A Year That Three Companies Won’t Forget Too Easily
For many companies, the past 12 months were a period they would perhaps rather stop thinking about, given the euro zone crisis and other economic woes.
But for three companies operating in Indonesia, 2011 was a year they won’t easily forget for entirely different reasons.
Cineplex 21, Research in Motion and Citibank made dozens of headlines here this year, but few of them in the business pages.
Cineplex 21: Bans and a boycott
In the third week of February, film journalists attending a seemingly run-of-the-mill movie preview were shocked to hear an announcement that would become one of the biggest stories of the year.
Frank Rittman, the Motion Picture Association’s vice president for the Asia Pacific, told journalists who attended the preview screening of “Black Swan” that American film producers were planning to boycott Indonesia because of a proposed new system of determining royalties on imported films.
As the MPA later explained, industry practice worldwide was to calculate import duties based on a per-meter of film print rate. But Indonesia had “clarified” that “import duties and related taxes are to instead be based against the royalties payable to the overseas distributors,” which has “a significant detrimental impact on the cost of bringing a film into Indonesia and has introduced substantial market uncertainties.”
The story that followed would rival the best Hollywood blockbusters in twists and turns. For starters, “Black Swan” never got shown on the big screen, and neither did several other Hollywood hits over the next five and a half months. Cinemas took a huge hit, with revenues reportedly down 60 percent, as people either stayed away from the B-level offerings or flew off to Singapore in desperation.
Sitting quietly in the vortex of the whirlpool of controversy was Indonesian film industry giant Cineplex 21.
The day after MPA’s announcement, Cineplex 21 spokesperson Noorca Massardi told the Jakarta Globe of the dire prospect if the government refused to budge on the new royalty system.
“If no solution is found, Indonesian cinemas will close down one by one,” he said.
A week later, a little more light was shed on the backdrop to the controversy.
Apparently, President Susilo Bambang Yudhoyono had called in December 2010 for a balanced treatment of foreign and domestic films in cinemas.
The Finance Ministry responded by auditing film import tax reports for the past two years and found out that some film importers had not included royalties in their payments.
As a result, three film importers were suspended for owing Rp 30 billion ($3.3 million) of import tax on film royalties. It emerged many months later that all three importers were affiliated with Cineplex 21.
“Legally, the owners of Cineplex 21 and the importers have no relation, but we have always acknowledged that we are close to them and we admitted that to the KPPU in 2002,” said Anitio, a director at Cineplex 21, referring to the Business Competition Supervisory Commission.
Like many good movies, the story ended with another twist.
By July, the government and the film industry managed to settle their differences over the royalty computation. Two of the three importers, however, were still banned from operating as they refused to pay the supposed back taxes — and they were the ones responsible for bringing in the blockbusters.
A solution presented itself: the government granted a license to a new film importer, Omega Film. But in doing so it raised a number of eyebrows since Omega was established by Ajay Fulwani, a nephew of Harris Lesmana, one of the primary owners of Cineplex 21.
Monopoly allegations have long dogged the cinema giant, and the events of the past year brought back those issues onto center stage.
But since the companies technically are not related, the monopoly allegations have never been proven legally.
Tadjudin Noer Said, a commissioner at the KPPU, acknowledged that the cinema industry was dominated by one player, but he explained that as long as it did not control prices, it was not considered a monopoly.
Just before the year ended, however, hints of a third act arose. The Investment Coordinating Board (BKPM) said in early December that the film industry could be removed from its “negative investment list,” opening it to foreign direct investment.
“Any changes should become clear next year,” said Ananto Haryono, director of investment planning at the BKPM.
RIM: Can’t catch a break
Few people likely will dispute that Apple iOS and Android devices dominated the smartphone and tablet world in the past year, leaving Canada-based Research in Motion struggling to stay afloat.
But with Blackberry still being the smartphone of choice for many Indonesians, one would think this Southeast Asian country would be the one market they had fewer troubles to deal with. That’s not quite the case.
RIM’s troubles here started last year but only seem to have worsened during the past 12 months. They mostly revolved around the central theme of access: the government wanted access to the highly encrypted messages sent through the BlackBerry servers, and for RIM to block access to pornography on the ubiquitous devices.
Communication and Information Technology Minister Tifatul Sembiring said in August 2010 that “there is no plan for a ban” and that the government was merely demanding that RIM provide a data center in Jakarta that would allow for “lawful interception” by authorities of messages in compliance with the 2008 Information and Electronic Transaction Law.
Also, RIM also had to block access to pornographic Web sites on the smartphone.
When 2011 began, however, the government adopted a stronger tone. On Jan. 8, Tifatul gave RIM a two-week deadline to restrict access to porn sites or risk being shut down. The company eventually complied, installing the filters a day before the deadline, but not until after a tense two weeks that saw the negotiations take an ugly turn.
The controversial minister from the Prosperous Justice Party (PKS) launched a Twitter tirade against RIM, accusing the foreign company of ignoring the country’s laws and benefiting only from the large market without paying any taxes.
