PT Telekomunikasi Indonesia

Perusahaan Perseroan (Persero)
PT TELEKOMUNIKASI INDONESIA

(Registrant)

Date November 5, 2004

/s/ Rochiman Sukarno

(Signature)

Rochiman Sukarno
Head of Investor Relation Unit

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934

For the month of November , 2004

Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA

(Translation of registrant’s name into English)

Jalan Japati No. 1 Bandung-40133 INDONESIA

(Address of principal executive office)

[Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F
Form 20-F þ Form 40-F o

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
Yes o No þ

[If “yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

TABLE OF CONTENTS


SIGNATURES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

PERUSAHAAN PERSEROAN (PERSERO)
P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)


			2003
			(Restated)		2004
	Notes		Rp		Rp		US$ (Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		2c,2f,7,50		4,860,401		6,112,466		667,300
Temporary investments		2c,2g,8,50		62,119		107,799		11,768
Trade accounts receivable		2c,2h,9,50
Related parties — net of allowance for doubtful accounts of Rp135,689 million in 2003, and Rp143,591 million in 2004				765,094		690,848		75,420
Third parties — net of allowance for doubtful accounts of Rp413,959 million in 2003, and Rp562,013 million in 2004				2,583,369		3,090,402		337,380
Other accounts receivable — net of allowance for doubtful accounts of Rp51,649 million in 2003, and Rp35,442 million in 2004		2c,2h,50		377,661		291,523		31,826
Inventories — net of allowance for obsolescence of Rp51,346 million in 2003, and Rp47,102 million in 2004		2i,10		185,596		171,746		18,750
Prepaid expenses		2c,2j,11,50		727,972		790,178		86,264
Prepaid taxes		44a		38,370		64,845		7,079
Other current assets		2c,12,50		38,663		44,412		4,848

Total Current Assets				9,639,245		11,364,219		1,240,635

NON-CURRENT ASSETS
Long-term investments — net		2g,13		69,741		72,743		7,941
Property, plant and equipment — net of accumulated depreciation of Rp22,220,275 million in 2003, and Rp27,137,984 million in 2004		2k,2l,14		32,511,049		36,598,850		3,995,508
Property, plant and equipment under revenue-sharing arrangements — net of accumulated depreciation of Rp878,764 million in 2003, and Rp1,038,777 million in 2004		2m,16,53		315,427		2,788,985		304,474
Advances and other non-current assets		2c,50		151,573		422,715		46,148
Intangible assets — net of accumulated amortization of Rp794,596 million in 2003, and Rp1,535,299 million in 2004		1c,2d,17		5,365,697		4,582,456		500,268
Advance payments for investments in shares of stock		5d		79,768		65,458		7,146
Property not used in operations				12,354		4,987		545
Escrow accounts		18		447,838		215,001		23,472

Total Non-current Assets				38,953,447		44,751,195		4,885,502

TOTAL ASSETS				48,592,692		56,115,414		6,126,137

See accompanying notes to consolidated financial statements, which form an integral part of the
consolidated financial statements.


			2003
			(Restated)			2004
	Notes		Rp			Rp			US$ (Note 3)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade accounts payable		2c,19,50
Related parties				658,627			827,602			90,350
Third parties				2,470,580			3,331,782			363,732
Other accounts payable				45,293			39,734			4,338
Taxes payable		2s,44b		1,778,106			1,490,932			162,766
Dividends payable				69,418			1,153,412			125,918
Accrued expenses		2c,20,50		1,679,422			1,652,196			180,371
Unearned income		21		660,464			928,724			101,389
Advances from customers and suppliers		22		262,695			328,392			35,851
Short-term bank loan		2c,23,50		37,509			397,537			43,399
Current maturities of long-term liabilities		2c,24,50		3,580,901			2,206,349			240,868

Total Current Liabilities				11,243,015			12,356,660			1,348,982

NON-CURRENT LIABILITIES
Deferred tax liabilities — net		2s,44e		3,410,273			3,504,159			382,550
Unearned income on revenue-sharing arrangements		2m,16,53		99,742			2,639,198			288,122
Unearned initial investor payments under joint operation schemes		2n,37,52		28,876			28,117			3,070
Provision for long service awards		2r,48		477,519			533,226			58,212
Provision for post-retirement health care benefits		2r,49		1,948,136			1,878,085			205,031
Long-term liabilities — net of current maturities
Two-step loans — related party		2c,25,50		7,005,307			6,505,888			710,250
Guaranteed notes and bonds		26		2,235,511			1,711,807			186,878
Bank loans		2c,27,50		1,790,838			2,579,220			281,574
Liabilities for acquisitions of subsidiaries		28		1,300,049			607,668			66,339
Suppliers’ credit loans		29		64,804			—			—
Bridging loan		30		25,726			—			—
Other long-term debt				9,150			9,150			999

Total Non-current Liabilities				18,395,931			19,996,518			2,183,025

MINORITY INTEREST		31		3,291,894			4,462,324			487,153

STOCKHOLDERS’ EQUITY
Capital stock — Rp250 par value per Series A Dwiwarna share and Series B share
Authorized — one Series A Dwiwarna share and 79,999,999,999 Series B shares
Issued and fully paid — one Series A Dwiwarna share and 20,159,999,279 Series B shares		32		5,040,000			5,040,000			550,218
Additional paid-in capital		33		1,073,333			1,073,333			117,176
Difference in value of restructuring transactions between entities under common control		34		(7,288,271	)		(7,288,271	)		(795,663	)
Difference due to change of equity in associated companies		2g		424,020			385,595			42,096
Unrealized loss on investment in securities		2e		—			490			53
Translation adjustment				231,298			230,044			25,114
Retained earnings
Appropriated				1,559,068			1,680,813			183,495
Unappropriated				14,622,404			18,177,908			1,984,488

Total Stockholders’ Equity				15,661,852			19,299,912			2,106,977

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY				48,592,692			56,115,414			6,126,137

See accompanying notes to consolidated financial statements, which form an integral part of
the consolidated financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollars, except per share and per ADS data)


			2003
			(Restated)			2004
	Notes		Rp			Rp			US$ (Note 3)
OPERATING REVENUES
Telephone		2p,35
Fixed lines				6,476,583			7,654,264			835,618
Cellular				6,121,293			7,689,968			839,516
Interconnection		2p,36,50		3,120,941			4,366,230			476,663
Joint operation schemes		2n,37,52		1,086,898			443,407			48,407
Data and Internet		38		2,139,814			3,359,120			366,716
Network		39		323,848			468,479			51,144
Revenue-sharing arrangements		2m,40,53		187,163			788,178			86,046
Other telecommunications services				160,139			249,810			27,272

Total Operating Revenues				19,616,679			25,019,456			2,731,382

OPERATING EXPENSES
Personnel		41		3,189,029			4,320,848			471,708
Depreciation		2k,2l,2m,14,16		3,327,180			4,469,538			487,941
Operations, maintenance and telecommunication services		42		2,518,459			3,387,144			369,776
General and administrative		43		1,409,783			1,777,552			194,056
Marketing				344,191			639,855			69,853

Total Operating Expenses				10,788,642			14,594,937			1,593,334

OPERATING INCOME				8,828,037			10,424,519			1,138,048

OTHER INCOME (CHARGES)
Interest income		50		255,531			219,280			23,939
Interest expense		50		(948,523	)		(937,779	)		(102,378	)
Gain (loss) on foreign exchange — net		2e		165,375			(577,744	)		(63,072	)
Equity in net income (loss) of associated companies		2g,13		(28	)		2,283			249
Others — net				(1,895	)		347,541			37,941

Other income (charges) — net				(529,540	)		(946,419	)		(103,321	)

INCOME BEFORE TAX				8,298,497			9,478,100			1,034,727
TAX EXPENSE		2s,44e
Current tax				(2,968,881	)		(3,057,132	)		(333,748	)
Deferred tax				66,687			42,613			4,652

				(2,902,194	)		(3,014,519	)		(329,096	)

INCOME BEFORE MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES				5,396,303			6,463,581			705,631
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES		31		(984,731	)		(1,439,235	)		(157,122	)

NET INCOME				4,411,572			5,024,346			548,509

BASIC EARNINGS PER SHARE		2t,45
Net income per share				218.83			249.22			0.03

Net income per ADS (40 Series B shares per ADS)				8,753.12			9,968.94			1.06

See accompanying notes to consolidated financial statements, which form an integral part of the
consolidated financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)


							Difference in
							value of
							restructuring			Difference
							transactions			due to change		Unrealized
			Capital		Additional paid-in		between entities under common			of equity in associated		loss on investment		Translation			Retained earnings					Total stockholders’
Description	Notes		stock		capital		control			companies		in securities		adjustments			Appropriated		Unappropriated			equity
			Rp		Rp		Rp			Rp		Rp		Rp			Rp		Rp			Rp
Balance as of January 1, 2003 — Restated				5,040,000		1,073,333		(7,288,271	)		424,020		—		235,665			745,404		14,383,466			14,613,617
Foreign currency translation of CSM		2g,13		—		—		—			—		—		(4,367	)		—		—			(4,367	)
Resolved during the Annual General Meeting of the Stockholders on May 9, 2003
Declaration of cash dividend		46		—		—		—			—		—		—			—		(3,338,109	)		(3,338,109	)
Appropriation for general reserve		46		—		—		—			—		—		—			813,664		(813,664	)		—
Social contribution		46		—		—		—			—		—		—			—		(20,861	)		(20,861	)
Net income for the year				—		—		—			—		—		—			—		4,411,572			4,411,572

Balance as of September 30, 2003 — Restated				5,040,000		1,073,333		(7,288,271	)		424,020		—		231,298			1,559,068		14,622,404			15,661,852

See accompanying notes to consolidated financial statements, which form an integral part of the
consolidated financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) (continued)
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)


							Difference in
							value of
							restructuring			Difference
							transactions			due to change		Unrealized
			Capital		Additional paid-in		between entities under common			of equity in associated		loss on investment		Translation		Retained earnings					Total stockholders’
Description	Notes		stock		capital		control			companies		in securities		adjustments		Appropriated		Unappropriated			equity
			Rp		Rp		Rp			Rp		Rp		Rp		Rp		Rp			Rp
Balance as of January 1, 2004				5,040,000		1,073,333		(7,288,271	)		385,595		—		224,232		1,559,068		16,318,920			17,312,877
Placement on fixed income mutual fund		8		—		—		—			—		490		—		—		—			490
Foreign currency translation of CSM		2g,13		—		—		—			—		—		5,812		—		—			5,812
Resolved during the Annual General Meeting of the Stockholders on July 31, 2003
Declaration of cash dividend		46		—		—		—			—		—		—		—		(3,043,613	)		(3,043,613	)
Appropriation for general reserve		46		—		—		—			—		—		—		121,745		(121,745	)		—
Net income for the year				—		—		—			—		—		—		—		5,024,346			5,024,346

Balance as of September 30, 2004				5,040,000		1,073,333		(7,288,271	)		385,595		490		230,044		1,680,813		18,177,908			19,299,912

See accompanying notes to consolidated financial statements, which form an integral part of the
consolidated financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)


	2003
	(Restated)			2004
	Rp			Rp			US$ (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone and interconnection — net
Fixed lines		7,248,845			8,900,742			971,697
Cellular		7,296,836			8,688,496			948,526
Joint operation scheme		801,912			522,231			57,012
Interconnection — net		2,536,624			2,605,403			284,433
Other services		1,362,960			2,046,857			223,456

Total cash receipts from operating revenues		19,247,177			22,763,729			2,485,124
Cash payments for operating expenses		(6,887,371	)		(9,192,774	)		(1,003,578	)

Cash generated from operations		12,359,806			13,570,955			1,481,546

Interest received		258,417			226,053			24,678
Income tax payments		(2,861,768	)		(2,611,147	)		(285,060	)
Interest paid		(755,010	)		(900,716	)		(98,331	)
Advances from customers		142,295			17,380			1,897

Net Cash Provided by Operating Activities		9,143,740			10,302,525			1,124,730

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments and maturity of time deposits		1,703,511			349,096			38,111
Proceeds from sale of property, plant and equipment		47,832			48,699			5,317
Purchase of marketable securities and placements in time deposits		(678,202	)		(441,900	)		(48,242	)
Acquisition of property, plant and equipment		(4,799,351	)		(4,266,626	)		(465,789	)
Decrease (Increase) in advances and others		288,938			7,368			804
Payments of advances for investments in shares of stock		(31,659	)		—			—
Cash dividend receipt		—			—			—
Acquisition of subsidiaries		(2,448,478	)		—			—

Net Cash Used in Investing Activities		(5,917,409	)		(4,303,363	)		(469,799	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term liabilities		(588,560	)		(2,977,802	)		(325,088	)
Repayments of bonds		—			(504,101	)		(55,033	)
Cash dividends paid		(3,645,348	)		(2,536,732	)		(276,936	)
Security deposits		(38,101	)		—			—
Received of long-term liabilities		618,486			693,058			75,662
Decrease (Increase) in escrow account		(447,838	)		232,837			25,419

Net Cash Used in Financing Activities		(4,101,361	)		(5,092,740	)		(555,976	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(875,030	)		906,422			98,955
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENT		36,361			111,572			12,180
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		5,699,070			5,094,472			556,165

CASH AND CASH EQUIVALENTS AT END PERIOD		4,860,401			6,112,466			667,300

See accompanying notes to consolidated financial statements, which form an integral part of the consolidated
financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah and thousands of United States Dollar)


	2004
	Rp		US$ (Note 3)
Noncash investing and financing activities in 2004:
Increase in property under construction through the incurrence of long-term debt		1,719,176		187,683
Initial recognition of property, plant and equipment under revenue sharing arrangement		2,773,375		302,770
Write off property, plant and equipment at Telkomsel		395,429		43,169

See accompanying notes to consolidated financial statements which are an integral part of the consolidated
financial statements.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

1. GENERAL

a. Establishment and General Information

Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk (the “Company”) was originally part of “Post en Telegraafdienst”, which was established in 1884 under the framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies and published in State Gazette No. 52 dated April 3, 1884.

In 1991, based on Government Regulation No. 25 year 1991, the status of the Company was changed into a state-owned limited liability corporation (“Persero”). The Company was established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H. The deed of establishment was approved by the Minister of Justice of the Republic of Indonesia in his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991, and was published in State Gazette of the Republic of Indonesia No. 210 dated January 17, 1992, Supplement No. 5. The articles of association have been amended several times, the most recent amendment was made through deed No. 4 dated January 10, 2002, of Notary A. Partomuan Pohan, S.H., LLM., concerning the change in the Company’s objective, scope of activities, directors’ scope of authorities and the composition of the Company’s board of commissioners. The notarial deed was approved by the Minister of Justice and Human Rights of the Republic of Indonesia in his decision letter No. C-00682HT.01.04.Th.2002 dated January 15, 2002.

In accordance with article 3 of its articles of association, the scope of the Company’s activities is as follows:

1. The Company’s objective is to provide telecommunications and information facilities and services, in accordance with prevailing regulations.

2. To achieve the above objective, the Company is involved in the following activities:

i. Planning, building, providing, developing, operating, marketing or selling, leasing and maintaining telecommunications and information networks in accordance with prevailing regulations.

ii. Planning, developing, providing, marketing or selling and improving telecommunications and information services in accordance with prevailing regulations.

iii. Performing activities and other undertakings in connection with the utilization and development of the Company’s resources and optimizing the utilization of the Company’s property, plant and equipment, information systems, education and training, and repairs and maintenance facilities.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

a. Establishment and General Information (continued)

The Company’s principal business is the provision of domestic telecommunications services, including telephone, telex, telegram, satellite, leased lines, electronic mail, mobile communication and cellular services. In order to accelerate the construction of telecommunications facilities, to make the Company a world-class operator, and to increase the technology as well as the knowledge and skills of its employees, in 1996, the Company entered into agreements with investors to develop, manage and operate telecommunications facilities in five of the Company’s seven regional divisions under Joint Operation Schemes (known as “Kerja Sama Operasi” or “KSO”).

The Company’s head office is located at Jalan Japati No. 1, Bandung, West Java.

Under Law No. 3/1989 on Telecommunications which took effect on April 1, 1989, Indonesian legal entities are allowed to provide basic telecommunications services in cooperation with the Company as the domestic telecommunications organizing body (or “badan penyelenggara”). Other Indonesian legal entities are also allowed to individually provide non-basic telecommunications services. In providing telecommunications services, these entities are required to obtain licenses from the Minister of Communications of the Republic of Indonesia (the Ministry of Communications assumed responsibility for the telecommunications sector from the previous Ministry of Tourism, Post and Telecommunications in March 1998). Government Regulation No. 8/1993 concerning the provision of telecommunications services, further regulates that cooperation to provide basic telecommunications services can be in the form of joint venture, joint operation or contract management and that the entities cooperating with the domestic telecommunications organizing body must use the organizing body’s telecommunications networks. If the telecommunications networks are not available, the Government Regulation requires that the cooperation be in the form of a joint venture that is capable of constructing the necessary networks.

The Minister of Tourism, Post and Telecommunications of the Republic of Indonesia (“MTPT”), through his two decision letters both dated August 14, 1995, reaffirmed the status of the Company as the organizing body for the provision of domestic telecommunications services.

Further, effective from January 1, 1996, the Company was granted the exclusive right to provide local wireline and fixed wireless services for a minimum period of 15 years and the exclusive right to provide domestic long-distance telecommunications services for a minimum period of 10 years. The exclusive rights also apply to telecommunications services provided for and on behalf of the Company through a KSO. This grant of rights does not affect the Company’s right to provide other domestic telecommunications services.

On September 8, 1999, the Government issued Law No. 36/1999 on Telecommunications to replace Law No. 3/1989. Under the new Law, which took effect from September 2000, telecommunications activities cover:

i. Telecommunications networks

ii. Telecommunications services

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

a. Establishment and General Information (continued)

iii. Special telecommunications

National state-owned companies, regional state-owned companies, privately-owned companies and cooperatives are allowed to provide telecommunications networks and services. Special telecommunications can be provided by individuals, government agencies and legal entities other than telecommunications networks and service providers.

Under Law No. 36/1999, activities that result in monopolistic practices and unfair competition are prohibited. In connection with this law, Government Regulation No. 52/2000 was issued, which provides that interconnection fees shall be charged to originating telecommunications network operators where telecommunications service is provided by two or more telecommunications network operators.

Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from the Director General of Post and Telecommunications and the correction thereto No. 1718/UM/VIII/2000 dated August 2, 2000, the period of exclusive rights granted to the Company to provide local and domestic long-distance fixed-line telecommunications services was shortened to expire in August 2002 and August 2003, respectively. In return, the Government is required to pay compensation to the Company, the amount of which is to be estimated by an independent appraiser appointed by the Government.

Based on a press release from the Coordinating Minister of Economics dated July 31, 2002, the Government decided to terminate the Company’s exclusive rights as a network provider for local and long-distance services with effect from August 1, 2002. On August 1, 2002, PT Indonesian Satellite Corporation Tbk (“Indosat”) was granted a license to provide local and long-distance telecommunications services.

On March 30, 2004, the Minister of Communications issued Announcement No. PM.2 year 2004 regarding the Implementation of Restructuring in the Telecommunications Sector which, among others, conveys the compensation for early termination of exclusive rights.

On May 13, 2004, pursuant to the Ministry of Communications Decree No. KP. 162/2004, the Company was granted a commercial license to provide International Direct Dialing (IDD) services.

Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been notarized by deed No. 37 dated June 21, 2002 of A. Partomuan Pohan, S.H., LLM., the composition of the Company’s Board of Commissioners and Board of Directors as of September 30, 2003 was as follows:


President Commissioner		: Bacelius Ruru
Commissioner		: Agus Haryanto
Commissioner		: Djamhari Sirat
Independent Commissioner		: Arif Arryman
Independent Commissioner		: Petrus Sartono

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

a. Establishment and General Information (continued)


President Director		: Kristiono
Director of Finance		: Guntur Siregar
Director of Telecommunications Service Business		: Garuda Sugardo
Director of Human Resources and Support Business		: Agus Utoyo
Director of Telecommunications Network Business		: Suryatin Setiawan

Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been notarized by deed No. 4 dated March 10, 2004 of A. Partomuan Pohan, S.H., LLM., the composition of the Company’s Board of Commissioners and Board of Directors as of September 30, 2004 was as follows:


President Commissioner		: Tanri Abeng
Commissioner		: Anggito Abimanyu
Commissioner		: Gatot Trihargo
Independent Commissioner		: Arif Arryman
Independent Commissioner		: Petrus Sartono
President Director		: Kristiono
Director of Finance		: Rinaldi Firmansyah
Director of Telecommunications Service Business		: Suryatin Setiawan
Director of Human Resources and Support Business		: Woeryanto Soeradji
Director of Telecommunications Network Business		: Abdul Haris

As of September 30, 2003 and 2004, the Company had 32,305 employees and 29,397 employees, respectively, including those in the KSO Units, while the subsidiaries had 3,722 employees and 4,384 employees, respectively.

b. Public offering of shares of the Company

The Company’s total number of shares immediately prior to its initial public offering was 8,400,000,000, which consisted of 8,399,999,999 series B shares and 1 series A Dwiwarna share, all of which were owned by the Government of the Republic of Indonesia (the “Government”). On November 14, 1995, the Government sold the Company’s shares through an initial public offering on the Jakarta Stock Exchange and Surabaya Stock Exchange. The shares offered consisted of 933,333,000 new series B shares and 233,334,000 series B shares owned by the Government. A share offering was also conducted on the New York Stock Exchange and London Stock Exchange for 700,000,000 series B shares owned by the Government of the Republic of Indonesia, which were converted into 35,000,000 American Depositary Shares (ADS). Each ADS represents 20 series B shares.

In December 1996, the Government completed a block sale of 388,000,000 series B shares, and later in 1997, distributed 2,670,300 series B shares as an incentive to stockholders who did not sell their shares within one year from the date of the initial public offering. In May 1999, the Government sold 898,000,000 series B shares.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

b. Public offering of shares of the Company (continued)

Under Law No.1/1995 on Limited Liability Companies, the minimum total par value of the Company’s issued shares of capital stock must be at least 25% of the total par value of the Company’s authorized capital stock, or in the Company’s case Rp5,000,000 million. To comply with the Law, it was resolved at the Annual General Meeting of Stockholders on April 16, 1999 to increase the issued share capital by way of capitalization of certain additional paid-in capital. The bonus shares were distributed to the then existing stockholders in August 1999.

In December 2001, the Government conducted another block sale of 1,200,000,000 shares or 11.9% of the total outstanding series B shares. In July 2002, the Government sold 312,000,000 shares or 3.1% of the total outstanding series B shares.

On September 28, 2004, the Company splitted its share capital based on a resolution of the Annual General Meeting of Stockholders, the minutes of which have been notarized by deed No. 313/VII/2004 dated July 10, 2004 of A. Partomuan Pohan, S.H., LL.M. The stockholders have approved to split the nominal value of 1 series A Dwiwarna share and series B shares from Rp500 to Rp250 per share.

The authorized capital increase from 40,000,000,000 shares to 80,000,000,000 shares and the issued capital increase from 10,079,999,640 to 20,159,999,280. The splitted share of Series A Dwiwarna were 1 share established as Series A Dwiwarna owned by the Government of the Republic of Indonesia and the other 1 share as Series B owned by the Government of the Republic of Indonesia.

On September 29, 2004, the Company obtained an approval from The New York Stock Exchange with regard of the stock split and changes the ratio of shares represented by each ADS from 20 shares Series B to 40 shares Series B.

As of September 30, 2004, all of the Company’s series B shares were listed on the Jakarta Stock Exchange and Surabaya Stock Exchange and 22,391,424 ADS shares were listed on the New York Stock Exchange and London Stock Exchange.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

c. Subsidiaries

The Company consolidates the following subsidiaries as a result of majority ownership or its right to control operations.


			Percentage of ownership				Start of commercial		Total assets before eliminations
Subsidiaries	Domicile	Nature of business	2003		2004		operations		2003		2004
			%		%
PT Pramindo Ikat Nusantara	Medan	Telecommunications construction & services		100.00		99.99		1995		1,951,238		1,760,726
PT AriaWest International	Bandung	Telecommunications		100.00		99.99		1995		1,579,537		1,673,404
PT Multimedia Nusantara	Jakarta	Pay TV		100.00		99.99		1998		12,007		17,268
PT Graha Sarana Duta	Jakarta	Real estate, construction and services		99.99		99.99		1982		61,587		86,285
PT Indonusa Telemedia	Jakarta	Multimedia		88.08		90.39		1997		51,166		53,988
PT Dayamitra Telekomunikasi	Balikpapan	Telecommunications		90.32		90.32		1995		891,378		825,386
PT Telekomunikasi Selular	Jakarta	Telecommunications		65.00		65.00		1995		14,298,620		19,451,376
PT Napsindo Primatel International	Jakarta	Telecommunications		60.00		60.00		1999		56,024		35,386
PT Infomedia Nusantara	Jakarta	Data and information service		51.00		51.00		1984		298,093		252,636
PT Pro Infokom Indonesia	Jakarta	System information network		51.00		51.00		2003		6,628		1,368

The Company has indirect investments through its subsidiaries in the following companies:

Nature of

Effective ownership
percentage

Start of
Commercial

Indirect subsidiaries

Stockholders

Domicile

Business

2003

2004

Operations

Telekomunikasi Selular Finance Limited

PT Telekomunikasi Selular

Mauritius

Fund raising

100.00

2002

AriaWest International Finance B.V.

PT AriaWest International

Netherlands

Finance

—

100.00

1996

PT Balebat Dedikasi Prima

PT Infomedia Nusantara

Bogor

Printing

—

51.33

2000

PT Pramindo Ikat Nusantara (“Pramindo”)

Pramindo is the investor in KSO I (Note 52), the joint operating scheme that provides telecommunications services in Sumatra. On April 19, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) (as amended on August 1, 2002) to acquire 100% of the issued and paid-up share capital of Pramindo (Note 5b).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

c. Subsidiaries (continued)

PT Pramindo Ikat Nusantara (“Pramindo”) (continued)

Effective with the closing of the first tranche, the Company obtained control over the operations of Pramindo and KSO Unit I. As a result, the Company has consolidated Pramindo as of the date of the acquisition reflecting a 100% ownership interest in Pramindo (Note 2b).

On April 21, 2004, the Company sold one share of Pramindo to a related party for Rp22,800, thereby reducing the Company’s ownership interest to 99.99%.

PT AriaWest International (“AWI”)

AWI is the investor in KSO III (Note 52), the joint operating scheme that provides telecommunication services in West Java. On May 8, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) to acquire 100% of the issued and paid-up capital of AWI. The acquisition was effective on July 31, 2003, the date when the Company entered into the First Amendment to the Conditional Sale and Purchase Agreement with the stockholders of AWI in which both parties agreed to the Company’s acquisition of AWI (Note 5c).

The CSPA provides for certain conditions that have to satisfied at or prior to the closing date to effect the acquisition, e.g. completion of the restructuring of AWI’s loan, amendment of KSO III agreement, final and unconditional dismissal with prejudice of any proceeding. Those conditions have been satisfied at or prior to July 31, 2003.

On December 31, 2003, the Company sold one share of AWI to a related party for Rp114,000, thereby reducing the Company’s ownership interest to 99.99%.

PT Multimedia Nusantara (“Metra”)

Metra is engaged in providing pay television and multimedia telecommunications services.

On April 8, 2003, the Company increased its ownership interest in Metra from 31% to 100% through a share-swap agreement with PT Indocitra Grahabawana (“Indocitra”). Pursuant to the agreement, the Company sold its investment in PT Menara Jakarta in exchange for Indocitra’s 69% ownership interest in Metra (Note 13f).

On July 21, 2003, the Company sold one share of Metra to a related party for Rp10,000, thereby reducing the Company’s ownership interest to 99.99%.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

c. Subsidiaries (continued)

PT Graha Sarana Duta (“GSD”)

GSD is currently engaged primarily in leasing of offices as well as providing building management and maintenance services.

On April 6, 2001, the Company acquired a 100% ownership interest in GSD from Koperasi Mitra Duta and Dana Pensiun Bank Duta, for a purchase consideration of Rp119,000 million. This acquisition resulted in goodwill of Rp106,348 million which is being amortized over a period of five years (Note 17).

On November 28, 2001, the Company sold one share of GSD to a related party for Rp9.5 million thereby reducing the Company’s ownership interest to 99.99%.

PT Indonusa Telemedia (“Indonusa”)

Indonusa is engaged in providing multimedia telecommunications services.

The Company increased its investment in Indonusa from 35% in 2000 to 57.5% in 2001, by acquiring 2,800,000 shares for Rp28,000 million. This acquisition resulted in goodwill of Rp654 million which was fully amortized in 2001.

On August 8, 2003, the Company increased its investment in Indonusa to 88.08% through a share-swap agreement with PT Centralindo Pancasakti Cellular (“CPSC”) (Note 13).

Pursuant to the extraordinary meeting of stockholders of Indonusa on October 29, 2003, Indonusa agreed to convert its payable to the Company amounting to Rp13,500 million to 1,350,000 shares of Indonusa. Following such conversion, the Company’s ownership in Indonusa increased from 88.08% to 90.39%.

