JAKARTA - A RULING by Indonesia's competition watchdog that Singapore's Temasek Holdings broke anti-monopoly laws was nonsensical and would dampen already lacklustre foreign investor sentiment, analysts warned on Tuesday.

The Commission for Supervision of Business Competition (KPPU) ruled late Monday that Temasek had acted illegally in its investments related to Indonesia's two largest cellular phone operators, Telkomsel and Indosat.

The KPPU said Temasek had violated an article barring businesses from owning majority shares in more than one firm in the same sector if it gives the entity a greater than 50 per cent market share.

Temasek also owns all of Singapore Technologies Telemedia (STT), which along with Qatar telecom owns a 41.9 per cent stake in the second-largest telecommunications company, Indosat.

The commission ordered Temasek, which stridently denies the KPPU accusations and said on Tuesday it will contest the ruling, to divest its stake in one of the companies to remove its cross-ownership within two years.

As well, the KPPU fined Temasek Holdings and eight other subsidiaries and strategic partners - including SingTel and STT - 25 billion rupiah (S$3.9 million) each.

Telkomsel was also ordered to cut its prices.

'It's a funny decision because... the KPPU's function is to maintain competition, but through their decision they have killed competition itself,' said senior economist at the Centre for Strategic and International Studies Pande Raja Silalahi, a KPPU commissioner himself until January.

'I can't see what the reason is for any of the decision,' he told AFP, adding that he believed in fact the KPPU had 'tried to implement the law by breaking the law'.

He said only the government has the legal right to decide prices, so the KPPU ordering that prices be reduced meant they were usurping the government's role.

Judi Sadewa, an analyst at Danareska, said the decision would tarnish the welcoming image the government has been striving to create for foreign investors and 'create negative sentiment toward the country'.

'I think it will be bad because... suddenly this government body creates a decision that basically contradicts what the government has been doing over the past three years,' he told AFP.

Mr Sadewa said the Indonesian telecommunications industry remained oligopolistic by nature in large part because the government did not take action to level the playing field when it divested its stakes in Telkom and Indosat in 2002.

'So to me it's kind of an unfair judgement to foreign investors. They are invited to invest, but in the end, after they have invested, the government suddenly imposed a different set of rules. I believe this will be confusing to foreign investors,' he added.

The ruling would compound the negative sentiment that flared when the government released a new investment law earlier this year that was widely panned by foreign investors for being confusing.

Since then, the government has particularly been striving to 'improve its image, show that we are open to foreign investors. This case might create a blow to that effort', Mr Sadewa said.

In a statement released after the ruling, the International Business Chamber's chairman Peter Fanning noted that investors here identified legal certainty as a core need and Indonesia's uncertain judiciary as their main concern.

The KPPU's decisions 'must be well founded and clear in their application. This is to enable investors - be they domestic or foreign - to make valid business decisions, with the confidence that their commitment will be honoured and protected', he said.

In an editorial, English-language daily the Jakarta Post blasted the KPPU ruling for being illogical and said it 'just added more evidence of the legal uncertainty that has kept most foreign investors away from Indonesia'. -- AFP

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