“Do we always have to bow to foreign [entities]? Is it arrogant to remind foreigners to respect our laws and regulations?” read one of the many tweets that earned him the ire of several Indonesian BlackBerry users, who even tried to get his account blocked on Twitter.
That chapter eventually closed and RIM spent most of the year fulfilling the rest of the government’s demands: that RIM set up at least 40 authorized customer care centers in the country, facilitate lawful interception of its encrypted BlackBerry Messenger services by law enforcers and set up a Regional Network Aggregator, all by the end of 2011. By August, RIM said it was on track to meet all requirements.
But the year wasn’t going to close so quietly for the company. On Nov. 25, a promotion to launch the new BlackBerry Bold 9790 at the Pacific Place mall by selling it at a steep discount to the first 1,000 customers went awry. Confusing instructions from the organizers combined with impatience and frustration among the crowd, many of whom had been waiting since the wee hours of the morning, led to pandemonium that left three injured and at least 90 unconscious.
The ensuing investigation named RIM Indonesia’s outgoing president director, Andrew Cobham, a suspect along with three others.
A week later, on Dec. 9, the Communications Ministry struck again, saying again it would shut down BlackBerry’s Internet service because RIM set up its regional server in Singapore, instead of in Indonesia as had been “demanded.”
Tifatul said his ministry would issue “early next year” a regulation requiring all telecommunications companies operating in Indonesia to build data centers here. That would then give the government legal grounds to terminate BlackBerry services in the country should RIM refuse to comply.
Citibank: Dogged by scandals
If there was one week in the whole year that Citibank Indonesia executives hope never had happened, it would be the last week of March.
On the 25th of that month, police announced that Malinda Dee, a Citibank relationship manager, had been arrested for embezzling at least Rp 17 billion (she was later indicted for Rp 40 billion) from clients. It did not help that the details that later emerged about Malinda were worthy tabloid fodder — a younger common-law husband who was a struggling actor and model, cosmetic enhancements and ownership of luxury apartments, two Ferraris, a Mercedes Benz and a Hummer.
Then, as Citibank spent the next few days working to assure its customers that their money was safe, a 50-year-old politician, Irzen Octa, died in mysterious circumstances on the 29th after meeting with debt collectors hired by the bank, in a private room at Citibank’s Menara Jamsostek office on Jalan Gatot Subroto. He was supposedly there to discuss how his credit card debt ballooned to Rp 100 million.
It was a week that created a public relations disaster worthy of the best PR crisis managers the world has to offer, tied up Citibank in court cases for at least the next year and altered the course of its operations during the next two years.
In May came the sanctions: no new credit card customers for two years, no priority banking clients for one year and no opening new branches for one year.
Although the government initially banned Citibank from hiring third-party debt collections — which contributed to a 27 percent drop in profit from January to September as its operating costs increased, partly as a result of having to hire around 1,400 debt collectors — it rescinded it in December.
Seven Citibank executives were also ordered to take fit-and-proper tests in early May in response to the twin banking scandals. Bank Indonesia said it found that most of the directors taking the test had neglected Citibank’s internal procedures.
Shariq Muchtar, the Citibank country manager at the time the scandals erupted, was later moved to the Singapore office and replaced with Tigor M. Siahaan, the first Indonesian to lead Citibank Indonesia.
Aside from Malinda, six other suspects have been charged for their different roles in the embezzlement case. Three, Malinda’s common-law husband, her sister and her brother-in-law, are currently facing trial at the South Jakarta District Court. Last week, prosecutors demanded four- to-six-year jail sentences and Rp 200 million to Rp 350 million fines for each of them.
In the case of Irzen’s death, five collectors — none of them actually employed by Citibank — are standing trial for violence resulting in death, unpleasant conduct and deprivation of liberty.
During the hearing, which also took place at the South Jakarta District Court, two witnesses — both bank tellers — retracted their previous testimonies to the police.
Irzen’s family asked for an independent autopsy by renowned forensic doctor Mun’im Idris in May, and the result differed from the one from the police
The latter found that the death was caused by a ruptured blood vessel in the lower brain stem, which may indicate a stroke. It also found a scratch on his nose, the result of a strike with a blunt object, but that did not cause the death.
However, Munim’s autopsy revealed bruising and bleeding in the brain stem and bruising on other parts of the body. The cause of death was a strike with a blunt object, he reported.
Citibank’s legal team is pressing charges against Munim for making false claims. South Jakarta Police are currently investigating that charge.
A separate civil suit filed by Irzen’s family for compensation, demanding Rp 3 trillion in damage based on future living costs of his two daughters, is still being heard at the Central Jakarta District Court.
Let’s see what 2012 will bring.
A long read, but interesting facts that happened in Indonesia in 2011 (not as if 2011 has ended yet, but lets hope for no trouble for the rest of the days in 2011). Good stuff for you to read, what’s most remarkable thing that happened in your country in 2011? Share it with us!