PT Dayamitra Telekomunikasi (“Dayamitra”)

Dayamitra is the investor in KSO VI (Note 52), the joint operating scheme that provides telecommunications services in Kalimantan. The Company’s acquisition of a 90.32% ownership interest in Dayamitra was effective on May 17, 2001, the date when the Deed of Share Transfer was signed. The Company also entered into an Option Agreement to acquire the remaining 9.68% interest from the selling stockholders (Note 5a).

PT Telekomunikasi Selular (“Telkomsel”)

Telkomsel is engaged in providing telecommunications facilities and mobile cellular services using Global System for Mobile Communication (“GSM”) technology on a nationwide basis.

The Company’s cross-ownership transaction with Indosat in 2001 increased the Company’s ownership interest in Telkomsel to 77.72%. The accounting treatment for the cross-ownership transaction is discussed further in Note 4.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

c. Subsidiaries (continued)

PT Telekomunikasi Selular (“Telkomsel”) (continued)

On April 3, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) with Singapore Telecom Mobile Pte. Ltd. (“Singtel”). Pursuant to the agreement, the Company sold 23,223 ordinary registered shares of Telkomsel, representing 12.72% of the issued and paid-up capital of Telkomsel for a total consideration of US$429,000,000 (equivalent to Rp3,948,945 million). This transaction reduced the Company’s ownership in Telkomsel from 77.72% to 65%.

PT Napsindo Primatel Internasional (“Napsindo”)

Napsindo is engaged in providing “Network Access Point” (NAP), “Voice Over Data” (VOD) and other related services.

In connection with an increase in Napsindo’s paid-in capital, the Company increased its investment in Napsindo by Rp13,840 million on October 31, 2000. The increase in investment was made to maintain the Company’s ownership interest at 32% and was effective on March 29, 2001.

Based on the notarial Deed No. 47 dated December 30, 2002 of Notary H. Yunardi, S.H., the Company purchased 28% of Napsindo’s shares from PT Info Asia Sukses Makmur Mandiri for US$4,900,000 (equivalent to Rp43,620 million), thereby increasing the Company’s ownership interest to 60% after the settlement of payment on January 28, 2003.

PT Infomedia Nusantara (“Infomedia”)

Infomedia is engaged in providing telecommunications information services and other information services in the form of print and electronic media. In 2002, Infomedia established a new line of business to provide call center services.

PT Pro Infokom Indonesia (“PII”)

On January 29, 2003, the Company together with PT Indonesia Comnets Plus, a subsidiary of Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara (“PLN”), and PT Prima Infokom Indonesia established PT Pro Infokom Indonesia (“PII”). The establishment was notarized by deed of A. Partomuan Pohan, S.H., LLM., notary in Jakarta, under Article of Association No. 24, dated January 29, 2003. As of September 30, 2004, the Company had an ownership interest of 51% in PII.

PII was established to develop a national information network system as the back-bone for the development of the Indonesian e-Government. PII is intended to maximize the utilization of both the Company’s and PLN’s existing infrastructures.

PII will act as a service provider that manages the government secure intranet and government information center management where all government institutions, including state-owned companies, are expected to take advantage of this network.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

1. GENERAL (continued)

c. Subsidiaries (continued)

PT Pro Infokom Indonesia (“PII”) (continued)

Pursuant to the Annual General Meeting of PII Shareholders as stated in notarial deed No. 258/VI/2004 dated June 17, 2004 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved to discontinue the PII operation since July 1, 2004.

Telekomunikasi Selular Finance Limited (“TSFL”)

Telkomsel has 100% direct ownership interest in TSFL, a company established in Mauritius on April 22, 2002. TSFL’s objective is to raise funds for the development of Telkomsel’s business through the issuance of debenture stock, bonds, mortgages or any other securities.

Aria West International Finance B.V. (“AWI BV”)

AWI BV, a company established in the Netherlands, is a wholly owned subsidiary of AWI. AWI BV is engaged in rendering services in the field of trade and finance.

PT Balebat Dedikasi Prima (“Balebat”)

Infomedia has 51.33% direct ownership interest in Balebat, a company engaged in the printing business, domiciled in Bogor.

d. Authorization of the financial statements

The consolidated financial statements were authorized for issue by the Board of Directors on October 29, 2004.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company and subsidiaries have been prepared in accordance with generally accepted accounting principles in Indonesia (“Indonesian GAAP”). Indonesian GAAP varies in certain significant respects to accounting principles generally accepted in the United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Note 58.

a. Basis for preparation of financial statements

The consolidated financial statements, except for the statements of cash flows, are prepared on the accrual basis of accounting. The measurement basis used is historical cost, except for certain accounts recorded on the basis described in the related accounting policies.

The consolidated statements of cash flows are prepared using the direct method and present the changes in cash and cash equivalents from operating, investing and financing activities.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis for preparation of financial statements (continued)

Figures in the consolidated financial statements are rounded to and presented in millions of Indonesian Rupiah (“Rp”) unless otherwise stated.

b. Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries in which the Company directly or indirectly has ownership of more than 50%, or the Company has the ability to control the entity, even though the ownership is less than or equal to 50%. Subsidiaries are consolidated from the date on which effective control is obtained and are no longer consolidated from the date of disposal. The Company does not consolidate a subsidiary if control is expected to be temporary.

All significant inter-company balances and transactions have been eliminated in consolidation.

In the case of PT Pramindo Ikat Nusantara (“Pramindo”), the Company has evaluated the scope and terms of this investment and concluded that it has the ability to exercise control over Pramindo and the right to obtain all of the future economic benefits of ownership as though the Company owned 100% of the shares. The factors that the Company considered include, among others, the fact that the purchase price is fixed, its ability to vote 100% of the shares at general stockholders’ meetings, subject to certain protective rights retained by the selling stockholders, its ability to appoint all of the board members and management and its consequent ability to exclusively determine the financial and operating policies of Pramindo subject to certain protective rights, its issuance of irrevocable and unconditional promissory notes in settlement of the purchase consideration to the selling stockholders, the placement of the 70% of Pramindo shares not yet transferred to the Company in an escrow account by the selling stockholders and the protective provisions in the various agreements for the Company to take over all shares (including powers of attorney issued by the selling stockholders) or collapse the KSO arrangement once the full amount payable for the shares has been paid (Note 5b).

c. Transactions with related parties

The Company and subsidiaries have transactions with related parties. The definition of related parties used is in accordance with Indonesian Statement of Financial Accounting Standards (“PSAK”) No.7 “Related Party Disclosures”.

d. Acquisitions of subsidiaries

The acquisition of a subsidiary from a third party is accounted for using the purchase method of accounting. The excess of the acquisition cost over the Company’s interest in the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill and amortized using the straight-line method over a period of not more than five years.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Acquisitions of subsidiaries (continued)

The acquisition transaction with entities under common control is accounted for in a manner similar to that in pooling of interests accounting (carryover basis). The difference between the consideration paid or received and the related historical carrying amount, after considering income tax effects, is recognized directly in equity and are reported as “Difference in value of restructuring transactions between entities under common control” in the stockholders’ equity section.

The Company continually assesses whether events or changes in circumstances have occurred that would require revision of the remaining estimated useful life of goodwill, or whether there is any indication of impairment. If any indication of impairment exists, the recoverable amount of goodwill is estimated based on the expected future cash flows which are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

e. Foreign currency translation

The functional currency of the Company and its subsidiaries is the Indonesian Rupiah and the books of accounts of the Company and its subsidiaries are maintained in Indonesian Rupiah. Transactions in foreign currencies are translated into Indonesian Rupiah at the rates of exchange prevailing at transaction date. At the balance sheet date, monetary assets and monetary liabilities balances denominated in foreign currencies are translated into Indonesian Rupiah based on the buy and sell rates quoted by Reuters prevailing at the balance sheet date. The Reuters buy and sell rates, applied respectively to translate monetary assets and monetary liability balances, were Rp8,405 and Rp8,415 to US$1 as of September 30, 2003, and Rp9,150 and Rp9,170 to US$1 as of September 30, 2004.

The resulting foreign exchange gains or losses, realized and unrealized, are credited or charged to income of the current year, except for foreign exchange differences incurred on borrowings during the construction of qualifying assets which are capitalized to the extent that the borrowings can be attributed to the construction of those qualifying assets (Note 2k).

f. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and in banks and all unrestricted time deposits with maturities of not more than three months from the date of placement. For the purpose of the statements of cash flows, bank overdrafts that are repayable on demand and form an integral part of cash management of the Company and subsidiaries are included as a component of cash and cash equivalents.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments

i. Time deposits

Time deposits with maturities of more than three months are presented as temporary investments.

ii. Investments in securities

Investments in available-for-sale securities are stated at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from income of the current year and are reported as a separate component in the stockholders’ equity section until realized. Realized gains or losses from the sale of available-for-sale securities are recognized in the income of the current year, and are determined on a specific-identification basis. A decline in the fair value of any available-for-sale securities below cost that is deemed to be other-than-temporary is charged to income of the current year.

iii. Investments in associated companies

Investments in shares of stock in which the Company has 20% to 50% of the voting rights, and over which the Company exerts significant influence, but not control, over the financial and operating policies are accounted for using the equity method. Under this method, the Company recognizes the Company’s proportionate share in the income or loss of the associated company from the date that significant influence commences until the date that significant influence ceases. When the Company’s share of loss exceeds the carrying amount of the associated company, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Company has incurred obligations in respect of the associated company.

On a continuous basis, but no less frequently than at the end of each year, the Company evaluates the carrying amount of its ownership interests in investee companies for possible impairment. Factors considered in assessing whether an indication of other than temporary impairment exists include the achievement of business plan objectives and milestones including cash flow projections and the results of planned financing activities, the financial condition and prospects of each investee company, the fair value of the ownership interest relative to the carrying amount of the investment and other relevant factors. Impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on quoted market prices (if any), projected discounted cash flows or other valuation techniques as appropriate.

Changes in the value of investments due to changes in the equity of associated companies arising from capital transactions of such associated companies with other parties are recognized directly in equity and are reported as “Difference due to change of equity in associated companies” in the stockholders’ equity section. Differences previously credited directly to equity transactions in associated companies are released to the statement of income upon the sale of an interest in the associate in proportion with percentage of the interest sold.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

iii. Investments in associated companies (continued)

The functional currency of PT Pasifik Satelit Nusantara and PT Citra Sari Makmur is the U.S. Dollar. For the purpose of reporting these investments using the equity method, the assets and liabilities of these companies as of the balance sheet date are translated into Rupiah using the rates of exchange prevailing at that date, while revenues and expenses are translated into Rupiah at the average rates of exchange for the year. The resulting translation adjustments are reported as part of “Translation adjustment” in the stockholders’ equity section.

iv. Other investments

Investments in shares of stock with ownership interests of less than 20% that do not have readily determinable fair values and are intended for long-term investments are carried at cost and are adjusted only for other-than-temporary decline in the value of individual investments. Any such write-down is charged directly to income of the current year.

h. Trade and other accounts receivable

Trade and other accounts receivable are recorded net of an allowance for doubtful accounts, based upon a review of the collectibility of the outstanding amounts at the end of the year. Accounts are written off against the allowance during the period in which they are determined to be not collectible.

Trade and other accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days for retail customers are fully provided, and past due balance for non-retail customers over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

i. Inventories

Inventories principally consist of components and modules, which are transferred to Plant, Property and Equipment upon use. Inventories also include SIM card and prepaid voucher blanks.

Cost is determined using the weighted average method for components, SIM card and prepaid voucher blanks, and the specific-identification method for modules.

Allowance for obsolescence is primarily based on the estimated forecast of future usage of these items.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

j. Prepaid expenses

Prepaid expenses are amortized over their beneficial periods using the straight-line method.

k. Property, plant and equipment — direct acquisitions

Property, plant and equipment directly acquired are stated at cost, except for certain revalued assets, less accumulated depreciation.

Property, plant and equipment, except land, are depreciated using the straight-line method, based on the estimated useful lives of the assets as follows:


		Years
Buildings		20
Switching equipment		5—15
Telegraph, telex and data communication equipment		5—15
Transmission installation and equipment		5—20
Satellite, earth station and equipment		3—15
Cable network		5—15
Power supply		3—10
Data processing equipment		3—10
Other telecommunications peripherals		5
Office equipment		3—5
Vehicles		5—8
Other equipment		5

Land is stated at cost and is not depreciated.

When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount, which is determined based upon the greater of its net selling price or value in use.

The cost of maintenance and repairs is expensed as incurred. Expenditures, which extend the useful life of the asset or result in increased future economic benefits such as increase in capacity or improvement in the quality of output or standard of performance, are capitalized and depreciated based on the applicable depreciation rates.

When assets are retired or otherwise disposed of, their carrying values and the related accumulated depreciation are eliminated from the consolidated financial statements, and the resulting gains or losses on the disposal or sale of property, plant and equipment are recognized in the statement of income.

Computer software used for data processing is included in the value of the associated hardware.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k. Property, plant and equipment — direct acquisitions (continued)

Property under construction is stated at cost until construction is complete, at which time it is reclassified to the specific property, plant and equipment account it relates to. During the construction period, borrowing costs, which include interest expense and foreign exchange gains or losses incurred to finance the construction of the asset, are capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalization of borrowing cost ceases when the assets are ready for its intended use.

l. Property, plant and equipment under capital leases

Property, plant and equipment acquired under capital leases are stated at the present value of minimum lease payments. At inception of the lease, a corresponding liability, which equals to the present value of minimum lease payments, is also recorded and subsequently reduced by the principal component of each minimum lease payment. The interest component of each minimum lease payment is recognized in the statement of income.

Leased assets are capitalized only if all of the following criteria are met: (a) the lessee has an option to purchase the leased asset at the end of the lease period at a price agreed upon at the inception of the lease agreement, and (b) the sum of periodic lease payments, plus the residual value, will cover the acquisition price of the leased asset and related interest, and (c) there is a minimum lease period of 2 years.

Leased assets are depreciated using the same method and over the same estimated useful lives used for directly acquired property, plant and equipment.

m. Revenue-sharing arrangements

Under PSAK 35 paragraph 4, the Company records assets under revenue-sharing agreements as “Property, plant and equipment under revenue-sharing arrangements” (with a corresponding initial credit to “Unearned income under revenue-sharing arrangements” presented in the Liabilities section of the balance sheet) based on the costs incurred by the investors as agreed upon in the contracts entered into between the Company and the investors. Property, plant and equipment are depreciated over their estimated useful lives using the straight-line method.

Unearned income related to the acquisition of the property, plant and equipment under revenue-sharing arrangements is amortized over the revenue-sharing period using the straight-line method.

At the end of the revenue-sharing period, the respective property, plant and equipment under revenue-sharing arrangements are reclassified to the “Property, plant and equipment” account.

Revenue earned under revenue-sharing arrangements is recognized on the basis of the Company’s share as provided in the agreement.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n. Joint operation schemes

Revenues from joint operation schemes include amortization of the investor’s initial payments, Minimum Telkom Revenues (“MTR”) and the Company’s share of Distributable KSO Revenues (“DKSOR”).

Unearned initial investor payments received as compensation from the KSO Investors are presented net of all direct costs incurred in connection with the KSO agreement and are amortized using the straight-line method over the KSO period of 15 years starting from January 1, 1996.

MTR are recognized on a monthly basis based upon the contracted MTR amount for the current year, in accordance with the KSO agreement.

The Company’s share of DKSOR is recognized on the basis of the Company’s percentage share of the KSO revenues, net of MTR and operational expenses of the KSO Units, as provided in the KSO agreements.

Under PSAK No. 39, “Accounting for Joint Operation Schemes”, which supersedes paragraph 14 of PSAK No. 35, “Accounting for Telecommunication Services Revenue”, the assets built by the KSO Investors under the Joint Operation Schemes are recorded in the books of the KSO Investors which operate the assets and are transferred to the Company at the end of the KSO period or upon termination of the KSO agreement.

o. Deferred charges for landrights

Costs incurred to process and extend the landrights are deferred and amortized using the straight-line method over the term of the landrights.

p. Revenue and expense recognition

i. Fixed line telephone revenues

Revenues from fixed line installations are recognized at the time the installations are placed in service. Revenues from usage charges are recognized as customers incur the charges.

ii. Cellular and fixed wireless telephone revenues

Revenues from service connections (connection fees) are recognized as income at the time the connections occur. Revenues from airtime (for cellular) and monthly subscription charges are recognized as accessed and as earned. Revenues from prepaid card customers, which consist of the sale of starter packs, also known as Subscriber Identification Module (“SIM”) cards in the case of cellular and Removable Unit Identity Card (“RUIM”) in the case of fixed wireless telephone, and pulse reload vouchers, are recognized as follows:

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

p. Revenue and expense recognition (continued)

ii. Cellular and fixed wireless telephone revenues (continued)

1. Sale of starter packs is recognized as revenue upon delivery of the starter packs to distributors, dealers or directly to customers.

2. Sale of pulse reload vouchers is recognized initially as unearned income and recognized proportionately as revenue based on successful calls made by the subscribers or whenever the unused stored value of the voucher has expired.

iii. Interconnection revenues

Revenues from network interconnection with other domestic and international telecommunications carriers are recognized as incurred and are presented net of interconnection expenses.

Expenses are recognized on an accrual basis.

q. Pension benefits

i. Defined benefit pension plans

The Company and certain subsidiaries established defined benefit pension plans covering substantially all of their permanent employees.

The Company’s net obligation in respect of the defined benefit pension plans is calculated at the net present value of estimated future benefits that the employees have earned in return for their service in the current and prior periods, deducted by any plan assets. The calculation is performed by an independent actuary using the projected unit credit method.

The benefits earned by the employees are recognized in the statement of income on a straight-line basis over the period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the statement of income.

ii. Early retirement benefits

Early retirement benefits are accrued at the time the Company makes a commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary redundancy. The Company is demonstrably committed to a termination when, and only when, the Company has a detailed formal plan for the early retirement and is without realistic possibility of withdrawal.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r. Employee benefits other than pension

i. Long service awards (“LSA”)

The Company’s employees are entitled to receive certain cash awards based on length of service requirement. The benefits are either paid at the time the employee reaches certain anniversary dates during employment, upon retirement or at the time of termination.

The Company’s obligation with respect to LSA is calculated by an independent actuary using the projected unit credit method.

ii. Post-retirement health care plan

The Company provides a post-retirement health care plan that covers its retired employees who meet age, participation and length of service requirements at retirement, and their eligible dependants.

The Company’s obligation with respect to post-retirement health care plan is calculated by an independent actuary using the projected unit credit method.

s. Income tax

The Company and subsidiaries apply the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for temporary differences between the financial and tax bases of assets and liabilities at each reporting date. This method also requires the recognition of future tax benefits, such as the benefit of tax loss carry forwards, to the extent their realization is probable. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates at each reporting date which are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Income tax is charged or credited in the statement of income, except to the extent that it relates to items recognized directly in equity, in which case it is also recognized directly in equity.

t. Earnings per share and earnings per American Depositary Share (“ADS”)

Basic earning per share is computed by dividing net income by the weighted average number of shares outstanding during the year. Net income per ADS is computed by multiplying basic earnings per share by 40, the number of shares represented by each ADS.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

u. Segment information

The Company and its subsidiaries’ segment information is presented based upon identified business segments. A business segment is a distinguishable unit that provides different products and services and is managed separately. Business segment information is consistent with operating information routinely reported to the Company’s chief operating decision maker.

Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements.

v. Derivative instruments

Derivative transactions are accounted for in accordance with PSAK 55, “Accounting for Derivative Instruments and Hedging Activities” which requires that all derivative instruments be recognized in the financial statements at fair value. To qualify for hedge accounting, PSAK 55 requires certain criteria to be met, including documentation required to have been in place at the inception of the hedge.

Changes in fair value of derivative instruments that do not qualify for hedge accounting are recognized in the statement of income. If a derivative instrument are designated and qualify for hedge accounting, changes in fair value of derivative instruments are recorded as adjustments to the assets or liabilities being hedged in the income of the current year or in the stockholders’ equity, depending on the type of hedge transaction represented and the effectiveness of the hedge.

w. Use of estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment and intangible assets, valuation allowance for receivables and obligations related to employee benefits.

3. TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS

The consolidated financial statements are stated in Rupiah. The translations of Rupiah amounts into United States Dollars are included solely for the convenience of the readers and have been made using the average of the market buy and sell rates of Rp9,160 to US$1 published by Reuters on September 30, 2004. The convenience translations should not be construed as representations that the Rupiah amounts have been, could have been, or could in the future be, converted into United States Dollars at this or any other rate of exchange.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

4. RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED

As further explained in Note 55a, the Company was informed by the United States Securities and Exchange Commission (“SEC”) that its Annual Report on Form 20-F for 2002 submitted on April 17, 2003 was not in compliance with the SEC’s rules and regulations. The Company was required to amend that report, which it did on June 11, 2003, to identify the deficiencies in its originally submitted Annual Report.

The Company is also required to make a further amendment to its Annual Report on Form 20-F to bring it into compliance with the relevant rules and regulations. Furthermore, the Indonesian Capital Markets Supervisory Agency (“BAPEPAM”) confirmed that the Company should comply with the requirements of the SEC and at the same time ensure that the same information is made available to all shareholders.

Subsequent to the issuance of the consolidated financial statements in the Annual Report on Form 20-F for the year ended December 31, 2002 and the amendment thereto that was filed with the SEC on June 11, 2003 referred to above, the Company made certain adjustments to the Indonesian GAAP amounts previously disclosed for 2000, 2001, 2002 and prior years which the Company believes are required to be made pursuant to Indonesian GAAP. Adjustments affecting the U.S. GAAP amounts and disclosures are set out in Note 58.

Set forth below are the effects of the restatements on the previously reported consolidated net income and stockholders’ equity for the nine months period ended September 30, 2003. The corrections of the Indonesian GAAP consolidated financial statements primarily relate to the accounting for long service awards, deferred income taxes and business acquisitions, as well as the assumptions underlying the Company’s post-retirement healthcare plan.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

4. RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

Set forth below are the effects of the restatements on the previously reported consolidated net income for the nine months period ended September 30, 2003 (unaudited):


		2003
Net income under Indonesian GAAP as previously reported			4,371,964

Adjustments
Long service awards	(i)		(41,442	)
Post retirement healthcare benefit	(ii)		19,382
Deferred income taxes	(iii)		72,697
Acquisition accounting	(iv)		—
Operating revenues	(v)		(360,682	)
Trade accounts payable	(vi)		—
Corrections of loan balance	(vii)		—
Corrections of tax payable	(viii)		—
Other items	(ix)		768,729
Corporate income tax	(x)		(48,418	)
Operating expenses	(xi)		(378,213	)
Interest expense	(xii)		(6,436	)
Net periodic pension cost	(xiii)		13,991

Net adjustments			39,608

Net income under Indonesian GAAP as restated			4,411,572

Basic earnings per share (full amount)
As previously reported			433.73
As restated			437.66

Basic earnings per ADS (full amount)
As previously reported			8,674.53
As restated			8,753.12

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

4. RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

The effect of the restatements on stockholder’s equity as of September 30, 2003 is set forth in the table below:


		2003
Stockholders equity under Indonesian GAAP as previously reported			16,907,807

Adjustments
Long service awards	(i)		(597,341	)
Post retirement healthcare benefits	(ii)		(1,253,683	)
Deferred income taxes	(iii)		100,581
Acquisition accounting	(iv)		(86,925	)
Operating revenues	(v)		119,741
Trade accounts payable	(vi)		58,490
Corrections of loan balance	(vii)		117,078
Corrections of taxes payable	(viii)		75,796
Other items	(ix)		793,286
Corporate income taxes	(x)		121,143
Operating expenses	(xi)		(461,052	)
Interest expenses	(xii)		(33,489	)
Net periodic pension cost	(xiii)		(199,580	)

Net adjustments			(1,245,955	)

Stockholders equity under Indonesian GAAP as restated			15,661,852

These adjustments have been reflected in the accompanying restated consolidated financial statements and are summarized as follows:

Adjustments

(i) Long service awards

The Company’s employees are entitled to receive certain cash awards, such as long service, housing, transport and other allowances, based on length of service. Depending on the type of award, they are either paid at the time an employee reaches a certain anniversary date or upon termination or retirement if the employee has met the requisite number of years of service. The Company had not previously made provision for these liabilities and was only accounting for the awards at the time payments were made to employees.

The Company has determined that these awards should have been accounted for under the accrual method.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

4. RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(ii) Post-retirement healthcare benefits

The Company provides a post-retirement healthcare plan for pensioners who were employed by the Company for over 20 years. As described in Notes 2r and 48 of the consolidated financial statements these costs are accounted for in accordance with U.S. GAAP applying SFAS 106. The Company has been recognizing the benefit obligations and the related benefit costs based on actuarial calculations.

The Company has requested the Company’s actuary to review the actuarial calculations in respect of disclosures for the post-retirement healthcare plan for the years 2000 and 2001. As a consequence of this review, the Company recalculated the portion of related expenses for the nine months period ended September 30, 2004.

(iii) Deferred income taxes

The Company has identified the need to make adjustments to correct errors in prior calculations of deferred income taxes to reflect certain temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements.

(iv) Acquisition accounting

In respect of the acquisition of Pramindo in August 2002, the Company previously consolidated a 30% interest in Pramindo in accordance with the 30% legal ownership interest in the shares held by the Company. The Company did not, however, consider other factors affecting its ability to exercise control over Pramindo and its right to obtain all of the future economic benefits of ownership as though the Company owned 100% of the shares. The factors that the Company has now considered include, among others, the fact that the selling price is fixed, its ability to vote 100% of the shares at general stockholders meetings, subject to certain protective rights retained by the selling stockholders, its ability to appoint all of the board members and management and its consequent ability to exclusively determine the financial and operating policies of Pramindo subject to certain protective rights, as a consequence, the Company has determined that consolidation of a 100% interest in Pramindo from the date of acquisition is appropriate.

In addition, in connection with the acquisition of Pramindo in August 2002 and Dayamitra in May 2001, the Company did not properly allocate the purchase consideration to certain acquired assets. The restated consolidated financial statements for 2001 and 2002 reflect adjustments to record such assets at their fair values as of the date of acquisition and subsequent depreciation thereof.

(v) Operating revenues

In line with the Infomedia business progress that have provide call center service, the Company decided to reclassify the presentation from other income to operating income. The reclassification was to conform 2004 presentation.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

4. RESTATEMENT OF FINANCIAL STATEMENTS PREVIOUSLY REPORTED (continued)

(vi) Trade accounts payable

As a result of the reconciliation of balances with other telephone operators in 2002, the Company determined that there were some errors in trade accounts payable balances that resulted in an overstatement of the payables recorded in the consolidated financial statements as of September 2003.

(vii) Correction of loan balance

As a result of reconciliation of outstanding loans at the end of 2002, the Company determined that there was a double recording of a loan balance which had a corresponding effect of overstating the foreign exchange loss in the consolidated financial statements for the nine months period ended September 30, 2003.

(viii) Correction of taxes payable

As a result of audited financial statements for the year 2003, the Company adjusted the tax payable as of September 30, 2003.

(ix) Other items

Other adjustments represent adjustments related to depreciation and reversal expenses resulted by year end audit of 2002.

(x) Corporate income tax

Certain of the above adjustment have also impacted the corporate tax calculation for the 2001 and 2002 tax years. As a result, the Company has reflected the related adjustments to the corporate tax charge in the restated consolidated financial statements for the respective years.

(xi) Operating expenses

Restatement for operating expenses represents the reclassification for amortisation of intangible assets that previously presented as part of “other expenses” into part of “operating expenses-general and administrative expenses”.

(xii) Interest expenses

Adjustment for interest expenses related to the amortisation of deferred interest in relation to acquisition of 100% equity interest in PIN since 2002.

(xiii) Net periodic pension cost

The Company assigned actuary to recalculate net periodic pension cost for the year 2002 and the Company has adjusted effect of the recalculation in its financial statement for nine months period ended September 30, 2003.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS

a. Dayamitra

On May 17, 2001, the Company acquired 90.32% of the shares of Dayamitra for an aggregate purchase price of US$134,172,232 (including consultants’ fees of approximately US$3,303,191 or Rp37,325 million). Pursuant to the terms of the agreement, the Company paid the initial payment amount of US$18,289,800 (Rp206,675 million) on May 17, 2001, the closing date of the transaction, and US$8,937,041 (Rp100,989 million) on August 10, 2001 as a post-closing working capital adjustment to the purchase price. The remaining amount of US$103,642,200 (Rp1,171,157 million) was paid through an escrow arrangement discussed below, in eight quarterly installments of US$12,955,275, from August 17, 2001 to May 17, 2003. The estimated present value of US$103,642,200 at the discount rate of 14% was estimated to be US$89,053,984 (Rp1,006,310 million).

This acquisition resulted in the identification of an intangible asset amounting to Rp1,276,575 million representing the right to operate the business in the KSO Area. The amount is being amortized over the remaining term of the KSO agreement (Note 17).

The Company acquired control of Dayamitra on May 17, 2001 and has consequently consolidated Dayamitra from that date.

