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WASHINGTON, D.C., July 29 -- The International Finance Corporation (IFC) signed a number of agreements in Jakarta today for a landmark project in Indonesia's telecommunications sector, involving financing of US$358 million to P.T. Pramindo Ikat Nusantara (Pramindo). The project will install more than half a million new telephone lines, take over the existing basic telephone network in the Sumatra region, and operate and maintain the combined network of 1.2 million lines for 15 years jointly with Telkom, the state-owned telecommunications company.
Indonesia's rapid growth requires the support of an upgraded and expanded infrastructure. IFC's investment in this project is expected to encourage liberalization and increase private sector participation in the telecommunications sector.
Since 1989, Indonesia's telecommunications sector has changed from one of total state monopoly to a competitive multi-operator environment. In 1994, the Government of Indonesia, with the assistance of the World Bank Group, devised the joint operating scheme (KSO) under which private investors were to be allowed to provide basic telecommunications services on a concession basis. Under the KSO system, 12 international joint consortia competed for 15-year concessions in five of seven distinct geographic regions. In June 1995, the Indonesian Government awarded five regional concessions to five consortia, each combining Indonesian partners and reputable international telecommunications operators. The five successful bidders are required to meet expansion targets and bring service up to world-class standards.
Sumatra, with a population of 40 million, is the biggest challenge requiring the installation of 520,000 new lines in three years. The concession for Sumatra was awarded to Pramindo, whose shareholders include subsidiaries of PT Astra International (Astra), one of the largest publicly listed companies in Indonesia with an annual turnover of over US$5 billion, and France TÇlÇcom, the fourth largest telecommunications company in the world.
"The development of Indonesia's telecommunications sector is one of the main objectives of Indonesia's current development program (Repelita VI). By making its first investment in Indonesia's infrastructure, IFC is providing support to a project which will bring substantial benefits to the country's telecommunications sector," said Mr. Assaad Jabre, Director of IFC's Infrastructure Department. "IFC's financing will also demonstrate further support to the KSO process, and will help Pramindo become the first of the five KSOs to reach financial closure."
IFC's financing consists of two loans each of US$25 million for IFC's own account and a syndicated loan of up to US$300 million for the account of 30 commercial banks, led by Banque Nationale de Paris, Chase Manhattan Asia Limited, The Fuji Bank, Limited, and SociÇtÇ GÇnÇrale Asia Ltd. IFC will also take an equity participation in the company of up to US$8.2 million, making it a 3% shareholder in an ownership structure that also includes Astra's subsidiary, PT Astratel Nusantara (47.5%); France TÇlÇcom's subsidiary, Frances Cables et Radio (35%); PT Intertel Pratamamedia of Indonesia (3.5%), Primkopparpostel of Indonesia (2%), Marubeni Corporation of Japan (8%), and Nichimen Corporation of Japan (1%). Total project cost is estimated at US$624 million.
IFC, a member of the World Bank Group, is the largest multilateral source of equity and loan financing for private sector projects in developing countries. To date, IFC has invested US$1.44 billion in telecommunications projects worldwide, of which US$667 million was for IFC's account.