Beauty Contest Is Not The Same As Tender

Nindyo Pramono, a law professor at Universitas Gajah Mada, said using “beauty contests” for the procurement of goods and services is not the same as a tender process. However, beauty contests can increase efficiency.

“Companies can decide how to select their partners, including using a beauty contest. This complies with Government Regulation No. 12 of 1998 on Liability Companies,” he said in a seminar on Oil and Gas Business Competition, Tuesday (17/1).

Nindyo explained, choosing business partners through a beauty contest can be justified under the business judgement rule. However, Nindyo asserted that the business judgment rule should be stated in the company’s Standard Operating Procedures.

On the other hand, the Commission for the Supervision of Business Competition (KPPU) stated that beauty contests are identical to the tender process. Therefore, beauty contests are regulated by Law No. 5 of 1999 on the Prohibiton of Monopolistic Practices and Unfair Business Competition (“Business Competition Law”).

Anna Maria Tri Anggriani, one of the KPPU’s commissioners, explained that tenders are not restricted to the procuremement of goods and services. “A tender has a broader application. It applies to the procurement of goods or services as well as stock trades and selecting business partners,” she said at a same event.

She explained that there have been some interesting cases that expanded the definition of the tender process, since the KPPU was formed in 2000. For example, Indomobil’s stock trades, and Pertamina’s VLCC sale were considered tenders.

However, Ari Sumarno, the former President Director of Pertamina, disagreed with Anna’s opinion. “The process for selecting business partners can’t be generalized, especially for the oil and gas industry,” he said.

Ari explained that the oil and gas industry consists of three different areas: upstream, midstream, and downstream. Each area has unique difficulties and challenges. The upstream oil and gas industry focuses on exploration and mining activities. These activities are not cheap. “Natural resources can’t be explored easily. Companies must wait for 3-5 years before developing resources,” Ari said.

Ari also emphasized that midstream businesses can spend USD 4-5 billion for an oil rig, not to mention the cost of refining oil. Meanwhile, downstream businesses focus on retail and sales activites, which can be expensive. For example, Ari explained, Shell spent IDR 20-30 million for one gas station. Since oil and gas businesses require a large amount of capital, the industry is always oligopolistic, where only a few parties are involved.

 

MONITORING OF MERGER AND ACQUISITION BY BUSINESS COMPETITION SUPERVISORY COMMISSION (KPPU)

In 23 February 2011, Business Competition Supervisory Commission (the “KPPU“) has issued KPPU Regulation No. 2 of 2011 on the Procedures for Imposing Fines for Overdue Company Merger/ Consolidation and/or Acquisition Notifications (the “Regulation“). This Regulation has been issued as implementation of Law No. 5 of 1999 on the Prohibition of Monopolistic and Unfair Business Practices (Law No.5/1999) and Article 6 of Government Regulation No. 57 of 2010 on Mergers or Consolidations of Businesses and Acquisitions of Shares of Businesses That Can Result in Monopolistic and Unfair Business Practices (the “PP 57/2010“).

 

Pursuant to Article 2 paragraph 1, the KPPU has entitled to monitors information regarding transactions of merger, consolidation, or acquisition requirements, however have not notified to the KPPU. Under Article 2 paragraph 3, monitoring by KPPU may include the reporting from public or news of media, an official letter from a related institution, or other relevant resources. The monitoring will be implemented periodically and for an undetermined amount of time.

 

Article 3 paragraph 1 to paragraph 4 sets out the procedures and requirements for monitoring activity conducted by the KPPU Secretariat. Article 3 paragraph 5 establishes the amount of the fines that will be imposed. For each day of delay, a business is subject to fine between IDR 1 billion (minimum) and IDR 25 million (maximum). Under such impose the business actors by may appeal the fines, up to of 14 days after the decision (Article 5 paragraph 1).