The allocation of the acquisition cost for the 90.32% ownership in Dayamitra was as follows:


	Rp
Purchase consideration — net of discount on promissory notes		1,351,299

Fair value of net assets acquired:
— Cash and cash equivalents		93,652
— Distributable KSO revenue receivable		62,398
— Other current assets		9,450
— Property, plant and equipment		1,401,479
— Intangible assets		1,276,575
— Other non-current assets		19,510
— Current liabilities		(236,265	)
— Deferred tax liabilities		(581,816	)
— Non-current liabilities		(693,684	)

		1,351,299

Net cash outflow on the acquisition of Dayamitra amounted to Rp241,300 million.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS (continued)

a. Dayamitra (continued)

In connection with the Dayamitra transaction, the Company also entered into the following agreements:

1. Option Agreement

The Company entered into an Option Agreement with TM Communications (HK) Ltd (“TMC”), providing the Company with an option to acquire the remaining 9.68% equity interest in Dayamitra, referred to as the Option Share. Under the agreement, TMC, the selling stockholder, granted the Company an exclusive option to purchase full and legal title to the Option Share (the “Call Option”), and the Company granted the selling stockholder an exclusive option to sell to the Company full legal title to those shares (the “Put Option”).

In consideration for the grant of the options, the Company will pay to the selling stockholder the option purchase price of US$6,300,000, plus US$957,823 as payment for Dayamitra’s adjusted working capital, or a total of US$7,257,823. The amount is payable in eight quarterly installments of US$907,228, beginning on August 17, 2001 and ending on May 17, 2003.

Payments will be made through an escrow account established under the Escrow Agreement discussed below.

The Company may exercise the option any time after Dayamitra has satisfied all of its obligations under the JBIC (formerly J-Exim) loan (Note 27i) beginning on May 17, 2003 and until five business days prior to March 26, 2006. The strike price payable by the Company to the selling stockholder for the Option Shares upon exercise of the option is US$16,200,000, less certain amounts that are stipulated in the Option Agreement. As of September 30, 2004 the Company has not exercised the option.

As of September 30, 2004, the option purchase price that has been paid by the Company amounted to US$7,257,823 or equivalent to Rp65,458 million (2003: US$7,257,823 or equivalent to Rp79,768 million), and is presented as part of “Advance payments for investments in shares of stock” (Note 5d).

2. Escrow Agreement

An Escrow Agreement dated May 17, 2001, was entered into by and among the Company, Dayamitra, PT Intidaya Sistelindomitra (“Intidaya”), Cable and Wireless plc (“C&W plc”), PT Mitracipta Sarananusa (“Mitracipta”), TMC, Tomen Corporation (“Tomen”), Citibank N.A. Singapore (the Singapore Escrow Agent) and Citibank N.A. Jakarta (the Jakarta Escrow Agent), to establish an Escrow Account and facilitate the payment (Note 18).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS (continued)

b. Pramindo

On April 19, 2002, the Company and the stockholders of Pramindo, namely France Cables et Radio SA, PT Astratel Nusantara, Indosat, Marubeni Corporation, International Finance Corporation (“IFC”) and NMP Singapore Pte. Ltd. (“NMP Singapore”) (collectively the “Selling Stockholders”) entered into a Conditional Sale and Purchase Agreement (“CSPA”) pursuant to which the Company acquired all of Pramindo’s shares. The Selling Stockholders shares were transferred to an escrow account (hereafter referred as “escrow shares”).

Legal title to the escrow shares will be transferred to Telkom in 3 (three) specific tranches on 15 September 2002 — 30%, 30 September 2003 — 15% and on 31 December 2004 — 55% upon payment of the promissory notes issued to the selling stockholders as payment for the acquisition of the shares. The escrow shares can be accessed by the selling stockholders only upon default on payment of the promissory notes by the Company and no dividends can be paid out until the arrangements between the parties are completed or terminated in accordance with the terms of the relevant agreements.

The Company and the Selling Stockholders also entered into a Stockholders Voting Agreement (“SVA”) on August 15, 2002, pursuant to which each stockholder of Pramindo delivered to the Company a Power of Attorney (“PoA”) whereby the Company obtained the right to vote the escrow shares. The Company, thereby acquired the right to nominate all of the members of the Board of Directors and Board of Commissioners of Pramindo. The SVA is subject to certain reserve matters which serve as protective rights to the Selling Stockholders.

The aggregate purchase price amounted to US$390,308,972 (Rp3,464,040 million) plus Rp250,000 million, represented by an initial payment of approximately US$9,263,953 (Rp82,218 million), consultants’ fees of US$5,945,946 (Rp52,818 million), working capital reimbursement of Rp250,000 million, and the issue by Telkom of Promissory Notes (series I and series II) with an aggregate face value of US$375,099,073, of which the present value at the discount rate of 8.15% at the effective date of the acquisition was estimated to be US$332,802,122 (Rp2,953,617 million). The series I promissory notes are non-interest bearing and the series II promissory notes carry a market interest rate. The Promissory Notes are to be paid in 10 unequal quarterly installments beginning September 15, 2002 and are irrevocable, unconditional and transferable.

The total purchase consideration was allocated first to the net monetary assets and then the fixed assets acquired. An intangible asset of Rp2,752,267 million was identified representing right to operate the business in the KSO Area. The amount is being amortized over the remaining term of the KSO agreement (Note 17). There was no goodwill arising from this acquisition.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS (continued)

b. Pramindo (continued)

In addition, the portion that relates to Indosat’s 13% equity interest in Pramindo has been accounted for as a restructuring of entities under common control. The difference between the purchase consideration and the historical amount of the net assets acquired amounting to Rp296,038 million, included as “Difference in value of restructuring transactions between entities under common control” in the stockholders’ equity section is calculated as follows:


	Rp
Purchase consideration — net of discount on promissory notes		3,338,653
Historical amount of net assets		1,061,437

Difference in value for 100% ownership		2,277,216

Difference adjusted to stockholders’ equity for Indosat’s 13% ownership in Pramindo		296,038

The Company acquired control of Pramindo on August 15, 2002 and has consequently consolidated Pramindo from August 1, 2002 being the nearest convenient balance date.

The allocation of the acquisition cost was as follows:


	Rp
Purchase consideration — net of discount on promissory notes		3,338,653

Fair value of net assets acquired:
— Cash and cash equivalents		141,475
— Distributable KSO revenue receivable		187,468
— Other current assets		13,839
— Property, plant and equipment		1,807,338
— Intangible assets		2,752,267
— Other non-current assets		160,139
— Current liabilities		(284,120	)
— Deferred tax liabilities		(1,115,645	)
— Non-current liabilities		(620,146	)

Fair value of net assets		3,042,615
Difference adjusted to equity for 13% Indosat’s ownership in Pramindo		296,038

Total purchase consideration		3,338,653

Net cash outflow on the acquisition of Pramindo amounted to Rp243,561 million.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS (continued)

b. Pramindo (continued)

The outstanding promissory notes before unamortized discount issued for the acquisition of Pramindo are presented as “Liabilities for acquisitions of subsidiaries” in the consolidated balance sheets (Note 28). As of September 30, 2004, the promissory notes has been paid subsequent to obtain of loan from ABN Amro Bank.

c. PT AriaWest International (“AWI”)

Effective on July 31, 2003 (the “closing date”), the Company acquired 100% of the outstanding common stock of AWI, the investor in KSO III, for approximately Rp1,141,752 million plus the assumption of AWI’s debts of Rp2,577,926 million. The purchase consideration included non-interest bearing promissory notes with a face value of US$109,090,909 (Rp927,272 million), of which the present value at the discount rate of 5.16% at the closing date was estimated to be US$92,743,741 (Rp788,322 million). The promissory notes are to be paid in 10 equal semi-annual installments beginning July 31, 2004.

The acquisition of AWI has been accounted for using the purchase method of accounting. There was no goodwill arising from this acquisition. The following table summarizes the final purchase price allocation of the acquired assets and assumed liabilities based on estimates of their respective fair values at the closing date:


	Rp
Distributable KSO revenue receivable		540,267
Property, plant and equipment		1,556,269
Intangible assets		1,982,564
Other assets		34,372
Deferred tax liabilities		(393,794	)

Fair value of net assets acquired		3,719,678
Borrowings assumed		(2,577,926	)

Amount of cash and promissory notes given up		1,141,752

The Company’s consolidated results of operations include the operating results of AWI since July 31, 2003, the date of acquisition.

The outstanding promissory notes issued for the acquisition of AWI are presented as “Liabilities for acquisitions of subsidiaries” in the consolidated balance sheet as of September 30, 2004 (Note 28). As of September 30, 2004 the outstanding promissory notes, before unamortized discount, amounted to US$109,090,909 (Rp1,026,000 million).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

5. ACQUISITION OF KSO INVESTORS (continued)

c. PT AriaWest International (“AWI”) (continued)

The purchase price described above was based on third party appraisal. In addition, the Company also entered into a settlement agreement with AWI pursuant to which the Company and AWI irrevocably settled, discharged, and released claims and counterclaims in their ICC arbitration proceeding, and the Company agreed to pay a settlement amount of US$20,000,000.

d. Advance payments for investments in shares of stock


	2003		2004
Dayamitra (Note 5a)		65,458		65,458
PIN		14,310		—

		79,768		65,458

6. AMENDMENT OF JOINT OPERATION SCHEME REGIONAL IV

On January 20, 2004, the Company and PT Mitra Global Telekomunikasi Indonesia (“MGTI”), Partner of KSO IV, have amended their joint operation agreement in Regional IV. The Company and MGTI, among others, have agreed that during the remaining KSO period the Company will control and responsible for the operational of Regional Division IV. All DIVRE IV revenues shall be deposited to the KSO Account immediately on receipt and the Company is entitled to all of the Balance of KSO Revenues. The investor revenues shall be paid monthly to the Investor from KSO Account in US Dollars with the first payment of February 2004 and will be end on December 2010 totally US$517,083,302. The agreement shall terminate on December 31, 2010, at which time all right, title and interest of the Investor in the new installation shall be transferred to the Company.

The Company is interpreting the amendment of KSO agreement as Revenue Sharing Arrangement in accordance with Indonesian Statement of Financial Accounting Standard No 35. The acquisition cost of assets is recorded of US$328 million, that is the present value of projected payment of revenue sharing to MGTI on the transaction date with the contra account of “Unearned income” presented in the Liabilities section of the balance sheet.

Payment to MGTI is recorded as revenue sharing payment based on the payment schedule in the agreements from February 2004 to December 2010.

For the purpose of US GAAP treatment, the amendment was recognized as a capital lease.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

7. CASH AND CASH EQUIVALENTS


	2003		2004
Cash on hand		18,469		28,240

Cash in banks
Related parties
Rupiah
Bank Negara Indonesia		448,798		158,151
Bank Mandiri		118,362		77,877
Bank Rakyat Indonesia		11,589		12,022
Bank Pos Nusantara		2,055		3,142

Total		580,804		251,192

Foreign currencies
Bank Mandiri		188,988		15,031
Bank Negara Indonesia		419		1,789
Bank Rakyat Indonesia		453		562

Total		189,860		17,382

Total — related parties		770,664		268,574

Third parties
Rupiah
Citibank		22,250		1,984
Bank Bukopin		10,584		8,937
Bank Central Asia		8,894		4,680
Bank Niaga		203		4,237
ABN Amro Bank		48		129,355
Bank Danamon		149		114
Lippo Bank		169		1,127
Bank International Indonesia		109		16
Bank Buana Indonesia		—		246
Bank Muamalat Indonesia		26		76
Bank Mega		585		3,140
Deutsche Bank		3,679		13,142

Total		46,696		167,054

Foreign currencies
Citibank		3,010		4,166
Deutsche Bank		9,603		17,466
Standard Chartered Bank		13,787		93
ABN Amro Bank		41		2,832
Bank Internasional Indonesia		18		42
Bank Central Asia		29		19
Bank of Tokyo Mitsubishi		7		87

Total		26,495		24,705

Total — third parties		73,191		191,759

Total cash in banks		843,855		460,333

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

7. CASH AND CASH EQUIVALENTS (continued)


	2003		2004
Time deposits
Related parties
Rupiah
Bank Negara Indonesia		956,170		216,185
Bank Mandiri		765,871		1,783,597
Bank Rakyat Indonesia		501,210		43,975
Bank Tabungan Negara		212,750		187,115

Total		2,436,001		2,230,872

Foreign currencies
Bank Mandiri		548,543		—
Bank Negara Indonesia		13,481		118

Total		562,024		118

Total — related parties		2,998,025		2,230,990

Third parties
Rupiah
Standard Chartered Bank		50,000		—
Bank Mega		35,258		98,606
Bank Bukopin		57,494		105,277
Bank Yudha Bhakti		1,000		—
Bank Niaga		—		62,832
Deutsche Bank		251,197		1,377,195
Bank Danamon		182,622		43,585
ABN Amro Bank		1,000		—
Bank NISP		—		51,905
Bank International Indonesia		8,500		—
Bank Tugu		50,000		8,550
Bank Bumiputra		—		8,303
Bank Jabar		—		42,604

Total		637,071		1,798,857

Foreign currencies
Standard Chartered Bank		—		67,629
Deutsche Bank		362,981		1,526,417

Total		362,981		1,594,046

Total — third parties		1,000,052		3,392,903

Total time deposits		3,998,077		5,623,893

Total cash and cash equivalents		4,860,401		6,112,466

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

7. CASH AND CASH EQUIVALENTS (continued)

Range of interest rates per annum for time deposits is as follows:


	2003			2004
Rupiah		7.50% — 7.95	%		6.14% — 7.30	%
Foreign currencies		1.50% — 2.00	%		0.65% — 0.90	%

8. TEMPORARY INVESTMENTS


	2003		2004
Time deposits
Third parties
Rupiah
Bank Bukopin		—		3,775
Bank Bumiputra		—		10,000
Bank Mega		—		10,000
Bank Niaga		—		10,000
Bank NISP		—		10,000
Bank Jabar		—		28,559
Bank Amro		—		4,000
Standard Chartered Bank		—		7,000
Foreign currencies
Citibank		62,119		—

Total time deposits		62,119		83,334

Available-for-sale securities
Investment in mutual fund (Reksadana Bahana)
At cost		—		17,000
Unrealized gain on increase in value		—		429

		—		17,429

Investment in mutual fund (Reksadana BNI)
At cost		—		7,000
Unrealized gain on increase in value		—		36

		—		7,036

Total available-for-sale securities		—		24,465

Total temporary investments		62,119		107,799

Range of interest rates per annum for time deposits is as follows:


	2003	2004
Rupiah	7.44% — 7.92%	7.30% — 8.00%
Foreign currency	2.00%	2.50%

The terms of time deposits range from 3 months to 1 year.

Investments placed with related parties have similar interest rates, terms and conditions as those placed with third parties.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

9. TRADE ACCOUNTS RECEIVABLE

a. By Debtor

Related parties:


	2003			2004
KSO Units		590,844			514,134
Government agencies		147,176			222,974
PT Mandara Selular Indonesia (formerly PT Mobile Selular Indonesia)		44,488			40,713
PT Citra Sari Makmur		—			27,381
PT Telekomunikasi Selular		89,592			—
PT Aplikanusa Lintasarta		17,278			10,893.00
PT Patra Telekomunikasi Indonesia		8,669			11,250
BBT		1,402			—
PSN		6			—
Other		1,328			7,094

Total		900,783			834,439
Allowance for doubtful accounts		(135,689	)		(143,591	)

Net		765,094			690,848

Trade accounts receivable from certain related parties are presented net of the Company’s liabilities to such parties due to legal right of offset in accordance with agreements with those parties.

Third parties:


	2003			2004
Residential and business subscribers		2,742,709			3,525,333
Overseas international carriers		174,022			82,876
Others		80,597			44,206

Total		2,997,328			3,652,415
Allowance for doubtful accounts		(413,959	)		(562,013	)

Net		2,583,369			3,090,402

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

9. TRADE ACCOUNTS RECEIVABLE (continued)

b. By Age

Related parties:


	2003			2004
Up to 6 months		307,444			547,695
7 to 12 months		333,904			155,357
13 to 24 months		161,375			62,629
More than 24 months		98,060			68,758

Total		900,783			834,439
Allowance for doubtful accounts		(135,689	)		(143,591	)

Net		765,094			690,848

Third parties:


	2003			2004
Up to 3 months		2,583,369			3,090,402
More than 3 months		413,959			562,013

Total		2,997,328			3,652,415
Allowance for doubtful accounts		(413,959	)		(562,013	)

Net		2,583,369			3,090,402

c. By Currency

Related parties


	2003			2004
Rupiah		799,783			749,102
United States Dollar		101,000			85,337

Total		900,783			834,439
Allowance for doubtful accounts		(135,689	)		(143,591	)

Net		765,094			690,848

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

9. TRADE ACCOUNTS RECEIVABLE (continued)

c. By Currency (continued)

Third parties


	2003			2004
Rupiah		2,962,694			3,552,400
United States Dollar		34,634			100,015

Total		2,997,328			3,652,415
Allowance for doubtful accounts		(413,959	)		(562,013	)

Net		2,583,369			3,090,402

d. Movements in the allowance for doubtful accounts


	2003			2004
Beginning balance		502,989			443,892
Additions		192,113			281,622
Bad debts write-off		(145,454	)		(19,910	)

Ending balance		549,648			705,604

Management believes that the allowance for doubtful receivables is adequate to cover probable losses on uncollectible accounts.

Except for the amounts receivable from Government Agencies, management believes that there are no significant concentrations of credit risk on these receivables.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

10. INVENTORIES


	2003			2004
Components:
Telephone terminals and spare parts		64,955			30,513
Cable and transmission installation spare parts		15,309			4,459
Other spare parts		13,453			8,724

Total		93,717			43,696
Allowance for obsolescence		(26,210	)		(14,389	)

Net		67,507			29,307

Modules:
Cable and transmission installation spare parts		56,031			52,991
Telephone terminals and spare parts		38,047			34,436
Other spare parts		272			142

Total		94,350			87,569
Allowance for obsolescence		(24,617	)		(32,377	)

Net		69,733			55,192

Cards:
SIM cards and prepaid voucher blanks		48,875			87,583
Allowance for obsolescence		(519	)		(336	)

Net		48,356			87,247

Total		185,596			171,746

Movements in the allowance for obsolescence are as follows:


	2003			2004
Beginning balance		53,795			40,489
Additions		(2,006	)		7,167
Inventory write-off		(443	)		(554	)

Ending balance		51,346			47,102

Management believes that the allowance is adequate to cover probable losses from decline in inventory value due to obsolescence.

At September 30, 2004, inventory held by a certain subsidiary was insured against fire, theft and other specified risks for US$750,000. Management believes that the insurance amount is adequate to cover such risks.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

11. PREPAID EXPENSES


	2003		2004
Pension cost (Note 46)		220,206		129,480
Salary		126,835		152,700
Rental		247,141		414,769
Insurance		17,797		58,505
Telephone directory issuance		77,629		114
Other		38,364		34,610

Total		727,972		790,178

12. OTHER CURRENT ASSETS

This account consists of time deposits and restricted funds at Bank Mandiri. As of September 30, 2003, the balance consists of the Company’s time deposits of US$4.6 million (equivalent Rp38,663 million) pledged as collateral for credit facility obtained by Napsindo. and Company’s time deposit of US$25,750 (equivalent Rp236 million) and Rp1,627 million at Bank Mandiri pledged as collateral for bank guarantees. As of September 30, 2004, the balance consists of the Company’s time deposits of US$4.6 million (equivalent Rp42,549 million) pledged as collateral for credit facility obtained by Napsindo (Note 23a), Company’s bank guarantees of US25,750 (equivalent Rp236 million) and Rp1,627 million pledged as collateral for bank guarantees.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

13. LONG-TERM INVESTMENTS


	2003
	Percentage							Equity in
	of		Opening		Addition/			net income			Translation			Ending
	ownership		balance		(deduction)			(loss)			adjustment			balance
Equity method:
PT Citra Sari Makmur		25.00		62,270		—			(373	)		(6,237	)		55,660
PT Patra Telekomunikasi Indonesia		30.00		12,843		—			344			—			13,187
PT Napsindo Primatel International		60.00		4,693		(4,693	)		—			—			—
PT Multimedia Nusantara		100.00		1,928		(1,928	)		—			—			—
PT Telekomindo Selular Raya		—		26,642		(26,642	)		—			—			—
PT Metro Selular Nusantara		—		16,307		(16,307	)		—			—			—
PT Pasifik Satelit Nusantara		43.69		—		—			—			—			—
PT Menara Jakarta		—		—		—			—			—			—

				124,683		(49,570	)		(29	)		(6,237	)		68,847

Cost method:
PT Batam Bintan Telekomunikasi		5.00		587		—			—			—			587
PT Pembangunan Telekomunikasi Indonesia		3.18		199		—			—			—			199
Medianusa Pte. Ltd.		9.44		108		—			—			—
PT Komunikasi Selular Indonesia		14.20		57,570		(57,570	)		—			—			—
PT Mandara Selular Indonesia		7.44		—		—			—			—			—

				58,464		(57,570	)		—			—			894

				183,147		(107,140	)		(29	)		(6,237	)		69,741

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

13. LONG-TERM INVESTMENTS (continued)


	2004
	Percentage						Equity in
	of		Opening		Addition /		net income		Translation		Ending
	ownership		balance		(deduction)		(loss)		adjustment		balance
Equity method:
PT Citra Sari Makmur		25.00		52,422		—		869		5,813		59,104
PT Patra Telekomunikasi Indonesia		30.00		11,332		—		1,413		—		12,745
PT Telekomindo Selular Raya		—		—		—		—		—		—
PT Metro Selular Nusantara		—		—		—		—		—		—
PT Pasifik Satelit Nusantara		43.69		—		—		—		—		—

				63,754		—		2,282		5,813		71,849

Cost method:
PT Batam Bintan Telekomunikasi		5.00		587		—		—		—		587
PT Pembangunan Telekomunikasi
Indonesia		3.18		199		—		—		—		199
Medianusa Pte. Ltd.		9.44		108		—		—		—		108
PT Komunikasi Selular Indonesia		14.20		—		—		—		—		—
PT Mandara Selular Indonesia		6.40		—		—		—		—		—

				894		—		—		—		894

				64,648		—		2,282		5,813		72,743

On August 8, 2003, the Company and PT Centralindo Pancasakti Cellular (“CPSC”) signed a share-swap agreement (“KMT-IP share-swap transaction”) in which the Company delivered its 14.20% outstanding shares in PT Komunikasi Selular Indonesia (“Komselindo”), its 20.17% outstanding shares in PT Metro Selular Nusantara (“Metrosel”), and its 100% outstanding shares in PT Telekomindo Selular Raya (“Telesera”) to CPSC. In return, CPSC delivered its 30.58% outstanding shares in PT Indonusa Telemedia (“Indonusa”), 21.12% outstanding shares in PT Pasifik Satelit Nusantara (“PSN”) under certain terms and paid cash of Rp5,398 million to the Company.

From the KMT – IP share-swap transaction, the Company recognized a loss of Rp47.3 billion being the difference between the fair value of assets received and the carrying amount of the Company’s investments given to CPSC, and reversal of difference due to change of equity in Metrosel previously recognized directly in equity.

a. PT Citra Sari Makmur (“CSM”)

CSM is engaged in providing Very Small Aperture Terminal (“VSAT”), network application services and consulting services on telecommunications technology and related facilities.

b. PT Patra Telekomunikasi Indonesia (“Patrakom”)

Patrakom is engaged in providing satellite communication system services and related services and facilities to companies in the petroleum industry.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

13. LONG-TERM INVESTMENTS (continued)

c. PT Telekomindo Seluler Raya (“Telesera”)

In 2001, the Minister of Justice and Human Rights approved the corporate restructuring of PT Telekomindo Primabhakti (“Telekomindo”), an associated company engaged in the construction and development of telecommunications facilities. Pursuant to the restructuring, Telekomindo’s authorized and paid-up capital was reduced and the capital reduction became the paid-up capital of two new companies: PT Telekomindo Media Informatika (“TMI”) and PT Griya Insani Primabhakti (“GIP”).

Based on a share-swap agreement dated December 5, 2001 among the Company, PT Rajawali Corporation (“RC”), Telekomindo and TMI, the parties agreed on the following:

• The Company sold its investments in Telekomindo, TMI and GIP to RC for Rp101,838 million and recognized a gain of Rp101,838 million.

• TMI sold its investments in PT Telekomindo Selular Raya (“Telesera”) and the fixed assets of PT Multisaka Mitra (“MSM”) to the Company for Rp87,907 million and Rp17,442 million, respectively.

This transaction resulted in the Company owning 69.77% shares of Telesera as of December 31, 2001. In 2002, the Company acquired the remaining 30.23% interest in Telesera from Dana Pensiun Telkom for Rp38,093 million. In 2002, the Company also recognized a loss of Rp101,000 million to write down the carrying amount of this investment to net asset value. As of September 30, 2003, the carrying amount of this investment was Nil.

On August 8, 2003, the Company exchanged its investment in Telesera to CPSC.

d. PT Metro Selular Nusantara (“Metrosel”)

Metrosel is engaged in providing national mobile cellular services and related facilities in Central Java, Yogyakarta, East Java, Maluku and Irian Jaya.

On May 30, 2002, Metrosel made an equity call. The Company made additional capital contributions amounting to Rp13,513 million to maintain its ownership in Metrosel at 20.17%.

On August 8, 2003, the Company exchanged its investment in Metrosel to CPSC.

e. PT Pasifik Satelit Nusantara (“PSN”)

PSN is engaged in providing satellite transponder leasing and satellite-based communication services in the Asia Pacific Region.

In 2001, Management decided to recognize the decline in value of this investment due to the financial condition of PSN.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

13. LONG-TERM INVESTMENTS (continued)

e. PT Pasifik Satelit Nusantara (“PSN”) (continued)

On August 8, 2003, as a result of share-swap transaction with CPSC, the Company interest in PSN effectively increased to 43.69%.

In 2003, PSN entered into a negotiation with its current creditors to restructure its debts. Up to the date of this report, the debt restructuring has not yet been effective.

f. PT Menara Jakarta (“MJ”)

MJ was engaged in the construction and the operation of towers and related facilities. The economic difficulties faced by Indonesia have resulted in the termination of MJ’s construction projects at the end of 1997. The value of this investment has been reduced to nil.

On April 8, 2003, the Company exchanged all its shares in MJ to PT Indocitra Grahabawana (“Indocitra”) for Indocitra’s 69% ownership interest in Metra (Note 1c).

g. PT Batam Bintan Telekomunikasi (“BBT”)

BBT is engaged in providing fixed line telecommunication services at Batamindo Industrial Park in Muka Kuning, Batam Island and at Bintan Beach International Resort and Bintan Industrial Estate in Bintan Island.

h. PT Pembangunan Telekomunikasi Indonesia (“Bangtelindo”)

Bangtelindo is primarily engaged in providing consultancy services on the installation and maintenance of telecommunications facilities.

i. Medianusa Pte. Ltd.

Medianusa Pte. Ltd. is an associated company of Infomedia, which is engaged as a sales agent, in search of advertisers for telephone directories.

j. PT Komunikasi Selular Indonesia (“Komselindo”)

Komselindo is a joint venture between the Company and PT Elektrindo Nusantara (“Elektrindo”), and is engaged in providing analog mobile cellular services. These services were previously provided by the Company under a revenue-sharing arrangement with Elektrindo.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

13. LONG-TERM INVESTMENTS (continued)

j. PT Komunikasi Selular Indonesia (“Komselindo”) (continued)

Based on the Deed of Komselindo’s Stockholders Extraordinary General Meeting No. 110 dated October 10, 2000, which was notarized by Ny. R. Arie Soetardjo, S.H., the Company agreed to the conversion of Rp92,750 million of receivables from Komselindo into equity in order to maintain a 35% ownership interest.

In 2001, the Company recorded the conversion of the receivables into equity and recognized a loss upon the write-down of the new carrying amount of the investment amounting to Rp92,750 million.

On August 30, 2002, Komselindo’s stockholders through an Extraordinary Stockholders Meeting approved the equity call for debt restructuring which was included in the Settlement Agreement and the Settlement, Termination and Release Agreement dated August 30, 2002. The Company released and waived its pre-emptive right to subscribe newly issued shares resulting in the dilution of the Company’s ownership in Komselindo to 14.20%.

This debt restructuring transaction resulted in a net equity of Komselindo amounting to Rp405,421 million. As of December 31, 2002, the Company recorded its 14.20% interest in Komselindo at its net equity value of Rp57,570 million.

On August 8, 2003, the Company sold its investment in Komselindo to CPSC.

k. PT Mandara Selular Indonesia (formerly PT Mobile Selular Indonesia, “Mobisel”)

Mobisel is engaged in providing mobile cellular services and related facilities. These services were previously provided by the Company under a revenue-sharing arrangement with PT Rajasa Hazanah Perkasa (“RHP”). The capital contribution made by the Company of Rp10,398 million represented a 25% equity ownership in Mobisel.

On July 28, 2003, Mobisel’s stockholders agreed to a restructuring program which included a debt to equity conversion of Mobisel’s interconnection payables to the Company, and an equity investment by a new stockholder. The debt conversion was completed in August 2003 which resulted in dilution of the Company’s interest to 7.44%.

