPPU-RICommission for the Supervision of Business CompetitionRepublic of IndonesiaKPPU Building, Jl. Ir. H. Juanda No. 36, Central Jakarta 10120

Phone. 021-350 7015, 350 7016, 350 7043 Fax. 021-350 7008

email: infokom@kppu.go.id

Surabaya

Medan

Balikpapan

Bumi Mandiri Building, Jl. Basuki Rahmat No. 129-137Surabaya 60271 - East JavaPhone. 031-545 4146, Fax. 031-545 4146email: kpd_surabaya@kppu.go.id

Ir. H. Juanda No. 9AMedan - North SumateraPhone. 061-455 8133, Fax. 061-414 803email: kpd_medan@kppu.go.id

BRI Building 8th Floor, Jl. Sudirman No. 37Balikpapan 76112 - East KalimantanPhone. 0542-730 373, Fax. 0542-415 939email: kpd_balikpapan@kppu.go.id

Jl.

Makassar

Batam

Menara Makassar 1st Floor, Jl. Nusantara No. 1Makassar - South SulawesiPhone. 0411-310 733, Fax. 0411-310 733email: kpd_makassar@kppu.go.id

Graha Pena Building 3rd A FloorJl. Raya Batam Center, Teluk Tering, NongsaBatam 29461 - Kepulauan RiauPhone. 0778-469 337, Fax. 0778-469 433email: kpd_batam@kppu.go.id

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