Subsequently, in January 2004, the Company’s ownership interest was further diluted to 6.4% following the debt to equity in conversion of Mobile’s debt to PT Property Java, Boston Investment Limited and Inquam (Indonesia) Limited Company.

As of September 30, 2004, the value of investment has been reduced to nil.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

14. PROPERTY, PLANT AND EQUIPMENT


	January 1,										September 30,
	2003		Additions		Deductions			Reclassifications			2003
At cost or revalued amounts:
Direct ownership
Land		267,933		47,601		(207	)		2,481			317,808
Buildings		1,658,390		120,373		(28,226	)		50,006			1,800,543
Switching equipment		9,629,203		294,855		—			3,389,954			13,314,012
Telegraph, telex and data communication equipment		206,667		99		(39	)		(11,067	)		195,660
Transmission installation and equipment		10,340,314		55,058		(6,802	)		4,198,527			14,587,097
Satellite, earth station and equipment		5,798,011		21,304		—			(3,027,337	)		2,791,978
Cable network		13,122,336		939,853		(18,448	)		773,004			14,816,745
Power supply		1,032,534		35,526		(3,698	)		33,265			1,097,627
Data processing equipment		2,739,837		275,333		(111	)		23,950			3,039,009
Other telecommunications peripherals		681,363		51,276		(976	)		2,596			734,259
Office equipment		639,682		65,681		(2,470	)		5,872			708,765
Vehicles		187,353		5,136		(3,789	)		(132	)		188,568
Other equipment		87,370		11,932		—			—			99,302
Property under construction:
Buildings		42,913		18,858		—			(48,934	)		12,837
Switching equipment		348,286		1,297,581		—			(1,627,570	)		18,297
Transmission installation and equipment		139,499		2,867,269		—			(2,895,101	)		111,667
Satellite, earth station and equipment		264,029		240,583		—			(23,218	)		481,394
Cable network		115,420		808,852		—			(832,199	)		92,073
Power supply		5,715		12,756		—			(16,307	)		2,164
Data processing equipment		10,807		16,303		—			(25,466	)		1,644
Other telecommunications peripherals		13,649		6,865		—			(4,279	)		16,235
Leased assets
Vehicles		3,640		—		—			—			3,640

Total		47,334,951		7,193,094		(64,766	)		(31,955	)		54,431,324

Accumulated depreciation:
Direct ownership
Buildings		736,997		125,704		(28,226	)		(1,373	)		833,102
Switching equipment		4,569,287		952,423		—			(9	)		5,521,701
Telegraph, telex and data communication equipment		202,043		997		(39	)		(11,066	)		191,935
Transmission installation and equipment		3,183,736		902,224		(21	)		(1,395	)		4,084,544
Satellite, earth station and equipment		2,001,671		144,353		(2,614	)		5,229			2,148,639
Cable network		5,286,209		710,162		(11,383	)		(10,548	)		5,974,440
Power supply		724,985		68,846		(3,610	)		191			790,412
Data processing equipment		990,054		383,761		(94	)		(9,899	)		1,363,822
Other telecommunications peripherals		499,093		33,747		(628	)		(825	)		531,387
Office equipment		460,518		69,007		(928	)		(932	)		527,665
Vehicles		167,226		11,894		(1,960	)		(133	)		177,027
Other equipment		63,020		10,447		—			—			73,467
Leased assets
Vehicles		1,506		628		—			—			2,134

Total		18,886,345		3,414,193		(49,503	)		(30,760	)		22,220,275

Net Book Value		28,448,606										32,211,049

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

14. PROPERTY, PLANT AND EQUIPMENT (continued)


	January 1,										September 30,
	2004		Additions		Deductions			Reclassifications			2004
At cost or revalued amounts:
Direct ownership
Land		298,964		15,652		(2,424	)		—			312,192
Buildings		1,819,095		31,887		(4,633	)		94,477			1,940,826
Switching equipment		10,473,392		82,218		(667	)		62,035			10,616,978
Telegraph, telex and data communication equipment		199,314		429		—			(758	)		198,985
Transmission installation and equipment		16,818,179		1,297,512		(476,231	)		2,180,418			19,819,878
Satellite, earth station and equipment		6,209,827		1,721		(163,490	)		312,468			6,360,526
Cable network		15,488,797		37,927		(2,727	)		85,574			15,609,571
Power supply		1,149,458		3,406		(312	)		41,601			1,194,153
Data processing equipment		3,252,667		309,576		(10,330	)		51,797			3,603,710
Other telecommunications peripherals		735,188		70,721		—			1,558			807,467
Office equipment		660,491		37,819		(18	)		651			698,943
Vehicles		187,853		208		(4,976	)		541			183,626
Other equipment		107,573		3,346		—			356			111,275
Property under construction:
Buildings		54,888		158,762		—			(74,939	)		138,711
Switching equipment		158,056		57,731		—			(18,364	)		197,423
Transmission installation and equipment		93,907		2,106,294		—			(2,123,183	)		77,018
Satellite, earth station and equipment		586,476		599,330		—			5,079			1,190,885
Cable network		14,524		1,082,013		—			(473,362	)		623,175
Power supply		106		21,767		—			(6,731	)		15,142
Data processing equipment		10,526		62,581		—			(47,263	)		25,844
Other telecommunications peripherals		16,483		642		—			(6,869	)		10,256
Leased assets
Vehicles		239		11		—			—			250

Total		58,336,003		5,981,553		(665,808	)		85,086			63,736,834

Accumulated depreciation:
Direct ownership
Buildings		812,319		84,274		(4,616	)		12,802			904,779
Switching equipment		5,266,488		474,272		—			37,286			5,778,046
Telegraph, telex and data communication equipment		194,249		1,686		—			(2,087	)		193,848
Transmission installation and equipment		4,956,895		1,890,880		(475,412	)		20,547			6,392,910
Satellite, earth station and equipment		2,158,379		125,691		(163,490	)		(477,648	)		1,642,932
Cable network		6,613,281		997,920		(1,011	)		576,760			8,186,950
Power supply		797,925		67,233		(387	)		3,167			867,938
Data processing equipment		1,469,816		377,715		(10,253	)		(3,673	)		1,833,605
Other telecommunications peripherals		572,190		63,155		—			(97,479	)		537,866
Office equipment		497,467		37,019		(129	)		7,267			541,624
Vehicles		173,134		3,853		(4,267	)		(623	)		172,097
Other equipment		69,302		15,957		—			(6	)		85,253
Leased assets
Vehicles		114		22		—			—			136

Total		23,581,559		4,139,677		(659,565	)		76,313			27,137,984

Net Book Value		34,754,444										36,598,850

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

14. PROPERTY, PLANT AND EQUIPMENT (continued)


	2003		2004
Proceeds from sale of property, plant and equipment		245,672		51,180
Net book value		8,859		6,063

Gain on sale		236,813		45,117

Interest capitalized to property under construction amounted to Rp17,193 million and RpNil during nine months period ended September 30, 2003 and 2004, respectively.

The Company and its subsidiaries own several pieces of land located throughout Indonesia with Building Use Rights (Hak Guna Bangunan or HGB) for a period of 20-30 years, which will expire between 2004-2032. Management believes that there will be no difficulty in obtaining the extension of the land rights when they expire.

Some of the Company’s land of 330,690 sqm is still under the name of other parties including, among others, the Ministry of Tourism, Post and Telecommunications and the Ministry of Communications of the Republic of Indonesia. The transfer to the Company of the legal title of ownership on those parcels of land is still in progress.

The estimated date of completion of assets under construction is up to January 2005. Management believes that there is no impediment to the completion of the construction in progress.

As of September 30, 2004, property, plant and equipment of the Company and subsidiaries, except for land, were insured with various insurance companies against fire, theft and other specified risks for a coverage of Rp22,518,012 million and US$1,982,291,950. In addition, the Palapa B4 and Telkom-1 satellites are insured for US$59,456,265. Management believes that the insurance coverage is adequate.

For the nine months period ended September 30, 2004, Telkomsel accelerated the depreciation of IN hardware amounted to Rp205 billion due to modernization of equipment, and then written off its related carrying cost as well as accumulated depreciation amounted to Rp395.4 billion.

Certain property, plant and equipment of the Company and subsidiaries have been pledged as collateral for lending agreements (Notes 27, 29 and 30).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

15. PROPERTY, PLANT AND EQUIPMENT UNDER JOINT OPERATION SCHEME

Set forth below are the Company’s property, plant and equipment (included in Note 14 above) that are being managed, operated and maintained by the KSOs:


	2003			2004
Land		164			201
Buildings		234,518			170,598
Switching equipment		869,269			554,272
Telegraph, telex and data communication equipment		34,014			26,344
Transmission installation and equipment		350,196			267,430
Satellite, earth station and equipment		50,483			50,420
Cable network		1,118,047			692,109
Power supply		142,954			89,696
Data processing equipment		65,651			32,457
Other telecommunications peripherals		58,103			40,402
Office equipment		48,764			30,737
Vehicles		17,406			10,143
Other equipment		462			326
Property under construction		22,960			3,322

Total cost		3,012,991			1,968,457
Accumulated depreciation		(2,210,117	)		(1,504,714	)

Net book value		802,874			463,743

In 2003, the property, plant and equipment under joint operation scheme (which not consolidated) are Regional IV Center Java and Regional VII East Indonesia.

In 2004, Joint Operation Scheme IV was consolidated since January 20, 2004.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

16. PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS


	January 1,										September 30,
	2003		Additions		Deductions			Reclassifications			2003
At cost:
Land		3,160		—		—			—			3,160
Buildings		23,727		—		—			—			23,727
Switching equipment		623,757		—		(5,897	)		(3,256	)		614,604
Transmission installation and equipment		107,558		—		(9,416	)		(5,115	)		93,027
Cable network		333,188		—		—			—			333,188
Other telecommunications peripherals		129,196		—		(2,211	)		(500	)		126,485

Total		1,220,586		—		(17,524	)		(8,871	)		1,194,191

Accumulated depreciation:
Land		1,278		118		—			—			1,396
Buildings		10,411		890		—			—			11,301
Switching equipment		360,637		32,806		(5,897	)		(3,256	)		384,290
Transmission installation and equipment		95,198		6,978		(9,416	)		(5,115	)		87,645
Cable network		246,244		21,403		—			—			267,647
Other telecommunications peripherals		129,196		—		(2,211	)		(500	)		126,485

Total		842,964		62,195		(17,524	)		(8,871	)		878,764

Net Book Value		377,622										315,427

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

16. PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS (continued)


	January 1,									September 30,
	2004		Additions		Deductions		Reclassifications			2004
At cost:
Land		3,160		15,811		—		—			18,971
Buildings		20,255		103,601		—		(7,058	)		116,798
Switching equipment		537,890		821,754		—		(57,156	)		1,302,488
Transmission installation and equipment		93,028		632,459		—		(20,739	)		704,748
Cable network		318,381		1,251,335		—		(17,789	)		1,551,927
Other telecommunications peripherals		123,972		13,495		—		(4,637	)		132,830

Total		1,096,686		2,838,455		—		(107,379	)		3,827,762

Accumulated depreciation:
Land		1,449		93		—		—			1,542
Buildings		9,804		5,630		—		(3,529	)		11,905
Switching equipment		341,525		94,343		—		(37,951	)		397,917
Transmission installation and equipment		89,720		70,816		—		(20,739	)		139,797
Cable network		225,175		153,561		—		(13,972	)		364,764
Other telecommunications peripherals		123,972		3,517		—		(4,637	)		122,852

Total		791,645		327,960		—		(80,828	)		1,038,777

Net Book Value		305,041									2,788,985

In accordance with revenue-sharing arrangements agreements, ownership rights to the property, plant and equipment under revenue-sharing arrangements are legally retained by the investors until the end of the revenue-sharing period.

The unearned income on revenue-sharing arrangements is as follows:


	2003			2004
Gross amount		1,194,190			3,870,061

Accumulated amortization:
Beginning balance		(1,077,789	)		(984,954	)
Addition (Note 39)		(59,416	)		(313,481	)
Deduction		42,757			67,572

Ending balance		(1,094,448	)		(1,230,863	)

Net		99,742			2,639,198

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

17. INTANGIBLE ASSETS


	2004
	Intangible Assets									Goodwill
	Dayamitra			Pramindo			AWI			GSD			Total
Historical cost:
Beginning balance		1,276,575			2,752,267			1,982,564			106,348			6,117,754
Additions		—			—			—			—			—
Deduction		—			—			—			—			—

Ending balance		1,276,575			2,752,267			1,982,564			106,348			6,117,754

Accumulated amortization
Beginning balance		(344,121	)		(463,253	)		(111,380	)		(54,951	)		(973,705	)
Additions		(99,906	)		(245,252	)		(200,484	)		(15,952	)		(561,594	)
Deduction		—			—			—			—			—

Ending balance		(444,027	)		(708,505	)		(311,864	)		(70,903	)		(1,535,299	)

Book value		832,548			2,043,762			1,670,700			35,445			4,582,455


	2003
	Intangible Assets									Goodwill
	Dayamitra			Pramindo			AWI			Napsindo			Metra			GSD			Total
Historical cost:
Beginning balance		1,276,575			2,752,267			—			—			—			106,348			4,135,190
Additions		—			—			1,982,564			36,788			5,751			—			2,025,103
Deduction		—			—			—			—			—			—			—

Ending balance		1,276,575			2,752,267			1,982,564			36,788			5,751			106,348			6,160,293

Accumulated amortization
Beginning balance		(115,147	)		(94,217	)		—			—			—			(33,682	)		(243,046	)
Additions		(171,730	)		(276,777	)		(44,552	)		(36,788	)		(5,751	)		(15,952	)		(551,550	)
Deduction		—			—			—			—			—			—			—

Ending balance		(286,877	)		(370,994	)		(44,552	)		(36,788	)		(5,751	)		(49,634	)		(794,596	)

Book value		989,698			2,381,273			1,938,012			—			—			56,714			5,365,697

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

18. ESCROW ACCOUNTS

Escrow accounts consist of the following:


	2003		2004
Citibank N.A., Singapore		278,374		208,830
JP Morgan Chase Bank		169,464		—
Bank Mandiri		—		6,171

Total		447,838		215,001

a. Citibank N.A., Singapore

1) This escrow account with Citibank N.A., Singapore (“Dayamitra Escrow Agent”) was established to facilitate the payment of the Company’s obligations under the Conditional Sale and Purchase Agreement and Option Agreement entered into with the selling stockholders of Dayamitra (Note 5a).

In accordance with the Escrow Agreement, the Company made the first installment payment of US$14,343,750 on May 17, 2001. Further monthly installments of US$6,250,000 for twenty four months are required by the agreement. The Company is also obliged to make additional installment payments necessary to settle the obligation on the due dates and to maintain a minimum balance of US$14,343,750.

The escrow account earns interest at LIBOR minus 0.75% per annum, which is computed on a daily basis. The interest income earned is included as part of the escrow funds. The remaining funds available will be transferred to the Company after all of the obligations related to the Dayamitra transaction are satisfied.

2) This escrow account also consist the Company’s account with Citibank N.A., Singapore (“CDMA Samsung Project Agent”) to facilitate payment of the Company’s loan to Korean Exim Bank.

In accordance with the Escrow Agreement, each disbursement from Korean Exim should be put into escrow account and will be paid to Samsung based on request of payment from Telkom. The escrow account earns interest at LIBOR minus 0.75% per annum, which is computed on a daily basis. The interest income earned is included as part of the escrow funds.

b. JP Morgan Chase Bank

This escrow account with JP Morgan Chase Bank (“Pramindo Escrow Agent”) was established to facilitate the settlement of the Company’s obligations under its Conditional Sale and Purchase Agreement for the acquisition of Pramindo (Note 5b).

In accordance with the Escrow Agreement, the Company will make installment payments of US$12,800,000 for eleven months and US$15,000,000 for sixteen months. The first installment was due on October 1, 2002.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

18. ESCROW ACCOUNTS (continued)

b. JP Morgan Chase Bank (lanjutan)

The escrow account earns interest at LIBOR minus 0.4% per annum, which is computed on a daily basis. The interest income earned will be included as part of the escrow funds. In June 2004, the account was closed and the remaining funds available were transferred to the Company.

c. Bank Mandiri

The escrow account with Bank Mandiri was established by Dayamitra in relation with the credit facilities from Bank Mandiri (Note 27f).

19. TRADE ACCOUNTS PAYABLE


	2003		2004
Related parties
Payables to other telecommunications carriers		340,974		335,263
Concession fees		262,805		397,918
Purchases of equipment, materials and services		53,227		83,741
Others		1,621		10,680

Total		658,627		827,602

Third parties
Purchases of equipment, materials and services		2,258,175		3,111,397
Payables related to revenue-sharing arrangements		109,267		107,578
Payables to other telecommunication providers		103,138		112,807

Total		2,470,580		3,331,782

Total		3,129,207		4,159,384

Trade accounts payable by currency are as follows:


	2003		2004
Rupiah		2,917,580		2,230,973
U.S. Dollars		207,372		1,164,693
Euro		3,260		760,500
Japanese Yen		—		977
Great Britain Pound Sterling		878		884
Singapore Dollars		—		1,310
Australian Dollars		117		47

Total		3,129,207		4,159,384

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

20. ACCRUED EXPENSES


	2003		2004
Early retirement benefits		330,973		7,161
Salaries and employee bonuses		340,776		303,439
Interest and bank charges		458,526		509,723
General, administrative and marketing		224,613		339,194
Operations, maintenance and telecommunications services		324,174		486,580
Other		359		6,099

Total		1,679,421		1,652,196

21. UNEARNED INCOME


	2003		2004
Prepaid pulse reload vouchers		462,754		862,323
Telephone directory		125,036		3,300
Other telecommunication services		11,604		6,658
Other		61,070		56,443

Total		660,464		928,724

22. ADVANCES FROM CUSTOMERS AND SUPPLIERS

Represent security deposits received from customers related to services and performance guarantee deposits from suppliers related to procurement contracts.

23. SHORT-TERM BANK LOANS


	2003		2004
Bank Mandiri		37,509		40,854
ABN Amro Bank		—		356,683

Total		37,509		397,537

On August 28, 2001, Napsindo entered into a loan agreement with Bank Mandiri amounting to US$1,800,000 for a one-year term. The loan is secured with the Company’s time deposits (Note 12) with interest rate at 2% above the pledged time deposits interest rate (i.e. 3% as of December 31, 2003). On November 11, 2003, the facility was extended until August 28, 2004. On April 24, 2003, Napsindo obtained a new loan from Bank Mandiri amounting to US$2,660,000 for a one-year term. The loan is secured by the Company’s time deposits and bears interest at 2% above the pledged time deposits interest rate. The facility can be extended upon approval by the Company. Subsequently, on May 4, 2004, this loan facility was extended for another one-year term and will expire on April 24, 2005. As of September 30, 2004, principal outstanding under these facilities amounted to US$4,460,000 (Rp40,854 million).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

23. SHORT-TERM BANK LOANS (lanjutan)

On January 28, 2004, the Company signed a short-term loan agreement with ABN-AMRO Bank NV Jakarta Branch (“ABN-AMRO”) in the amount of approximately US$130,000,000. The loan was used to re-purchase the outstanding promissory notes on March 15, 2004 which were issued for the acquisition of the Pramindo (Note 6b). The loan and interest is payable to ABN-AMRO in 10 monthly installments from March 2004 to December 2004. The loan bears floating interest rate of LIBOR + 2.75%. The outstanding loan as of September 30, 2004 amounted to Rp356,683 million (US$38,896,788).

24. MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities


	Notes		2003		2004
Two-step loans		25		820,428		882,591
Bank loans		27		764,979		1,123,685
Liabilities for acquisitions of subsidiaries		28		1,690,642		200,073
Suppliers’ credit loans		29		254,335		—
Bridging loan		30		50,517		—

Total				3,580,901		2,206,349

b. Long-term portion


					(In billions of Rupiah)
	Notes		Total		2005		2006		2007		2008		Later
Two-step loans		25		6,505.9		277.6		797.7		680.3		607.0		4,143.3
Guaranteed notes		26		726.6		—		—		726.6		—		—
Bonds		26		985.2		—		—		985.2		—		—
Bank loans		27		2,579.2		527.5		1,114.7		743.4		193.6		—
Liabilities for acquisitions of subsidiaries		28		607.7		—		177.1		177.1		177.1		76.5
Other long-term debt				9.1		—		—		—		—		9.1

Total				11,413.7		805.1		2,089.5		3,312.6		977.7		4,228.9

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

25. TWO-STEP LOANS

Two-step loans are loans, which were obtained by the Government from overseas banks and a consortium of contractors, which are then re-loaned to the Company. The loans entered into up to July 1994 were recorded and are payable in Rupiah based on the exchange rate at the date of draw-down. Loans entered into after July 1994 are payable in their original currencies and any resulting foreign exchange gain or loss is borne by the Company.

The details of the two-step loans are as follows:


	Interest Rate						Outstanding
Creditors	2003			2004			2003			2004
Overseas banks		2.95% — 17.51	%		3.10% — 8.49	%		7,556,223			7,164,614
Consortium of contractors		3.20% — 17.51	%		3.20% — 13.25	%		269,512			223,865

Total								7,825,735			7,388,479
Current maturities								(820,428	)		(882,591	)

Long-term portion								7,005,307			6,505,888

Details of two-step loans obtained from overseas banks as of September 30, 2003 and 2004 are as follows:


	Interest Rate						Outstanding
Currencies	2003			2004			2003		2004
U.S. Dollars		3.30% — 7.90	%		4.00% — 7.98	%		3,017,615		2,883,105
Rupiah		11.85% — 14.90	%		8.49% — 13.25	%		3,143,967		2,803,197
Japanese Yen		3.10% — 3.20	%		3.10% — 3.20	%		1,200,654		1,302,944
Euro		7.33% — 8.50	%		7.65% — 8.45	%		193,987		175,368

Total								7,556,223		7,164,614

The loans are intended for the development of telecommunications infrastructure and supporting equipment. The loans are repayable in semi-annual installments and they are due on various dates until 2025.

25. TWO-STEP LOANS (continued)

Details of two-step loans obtained from a consortium of contractors as of September 30, 2003 and 2004 are as follows:


	Interest Rate						Outstanding
Currencies	2003			2004			2003		2004
Rupiah		13.25% — 17.51	%		8.49% — 13.25	%		126,498		99,707
Japanese Yen		3.20%			3.20%			143,014		124,158

Long-term portion								269,512		223,865

The consortium of contractors consists of Sumitomo Corporation, PT NEC Nusantara Communications and PT Humpuss Elektronika (SNH Consortium). The loans were obtained to finance the second digital telephone exchange project. The loans are repayable in semi-annual installments and they are due on various dates until March 15, 2015.

Two-step loans which are payable in Rupiah bear either a fixed interest rate or a floating rate based upon the average interest rate on
3-month Certificates of Bank Indonesia during the six-months preceding the installment due date, plus 1%. Two-step loans which are payable in foreign currencies bear either a fixed rate interest or the floating interest rate offered by the lenders, plus 0.5%.

As of September 30, 2004, the Company has used all facilities under the two-step loan program and the draw-down period for the two-step loans has expired.

The Company should maintain financial ratios as follows:

a. Projected net revenue to projected debt service ratio should exceed 1.5:1 and 1.2:1 for two-step loans originating from World Bank and Asian Development Bank (“ADB”), respectively.

b. Internal financing (earnings before depreciation and interest expenses) should exceed 50% and 20% compared to capital expenditures for loans originally from World Bank and ADB, respectively.

As of September 30, 2004, the Company complied with the above mentioned ratios.

26. GUARANTEED NOTES AND BONDS


	2003		2004
Guaranteed Notes		1,255,555		726,564
Bonds		979,957		985,243

		2,235,512		1,711,807

26. GUARANTEED NOTES AND BONDS (continued)

a. Guaranteed Notes

In April 2002, TSFL, Telkomsel’s wholly-owned subsidiary, issued US$150,000,000 Guaranteed Notes (“Notes”) which are guaranteed by Telkomsel. The Notes bear interest at 9.75%, payable semi-annually on April 30 and October 30 of each year and will mature on April 30, 2007. The trustee of the Notes is Deutsche Bank Trustees (Hongkong Limited) and the custodian is Deutsche Bank AG, Hong Kong Branch.

On April 23, 2002, TSFL entered into subscription agreements with UBS AG (“UBS”) whereby UBS agreed to subscribe and pay for the Notes at an issue price equal to 99.709% of the principal amount of the Notes, less any fees. TSFL has further authorized UBS to have the Notes listed on the Singapore Exchange Securities Trading Limited (the “Singapore Exchange”).

Based on the “On-Loan Agreement” dated April 30, 2002, between Telkomsel and TSFL, the proceeds from the subscription of the Notes were lent to Telkomsel at an interest rate of 9.765% per annum, payable on the same terms as above.

On September 8, 2003, the agreement was amended such that if any Notes are cancelled, the principal amount of the outstanding loan will be reduced by the principal amount of the Notes cancelled.

TSFL may, on the interest payment date falling on or about the third anniversary of the issue date redeem the Notes, in whole or in part, at 102.50% of the principal amount of such Notes, together with interest accrued up to the redemption date. If only parts of the Notes are redeemed, the principal amount of the Notes outstanding after such redemption must be at least US$100,000,000.

Up to September 30, 2004, Telkomsel purchased US$70,633,000 (equivalent to Rp647,705 million) of the Notes from Deutsche Bank.

The current rating for the Notes issued by Standard and Poor’s is B+ and by Fitch is B+.

As of September 30, 2003 and 2004, the outstanding principal amount of the Notes and the unamortized discount are as follows:


	2003						2004
	Foreign currency			Rupiah			Foreign currency			Rupiah
	US$			equivalent			US$			equivalent
Principal		150,000,000			1,262,250			79,367,000			727,795
Discount		(795,603	)		(6,695	)		(134,252	)		(1,231	)

Net		149,204,397			1,255,555			79,232,748			726,564

26. GUARANTEED NOTES AND BONDS (continued)

b. Bonds

On July 16, 2002, the Company issued bonds amounting to Rp1,000,000 million. The bonds were issued at par value and have a term of five years. The bonds bear interest at a fixed rate of 17% per annum, payable quarterly beginning October 16, 2002. The bonds are traded on the Surabaya Stock Exchange and will mature on July 15, 2007. The trustee of the bonds is PT Bank Negara Indonesia (Persero) Tbk and the custodian is PT Danareksa Sekuritas.

The current rating for the bonds issued by Pefindo is AAA and by Standard and Poor’s is B+.

As of September 30, 2003 and 2004, the outstanding principal amount of the bonds and the unamortized discount are as follows:


	2003			2004
Principal		1,000,000			1,000,000
Discount		(20,043	)		(14,757	)

Net		979,957			985,243

During the period when the bonds are outstanding, the Company should comply with all covenants or restrictions including maintaining consolidated financial ratios as follows:

1. Debt service coverage ratio should exceed 1.5:1

2. Debt to equity ratio should not exceed:

a. 3:1 for the period of January 1, 2002 to December 31, 2002

b. 2.5:1 for the period of January 1, 2003 to December 31, 2003

c. 2:1 for the period of January 1, 2004 to the redemption date of the bonds

3. Debt to EBITDA ratio should not exceed 3:1

As of September 30, 2004, the Company complied with the covenants.

27. BANK LOANS

The details of long-term bank loans as of September 30, 2003 and 2004 are as follows:


				2003					2004
				Outstanding					Outstanding
				Original					Original
		Total facility		currency		Rupiah			currency		Rupiah
Lenders	Currency	(in million)		(in million)		equivalent			(in million)		equivalent
Group of lenders	US$		196.970		—		1,657,505			147.660		1,354,042
Citibank N.A.	EUR		73.365		40.390		396,429			58.692		663,317
	US$		114.883		20.004		168,338			76.526		701,748
Bank Central Asia	Rp		173,000.000		—		25,904			—		157,874
Deutsche Bank	Rp		108,817.711		—		82,018			—		41,009
Bank Finconesia	Rp		31,767.818		—		58,567			—		29,284
Bank Mandiri	Rp		82,425.262		—		—			—		61,297
Sindikasi Bank	Rp		90,000.000		—		40,806			—		14,631
	US$		4.000		2.932		18,681			0.796		7,299
Bank Niaga	Rp		565.000		—		—			—		2,890
The Export-Import Bank of Korea	US$		123,965		—		—			59.081		541,768
Bukopin	Rp		150,000.000		—		—			—		127,746
Bukopin	US$		25.000		12.783		107,569			—		—

Total							2,555,817					3,702,905
Current maturities of bank loans							(764,979	)				(1,123,685	)

Long-term portion							1,790,838					2,579,220

a. Group of lenders

AWI had a loan of US$270,935,729 from a group of lenders (the “lenders”) before it was 100% acquired by the Company on July 31, 2003. Based on the Conditional Sale and Purchase Agreement related to the acquisition, the Company assumed the loan by repaying US$73,965,454 and entering into a credit agreement with the lenders to finance the remaining outstanding balance of the loan amounting to US$196,970,275, with JP Morgan Chase Bank, Hong Kong office, as the facility agent. This loan bears an interest at LIBOR plus 3.5% per annum (i.e., 4.65% as of December 31, 2003), net of 10% withholding tax. The Company must pay an annual facility agent fee of US$75,000. The loan is repayable in 8 semi-annual installments beginning on December 31, 2003 with the first through the seventh installment of US$24,655,151 and final installment of US$24,384,218.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

27. BANK LOANS (continued)

b. Citibank N.A.

1. Hermes Export Facility

On December 2, 2002, pursuant to the partnership agreement with Siemens Aktiengesellschaft (AG), Telkomsel entered into the Hermes Export Facility Agreement (“Facility”) with Citibank International plc (as “Arranger” and “Agent”) covering a total facility of EUR76,195,313 which is divided into several tranches.

The agreement was subsequently amended on October 15, 2003, amending the Facility amount to EUR73,365,093, the Facility will be matured on May 28, 2008 and the first installment beginning on November 28, 2004.

The interest rate per annum on the Facility is determined based on the aggregate of the applicable margin, EURIBOR and mandatory cost, if any. Interest is payable semi-annually, starting on the utilization date of the Facility.

In addition to the interest, in 2003, Telkomsel was also charged an insurance premium for the insurance guarantee given by Hermes in favor of Telkomsel for each loan utilization amounting to EUR6,089,149, 15% of which was paid in cash. The remaining balance was settled through utilization of the Facility.

The total amount drawn down from the Facility up to September 30, 2004 amounted to EUR73,365,093 (equivalent to Rp835,205 million). As of September 30, 2004, the outstanding balance was EUR58,692,074.

2. High Performance Backbone (“HP Backbone”) Loans

a. On April 10, 2002, the Company entered into a “Loan Agreement” with Citibank N.A. (“arranger”) and Citibank International plc (“agent”), which was supported by an export credit guarantee of Hermes Kreditversicherungs AG (“lender” and “guarantor”), providing a total facility of US$23,400,000.

The facility was obtained to finance up to 85% of the cost of supplies and services sourced in Germany relating to the design, manufacture, construction, installation and testing of high performance backbone networks in Sumatra pursuant to the “Partnership Agreement” referred to above.

The lender required a fee of 8.4% of the total facility. This fee is paid twice during the agreement period, 15% of the fee is required to be paid in cash and 85% is included in the loan balance.

As of September 30, 2004, the outstanding loan was US$18,861,015. The loan is payable in ten semi-annual installments beginning in July 2004.

Amounts drawn from the facility bear interest at LIBOR plus 0.75%.

27. BANK LOANS (continued)

b. Citibank N.A. (continued)

2. High Performance Backbone (“HP Backbone”) Loans (continued)

c. On April 10, 2002, the Company entered into a loan agreement with Citibank N.A. (as an arranger) and Citibank International Plc (as an agent), which was supported by an export credit guarantee obtained from Istituto per I Servizi Assicurativi del Commercio Estero (“SACE Italy”) providing a total maximum facility to US$21,000,000. The facility was used to finance up to 85% of material and services procured in Italy in connection with the design, manufacture, development, installation and testing of Sub System VI, as part of HP Backbone network.

This facility was secured by the Company’s property under construction pursuant to the Partnership Agreement.

Amounts drawn from the facility bear fixed interest rate of 4.14%. The loans are payable in ten semi-annual installments beginning December 2003. Total principal outstanding as of September 30, 2004 was US$14,846,024.

The Company has breached a covenant in the loan agreement which stipulates that the Company will not make any loans or grant any credit to or for the benefit of any person. As of June 9, 2004, the Company has obtained a written waiver from Citibank International Plc with regard to entering into the AWI loan (Note 5c and 27a).

3. EKN-Backed Facility

On December 2, 2002, pursuant to the partnership agreement with PT Ericsson Indonesia (Note 55b), Telkomsel entered into the EKN-Backed Facility agreement (“Facility”) with Citibank International plc (as “Arranger” and “Agent”) covering a total facility amount of US$70,483,426 which is divided into several tranches.

The agreement was subsequently amended on October 15, 2003, the Facility will be matured on November 28, 2008 and the first repayment was on November 28, 2004.

The interest rate per annum on the Facility is determined based on the aggregate of the applicable margin, CIRR (Commercial Interest Reference Rate) and mandatory cost, if any. The interest charge will be paid semi annually, starting on the utilization date of the Facility.

In addition to the interest, in 2003, Telkomsel was also charged an insurance premium for the insurance guarantee given by EKN in favor of Telkomsel for each loan utilization amounting to US$4,244,793, 15% of which was paid in cash. The remaining balance was settled through utilization of the Facility.

The total amount drawn down from the Facility up to September 30, 2004 amounted to US$49,185,245 (Rp451,029 million). As of September 30, 2004, the outstanding balance was US$42,819,475.

27. BANK LOANS (continued)

c. Bank Central Asia

On April 10, 2002, the Company entered into a “Term Loan Agreement HP Backbone Sumatra Project” with Bank Central Asia, providing a total facility of Rp173,000 million. The facility was obtained to finance the Rupiah portion of the high performance backbone network in Sumatra pursuant to the “Partnership Agreement”.

Amounts drawn from the facility bear interest at 4.35% plus the 3-month time deposit rate (i.e., 11.6% as of December 31, 2003). The loans are payable in twelve quarterly installments beginning January 2004. The loan will mature in October 2006.

Total principal outstanding as of September 30, 2004 were Rp157,874 million, respectively.

The loan facility from Bank Central Asia is not collateralized.

The Company has breached a covenant in the loan agreement which stipulates that the Company will not make any guarantee or collateralize its assets for an amount exceeding US$2 million or its equivalent. As of June 23, 2004 the Company has obtained a written waiver from Bank Central Asia with regard to the Company’s time deposits collateralized for Napsindo’s loan (Notes 12b and 23a).

d. Deutsche Bank AG

On June 28, 2002, the Company entered into a contract agreement with PT Siemens Indonesia and PT NEC Nusantara Communications for addition of Central Electronic Wahler Switching Digital (“EWSD”) and Nippon Electric Automatic Exchange (“NEAX”), respectively, in Division Regional V. Subsequently, 80% of the contract amounts were factored by the vendors to Deutsche Bank AG (“Facility Agent”). The loans bear fixed interest rate at 19% per annum and are repayable in two annual installments of Rp13,400 million beginning in December 2003 for loan ex-PT NEC Nusantara Communications and Rp41,009 million beginning in January 2004 for loan ex-PT Siemens Indonesia.

e. Bank Finconesia

On June 28, 2002, the Company entered into a contract agreement with PT Olex Cables Indonesia for addition of installation of Central Lucent in Division Regional V. Subsequently, 80% of the contract amounts were factored by the vendor to Bank Finconesia. The loan bears fixed interest rate at 19% per annum and is repayable in two annual installments of Rp15,884 million beginning in December 2003.

27. BANK LOANS (continued)

f. Bank Mandiri

On November 20, 2003, Dayamitra entered into a loan agreement with Bank Mandiri for a maximum facility of Rp39,925 million. As of September 30, 2004, the facility has been fully drawn down. This facility is repayable on a quarterly basis until the fourth quarter of 2005 and bears interest at 14.5% per annum, payable on a monthly basis and subject to change. On December 30, 2003, Bank Mandiri agreed to decrease the interest rate to 14% per annum commencing in January 2004. As of September 30, 2004 the principal outstanding was Rp30,925 million.

On December 20, 2003, Dayamitra also obtained a credit facility from Bank Mandiri for a maximum facility of Rp40,000 million. The facility is repayable on a quarterly basis beginning end of the third quarter of 2004 until end of the fourth quarter of 2006 and bears interest at 14% per annum. The loan is obtained to finance the construction of Fixed Wireless CDMA project pursuant to the procurement agreement entered between Dayamitra and Samsung Electronic Co. Ltd.

The above loans are collateralized by Dayamitra’s telecommunications equipment/network with CDMA technology financed by these facilities, and Dayamitra’s share in the DKSOR of KSO Unit VI. As of September 30, 2004, principal outstanding under this facility amounted to Rp28,697 million.

On March 13, 2003, Balebat entered into a loan agreement with Bank Mandiri for a facility of Rp2,500 million. This facility bears interest at 15% per annum payable on a monthly basis, is secured by Balebat’s operating equipment and will mature in July 2006. The principal is repayable on a monthly basis. As of September 30, 2004, principal outstanding under this facility amounted to Rp1,674 million.

g. Syndicated banks (Internet Protocol Backbone (“IP Backbone”) Loan)

On February 25, 2002, the Company entered into a “Facility Funding Agreement” with Bank DBS Indonesia (syndicated agent and lender), Bank Bukopin (lender) and Bank Central Asia (lender), providing a total facility of US$4,000,000 and Rp90,000 million to fund the IP Backbone project in 7 (seven) Regional Divisions or KSO regions divided into 6 (six) batches.

Amounts drawn in U.S. Dollars bear interest at 2% plus the highest of 1, 2 or 3 month SIBOR divided by 0.87% for the first year and 2% plus the 3 month SIBOR divided by 0.87% thereafter. Amounts drawn in Rupiah bear interest at 19% fixed for the first year and 5% plus the average of BCA’s and Bukopin’s interest rates (the highest of 1, 3, 6 or 12 month time deposit rate) thereafter.

The loans are payable in eleven quarterly installments beginning in September 2002. The loans will mature on March 15, 2005.

Total outstanding IP Backbone loans for Rupiah and U.S. Dollars as of September 30, 2004 are Rp14,631 million and US$796,000 (equivalent Rp7,299 million).

27. BANK LOANS (continued)

g. Syndicated banks (Internet Protocol Backbone (“IP Backbone”) Loan) (continued)

The Company pledged the property under construction as collateral for the IP Backbone loan pursuant to Notarial Deed No.17 dated February 25, 2002 of Notary Titi Sri Amiretno Diah Wasisti Bagiono, S.H. on “Fiduciary Collateral”. The pledge has a maximum amount of US$14,587,525 and Rp401 million.

Average interest rates for the loans during 2003 and 2004 were as follows:


	2003		2004
Rupiah		17.14% — 19.00%		10.82% — 11.62%
U.S. Dollar		3.5% — 4.38%		3.31% — 4.18%

Under the Loan Agreements for HP Backbone and IP Backbone, the Company should maintain quarterly financial ratios as follows:

1. Debt to equity ratio should not exceed 3:1

2. EBITDA to interest expense should exceed 5:1

As of September 30, 2003, the Company complied with the above mentioned ratios.

h. Bank Niaga

On July 18 and December 3, 2003, Balebat entered into loan agreements with Bank Niaga for facilities totalling Rp565 million. The facilities bear interest at 15% per annum and are secured by Balebat’s time deposit and vehicles. The principal and interest are payable on a monthly basis which will end in October 2005 and December 2005, respectively. As of September 30, 2004, principal outstanding amounted to Rp319 million.

On September 27, 2004, Balebat entered into loan agreements with Bank Niaga for facilities totaling Rp2,571 million. The facilities bear interest at 12.5% per annum and secured by Balebat’s fixed assets. The principal and interest are payable on a monthly basis commencing February 2005 and will end in February 2008. As of September 30, 2004 the principal outstanding amounted to Rp2,571 million.

i. The Export-Import Bank of Korea

On August 27, 2003, the Company entered into a loan agreement with the Export-Import Bank of Korea in the amount of US$123,965,000. The loan will be used to finance the CDMA procurement with Samsung Consortium (Note 55a(v)) up to US$123,965,000 and will be available until April 2006.

The loan and interest is payable in 10 semi-annual installments on June 30 and December 30 in each year.

27. BANK LOANS (continued)

j. Bukopin

On June 21, 2002, the Company entered into a loan agreement with a consortium of banks amounting to Rp400,000 million for financing the Regional Division V Junction Project. Bukopin acting as facility agent, charged the interest for the first year on the signing date, of 19.5% and then the average 3 month deposit rate plus 4% for the remaining year. The disbursement period is 19 months from the signing of the loan agreement with the repayment period 14 times quarterly starting from April 2004. The loan facility is secured by the project equipment, with a value of not less than Rp500,000 million.

Subsequently, based on an Addendum to the loan agreement dated April 4, 2003, the loan facility was reduced to Rp150,000 million. The disbursement period changed to 18 months from the signing of the Addendum. The repayment schedule in 14 quarterly installments starting from May 21, 2004 and ending on June 21, 2007.

As of September 30, 2004, the outstanding facility was Rp127,745 million.

28. LIABILITIES FOR ACQUISITIONS OF SUBSIDIARIES

This amount represents the Company’s obligation under the Promissory Notes issued to the Selling Stockholders of Dayamitra in respect of the Company’s acquisition of 90.32% of Dayamitra, to the Selling Stockholders of Pramindo in respect of the Company’s acquisition of 100% of Pramindo, and to the Selling Stockholders of AWI in respect of the Company’s acquisition of 100% of AWI.


	2003			2004
Pramindo transaction (Note 6b)
France Cables et Radio S.A.		899,842			—
PT Astratel Nusantara		787,380			—
Indosat		292,455			—
Marubeni Corporation		179,966			—
International Finance Corporation, USA		67,497			—
NMP Singapore Pte. Ltd.		22,506			—
Less discount on promissory notes		(111,671	)		—

		2,137,975			—

AriaWest transaction (Note 6c)
PT Aria Infotek		511,914			472,672
The Asian Infrastructure Fund		121,884			112,541
MediaOne International I B.V.		341,275			315,114
Less discount on promissory notes		(122,357	)		(92,586	)

		852,716			807,741

Total		2,990,691			807,741
Current maturity — net of discount		(1,690,642	)		(200,073	)

Long-term portion — net of discount		1,300,049			607,668

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

29. SUPPLIERS’ CREDIT LOANS


	2003			2004
Tomen Corporation		—			—
Cable & Wireless plc		265,081			—
Vendor credit		54,058			—

Total		319,139			—
Current maturities		(254,335	)		—

Long-term portion		64,804			—

a. Tomen Corporation (“Tomen”)

Dayamitra entered into a Design, Supply, Construction and Installation Contract dated November 18, 1998 with Tomen, the ultimate holding company of TMC, one of the former stockholders of Dayamitra. Under the terms of the contract, Tomen is responsible for the construction of the minimum new installations required under the KSO VI Agreement in which Dayamitra is the investor.

In connection with the above agreement, Dayamitra entered into a Supplier’s Credit Agreement (“SCA”) with Tomen on November 18, 1998. The total commitment under the SCA was US$54,000,000 of which US$50,444,701 had been drawn down before the expiration date of the available credit on September 30, 1999.

Interest accrues on the amounts drawn down at LIBOR plus 4.5% per annum, and is payable semiannually in arrears. Annual interest rates in 2003 ranged from from 5.53% to 5.92%, respectively.

The SCA loan is repayable in ten semi-annual installments commencing on December 15, 2000. The SCA contains a minimum fixed repayment schedules, however, additional principal repayments are required on repayment dates in the event that Dayamitra has excess cash, as defined in the SCA. To date, Dayamitra has not been required to make additional principal repayments from excess cash. The SCA loan is secured on a pro rata basis by the security rights provided under the C&W plc bridging facility loan (Note 30).

b. Cable and Wireless plc (“C&W plc”)

Dayamitra entered into a Supplier’s Credit Agreement (“SCA”) with C&W plc on May 19, 1999.

The SCA loan is repayable in ten semi-annual installments commencing on December 15, 2000. The loan contains a minimum fixed repayment schedule, however, additional principal repayments are required on repayment dates in the event that Dayamitra has excess cash, as defined in the SCA. Interest on this loan is at the rate of LIBOR plus 4.5%. Annual interest rates in 2003 ranged from 5.53% to 5.92%.

The SCA loan is secured on a pro rata basis by the security rights provided under the C&W plc bridging facility loan. In addition, any distributions to stockholders in the form of dividends or repayments of share capital require the written consent of Tomen and C&W plc.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003 AND 2004, AND FOR THE NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 2003 AND 2004
(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

29. SUPPLIERS’ CREDIT LOANS (continued)

c. Vendor credit

1. Agreement of materials and services procurement between DMT and vendor for drawing cable network in KSO VI, with the contract amounted Rp28,491 million. Payment will be made within 24 months after the signed of Certificate of Acceptance with fixed amount. As of September 30, 2003 the second Certificates of Acceptance has not been issued and the work is still in progress.

2. Agreement for telecommunication facility development (PSTN Excellent) between the Company with vendor in Divre V Surabaya. Payment will be made within 24 months after the signed of Certificate of Acceptance with fixed amount.

3. Procurement Agreement for developing international link of Network Access Point infrastructure in Napsindo.

30. BRIDGING LOAN


	2003			2004
Total outstanding amount		76,243			—
Current maturities		(50,517	)		—

Long-term portion		25,726			—

This loan is owed by Dayamitra to C&W plc under a bridging loan facility which was assigned from three local Indonesian banks. The loan is repayable in ten semi-annual installments commencing on December 15, 2000. Interest is payable on a monthly or a quarterly basis, at the option of Dayamitra, at the rate of LIBOR plus 4% per annum. Annual interest rates in 2003 ranged from 5.06% to 5.42%.

C&W plc has agreed to the repayment of the bridging loan facility in proportion to the amounts made available to Dayamitra under this bridging loan facility and the C&W plc and Tomen Supplier’s Credit Loan. The security provided against the bridging loan facility consists of an assignment of KSO revenues, an assignment of bank accounts, a security interest in Dayamitra’s movable assets, an assignment of the Tomen construction contract, an assignment of proceeds from early termination of the KSO license by the Company, and an assignment of insurance proceeds.

Distributions to stockholders in the form of dividends or repayment of share capital require the written consent of C&W plc.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

31. MINORITY INTEREST


	2003			2004
Minority interest in net assets of subsidiaries:
Telkomsel		3,195,449			4,338,527
Infomedia		49,483			82,293
Dayamitra		36,304			39,235
Indonusa		2,928			1,814
Napsindo		4,889			—
PII		2,838			451
GSD		3			4

Total		3,291,894			4,462,324

Minority interest in net income (loss) of subsidiaries:
Telkomsel		963,015			1,396,981
Infomedia		17,539			38,534
Dayamitra		10,016			7,381
Indonusa		(670	)		(146	)
Napsindo		(5,724	)		(2,068	)
PII		(1,572	)		(1,448	)
Metra		2,126			—
GSD		1			1

Total		984,731			1,439,235

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

32. CAPITAL STOCK


	2003
			Percentage		Total
Description	Number of shares		of ownership		Paid-up capital
			%
Series A Dwiwarna share
Government of the Republic of Indonesia		1		—		—
Series B shares
Government of the Republic of Indonesia		5,160,235,355		51.19		2,580,118
JPMCB US Resident (Norbax Inc.)		885,143,050		8.78		442,572
The Bank of New York		616,342,408		6.11		308,171
Board of Commissioners
Petrus Sartono		9,558				5
Board of Directors
Kristiono		12,690				6
Agus Utoyo		11,826				6
Garuda Sugardo		8,262				4
Guntur Siregar		9,990				5
Suryatin Setiawan		10,854				5
Public (below 5% each)		3,418,215,646		33.92		1,709,108

Total		10,079,999,640		100.00		5,040,000


	2004
			Percentage		Total
Description	Number of shares		of ownership		Paid-up capital
			%
Series A Dwiwarna share
Government of the Republic of Indonesia		1		—		—
Series B shares
Government of the Republic of Indonesia		10,320,470,711		51.19		2,580,118
JPMCB US Resident (Norbax Inc.)		1,498,550,440		7.43		374,638
The Bank of New York		1,578,694,816		7.83		394,674
Board of Commissioners
Petrus Sartono		19,116				5
Board of Directors
Kristiono		25,380				6
Suryatin Setiawan		16,524				4
Woeryanto Soeradji		21,708				5
Public (below 5% each)		6,762,200,584		33.55		1,690,550

Total		20,159,999,280		100.00		5,040,000

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

32. CAPITAL STOCK

On September 28, 2004, the Company split the nominal of Series A Dwiwarna shares and Series B from Rp500 to Rp250 per share. The number of shares increase from 40,000,000,000 shares to 80,000,000,000 shares and the total paid-in capital increase from 10,079,999,640 to 20,159,999,280 (Note 1b).

33. ADDITIONAL PAID-IN CAPITAL


	2003			2004
Proceeds from sale of 933,333,000 shares in excess of par value through initial public offering in 1995		1,446,666			1,446,666
Capitalization into 746,666,640 series B shares in 1999		(373,333	)		(373,333	)

Total		1,073,333			1,073,333

34. DIFFERENCE IN VALUE OF RESTRUCTURING TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL

Represents the difference between the consideration paid or received and the historical amount of the net assets of the investee acquired or carrying amount of the investment sold, arising from transactions with entities under common control.


				Historical
	Consideration			amount of
	paid/			net assets/		Deferred		Change
	(received)			investment		income tax		in equity			Total			Tax			Net
Cross-ownership transactions in 2001:
Telkomsel		10,782,450			1,466,658		337,324		—			8,978,468			—			8,978,468
Satelindo		(2,122,260	)		—		—		(290,442	)		(2,412,702	)		(627,678	)		(1,785,024	)
Lintasarta		(437,631	)		116,834		—		—			(320,797	)		(119,586	)		(201,211	)

Total		8,222,559			1,583,492		337,324		(290,442	)		6,244,969			(747,264	)		6,992,233
Purchase of 13% interest of PIN in 2002:
		434,025			137,987		—		—			296,038			—			296,038

Total		8,656,584			1,721,479		337,324		(290,442	)		6,541,007			(747,264	)		7,288,271

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

35. TELEPHONE REVENUES


	2003		2004
Fixed lines
Local and domestic long-distance usage		4,764,504		5,304,116
Monthly subscription charges		1,402,234		2,072,775
Installation charges		149,069		158,257
Phone cards		23,452		15,976
Others		137,324		103,140

Total		6,476,583		7,654,264

Cellular
Air time charges		5,526,081		7,233,260
Monthly subscription charges		433,586		356,109
Connection fee charges		158,481		50,009
Features		3,145		50,590

Total		6,121,293		7,689,968

Total Telephone Revenues		12,597,876		15,344,232

36. INTERCONNECTION REVENUES — NET


	2003		2004
Cellular		2,591,830		3,855,206
International		291,962		417,582
Other		237,149		93,442

Total		3,120,941		4,366,230

37. REVENUE UNDER JOINT OPERATION SCHEMES


	2003		2004
Minimum Telkom Revenues		735,490		230,754
Share in Distributable KSO Revenues		350,839		210,987
Amortization of unearned initial investor payments under Joint Operation Schemes		569		1,666

Total		1,086,898		443,407

Distributable KSO Revenues represent the entire KSO revenues, less MTR and operational expenses of the KSO Units. These revenues are shared between the Company and the KSO Investors based upon agreed percentages (Note 52).

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

38. DATA AND INTERNET REVENUES


	2003		2004
SMS		1,489,708		2,481,751
Multimedia		332,476		507,901
VoIP		258,126		269,397
ISDN		59,504		100,071

Total		2,139,814		3,359,120

39. NETWORK REVENUES


	2003		2004
Satellite transponder lease		190,369		164,556
Leased lines		133,479		303,923

Total		323,848		468,479

40. REVENUE-SHARING ARRANGEMENT REVENUES


	2003		2004
Revenue-Sharing Arrangement revenues		127,747		474,697
Amortization of unearned income (Note 15)		59,416		313,481

Total		187,163		788,178

41. OPERATING EXPENSES — PERSONNEL


	2003		2004
Salaries and related benefits		1,115,280		1,454,436
Vacation pay, incentives and other benefits		593,568		850,879
Early retirements		202,312		259,209
Net periodic post-retirement benefit cost (Note 48)		506,304		366,835
Net periodic pension cost (Note 46)		139,202		765,676
Employee income tax		316,876		379,963
Long service awards (Note 47)		155,345		82,271
Housing		96,390		116,716
Medical		5,808		8,061
Others		57,944		36,802

Total		3,189,029		4,320,848

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

42. OPERATING EXPENSES — OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES


	2003		2004
Operations and maintenance		1,232,120		1,617,206
Radio frequency usage charges		303,019		374,325
Electricity, gas and water		218,105		296,046
Cost of phone cards		123,568		275,229
Concession fees		248,771		393,580
Insurance		147,587		114,887
Leased lines		72,867		109,511
Vehicles and supporting facilities		85,416		125,774
Travelling		21,681		29,847
Others		65,325		50,739

Total		2,518,459		3,387,144

43. OPERATING EXPENSES — GENERAL AND ADMINISTRATIVE


	2003		2004
Professional fees		103,732		102,735
Collection expenses		199,996		250,521
Amortization of intangible assets (Note 16)		509,011		561,594
Training, education and recruitment		101,662		154,242
Travel		105,085		142,154
Security and screening		75,714		79,861
General and social contribution		34,625		66,768
Printing and stationery		34,383		53,866
Meetings		29,062		43,277
Provision for doubtful accounts and inventory obsolescence		198,989		285,588
Research and development		7,074		9,460
Others		10,450		27,486

Total		1,409,783		1,777,552

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX


	2003		2004
a. Prepaid taxes
The Company
Corporate income tax		38,370		38,370

		38,370		38,370

Subsidiaries
Corporate income tax		—		20,778
Value added tax		—		5,697

		—		26,475

		38,370		64,845

b. Taxes payable
The Company
Income tax
Article 21		15,842		42,969
Article 22		3,348		1,448
Article 23		36,071		31,506
Article 25		2,588		87,145
Article 26		1,940		412
Article 29		864,361		310,584
Land and building		19		2
Value added tax		101,682		456,559

		1,025,851		930,625

Subsidiaries
Income tax
Article 21		98,281		9,541
Article 22		282		—
Article 23		61,850		22,770
Article 26		24,661		394
Article 29		560,785		496,636
Value added tax		6,396		30,966

		752,255		560,307

		1,778,106		1,490,932

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX (continued)

c. The components of income tax expense (benefit) are as follows:


	2003			2004
Current:
The Company		1,619,758			1,304,546
Subsidiaries		1,349,123			1,752,586

		2,968,881			3,057,132

Deferred:
The Company		(246,254	)		(14,638	)
Subsidiaries		179,567			(27,975	)

		(66,687	)		(42,613	)

		2,902,194			3,014,519

d. Corporate income tax is computed for each individual company as a separate legal entity (consolidated financial statements are not applicable for computing corporate income tax).

The reconciliation of consolidated income before tax to income before tax attributable to the Company and the consolidated income tax expense is as follows:


	2003			2004
Consolidated income before tax		8,298,497			9,478,100
Add back consolidation eliminations		2,865,634			3,082,320

Consolidated income before tax and eliminations		11,164,131			12,560,420
Deduct income before tax of the subsidiaries		(5,195,878	)		(6,429,830	)

Income before tax attributable to the Company		5,968,253			6,130,590

Tax calculated at progressive rates		1,790,446			1,839,160
Income not subject to tax		(57,092	)		(925,381	)
Interest income subject to final tax		—			(39,214	)
Non-deductible expenses		(380,407	)		371,473
Deferred tax assets from temporary difference previously not recognized		—			43,869
Deferred tax assets that cannot be utilized		20,558			—

Income tax expense of the Company		1,373,505			1,289,907
Income tax expense of the subsidiaries		1,528,689			1,724,612

Total consolidated income tax expense		2,902,194			3,014,519

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX (continued)

The reconciliation between income before tax and the estimated taxable income for the nine months period ended September 30, 2003 and 2004 is as follows:


	2003			2004
Income before tax attributable to the Company		5,968,253			6,130,590

Temporary differences:
Depreciation of property, plant and equipment		1,599,438			(118,336	)
Gain on sale of property, plant and equipment		(7,524	)		(160,284	)
Allowance/(write back) for doubtful accounts		136,484			173,709
Accounts receivable written-off		(267	)		(22,275	)
Allowance for inventory obsolescence		(3,215	)		5,582
Inventory written-off		(124	)		(283	)
Provision for early retirement benefit		(340,008	)		—
Payment of early retirement benefits		—			(43,091	)
Provision for bonus		—			(79,472	)
Net periodic pension cost		(350,864	)		173,138
Long service awards		—			59,593
Amortization of deferred stock issuance costs		(13,457	)		—
Amortization of land rights		(98,882	)		(2,829	)
Accrued interest income on AWI loan		—			45,835
Temporary differences of KSO units		8,098			21,843
Depreciation of property, plant and equipment under revenue sharing arrangements		62,195			356,518
Amortization of unearned income under revenue-sharing arrangements		(57,942	)		(313,481	)
Equity in net loss of associated companies		—			—

Total temporary differences		933,932			96,167

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX (continued)


	2003			2004
Permanent differences:
Net periodic post-retirement benefit cost		101,739			361,264
Amortization of goodwill and intangible assets		268,788			561,594
Amortization of discount on promissory notes		65,017			88,874
Equity in net loss/(income) of associates and subsidiaries		(2,160,129	)		(3,084,602	)
Gain on sale of long-term investment in Telkomsel		—			—
Interest income		(190,308	)		(133,967	)
Amortization of unearned income under revenue-sharing arrangements		—			—
Income from land/building rental		3,508			(17,015	)
Others		408,493			246,782

Total permanent differences		(1,502,892	)		(1,977,070	)

Total		(568,960	)		(1,880,903	)

Total taxable income of the Company		5,399,293			4,249,687

Current income tax expense of the Company		1,619,758			1,304,546
Current income tax expense of the subsidiaries		1,349,122			1,752,586

Total		2,968,880			3,057,132

In July 2004, Tax Office performs a tax audit for Company’s Corporate Income Tax covering fiscal years 2002 and 2003. Until this report issued, the Company has not received tax assessment letters in relation with the tax audit.

In 2003, Telkomsel received tax assessment letters (SKPKB) for all taxes covering the fiscal years 2000 and 2001. Telkomsel filed an objection on the SKPKB for fiscal year 2001 which was partly approved by Director General of Taxes. As a result, Telkomsel charged tax underpayments to expense in 2003 amounting to Rp32,283 million.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX (continued)

e. Deferred tax assets and liabilities

The details of the Company’s and subsidiaries’ deferred tax assets and liabilities are as follows:


				(Charged)/
				credited			Acquisition
	December 31,			to statements			of			September 30,
	2002			of income			AWI			2003
The Company
Deferred tax assets:
Allowance for doubtful accounts		101,389			42,575			—			143,964
Allowance for inventory obsolescence		10,507			(1,001	)		—			9,506
Provision for early retirement benefits		201,294			(102,002	)		—			99,292
Decline in value of investments		—			—			—			—
Deferred stock issuance costs		—			—			—			—
Landrights		161			(40	)		—			121
Provision for long service awards		146,769			(39,036	)		—			107,733
Provision for impairment of property, plant and equipment		1,920			—			—			1,920

Total deferred tax assets		462,040			(99,504	)		—			362,536

Deferred tax liabilities:
Difference between book and tax property, plant and equipment’s net book value		(1,513,007	)		513,464			—			(999,543	)
Revenue-sharing arrangements		(18,119	)		1,276			—			(16,843	)
Long-term investments		52,605			(30,779	)					21,826
Net periodic pension cost		(7,988	)		(138,203	)		—			(146,191	)

Total deferred tax liabilities		(1,486,509	)		345,758			—			(1,140,751	)

Deferred tax liabilities of the Company, net		(1,024,469	)		246,254			—			(778,215	)

Deferred tax liabilities of the subsidiaries, net		(2,058,697	)		(179,567	)		(393,794	)		(2,632,058	)

Total deferred tax liabilities, net		(3,083,166	)		66,687						(3,410,273	)

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

44. INCOME TAX (continued)

e. Deferred tax assets and liabilities (continued)


				(Charged)/
				credited			Acquisition
	December 31,			to statements			of		September 30,
	2003			of income			AWI		2004
The Company
Deferred tax assets:
Allowance for doubtful accounts		118,843			47,532			—		166,375
Allowance for inventory obsolescence		11,529			2,381			—		13,910
Provision for early retirement benefits		39,843			(12,927	)		—		26,916
Landrights		(546	)		(849	)		—		(1,395	)
Provision for employee bonuses		84,385			(23,842	)		—		60,543
Provision for long service awards		142,084			17,878			—		159,962
Provision for impairment of property, plant and equipment		—			—			—		—

Total deferred tax assets		396,138			30,173			—		426,311

Deferred tax liabilities:
Difference between book and tax property, plant and equipment’s net book value		(1,387,439	)		(84,223	)		—		(1,471,662	)
Accrued interest		(13,750	)		13,750					—
Revenue sharing arrangements		(58,454	)		13,518			—		(44,936	)
Long-term investments		(14,138	)		(10,522	)		—		(24,660	)
Net periodic pension cost		(88,914	)		51,941			—		(36,973	)

Total deferred tax liabilities		(1,562,695	)		(15,536	)		—		(1,578,231	)

Deferred tax liabilities of the Company, net		(1,166,557	)		14,637			—		(1,151,920	)

Deferred tax liabilities of the subsidiaries, net		(2,380,214	)		27,975			—		(2,352,239	)

Total deferred tax liabilities, net		(3,546,771	)		42,612					(3,504,159	)

f. Administration

Under taxation laws of Indonesia, the Company submits tax returns on the basis of self-assessment. The tax authorities may assess or amend taxes within ten years from the date the tax became payable.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

45. BASIC EARNINGS PER SHARE

Net income per share is computed by dividing net income by the weighted average number of shares outstanding during the year. In relation with the stock split on September 28, 2004, the total shares for the nine months period ended September 30, 2003 and 2004 computed by dividing net income for each period with the number of shares outstanding after the stock split totaling 20,159,999,280 as if the stock split was done at the beginning of the period.

The Company does not have potentially dilutive ordinary shares.

46. CASH DIVIDENDS AND GENERAL RESERVE

Pursuant to the Annual General Meeting of Shareholders as stated in notarial deed No. 17/V/2003 dated May 9, 2003 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution of cash dividends for 2002 amounting to Rp3,338,109 million or Rp331.16 per share, and appropriation of Rp813,664 million for general reserve.

In connection with the restatement of the consolidated financial statements for the two years ended December 31, 2002, the stockholders ratified the previous declaration of dividends in the Extraordinary General Meeting of Stockholders as stated in notarial deed No. 4 dated March 10, 2004 of Notary A. Partomuan Pohan, S.H., LLM. as follows:

• Dividends for 2002 amounting to Rp3,338,109 million or Rp383.63 per share, social contribution fund (“Dana Bina Lingkungan”) of Rp20,863 million and appropriated Rp813,664 million for general reserves.

• Dividends for 2001 amounting to Rp2,125,055 million or Rp210.81 per share, and appropriated Rp425,011 million for general reserves.

• Dividends for 2000 amounting to Rp888,654 million or Rp88.16 per share, and appropriated Rp126.951 million for general reserves.

Pursuant to the Annual General Meeting of Shareholders as stated in notarial deed No. 313/VII/2004 dated July 30, 2004 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution of cash dividend for 2003 amounting to Rp3,043,614 million or Rp301.95 per share and appropriation of Rp121,745 million for general reserve.

47. PENSION PLAN

a. The Company

The Company provides a defined benefit pension plan for employees hired with permanent status prior to July 1, 2002. The pension benefits are paid based on the participating employees’ latest basic salary at retirement and years of service. The plan is managed by Dana Pensiun Telkom. The participating employees contribute 18% (before March 2003: 8.4%) of their basic salaries to the plan. The Company’s contributions to the pension fund for the nine months period ended September 30, 2003 and 2004 amounted to Rp321,496 million and Rp599,959 million, respectively.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

47. PENSION PLAN (lanjutan)

In 2002, the Company added double pension benefits for participating employees above 56 years of age, beneficiaries of deceased participating employees or employees with physical disabilities. The increase applies to participating employees who retired on or after July 1, 2002. The Company also increased pension benefits for employees who retired prior to August 1, 2000 by 50%, effective January 1, 2003.

The following table presents the change in benefit obligation, the change in plan assets, funded status of the plan and the net amount recognized in the Company’s balance sheets as of September 30, 2003 and 2004, which estimated proportionally for the nine months period based on the actuarial calculation of 2003 and 2004:


	2003			2004
Change in benefit obligation
Benefit obligation at beginning of year		4,248,110			6,852,923
Service cost		89,317			102,948
Interest cost		403,348			555,371
Expected employee contributions		30,398			30,398
Expected benefit payments		(166,816	)		(181,734	)
Actuarial (gain) loss		1,597,364			(677,444	)

Benefit obligation at end of year		6,201,721			6,682,462

Change in plan assets
Fair value of plan assets at beginning of year		3,099,648			3,671,309
Expected employer contributions		391,362			89,734
Expected return on plan assets		316,280			327,504
Expected benefit payments		(166,816	)		(181,734	)
Actuarial gain (loss)		(112,080	)		(112,080	)

Fair value of plan assets at end of year		3,528,394			3,794,733

Funded status		(2,673,327	)		(2,887,729	)
Unamortized net amount resulting from changes in plan experience and actuarial assumptions		1,042,874			1,351,970
Unamortized prior service cost		1,694,609			1,537,823
Unrecognized net obligation at the date of initial application of PSAK No. 24		156,050			127,416

Prepaid pension cost		220,206			129,480

Plan assets consist mainly of Rupiah time deposits.

The unrecognized net obligation at the date of initial application of PSAK No. 24 is amortized over the expected average remaining working lives of active employees, i.e., 17.2 years, starting from January 1, 1992.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

47. PENSION PLAN (continued)

a. The Company (continued)

The actuarial valuations for the pension plan performed based on measurement date of December 31, 2003 were prepared on May 21, 2004, by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary are as follows:


	2003
Discount rate		11	%
Expected long-term return on plan assets		11	%
Salary growth rate		8	%

The components of net periodic pension cost recognized are as follows:


	2003			2004
Service cost		66,895			86,753
Interest cost		403,348			555,371
Expected return on plan assets		(316,280	)		(327,504	)
Net amortization and deferral		(132,349	)		117,588
Increase in amortization of prior service cost		117,588			333,468

Net periodic pension cost (Note 41)		139,202			765,676

In addition, the pension cost charged to the KSO Units amounted to Rp22,422 million and Rp16,196 million in 2003 and 2004, respectively.

b. Telkomsel

Telkomsel provides a defined benefit pension plan to its employees under which pension benefits to be paid are based on the employee’s latest basic salary and number of years of service. PT Asuransi Jiwasraya, a state-owned life insurance company, manages the plan. The employees contribute 5% of their final monthly basic salaries to the plan and Telkomsel contributes any remaining amount required to fund the plan.

The components of the net periodic pension cost are as follows, which estimated proportionally for the nine months period based on the actuarial calculation of 2003 and 2004:


	2003		2004
Service cost		2,301		3,116
Net amortization and deferral		1,682		3,254

Net periodic pension cost		3,983		6,370

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

47. PENSION PLAN (continued)

b. Telkomsel (continued)

The net periodic pension cost for the pension plan is calculated based on the actuarial calculation prepared by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary performed based on measurement date are as follows:


	2003
Discount rate		11	%
Expected long-term return on plan assets		7.5	%
Salary growth rate		9	%

The funded status of the plan as of September 30, 2003 and 2004 is as follows:


	2003			2004
Projected benefit obligation		31,519			41,872
Plan assets at fair value		7,680			8,504

Excess (shortages) of plan assets over projected benefit obligation		(23,839	)		(33,368	)
Unrecognized past service cost		1,866			174
Unrecognized experience adjustment		23,284			23,284

Prepaid (unfunded) pension cost		1,311			(9,910	)

The unrecognized net obligation at the date of initial application of PSAK No. 24 is amortized over the expected average remaining service period of active employees, i.e., 18.87 years, as of June 1, 1999.

c. Other Subsidiaries

Certain of the Company’s subsidiaries provide defined benefit pension plans to their employees. The employees contribute 3-5% of their basic salaries to the plan and the subsidiary contributes any remaining amount required to fund the plan. Pension benefit costs are calculated based on the actuarial valuations from an independent actuary using the Projected Unit Credit method.

As of September 30, 2004, there are no significant differences between the fair values of the plan assets of the relevant pension fund and the projected benefit obligations.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

48. LONG SERVICE AWARDS

The Company provides certain cash awards to employees who meet certain length of service requirement. The benefits, which are either paid during active employment, upon resignation, retirement or termination, are as follows:

Awards paid during active employment:

i. Karya Bhakti — long term award

ii. Long leave allowance

Awards payable upon resignation, retirement or termination:

i. Purnabhakti award and Pengabdian award

ii. Last housing allowance

iii. Last transportation allowance

The actuarial valuations for the long service awards performed based on measurement date of December 31, 2003 was prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide, using the Projected Unit Credit Method. The principal actuarial assumptions used by the independent actuary are as follows:


	2004
Discount rate		11	%
Salary growth rate		8	%

The movement of the long service awards during the nine months period ended, 2003 and 2004 is as follows (including KSO units), which estimated proportionally for the nine months period based on the actuarial calculation of 2003 and 2004:


	2003			2004
Liability at beginning of year		489,231			473,614
Net periodic benefit cost (Note 41)		155,345			82,271
Benefits paid		(167,057	)		(22,659	)

Liability at end of year		477,519			533,226

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

49. POST-RETIREMENT BENEFITS

The Company provides a post-retirement health care plan for all of its employees hired before November 1, 1995 who have worked for the Company for 20 years or more when they retire, and to their eligible dependents. The requirement of working for over 20 or more years does not apply to employees who retired prior to June 3, 1995. However, the employees hired by the Company starting from November 1, 1995 will no longer be entitled to this plan. The plan is managed by Yayasan Kesehatan Pegawai Telkom (“YKPT”).

The components of net periodic post-retirement benefit cost are as follows:


	2003			2004
Service cost		60,449			47,342
Interest cost		370,197			308,333
Expected return on plan assets		(16,775	)		(45,813	)
Amortization of unrecognized transition obligation		18,244			18,244
Amortization of prior service cost		(276	)		(276	)
Amortization of gain/losses		74,465			39,005

Net periodic post-retirement benefit cost (Note 41)		506,304			366,835

In addition, the cost of post-retirement benefits charged to the KSO Units amounted to Rp5,846 million and Rp9,781 million in 2003 and 2004, respectively.

The actuarial valuations for the post-retirement benefit plan performed based on measurement date of December 31 for each of the years were prepared on January 15, 2004, while the valuation for the post-retirement benefits as of December 31, 2003 was prepared on May 21, 2004 by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide.

The principal actuarial assumptions used by the independent actuary as of December 31, 2003 are as follows:


	2003
Discount rate		11	%
Expected return on plan assets		11	%
Health care cost trend rate assumed for next year		12	%
The ultimate trend rate		8	%
Year that the rate reaches the ultimate trend rate		2006

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

49. POST-RETIREMENT BENEFITS (continued)

The following table presents the change in benefit obligation, the change in plan assets, funded status of the plan and the net amount recognized in the Company’s balance sheets as of September 30, 2003 and 2004, which estimated proportionally for the nine months period based on the actuarial calculation of 2003 and 2004:


	2003			2004
Change in benefit obligation
Benefit obligation at beginning of year		3,812,781			3,748,771
Service cost		60,449			47,342
Interest cost		370,197			308,333
Benefits paid		(70,065	)		(75,041	)
Actuarial (gain) loss		(408,589	)		(442,565	)

Benefit obligation at end of year		3,764,773			3,586,840

Change in plan assets
Fair value of plan assets at beginning of year		343,896			466,896
Employer contributions		135,435			549,690
Actual return on plan assets		42,003			45,813
Benefits paid		(73,959	)		(75,041	)
Actuarial gain (loss)		(11,229	)		(11,228	)

Fair value of plan assets at end of year		436,146			976,130

Funded status		(3,328,627	)		(2,610,710	)
Unrecognized net transition obligation		273,655			249,330
Unrecognized prior service gain		(2,025	)		(1,657	)
Unrecognized net losses		1,108,861			484,952

Accrued post-retirement benefit cost		(1,948,136	)		(1,878,085	)

The transition obligation at the date of initial application of Rp524,250 million is amortized over 20 years, beginning on January 1, 1995.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. SIGNIFICANT RELATED PARTY INFORMATION

In the normal course of business, the Company and its subsidiaries entered into transactions with related parties. It is the Company’s policy that, the pricing of these transactions be the same as those of arms-length transactions.

The following are significant agreements/transactions with related parties:

a. Government of the Republic of Indonesia

i. The Company obtained “two-step loans” from the Government of the Republic of Indonesia, the Company’s majority stockholder.

Interest expense for two-step loans amounted to Rp742,988 million and Rp564,614 million in 2003 and 2004 respectively. Interest expense for two-step loan reflected 78.33% and 60.21% of total interest expenses in 2003 and 2004, respectively.

ii. The Company and its subsidiary pay concession fees for telecommunications services provided and radio frequency usage charges to the Ministry of Communications (formerly, Ministry of Tourism, Post and Telecommunications) of the Republic of Indonesia.

Concession fees amounted to Rp248,771 million and Rp393,580 million in 2003 and 2004, respectively. Concession fees reflected 2.3% and 2.7% of total operating expenses in 2003 and 2004, respectively. Radio frequency usage charges amounted to Rp303,019 million and Rp374,325 million in 2003 and 2004, respectively. Radio frequency usage charges reflected 2.8% and 2.6% of total operating expenses in 2003 and 2004, respectively.

b. Commissioners and Directors Remuneration

i. The Company and its subsidiaries provide honorarium and facilities to support the operational duties of the Board of Commissioners. The total of such benefits amounted to Rp10,204 million and Rp10,713 million in 2003 and 2004, respectively, which reflected 0.1% and 0.1% of total operating expenses in 2003 and 2004, respectively.

ii. The Company and its subsidiaries provide salaries and facilities to support the operational duties of the Board of Directors. The total of such benefits amounted to Rp36,948 million, and Rp40,140 million in 2003 and 2004, respectively, which reflected 0.34% and 0.28% of total operating expenses in 2003 and 2004, respectively.

c. Indosat, including Satelindo

The Company has an agreement with Indosat for the provision of international telecommunications services to the public.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

The principal matters covered by the agreement are as follows:

i. The Company provides a local network for customers to make or receive international calls. Indosat provides the international network for the customers, except for certain border towns, as determined by the Director General of Post and Telecommunications of the Republic of Indonesia. The international telecommunications services include telephone, telex, telegram, package switched data network, television, teleprinter, Alternate Voice/Data Telecommunications (“AVD”), hotline and teleconferencing.

ii. The Company and Indosat are responsible for their respective telecommunications facilities.

iii. Customer billing and collection, except for leased lines and public phones located at the international gateways, are handled by the Company.

iv. The Company receives compensation for the services provided in the first item above, based on the interconnection tariff determined by the Minister of Communications of the Republic of Indonesia.

The Company has also entered into an interconnection agreement between the Company’s fixed-line network and Indosat’s cellular network in connection with the implementation of Indosat Multimedia Mobile services and the settlement of the related interconnection rights and obligations.

Pursuant to the Ministry of Communications Decree regarding the transfer of the license for Indosat’s mobile cellular network operation from Indosat to PT Indosat Multimedia Mobile (“IM3”), the Company agreed to transfer all interconnection rights and obligations to IM3 based on Interconnection Cooperation Agreement, as regulated in the Amendment of Agreement in the side letter No. 656 dated March 18, 2002.

The Company’s compensation relating to leased lines/channel services, such as International Broadcasting System (“IBS”), AVD and bill printing is calculated at 15% of Indosat’s revenues from such services.

Indosat also leases circuits from the Company to link Jakarta, Medan and Surabaya.

The Company has been handling customer billings and collections for Indosat. Indosat is gradually taking over the activities and performing its own direct billing and collection. The Company receives compensation from Indosat computed at 1% of the collections made by the Company beginning January 1, 1995, plus the billing process expenses which are fixed at a certain amount per record.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

Telkomsel also entered into an agreement with Indosat for the provision of international telecommunications services to GSM mobile cellular customers. The principal matters covered by the agreement are as follows:

i. Telkomsel’s GSM mobile cellular telecommunications network is connected to Indosat’s international gateway exchanges to make outgoing or receive incoming international calls through Indosat’s international gateway exchanges.

ii. Telkomsel’s GSM mobile cellular telecommunications network is connected to Indosat’s mobile cellular telecommunications network, enabling Telkomsel’s cellular subscribers to make outgoing calls to or receive incoming calls from Indosat’s cellular subscribers.

iii. Telkomsel receives as compensation for the interconnection, a specific percentage of Indosat’s revenues from the related services which are made through Indosat’s international gateway exchanges and mobile cellular telecommunications network.

iv. Billings for calls made by Telkomsel’s customers are handled by Telkomsel. Telkomsel is obliged to pay Indosat’s share of revenue regardless whether billings to customers have been collected.

v. The provision and installation of the necessary interconnection equipment is Telkomsel’s responsibility. Interconnection equipment installed by one of the parties in another party’s locations shall remain the property of the party installing such equipment. Expenses incurred in connection with the provision of equipment, installation and maintenance are borne by Telkomsel.

Telkomsel also has an agreement with Indosat on the usage of Indosat’s telecommunications facilities. The agreement, which was made in 1997 and is valid for eleven years, is subject to change based on an annual review and mutual agreement by both parties. The charges for the usage of the facilities amounted to Rp13,450 million and Rp13,035 million in 2003 and 2004, respectively, reflecting 0.1% and 0.1% of total operating expenses in 2003 and 2004, respectively. Other agreements between Telkomsel and Indosat are as follows:

i. Agreement on Construction and Maintenance for Jakarta-Surabaya Cable System (“J-S Cable System”).

On October 10, 1996, Telkomsel, Lintasarta, Satelindo and Indosat (the “Parties”) entered into an agreement on the construction and maintenance of the J-S Cable System. The Parties have formed a management committee which consists of a chairman and one representative of each of the Parties to direct the construction and operation of the cable system. The construction of the cable system was completed in 1998. In accordance with the agreement, Telkomsel shared 19.325% of the total construction cost. Telkomsel shares in the operating and maintenance costs based on an agreed formula.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

The cost of operation and maintenance shared amounted to Rp430 million and Rp464 million for the years 2003 and 2004, respectively.

ii. Indefeasible Right of Use Agreement

On September 21, 2000, Telkomsel entered into agreement with Indosat on the use of SEA — ME — WE 3 and tail link in Jakarta and Medan. In accordance with the agreement, Telkomsel was granted an indefeasible right to use certain capacity of the Link starting from September 21, 2000 until September 20, 2015 in return for an upfront payment of US$2,727,273. In addition to the upfront payment, Telkomsel is also charged annual operation and maintenance costs amounting to US$136,364.

As of April 8, 2004, in connection with merger of Indosat, amendment to the agreements with Indosat, including extension of period, is still in process.

The Company and its subsidiary earned net interconnection revenues (expenses) from Indosat (including IM3 and Satelindo in 2003) of Rp757,962 million and Rp(421,579) million in 2004 1.7% of total operating revenues in 2004.

The Company and its subsidiary earned net interconnection revenue from IM3 amounted to Rp225,195 million in 2003.

The Company leases international circuits from Indosat, subsequent to the merger of Satelindo to Indosat in 2003. Payments made in relation to the lease expense amounted to Rp20,369 million and Rp10,659 in 2003 and 2004, which reflected 0.2% and 0.1% of total operating expenses for 2003 and 2004 respectively.

The Company has an agreement with Satelindo, an Indosat subsidiary, whereby both parties agreed, among other matters, on the following:

i. Interconnection of the Company’s fixed-line network (“PSTN”) with Satelindo’s international gateway exchange, enabling the Company’s customers to make outgoing or receive incoming international calls through Satelindo’s international gateway exchange.

ii. Billings for the international telecommunications services used by domestic customers through Satelindo’s international gateway exchange will be handled by the Company.

The Company also has an agreement with Satelindo for the interconnection of Satelindo’s GSM mobile cellular telecommunications network with the Company’s PSTN, enabling the Company’s customers to make outgoing calls to or receive incoming calls from Satelindo’s customers.

Interconnection revenues earned from Satelindo were Rp1,094,365 million in 2003 and 2004, respectively, which reflected 5.6% of total operating revenues for 2003.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)

c. Indosat, including Satelindo (continued)

In 1994, the Company transferred to Satelindo the right to use a parcel of Company-owned land located in Jakarta which had been previously leased to Telekomindo, an associated company. Based on the transfer agreement, Satelindo is given the right to use the land for 30 years and can apply for the right to build properties thereon. The ownership of the land is retained by the Company. Satelindo agreed to pay Rp43,023 million to the Company for the thirty-year right. Satelindo paid Rp17,210 million in 1994 and the remaining Rp25,813 million was not paid because the Utilization Right (“Hak Pengelolaan Lahan”) on the land could not be delivered as provided in the transfer agreement. In 2000, the Company and Satelindo agreed on an alternative solution resulting in which the payment is treated as a lease expense up to 2006. In 2001, Satelindo paid the remaining amount of Rp59,860 million as lease expense up to 2024. As of September 30, 2004, the prepaid portion is shown in the consolidated balance sheets as “Advances from customers and suppliers.”

d. The Company provides telecommunication services to Government agencies.

e. The Company has entered into agreements with Government agencies and associated companies, Lintasarta, CSM and Patrakomindo, for utilization of the Company’s Palapa B4 and Telkom 1 satellite transponders or frequency channels. Revenues earned from these transactions amounted to Rp16,028 million and Rp47,457 million in 2003 and 2004, respectively, which reflected 0.08% and 0.2% of total operating revenues in 2003 and 2004, respectively.

f. The Company provides leased lines to associated companies and Indosat’s subsidiaries i.e., CSM, Lintasarta, Satelindo, Komselindo, Mobisel, Metrosel, Indosat Multi Media and PSN (2004: Exclude CSM, Satelindo, Komselindo, Mobisel and Metrosel). The leased lines can be used by the associated companies for telephone, telegraph, data, telex, facsimile or other telecommunications services. Revenue earned from these transactions amounted to Rp25,622 million and Rp48,622 million in 2003 and 2004, respectively, reflecting 0.1% and 0.2% of total operating revenues in 2003 and 2004, respectively.

g. The Company purchases property and equipment including construction and installation services from a number of related parties. These related parties include PT Industri Telekomunikasi Indonesia (“PT INTI”), Lembaga Elektronika Nasional, PT Adhi Karya, PT Pembangunan Perumahan, PT Nindya Karya, PT Boma Bisma Indra, PT Wijaya Karya, PT Waskita Karya, PT Gratika, Telekomindo, Bangtelindo, Telesera and Koperasi Pegawai Telekomunikasi. Total purchases made from these related parties amounted to Rp60,008 million and Rp1,143,153 million in 2003 and 2004, respectively, reflecting 0.7% and 19.2% of total fixed assets purchases in 2003 and 2004, respectively.

h. PT INTI is also a major contractor and supplier for providing equipment, including construction and installation services for Telkomsel. Total purchases from PT INTI in 2003 and 2004 amounted to Rp66,936 million and Rp182,303 million, respectively, reflecting 1.6% and 4.9% of total fixed assets purchased in 2003 and 2004, respectively.

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)

i. The Company and its subsidiaries carry insurance (on their property, plant and equipment against property losses, inventory and on employees’ social security) obtained from PT Asuransi Jasa Indonesia, PT Asuransi Tenaga Kerja and PT Persero Asuransi Jiwasraya, which are state-owned insurance companies. Insurance premiums charged amounted to Rp126,035 million and Rp64,566 million in 2003 and 2004, respectively, reflecting 1.2% and 0.4% of total operating expenses in 2003 and 2004, respectively.

j. The Company and its subsidiaries maintain current accounts and time deposits in several state-owned banks. In addition, some of those banks are appointed as collecting agents for the Company. As of December 31, 2001, the Company also has an investment in mutual funds managed by Danareksa, a state-owned company. Total placements in form of current accounts and time deposits in state-owned banks and mutual funds amounted to Rp3,055,468 million and Rp2,533,512 million as of September 30, 2003 and 2004, respectively, reflecting 6.29% and 4.51% of total assets as of September 30, 2003 and 2004, respectively. Interest income recognized during 2004 was Rp69,183 million, which reflecting 50.87% of total interest income.

k. The Company leases buildings, purchases materials and construction services, and utilizes maintenance and cleaning services from Dana Pensiun Telkom and PT Sandhy Putra Makmur, a subsidiary of Yayasan Sandikara Putra Telkom — a foundation managed by Dharma Wanita Telkom. Total charges from these transactions amounted to Rp18,680 million and Rp14,570 million in 2003 and 2004, respectively, reflecting 0.2% and 0.1% of total operating expenses in 2003 and 2004, respectively.

l. The Company and its subsidiary earned interconnection revenues from Komselindo, Metrosel, Mobisel, BBT and PSN (2004: excluding Komselindo and Metrosel), with a total of Rp15,748 million and Rp8,523 million in 2003 and 2004, respectively, which reflect 0.06% and 0.03% of total operating revenues in 2003 and 2004, respectively.

m. The Company has also seconded a number of its employees to related parties to assist them in operating their business. In addition, the Company provided certain of its related parties with the right to use its buildings free of charge.

100

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)


	2003				2004
			% of				% of
	Rp		total assets		Rp		total assets
a. Cash and cash equivalents (Note 7)		3,768,689		7.76		2,499,564		4.45

b. Temporary investments (Note 8)		—		—		7,036		0.00

c. Trade account receivable — net (Note 9)		765,094		1.57		690,848		1.23

d. Other account receivables
KSO Units		112,585		0.00		125,635		0.00
State-owned banks (interest)		32		0.00		975		0.00
Government agencies		3,044		0.00		15,855		0.00
Others		72		0.00		29,931		0.00

Total		115,733		0.00		172,396		0.00

e. Prepaid expenses (Note 11)		442,467		0.01		340,799		0.01

f. Other current assets (Note 11)		38,663		0.00		44,412		0.00

g. Advances and other non-current assets
Bank Mandiri		—		—		115,880		0.00
PT Asuransi Jasindo		—		—		61		0.00
Peruri		—		—		813		0.00

Total		—		—		116,754		0.00

101

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

50. RELATED PARTY INFORMATION (continued)


	2003				2004
			% of				% of
	Rp		liabilities		Rp		liabilities
h. Trade accounts payable (Note 19)
Government agencies		253,983		0.01		397,915		0.01
KSO Units		19,189		0.00		58,042		0.00
Indosat (including Satelindo)		240,658		0.01		273,232		0.01
Koperasi Pegawai Telkom		10,584		0.00		8,389		0.00
PSN		5,787		0.00		8,883		0.00
PT INTI		23,400		0.00		70,505		0.00
Others		3,075		0.00		10,636		0.00

Total		556,676		0.02		827,602		0.03

i. Accrued expenses (Note 20)
Government agencies		135,726		0.01		55,957		0.00
Employees		726,792		0.02		516,884		0.02
PT Asuransi Jasa Indonesia		17,168		0.00		8,572		0.00

Total		879,686		0.03		581,413		0.02

j. Short-term bank loans (Note 23)
Bank Mandiri		37,509		0.00		40,854		0.00

k. Two step loans (Note 24 and 25)		7,825,735		0.26		7,388,479		0.23

l. Long service awards (Note 48)		477,519		0.02		533,226		0.02

m. Post-retirement benefits (Note 49)		3,764,773		0.13		3,586,840		0.11

n. Long-term bank loans (Note 27)
Bank Mandiri		—		—		61,297		0.00

51. SEGMENT INFORMATION

The Company and its subsidiaries have two main business segments: fixed line and cellular. The fixed line segment provides local and domestic long-distance telephone services and other telecommunications services (including among others, leased lines, telex, transponder, satellite and Very Small Aperture Terminal-VSAT) as well as ancillary services. The cellular segment provides basic telecommunication services, particularly mobile cellular telecommunication services. Operating segments that do not individually represent more than 10% of the Company’s revenues are presented as “Other” comprising the telephone directories and building management businesses.

Segment revenues and expenses include transactions between business segments and are accounted for at amounts prices that represent market prices.

102

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

51. SEGMENT INFORMATION (continued)


	2003
										Total before						Total
	Fixed line			Cellular			Other			elimination			Elimination			consolidated
Segment results
Operating revenues
External operating revenues		11,967,875			7,471,808			176,996			19,616,679			—			19,616,679
Intersegment operating revenues		(177,818	)		541,548			18,132			381,862			(381,862	)		—

Total operating revenues		11,790,057			8,013,356			195,128			19,998,541			(381,862	)		19,616,679

Operating expenses		(7,149,032	)		(3,535,080	)		(189,916	)		(10,874,028	)		85,386			(10,788,642	)

Operating income		4,641,025			4,478,276			5,212			9,124,513			(296,476	)		8,828,037
Interest expense		(831,687	)		(116,836	)		—			(948,523	)		—			(948,523	)
Interest income		201,807			47,009			6,715			255,531			—			255,531
Gain (loss) on foreign exchange — net		162,581			2,066			727			165,374			—			165,374
Other income (charges) — net		2,559			(9,741	)		53,501			46,319			(48,213	)		(1,894	)
Tax expense		(1,539,941	)		(1,345,139	)		(17,114	)		(2,902,194	)		—			(2,902,194	)
Equity in net income of associated companies		2,538,047			—			—			2,538,047			(2,538,075	)		(28	)

Income before minority interest		5,174,391			3,055,635			49,041			8,279,067			(2,882,764	)		5,396,303
Unallocated minority interest		—			—			—			—			—			(984,731	)

Net income		5,174,391			3,055,635			49,041			8,279,067			(2,882,764	)		4,411,572

Other information
Segment assets		47,353,994			14,200,237			366,157			61,920,388			(13,397,438	)		48,522,950
Investments in associates		69,741			—			—			69,741			—			69,741

Total consolidated assets		47,423,735			14,200,237			366,157			61,990,129			(13,397,438	)		48,592,691

Total consolidated liabilities		(30,588,434	)		(5,070,382	)		(232,489	)		(35,891,305	)		6,252,359			(29,638,946	)

Minority interest		—			—			—			—			—			(3,291,894	)

Capital expenditures		(5,040,449	)		(4,077,492	)		(34,390	)		(9,152,331	)		—			(9,152,331	)

Depreciation and amortization		(2,212,370	)		(1,125,062	)		(6,954	)		(3,344,386	)		10,943			(3,333,443	)

Amortization of intangible assets		(509,011	)		—			—			(509,011	)		—			(509,011	)

Other non-cash expenses		(295,898	)		(76,122	)		(2,837	)		(374,857	)		—			(374,857	)

Net cash provided by operating activities		4,171,046			4,988,484			19,963			9,179,493			6,398			9,185,891

Net cash used in investing activities		(947,301	)		(4,238,173	)		(20,750	)		(5,206,224	)		(711,185	)		(5,917,409	)

Net cash used in financing activities		(4,318,850	)		(460,120	)		(27,178	)		(4,806,148	)		704,787			(4,101,361	)

103

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

51. SEGMENT INFORMATION (continued)


	2004
										Total before						Total
	Fixed line			Cellular			Other			elimination			Elimination			consolidated
Segment results
Operating revenues
External operating revenues		14,766,146			9,966,373			286,937			25,019,456			—			25,019,456
Intersegment operating revenues		278,612			(716,973	)		—			(438,361	)		438,361			—

Total operating revenues		15,044,758			9,249,400			286,937			24,581,095			438,361			25,019,456

Operating income		4,485,550			5,804,356			58,399			10,348,305			76,215			10,424,520
Interest expense		(784,333	)		(153,407	)		(40	)		(937,780	)		—			(937,780	)
Interest income		146,980			69,610			2,690			219,280			—			219,280
Gain (loss) on foreign exchange — net		(545,210	)		(32,429	)		(105	)		(577,744	)		—			(577,744	)
Other income (charges) — net		312,794			41,659			69,303			423,756			(76,215	)		347,541
Tax expense		(1,237,748	)		(1,738,416	)		(38,355	)		(3,014,519	)		—			(3,014,519	)
Equity in net income of associated companies		3,084,602			—			—			3,084,602			(3,082,319	)		2,283

Income before minority interest		5,462,635			3,991,373			91,892			9,545,900			(3,082,319	)		6,463,581
Unallocated minority interest		—			—			—			—			—			(1,439,235	)

Net income		5,462,635			3,991,373			91,892			9,545,900			(3,082,319	)		5,024,346

Other information
Segment assets		40,171,468			19,439,469			331,709			59,942,646			(12,665,426	)		47,277,220
Investments in associates		9,809,824			—			—			9,809,824			—			9,809,824

Total consolidated assets		49,981,292			19,439,469			331,709			69,752,470			(12,665,426	)		57,087,044

Total consolidated liabilities		(29,083,037	)		(7,043,678	)		(126,352	)		(36,253,067	)		3,309,385			(32,943,682	)

Minority interest		—			—			—			—			—			(4,462,324	)

Capital expenditures		(2,221,267	)		(3,701,691	)		(43,789	)		(5,966,747	)		—			(5,966,747	)

Depreciation and amortization		(2,692,979	)		(1,784,779	)		(12,594	)		(4,490,352	)		(9,846	)		(4,500,198	)

Amortization of intangible assets		(561,594	)		—			—			(561,594	)		—			(561,594	)

Other non-cash expenses		(202,589	)		(68,013	)		(4,522	)		(275,124	)		—			(275,124	)

Net cash provided by operating activities		3,526,345			6,858,595			29,159			10,414,099			—			10,414,099

Net cash used in investing activities		(634,931	)		(3,641,741	)		(26,692	)		(4,303,364	)		—			(4,303,364	)

Net cash used in financing activities		(3,733,505	)		(1,354,710	)		(4,526	)		(5,092,741	)		—			(5,092,741	)

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52. JOINT OPERATION SCHEMES (“KSO”)

In 1995, the Company and five investors (PT Pramindo Ikat Nusantara, PT AriaWest International, PT Mitra Global Telekomunikasi Indonesia, PT Dayamitra Telekomunikasi and PT Bukaka Singtel International) entered into agreements for Joint Operation Schemes (“KSO”) and KSO construction agreements for the provision of telecommunication facilities and services for the Sixth Five-Year Development Plan (“Repelita VI”) of the Republic of Indonesia. The five investors undertook the development and operation of the basic fixed telecommunications facilities and services in five of the Company’s seven regional divisions.

Under the Joint Operation Scheme, the KSO Unit is required to make payments to the Company consisting of the following:

• Minimum Telkom Revenue (“MTR”)
Represents the amount guaranteed by the KSO investor to be paid to the Company in accordance with the KSO agreement.

• Distributable KSO Revenues (“DKSOR”)
DKSOR are the entire KSO revenues, less the MTR and the operational expenses of the KSO Units, as provided in the KSO agreements. These revenues are shared between the Company and the KSO Investors based on agreed upon percentages.

The DKSOR from fixed wireless revenues (“Telkom Flexi Revenues”) are shared between the Company and KSO Investor based on a ratio of 95% and 5%, respectively.

The DKSOR from non-Telkom Flexi Revenues are shared between the Company and KSO Investor based on a ratio of 30% and 70%, respectively, except for KSO VII. For KSO VII, the DKSOR from non-Telkom Flexi Revenues are shared between the Company and KSO Investor at a ratio of 35% and 65%, respectively. Effective on 31 July 2003, the ratio for distribution of DKSOR from non-Telkom Flexi Revenue in KSO III was changed to 5% and 95% for the Company and KSO Investor, respectively, from the date thereof until 31 December 2005, and to 30% and 70%, respectively, thereafter.

At the end of the KSO period, all rights, title and interests of the KSO Investor in existing installations and all work in progress, inventories, equipment, materials, plans and data relating to any approved additional new installation projects then uncompleted or in respect of which the tests have not been successfully completed, shall be sold and transferred to the Company without requiring any further action by any party, upon payment by the Company to the KSO Investor of one hundred Rupiah, plus:

i. the net present value, if any, of the KSO Investor’s projected share in DKSOR from the additional new installations forming part of the KSO system on the termination date over the balance of the applicable payback periods, and

ii. an amount to be agreed upon between the Company and the KSO Investor as a fair compensation in respect of any uncompleted or untested additional new installations transferred.

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52. JOINT OPERATION SCHEMES (“KSO”) (continued)

The depreciation of the Rupiah against the U.S. Dollars, which started in the second half of 1997, has impacted the financial condition of the KSO Investors. In response to economic conditions, on June 5, 1998, all KSO Investors and the Company signed a Memorandum of Understanding (“MoU”) to amend certain provisions of the KSO agreements. Among the amendments are as follows:

i. The percentage of sharing of the distributable KSO revenues for 1998 and 1999 was 10% and 90% for the Company and the KSO Investors, respectively.

ii. The minimum number of access line units to be installed by the KSO Investors up to March 31, 1999 was 1,268,000 lines.

iii. The incremental rate of the MTR would not exceed 1% in 1998 and 1.5% in 1999 for the KSO agreements with the Investors that have MTR incremental factors.

iv. “Operating Capital Expenditures” in each of the KSO Units will be shared between the Company and the respective KSO Investors in proportion to the previous year’s share in the annual net income of the KSO Units, starting from 1999.

v. The cancellation of the requirement to maintain a bank guarantee in respect of MTR.

In 1998 and 1999, the Company adopted the provisions of the MoU. Beginning November 1999, the Company and the KSO Investors had begun to renegotiate the terms of the KSO agreements in conjunction with the changing environment and the expiration of certain terms in the MoU. Among others, it was agreed to return to most of the provisions of the original KSO agreements beginning January 1, 2000.

KSO I

In 2002, the Company and the stockholders of Pramindo (KSO Investor) reached an agreement in which the Company acquired 100% of Pramindo and gained control over the operation of KSO Unit I (Note 5b).

KSO III

Effective on July 31, 2003, the Company and the stockholders of AWI (KSO Investor) reached an agreement in which the Company acquired 100% of AWI and gained control over the operation of KSO Unit III (Note 5c).

KSO IV

Beginning January 20, 2004, the Company and MGTI entered into an amendment to the KSO agreement previously Joint Operation Scheme into Revenue Sharing Agreement. (Note 6).

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52. JOINT OPERATION SCHEME (“KSO”) (continued)

KSO VI

In 2001, the Company and the stockholders of Dayamitra (KSO Investor) reached an agreement in which the Company acquired 90.32% of Dayamitra and gained control over the operation of KSO Unit VI. In addition, the Company entered into a put and call option arrangement for the remaining 9.68% of the issued and paid up capital of Dayamitra (Note 5a).

KSO VII

The Company and PT Bukaka Singtel International intend to continue the KSO schemes in accordance with original agreements with some additional projects.

The gross MTR and DKSOR of the unconsolidated KSOs for the nine months period ended September 30, 2003 and 2004 were Rp1,086,329 million and Rp441,741 million, respectively.

53. REVENUE-SHARING ARRANGEMENTS

The Company has entered into separate agreements with several investors under Revenue-Sharing Arrangements (“RSA”) to develop fixed lines, public card-phone booths (including their maintenance) and related supporting telecommunications facilities.

As of September 30, 2004, the Company has 30 RSA with 24 partners. The RSA were located mostly in Palembang, Pekanbaru, Jakarta and Surabaya with concession period ranging from 24 to 172 months.

Under the RSA, the investors finance the costs incurred in developing telecommunications facilities. Upon completion of the construction, the Company manages and operates the facilities and bears the cost of repairs and maintenance during the revenue-sharing period. The investors legally retain the rights to the property, plant and equipment constructed by them during the revenue-sharing periods. At the end of each revenue-sharing period, the investors transfer the ownership of the facilities to the Company.

The revenues earned from the customers in the form of line installation charges are allocated in full to the investors. The revenues from outgoing telephone pulses and monthly subscription charges are shared between the investors and the Company based on certain agreed ratio. Certain additional arrangements are made for revenues earned from analog mobile cellular, whereby revenues from international outgoing pulses are allocated in full to the Company. Revenues earned from pay phone cards during the revenue-sharing period are shared 60:40 (in favor of the investors) based on the recorded usage of pulses.

The net book value of property, plant and equipment under RSA which have been transferred to property, plant and equipment amounted to Rp8,871 and Rp107,379 million in 2003 and 2004, respectively (Note 16).

Pursuant to the amendment of KSO IV agreement with MGTI (Investor of KSO IV) dated January 20, 2004 in respect of revenue sharing mechanism, the Company interpreted that the new revenue sharing mechanism in KSO IV is substantially changed to Revenue Sharing Arrangement (Note 6).

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53. REVENUE-SHARING ARRANGEMENTS (continued)

On February 2004, the Company applied Telecommunication Service scheme and decided to cease build, operate and transfer scheme. There are five types under new scheme, there are: revenue sharing arrangement, compensation, reimbursement, donation and connectivity. In relation with the new scheme, head of division was allowed to make agreement telecommunication facility development with partners in their divisions which more profitable to the Company and priority given to the development of CDMA facilities.

54. TELECOMMUNICATIONS SERVICES TARIFFS

Under Law No. 36 year 1999 and Government Regulation No. 52 year 2000, tariffs for the use of telecommunications network and telecommunication services are determined by providers based on the tariffs category, structure and with respect to fixed line telecommunication services price cap formula set by the Government.

Fixed Line Telephone Tariffs

Fixed line telephone tariffs are imposed for network access and usage. Access charges consist of a one-time installation charge and a monthly subscription charge. Usage charges are measured in pulses and classified as either local or domestic long-distance. The tariffs depend on call distance, call duration, the time of day, the day of the week and holidays.

Tariffs for fixed line telephone are regulated under Minister of Communications Decree No. KM.12 year 2002 dated January 29, 2002 concerning the addendum of the decree of Minister of Tourism, Post and Telecommunication (“MTPT”) No. 79 year 1995, concerning the Method for Basic Tariff Adjustment on Domestic Fixed Line Telecommunication Services. Furthermore, the Minister of Communications issued Letter No. PK 304/1/3 PHB-2002 dated January 29, 2002 concerning increase in tariffs for fixed line telecommunications services. According to the letter, tariffs for fixed line domestic calls would increase by 45.49% over three years. The average increase in 2002 was 15%. This increase was effective on February 1, 2002.

To follow up the previous Letter, the Ministry of Communications issued Letter No. PR.304/2/4/PHB-2002 dated December 17, 2002 regarding tariff adjustments for domestic fixed line telecommunications services effective on January 1, 2003. Considering the fact that the Independent Regulatory Body, a precondition for the tariff adjustment, had not been established, The Minister of Communications postponed the implementation of tariffs adjustments by issuing Ministerial Letter No. PR.304/1/1/PHB-2003, dated January 16, 2003.

However, on March 30, 2004, the Minister of Communications issued Announcement No. PM.2 year 2004 regarding the Implementation of Restructuring in the Telecommunications Sector, commencing April 1, 2004 the Company apply the new fixed line tariff (local, domestic long-distance and monthly subscription charges). Monthly subscription charges increase by average of 21% for all customers segment, local usage increase by average of 28% per minute and domestic long-distance decrease by average of 10%.

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54. TELECOMMUNICATIONS SERVICES TARIFFS (continued)

Mobile Cellular Telephone Tariffs

Tariff for cellular providers are set on the basis of the MTPT Decree No. KM. 27/PR.301/MPPT-98 dated February 23, 1998. Under the regulation, the cellular tariffs consist of activation fees, monthly charges and usage charges.

The maximum tariff for the activation fee is Rp200,000 per new subscriber number. The maximum tariff for the monthly charges is Rp65,000. Usage charges consist of the following:

a. Air time

The maximum basic airtime tariff charged to the originating cellular subscriber is Rp325/minute. Charges to the originating cellular subscriber are calculated as follows:


1. Cellular to cellular.		: 2 times airtime rate
2. Cellular to PSTN.		: 1 times airtime rate
3. PSTN to cellular.		: 1 times airtime rate
4. Card phone to cellular		: 1 times airtime rate plus 41% surcharges

b. Usage Tariffs

1. Usage tariffs charged to a cellular subscriber who makes a call to a fixed line (“PSTN”) subscriber are the same as the usage tariffs applied to PSTN subscribers. For the use of local PSTN network, the tariffs are computed at 50% of the prevailing local PSTN tariffs.

2. The long-distance usage tariffs between two different service areas are the same as the prevailing tariffs for domestic long-distance call (“SLJJ”) applied to PSTN subscribers.

Based on the Decree No. KM. 79 year 1998 of the Ministry of Communications, the maximum tariff for prepaid customers may not exceed 140% of the peak time tariffs for post-paid subscribers.

Interconnection Tariffs

Interconnection tariffs regulate the sharing of interconnection calls between the Company and other cellular operators.

The current interconnection tariff is governed under MTPT Decree No. KM.46/PR.301/MPPT-98 (“KM. 46 year 1998”) dated February 27, 1998 which came into effect on April 1, 1998 and was further revised by the Minister of Communications Decree No. KM.37 year 1999 dated June 11, 1999 (“KM. 37 year 1999”).

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54. TELECOMMUNICATIONS SERVICES TARIFFS (continued)

Interconnection Tariffs (continued)

i. International interconnection with PSTN and cellular telecommunications network

Based on KM. 37 year 1999, effective December 1, 1998, the international interconnection tariffs are calculated by applying the following charges to successful incoming and outgoing calls to the Company’s network:


		Tariff
Access charge		Rp850 per call
Usage charge		Rp550 per paid minute
Universal Service Obligation (USO)		Rp750 per call

ii. Mobile and fixed cellular interconnection with the PSTN

Based on KM. 46 year 1998, cellular interconnection tariffs with PSTN are as follows:

1. Local Calls

For local calls from a mobile cellular network to PSTN, the cellular operator pays the Company 50% of the prevailing tariffs for local calls. For local calls from PSTN to a cellular network, the Company charges its subscribers the applicable local call tariff plus an airtime charge, and pays the cellular operator the airtime charge.

2. Domestic Long-distance Calls

KM. 46 year 1998 provides tariffs which vary among long-distance carriers depending upon the routes and the long-distance network used. Pursuant to this decree, for long-distance calls which originate from the PSTN, the Company is entitled to retain a portion of the prevailing long-distance tariffs, which portion ranges from 40% of the tariffs, in cases where the entire long-distance traffic is carried by cellular operator’s network and delivered to another, and up to 85% of the tariffs, in cases where the entire long-distance traffic is carried by the PSTN.

For long-distance calls which originate from a cellular operator, the Company is entitled to retain a portion of the prevailing long-distance tariffs, which portion ranges from 25% of the tariff, in cases where the entire long-distance traffic is carried by cellular operator’s network and the call is delivered to a cellular subscriber, and up to 85% of the tariff, in cases where the entire long-distance traffic is carried by the PSTN and the call is delivered to a PSTN subscriber.

Interconnection tariffs with mobile satellite networks (“STBSAT”) are established based on Joint Operation Agreements between the Company and STBSAT providers pursuant to Minister of Communications Decree No. KM. 30 year 2000 concerning Global Mobile Personal Telecommunication Service Tariffs by Garuda Satellite dated March 29, 2000. Flat interconnection tariffs per minute apply for those companies.

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54. TELECOMMUNICATIONS SERVICES TARIFFS (continued)

Interconnection Tariffs (continued)

ii. Mobile and fixed cellular interconnection with the PSTN (continued)

2. Domestic Long-distance Calls (continued)

Interconnection tariffs with mobile cellular networks, including USO, are determined based on the duration of the call. Access and usage charges for international telecommunications traffic interconnection with telecommunications networks of more than one domestic carrier are to be shared proportionately with each carrier involved, which proportion is determined by the MTPT.

Interconnection tariffs between a fixed wireless network and PSTN, and amongst PSTN, are regulated under MTPT letter No. KU.506/1/1/MPPT-97 dated January 2, 1997 and letter No. KU.506/4/6/MPPT-97 dated July 21, 1997. Currently, Ratelindo is the only operator of a fixed wireless network and apart from the Company, PT Batam Bintan Telekomunikasi (“BBT”) is the only operator of PSTN. For fixed wireless interconnection with the PSTN and BBT with the PSTN, the “sender-keeps-all” basis for local calls is applied and for domestic long-distance calls that originate from Ratelindo’s network and transit to the PSTN, the Company receives 35% of Ratelindo’s revenue for such calls. For domestic long-distance calls that originate from the PSTN, the Company retains 65% as its revenue for such calls. For long distance calls from and to BBT, the Company retains 75% of the revenue while BBT receives the remaining 25%.

iii. Mobile cellular interconnection with other mobile cellular providers

Based on KM. 46 year 1998, the mobile cellular interconnection tariffs with other mobile cellular providers are as follows:

1. Local Calls

For local calls from one cellular telecommunications network to another, the originating cellular operator pays the airtime to the destination cellular operator. If the call is carried by the PSTN, the cellular operator pays the PSTN operator 50% of the prevailing tariffs for local calls.

2. Domestic Long-distance Calls

For long-distance calls which are originated from a cellular telecommunications network, the cellular operator is entitled to retain a portion of the prevailing long-distance tariffs, which portion ranges from 15% of the tariff in cases where the entire long-distance traffic is not carried by the cellular operator, up to 60% of the tariff in cases where the entire long-distance portion is carried by the cellular operator and the call is delivered to another cellular operator, or up to 75% if the call is delivered to the same cellular operator.

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54. TELECOMMUNICATIONS SERVICES TARIFFS (continued)

iii. Mobile cellular interconnection with other mobile cellular providers (continued)

In connection with the issuance of Law No. 36 year 1999 and Government Regulation No. 52 year 2000, the Minister of Communications, on May 31, 2001, issued Decree No. KM. 20 year 2001, concerning Operations of Telecommunications Network and KM. 21 year 2001, concerning Operations of Telecommunications Services, which became effective from the date of the decree. Subsequently, the Minister of Communications issued Decree No. KM. 84 year 2002 concerning Telecommunication Traffic Clearing Process.

Public Phone Kiosk (“Wartel”) Tariff

The Company is entitled to retain 70% of the telephone tariff based on Director of Operational and Marketing Decree No. KD 01/HK220/OPSAR-33/2002 dated January 16, 2002, which came into effect on February 16, 2002. This governs the transition of the business arrangement between Telkom and Wartel providers, from a commission-based revenue sharing into agreed usage charges (pulses).

On August 7, 2002, the Minister of Communications issued Decree No. KM. 46 year 2002 regarding the operation of phone kiosks. The decree provides that the Company is entitled to retain a maximum of 70% of the phone kiosk basic tariffs for domestic calls and up to 92% of phone kiosk basic tariffs for international calls.

55. COMMITMENTS

a. Capital Expenditures

As of September 30, 2004, the amount of capital expenditures committed under contractual arrangements, principally relating to procurement and installation of switching equipment, transmission equipment and cable network, are as follows:


	Amounts in
	foreign currencies		Equivalent
Currencies	(in thousands)		in Rupiah
Rupiah		—		1,492,942
U.S. Dollars		226,606		2,077,980
Euro		185,200		209,083
Japanese Yen		51,507		4,257

Total				3,784,262

The above balance includes the following significant agreements:

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55. COMMITMENTS (continued)

a. Capital Expenditures (continued)

(i) Procurement Agreements

In September 2001, Telkomsel entered into agreements with its three suppliers called “Strategic Partners”, namely Motorola, Inc., Ericsson Radio A.B., and Siemens Aktiengesellschaft (AG) and one Strategic Supplier (Nokia Oyj.); which was subsequently also called “Strategic Partner” for the procurement of equipment and related services. In accordance with the agreements with these suppliers, the procurement will be made based on the Notification to Proceed (“NTP”), the agreed procurement planning between Telkomsel and its suppliers for the coming 18 months divided into 6-quarterly periods, which are confirmed with the issuance of Execution Orders (“EO”) on a quarterly basis. The total amount in the EO could be higher or lower but not less than 75% of the amount in the NTP.

The agreements are valid and effective as of the execution date by the respective parties for a period of three years and extendable upon mutual agreement of both parties to a maximum of two additional years.

Telkomsel’s procurement (import) under the agreements with Motorola and Nokia Oyj were made through the Letter of Credit Facilities from Citibank N.A. and Deutsche Bank (which expired in 2003). Telkomsel’s procurement under the agreements with PT Ericsson Indonesia and Siemens AG will be made through the credit facilities from Citibank International plc (Note 27b).

Telkomsel has not collateralized any of its borrowings, loans Guaranteed Notes or other credit facilities.

The terms of the various agreements with Telkomsel’s lenders and financiers include a number of pledges as well as financial and other covenants which must be complied with including, inter alia, certain restrictions on dividend and other profit distributions. The terms of the relevant agreements also contain default and cross default clauses. Management is not aware of any breaches of the term of these agreements and does not foresee any such breaches occurring in the future.

(ii) Procurement of TELKOM-2 Satellite

In accordance with Agreement No.K.TEL.191/HK.810/UTA-00/2002 dated October 24, 2002, which is amended on December 15, 2003, the Company and Orbital Sciences Corporation (“Contractor”) agreed on the procurement of the TELKOM-2 satellite. The total price of US$73,140,322 is expected to be fully paid in January 2005. The agreement also includes a refund provision of US$4,338,292 for any transponder that has its communication capabilities reduced below 3dB and which cannot be corrected by switching to a redundant transponder.

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55. COMMITMENTS (continued)

a. Capital Expenditures (continued)

(iii) Launching of TELKOM-2 Satellite

On November 8, 2002, the Company and ARIANESPACE S.A. agreed on the launching of TELKOM-2 Satellite between November 1, 2004 and January 31, 2005. Payments totaling US$62,880,000 is expected to be settled in December 2004.

(iv) CDMA Procurement Agreement with Samsung Consortium

On October 9, 2002, the Company signed an Initial Purchase Order Contract for CDMA 2000-IX with Samsung Consortium for Base Station Subsystem (“BSS”) procurement in Regional Division II, and on December 23, 2002, the Company signed a Master Procurement Partnership Agreement (“MPPA”). The MPPA provides for planning, manufacturing, delivery, and construction of 1.6 million lines as well as service level agreement. The MPPA between the Company and Samsung consists of construction of 1,656,300 lines of Network and Switching Subsystem (“NSS”) for nationwide and 802,000 lines of BSS for Regional Division III, IV, V, VI and VII for US$116 per line for BSS and US$34 per line for NSS. This project will be partly financed by The Export-Import Bank of Korea as contemplated in the Loan Agreement dated August 27, 2003. The total facility amounts to US$123,965,000 and will be available from the execution of the agreement until April 2006 (Note 55h).

(v) CDMA Procurement Agreement with Ericsson CDMA Consortium

The Company and Ericsson CDMA Consortium have also entered into a Master Procurement Partnership Agreement (“MPPA”) on December 23, 2002. The MPPA consists of construction of 631,800 lines of BSS for US$116 per line. This MPPA is part of the planning, manufacturing, delivery and construction of total 1.6 million CDMA lines as well as service level agreement.

Under the MPPA, the work related to network deployment shall be carried out and completed within 42 months (six months after end of fiscal year 2005).

(vi) Partnership Agreement for the Construction and Provision of High Performance Backbone in Sumatera

On November 30, 2001, the Company signed a partnership agreement with a consortium consisting of PT Pirelli Cables Indonesia and PT Siemens Indonesia for the construction and provision of a high performance backbone network in Sumatera. The agreement became effective as of June 10, 2002. The scope of work includes the provision of an optical fiber cable, together with transmission equipment and network management systems. The Company is obliged to pay approximately US$46,322,629 and Rp172,690 million as consideration. On June 12, 2003, the parties agreed to amend this agreement to reflect additional work being carried out by the consortium in consideration for a lump-sum additional US$2,830,086 and Rp1,699 million.

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55. COMMITMENTS (continued)

a. Capital Expenditures (continued)

(viii) Supply Contract for Thailand-Indonesia-Singapore (TIS) Cable Network

On November 27, 2002, the Company entered into a supply contract with NEC Corporation, the Communications Authority of Thailand (the “CAT”) and Singapore Telecommunications Limited (“SingTel”) whereby NEC Corporation has agreed to construct a submarine fiber optic network linking Thailand, Indonesia and Singapore. Under the terms of this agreement, the Company, SingTel and the CAT will contribute equally to a payment of US$32,680,000 (inclusive of value-added tax). The amount will be fully settled in the last quarter of 2004.

b. Amendment of KSO IV Agreement

On January 20, 2004, the Company and PT Mitra Global Telekomunikasi Indonesia (“MGTI”), Partner of KSO IV, have amended their joint operation agreement in Regional IV. The Company and MGTI among others have agreed monthly payment to the Investor from KSO Account in US Dollars with the first payment of February 2004 and will be end on December 2010 totally US$517,083,302. As of September 30, 2004, the Company has paid the investor revenue totaling of US$43,333,328 (Note 6).

c. Agreements on Derivative Transactions

Telkomsel purchases equipment from several countries and, as a result, is exposed to movements in foreign currency exchange rates. As of September 30, 2004, Telkomsel had outstanding forward foreign exchange contracts with Deutsche Bank (DB) for US$5,000,000 to protect against foreign exchange risks relating to its foreign currency denominated purchases. The primary purpose of Telkomsel’s foreign currency hedging activities is to protect against the volatility associated with foreign currency purchases of equipment and other assets in the normal course of business. The outstanding contract is scheduled to be settled at July 20, 2004.

d. MPPA with PT INTI

The Company and PT INTI signed an MPPA on August 26, 2003 whereby PT INTI is appointed to construct a CDMA fixed wireless access network and integrate such network with the Company’s existing network and all ancillary services relating thereto in West Java and Banten. Under the terms of this Agreement, PT INTI must deliver the CDMA 2000 IX system within thirty-four months after August 26, 2003 for a total of approximately US$22,856,791 and Rp61,408 million (inclusive of valued-added tax). PT INTI will service and maintain the CDMA 2000 IX system pursuant to a Service Level Agreement dated the same date in return for an annual consideration of US$2,305,000.

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55. COMMITMENTS (continued)

e. MPPA with Motorola

On March 24, 2003, the Company signed an MPPA with Motorola, Inc. Under the MPPA, Motorola is obliged to undertake and be jointly responsible for the demand forecast and solely responsible for the survey, design, development, manufacture, delivery, supply, installation, integration and commissioning of the network, including all project management, training and other related services in relation to the establishment of the “T-21 Program”.

The MPPA consists of 222,500 lines of BSS (radio system) for Regional Division I Sumatera for a total of approximately US$20,686,855 and Rp61,268 million. The agreed price does not include the service level agreement, training for technical staff and documentation. The network will use Samsung’s NSS as already contracted on December 23, 2002 (Note 55a(v)). The agreement is valid until mid of 2006.

f. Partnership Agreement with Siemens Consortium

The Company entered into a Partnership Agreement with a consortium led by Siemens AG on September 24, 2003 for the development, procurement and construction of a fiber optic backbone transmission network in Kalimantan and Sulawesi, a related work management system and the provision of maintenance services in connection with this network. Other members of the consortium include PT Siemens Indonesia, PT Lembaga Elektronik Indonesia and Corning Cable System GmbH & Co.KG. The consideration payable by the Company for the fiber optic networks is approximately US$3,776,269 plus Rp74,021 million for the network located within Kalimantan and approximately US$3,815,295 plus Rp70,733 million for the network located within Sulawesi.

g. Metro Junction and Optical Network Access Agreement for Regional Division III with PT INTI

On November 12, 2003, the Company entered into an agreement with PT INTI for the construction and procurement of an optical network, as well as a network management system and other related services and equipment, with respect to Regional Division III (West Java). Under this agreement, the Company is obliged to pay PT INTI a total consideration of approximately US$6,479,992 and Rp112,427 million.

h. In December 2003, Napsindo entered into an agreement with Indosat with regards to an installation of fiber optic international link cable from Jakarta to Hong Kong. Napsindo shall pay fixed revenue of US$100,000 and 30% of income to Indosat. Napsindo also entered into a sales VSAT contract with PT Pundi Karya Abadi amounting to US$120,000 (inclusive of value-added tax).

116

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

56. CONTINGENCIES

a. The SEC requires that the Company’s Annual Report on Form 20-F be filed within six months after the reported balance sheet date. In this respect, the Company published its previous 2002 consolidated financial statements in March 31, 2003 and submitted the Annual Report on Form 20-F to the SEC on April 17, 2003.

In May 2003, however, the SEC informed the Company that it considered that the submitted 2002 consolidated financial statements were un-audited as the audit firm that was originally appointed to perform the 2002 audit was not qualified for SEC purposes. Due to the time consumed in selecting an SEC qualified auditor, KAP Drs. Haryanto Sahari & Rekan (formerly called “KAP Drs. Hadi Sutanto & Rekan”), the member firm of PricewaterhouseCoopers in Indonesia, began their work in July 2003. As a result, the Company was not able to meet its June 30, 2003 deadline to file a fully compliant Annual Report on Form 20-F with the SEC.

Because of the foregoing and the fact that Annual Report was filed after the June 30, 2003 deadline, the Company may face an SEC enforcement action under U.S. securities law and other legal liability and adverse consequences such as delisting of its ADSs from the New York Stock Exchange. In addition, the staff of the SEC has described a press release that the Company issued and furnished to the SEC on Form 6-K in May 2003 as “grossly understating the nature and severity of the staff’s concerns” regarding matters related to the Company’s filing of a non-compliant Annual Report. Such press release could also form the basis of an SEC enforcement action and other legal liability. The Company cannot at this time predict the likelihood or severity of an SEC enforcement action or any other legal liability or adverse consequences.

b. In the ordinary course of business, the Company has been named as a defendant in various legal actions. Based on Management’s estimate of the outcome of these matters, the Company accrued Rp44,292 million at September 30, 2004.

c. In connection with the re-audit of the Company’s 2002 consolidated financial statements, the former auditor KAP Eddy Pianto filed lawsuits in the South Jakarta District Court against KAP Drs. Haryanto Sahari & Rekan (formerly called “KAP Drs. Hadi Sutanto & Rekan”) (the Company’s auditor for the re-audit of the 2002 consolidated financial statements), the Company, KAP Hans Tuanakotta & Mustofa (the Company’s 2001 auditor) and the Capital Market Supervisory Agency “BAPEPAM” (collectively, “Defendants”), alleging that the Defendants, through the reaudit of the Company’s 2002 consolidated financial statements, had conspired to engage in an illegal action against KAP Eddy Pianto, tarnishing the reputation of KAP Eddy Pianto in the public accounting profession. KAP Eddy Pianto seeks to recover approximately Rp7,840 billion in damages from the Company and its co-defendants. The mediation process to resolve the dispute amicably did not succeed and the Company is scheduled to formally submit its response to the claim soon. The resolution of this issue at present time cannot be determined.

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PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

56. CONTINGENCIES (continued)

d. On August 13, 2004, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) read its decision in the Open Commission Session, stated that the Company has breached several articles of Law of the Republic of Indonesia No. 5/1999 on Anti Monopolistic Practices and Unfair Business Competition (“Indonesian Competition Law”), particularly Article 15 (3) b regarding Closed Agreement and Article 19(a) and (b) regarding market control which prevent other operator to enter into the same business. Furthermore, KPPU decided that the Company should open the access for other international call operators, in kiosks or Warung Telkom, and call off certain clause in the Agreement between the Company and Warung Telkom Providers which provides the restriction of the sales of other products in Warung Telkom. The Company has processed the “Objection Claim” on September 14, 2004 and until now there has not been any verdict on the Claim.

e. As of September 30, 2004, the Company has been named as a defendant in various legal actions in respect of landright ownership and telecommunication services. The Company did not provide a provision for the contingent loss from the litigation, due to the legal status is uncertain and the estimated contingent loss is not significant.

118

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

57. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The balances of monetary assets and liabilities denominated in foreign currencies are as follows:


	2003				2004
	Foreign				Foreign
	currencies		Rupiah		currencies		Rupiah
	(in thousands)		Equivalent		(in thousands)		Equivalent
ASSETS
Cash and cash equivalents
U.S. Dollars		127,653		1,072,925		88,675		813,223
Euro		5		44		72,812		822,898
Japanese Yen		26		2		1,687		139
Deutsche		38,202		321,087
Temporary investment
U.S. Dollars		7,381		62,119		—		—
Trade accounts receivable
Related parties
U.S. Dollars		12,010		101,000		9,318		85,337
Third parties
U.S. Dollars		—		—		10,931		100,015
Other accounts receivable
U.S. Dollars		—		—		33,165		303,456
French Franc		—		—		4,427		5,447
Netherland Guilder		—		—		750		2,745
Prepaid expenses
U.S. Dollars		—		—		6,096		55,776
Euro		—		—		8		89
Other current assets
U.S. Dollars		4,600		38,663		4,676		42,785
Advances and other non-current assets
U.S. Dollars		—		—		27,867		163,817
Escrow accounts
U.S. Dollars		53,282		447,838		22,823		208,830

Total Assets				2,043,678				2,604,557

119

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

57. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


	2003					2004
	Foreign					Foreign
	currencies		Rupiah			currencies		Rupiah
	(in thousands)		equivalent			(in thousands)		equivalent
Liabilities
Trade accounts payable
Related parties
U.S. Dollars		438		3,689			34,157		313,222
Japanese Yen		—		—			5,893		487
Euro		—		—			638		7,211
Third parties
U.S. Dollars		6,258		203,683			93,574		851,471
Euro		1,000		3,260			66,652		753,289
Great Britain Pound Sterling		160		878			61		884
Japanese Yen		—		—			5,923		490
Singapore Dollars		36		117			242		1,310
Australian Dollars		—		—			7		47
Accrued expenses
U.S. Dollars		2,300		19,839			1,333		12,223
Japanese Yen		—		—			146,527		12,128
French Franc		—		—			710		877
Netherland Guilder		—		—			326		1,770
Advances from customers and suppliers
U.S. Dollars		—		—			14,143		129,694
Euro		—		—			12,549		141,863
Short-term bank loans
Third parties
U.S. Dollars		4,460		37,509			43,357		397,537
Current maturities of long-term liabilities
U.S. Dollars		164,197		1,381,726			190,503		1,746,871
Euro		12,239		121,009			17,588		213,887
Japanese Yen		375,014		28,501			758,963		62,819
Long-term liabilities
U.S. Dollars		585,420		4,927,940			699,605		5,672,935
Euro		15,513		152,261			64,976		624,798
Japanese Yen		17,274,268		1,632,208			16,730,301		1,364,284

Total liabilities				8,512,620					12,310,097

Net liabilities				(6,468,942	)				(9,705,540	)

120

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Indonesia (“Indonesian GAAP”), which differ in certain significant respects with generally accepted accounting principles in the United States of America (“U.S. GAAP”). A description of the differences and their effects on net income and stockholders’ equity are set forth below.

(1) Description of differences between Indonesian GAAP and U.S. GAAP

a. Termination benefits

Under Indonesian GAAP, termination benefits are recognized as liabilities when certain criteria are met (e.g. the enterprise is demonstratively committed to provide termination benefits as a result of an offer made in order to encourage early retirement).

Under U.S. GAAP, termination benefits are recognized as liabilities when the employees accept the offer and the amount can be reasonably estimated.

b. Foreign exchange differences capitalized to property under construction

Under Indonesian GAAP, foreign exchange differences resulting from borrowings used to finance property under construction are capitalized. Capitalization of foreign exchange differences cease when the construction of the qualifying asset is substantially completed and the constructed property is ready for its intended use.

Under U.S. GAAP, foreign exchange differences are charged to current operations.

c. Interest capitalized on property under construction

Under Indonesian GAAP, qualifying assets, to which interest cost can be capitalized, should be those that take a substantial period of time to get ready for its intended use or sale, i.e. minimum 12 months. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of interest cost eligible for capitalization on that asset should be determined based on the actual interest cost incurred on that borrowing during the period of construction less any investment income on the temporary investment of those borrowings.

Under U.S. GAAP, there is no limit on the length of the construction period in which the interest cost could be capitalized. The interest income arising from any unused borrowings is recognized directly to current operations.

121

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

d. Revenue-sharing arrangements

Under Indonesian GAAP, property, plant and equipment built by an investor under revenue-sharing arrangements are recognized as property, plant and equipment under revenue-sharing arrangements in the books of the party to whom ownership in such properties will be transferred at the end of the revenue-sharing period, with a corresponding initial credit to unearned income. The property, plant and equipment are depreciated over their useful lives, while the unearned income is amortized over the revenue-sharing period. The Company records its share of the revenues earned net of amounts due to the investors.

Under U.S. GAAP, the accounting for revenue-sharing arrangements depends on whether or not the investor will receive a guaranteed minimum return. When there is no guaranteed investment return to the investor, the revenue-sharing arrangements are accounted for in a manner similar to operating lease. When there is a guaranteed investment return, the assets under revenue-sharing arrangements are recorded and, correspondingly, an obligation under revenue-sharing arrangements is recorded. A portion of the investor’s share in revenue is recorded as interest expense based on the implicit rate of return and the balance is treated as a reduction of the obligation. Revenues are recorded on a gross basis.

e. Revaluation of property, plant and equipment

While Indonesian GAAP does not generally allow companies to recognize increases in the value of property, plant and equipment that occur subsequent to acquisition, an exception is provided for revaluations made in accordance with Government regulations. The Company revalued its property, plant and equipment that were used in operations as of January 1, 1979 and January 1, 1987.

Under U.S. GAAP, asset revaluations are not permitted. The effects of the previous revaluations have been fully depreciated in 2002, such that there is no difference in equity as of September 301, 2002.

f. Pension

In 1994 and 1998, the Company provided increases in pension benefits for pensioners. Under Indonesian GAAP, the prior service costs attributable to the increases in pension benefits for pensioners were directly charged to expense in those years. Under U.S. GAAP, because the majority of plan participants are still active, such prior service costs are deferred and amortized systematically over the remaining service period for active employees.

122

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

f. Pension (lanjutan)

Under Indonesian GAAP, the Company amortizes the cumulative unrecognized actuarial gain or loss over four years. Under U.S. GAAP, any cumulative unrecognized actuarial gain or loss exceeding 10% of the greater of the projected benefit obligation or the fair value of plan assets is recognized in the statement of income on a straight-line basis over the estimated remaining service period.

Under U.S. GAAP, the Company would be required to recognize an additional minimum liability when the accumulated benefit obligation exceeds the fair value of the plan assets, and an equal amount would be recognized as an intangible asset, provided that the asset recognized does not exceed the amount of unrecognized prior service cost.

g. Equity in net income or loss of associated companies

The Company records its equity in net income or loss of associated companies based on the associates’ financial statements that have been prepared under Indonesian GAAP.

For U.S. GAAP reporting purposes, the Company recognized the effect of the differences of U.S. GAAP and Indonesian GAAP in the investment accounts and its share of the net income or loss of those associates.

h. Land rights

In Indonesia, the title of land rests with the State under the Basic Agrarian Law No. 5 of 1960. Land use is accomplished through land rights whereby the holder of the right enjoys the full use of the land for a stated period of time, subject to extensions. The land rights generally are freely tradeable and may be pledged as security under borrowing agreements. Under Indonesian GAAP, land ownership is not depreciated unless it can be foreseen that the possibility for the holder to obtain an extension or renewal of the rights is remote.

Under U.S. GAAP, the cost of acquired land rights is amortized over the period the holder is expected to retain the land rights.

i. Equipment to be installed

Under Indonesian GAAP, temporarily idle equipment or equipment that is awaiting installation is not depreciated.

Under U.S. GAAP, temporarily idle equipment should continue to be depreciated. In 2002, prior year equipment to be installed was fully installed and their carrying values have been reclassified to property, plant and equipment.

123

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

i. Equipment to be installed

In 2002, the Company reclassified the prior year equipment to be installed to fixed assets, therefore there is no difference with Indo GAAP.

j. Revenue recognition

Under Indonesian GAAP, revenues from cellular and fixed wireless services connection fees are recognized as income when the connection takes place (for postpaid service) or at the time of delivery of starter packs to distributors, dealers or customers (for prepaid service). Installation fees for wire line services are recognized at the time of installation. The revenue from calling cards (“Kartu Telepon”) is also recognized when the Company sells the card.

Under U.S. GAAP, revenue from front-end fees are deferred and recognized over the expected term of the customer relationship. Direct incremental costs were not significant. Revenues from calling cards are recognized upon usage or expiration.

k. Goodwill

Under Indonesian GAAP, goodwill is amortized over a period, not exceeding 20 years that it is expected to benefit the Company.

Under U.S. GAAP, effective January 1, 2002, goodwill is no longer amortized but rather subjected to a test for impairment.

l. Capital leases

Under Indonesian GAAP, a leased assets is capitalized only if all of the following criteria are met: (a) the lessee has an option to purchase the leased asset at the end of the lease period at a price agreed upon at the inception of the lease agreement, and (b) the sum of periodic lease payments, plus the residual value, will cover the acquisition price of the leased asset and related interest, and (c) there is a minimum lease period of 2 years.

Under U.S. GAAP, a leased asset is capitalized if one of the following criteria is met: (a) there is an automatic transfer of ownership at the end of the lease term; or (b) the lease contains a bargain purchase option; or (c) the lease term is for 75% or more of the economic life of the asset; or (d) the lease payments are at least 90% of the fair value of the asset.

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PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

m. Acquisition of Dayamitra

The Company acquired a 90.32% interest in Dayamitra and contemporaneously acquired a call option to buy the other 9.68% at a fixed price at a stated future date, and provided to the minority interest holder a put option to sell the other 9.68% to the Company under those same terms; meaning that the fixed price of the call is equal to the fixed price of the put option. Under U.S. GAAP, the Company should account for the option contracts on a combined basis with the minority interest and account for it as a financing of the purchase of the remaining 9.68% minority interest. As such, under U.S. GAAP, the Company has consolidated 100% of Dayamitra and attributed the stated yield earned under the combined derivative and minority interest position to interest expense.

Under Indonesian GAAP, the Company accounts for the remaining 9.68% of Dayamitra as minority interest. In addition, the option price that has been paid by the Company is presented as “Advance payments for investments in shares of stock”.

n. Reversal of difference due to change of equity in associated companies

Under Indonesian GAAP, differences previously credited directly to equity as a result of equity transactions in associated companies are released to the statement of income upon the sale of an interest in the associate in proportion with the percentage of the interest sold.

Under U.S. GAAP, it is the Company’s policy to include differences resulting from equity transactions in associated companies in equity. Such amounts can not be released to the statement of income and consequently remain in equity indefinitely.

o. Asset retirement obligations

Under Indonesian GAAP, legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of long-lived assets are charged to current operations as incurred.

Under U. S. GAAP, the obligations are capitalized to the related long-lived assets and depreciated over the useful life of the assets.

p. Deferred income taxes

Under Indonesian GAAP, the Company does not recognize deferred taxes on temporary differences between the financial statement carrying amounts and tax bases of equity method investments when it is not probable that these differences will reverse in the foreseeable future.

Under US GAAP, deferred taxes are recognized in full on temporary differences between the financial statement carrying amounts and tax bases of equity method investments.

125

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

q. Impairment of assets

Under Indonesian GAAP, an impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of fixed assets is greater of its net selling price or value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss can be reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.

Under U.S. GAAP, an impairment loss is recognized whenever the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset. An impaired asset is written down to its estimated fair value based on quoted market prices in active markets of discounting estimated future cash flows. Reversals of previously recognized impairment losses are prohibited.

There were no impairment charges recognized by the Company and therefore there were no differences between Indonesian GAAP and U.S. GAAP.

r. Gain (loss) on sale of property, plant and equipment

Under Indonesian GAAP, the Company classifies gain (loss) on sale of property, plant and equipment as a component of other income (expense) which is excluded from determination of operating income.

Under U.S. GAAP, gain (loss) on sale of property, plant and equipment is classified as a component of operating expenses and hence included in the determination of operating income. For the nine months period ended September 30, 2003 and 2004, operating income would have been higher by Rp47,832 million and Rp48,699 million, respectively, and other income (expenses) would have been lower by the same amounts due to the inclusion of the gain on sale of property, plant and equipment in the determination of operating income.

(2) A summary of the significant adjustments to consolidated net income for the nine months period ended September 30, 2003 and 2004 and to consolidated stockholders’ equity as of September 30, 2003 and 2004 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below:

126

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)


	Note	2003			2004
Net income according to the consolidated statements of income prepared under Indonesian GAAP			4,411,572			5,024,346

U.S. GAAP adjustments — increase (decrease) due to:
Termination benefits	(a)		(594,526	)		6,988
Capitalization of foreign exchange differences	(b)		50,813			17,891
Interest capitalized on property under construction	(c)		21,128			17,474
Revenue-sharing arrangements	(d)		—			398,388
Revaluation of property, plant and equipment	(e)		—			—
Pension	(f)		(142,910	)		156,935
Equity in net income/ (loss) of associated companies	(g)		(87	)		(371	)
Amortization of landrights	(h)		(2,062	)		(7,505	)
Depreciation of equipment to be installed	(i)		—			—
Revenue recognition	(j)		(53,640	)		(24,890	)
Goodwill	(k)		—			14,182
Capital leases	(l)		—			12,443
Adjustment for Dayamitra accounted at 100%	(m)		—			(25,677	)
Reversal of difference due to change of equity in associated companies	(n)		—			—
Asset retirement obligations	(o)		—			—
Other			14,366			—
Deferred income tax:
Deferred income tax on equity method investments	(p)		—			—
Deferred income tax effect on U.S. GAAP adjustments			207,122			(175,568	)

			(499,796	)		390,290
Minority interest			—			(9,024	)

Net adjustments			(499,796	)		381,266

Net income in accordance with U.S. GAAP			3,911,776			5,405,612

Net income per share — in full Rupiah amount			194			268

Net income per ADS (20 Series B shares per ADS) — in full Rupiah amount			7,761			10,725

127

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)


	Note	2003			2004
Equity according to the consolidated balance sheets prepared under Indonesian GAAP			15,661,852			19,299,912

U.S. GAAP adjustments — increase (decrease) due to:
Early retirement benefits	(a)		120,358			6,988
Capitalization of foreign exchange differences — net of related depreciation	(b)		(692,433	)		(532,582	)
Interest capitalized on property under construction — net of related depreciation	(c)		80,847			119,286
Revenue-sharing arrangements	(d)		(379,243	)		(49,308	)
Revaluation of property, plant and equipment:	(e)
Increment			(664,974	)		(664,974	)
Accumulated depreciation			664,974			664,974
Pension	(f)		109,148			279,091
Equity in net loss of associated companies	(g)		(17,804	)		(18,623	)
Amortization of landrights	(h)		(5,469	)		(72,716	)
Revenue recognition	(j)		(120,044	)		(793,439	)
Goodwill	(k)		—			56,721
Capital leases	(l)		—			33,566
Adjustment for Dayamitra accounted at 100%	(m)		—			(64,396	)
Asset retirement obligations	(o)		—			(848	)
Other			(43,533	)		52,186
Deferred income tax:
Deferred income tax on equity method investments	(p)		—			—
Deferred income tax effect on U.S. GAAP adjustments			228,455			280,256

			(719,718	)		(703,818	)
Minority interest			65,920			56,898

Net adjustments			(653,798	)		(646,920	)

Equity in accordance with U.S. GAAP			15,008,054			18,652,992

128

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2) (continued)

The changes in stockholders’ equity in accordance with U.S. GAAP for the nine months period ended September 30, 2003 and 2004 are as follows:


	2003			2004
Equity at beginning of year		13,910,864			16,284,692
Changes during the year:
Net income under U.S. GAAP		3,911,776			5,405,612
Dividends		(3,338,109	)		(3,043,614	)
Unrealized gain on marketable securities		—			490
Transactions with entities under common control		502,663			—
Other comprehensive income, net of nil tax		20,861			5,812

Equity at end of year		15,008,055			18,652,992

With regard to the consolidated balance sheets, the following significant captions determined under U.S. GAAP would have been:


	2003		2004
Consolidated balance sheets
Current assets		9,637,217		11,397,538
Non-current assets		38,297,609		44,351,637

Total assets		47,934,826		55,749,175

Current liabilities		11,159,556		12,847,605
Non-current liabilities		18,523,507		19,843,130

Total liabilities		29,683,063		32,690,735
Minority interest in net assets of subsidiaries		3,243,708		4,405,448
Equity		15,008,055		18,652,992

Total liabilities and equity		47,934,826		55,749,175

129

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC

a. Income Tax

The reconciliation between the expected income tax provision in accordance with U.S. GAAP and the actual provision for income tax recorded in accordance with U.S. GAAP is as follows:


	2003			2004
Consolidated income before tax in accordance with U.S. GAAP		7,884,289			10,043,959

Income tax in accordance with U.S. GAAP at 30% statutory tax rate		2,365,270			3,013,170

Effect of permanent differences at the enacted maximum tax rate (30%)
Net periodic post-retirement benefits cost		30,522			106,001
Amortization of discount on promissory notes and interest expense		19,505			26,662
Employee benefits		—			—
Permanent differences of the KSO Units		6,518			13,237
Revenue sharing-arrangements		1,276			—
Amortization of landrights		(167	)		—
Interest income which was already subject to final tax		(57,092	)		(39,214	)
Equity in net (income) loss of associated companies		(761,414	)		(925,381	)
Others		271,264			206,629

Total		(350,286	)		(593,121	)

Provision for income tax in accordance with U.S. GAAP		2,014,984			2,420,049

130

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

a. Income Tax (continued)

For the three year period ended December 31, 2003, all of the Company’s operating revenues occurred in Indonesia, and accordingly, the Company has not been subject to income tax in other countries.


	2003			2004
Deferred tax assets
Allowance for doubtful accounts		420,764			144,265
Allowance for inventory obsolescence		10,693			13,910
Tax loss carryforwards		—			—
Provision for long service awards		6,746			26,916
Deferral of revenue		263,025			—
Provision for employee benefits		—			159,962
Others		(678	)		19,681

Total		700,550			364,734

Deferred tax liabilities
Difference between book and tax — non-current assets		(2,181,538	)		(1,471,662	)
Long-term investments		1,871			(24,660	)
Pension		(108,893	)		(36,973	)
Prepaid expenses and other receivables		(48,891	)		(5,469	)

Total		(2,337,451	)		(1,538,764	)

Total deferred tax liabilities — net		(1,636,900	)		(1,174,030	)

Benefits enjoyed by pensioners fall under the category of benefits in kind which are non-deductible expenses under Indonesian tax laws.

b. Fair Value of Financial Instruments

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents and temporary investments

The carrying amount approximates fair value because of the short-term nature of the instruments.

131

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b. Fair Value of Financial Instruments (continued)

Short-term bank loans

The carrying amount approximates fair value because of the short-term nature of the instruments.

Long-term liabilities

(i) The fair value of two-step loans are estimated on the basis of the discounted value of future cash flows expected to be paid, considering rates of interest at which the Company could borrow as of the respective balance sheet dates.

For purposes of estimating the fair value of two-step loans, the Company has used the average Rupiah borrowing rates of 9.69%, the average U.S. Dollar borrowing rate of 1.42% and the respective average borrowing rates for 2004 for the debt in other currencies. Under the current environment, an estimate of the interest rates as of a point in time, given the significance of the Company’s debt and the general unavailability of funds, is difficult. For one percentage point increase in the above-mentioned borrowing rates, the fair value of the Company’s long-term two-step loans at September 30, 2004 would decrease by Rp450,581 million.

(ii) The fair value of suppliers’ credit loans, bridging loan and long-term bank loan is estimated on the basis of the discounted value of future cash flows expected to be paid, considering rates of interest at which the Company could borrow as of the balance sheet date.

(iii) The fair value of the liability for the acquisition of subsidiaries is estimated on the basis of the discounted future cash flows expected to be paid.

(iv) The fair value of the bonds and guaranteed notes are based on market prices at balance sheet date.

132

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional Financial Statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b. Fair Value of Financial Instruments (continued)

The estimated fair values of the Company and its subsidiaries’ financial instruments as of September 30, 2004 are:


	Carrying		Fair
	amount		value
2003
Cash and cash equivalents		4,860,401		4,860,401
Temporary investments		62,119		62,119
Long-term liabilities
Two-step loans		7,825,735		9,693,071
Suppliers’ credit loans		319,139		338,902
Bridging loan		76,243		78,898
Liabilities for acquisitions of subsidiaries		2,990,691		3,546,853
Bank loans		2,555,817		2,737,927
Guaranteed notes and bonds		2,235,511		2,833,146
Others		9,150		9,224

2004
Cash and cash equivalents		6,112,466		6,112,466
Temporary investments		107,799		107,799
Long-term liabilities
Two-step loans		7,388,479		8,946,976
Liabilities for acquisitions of subsidiaries		807,741		864,234
Bank loans		4,100,442		4,212,823
Guaranteed notes and bonds		1,711,807		2,218,589
Others		9,150		9,150

The methods and assumptions followed to determine the fair value estimates are inherently judgmental and involve various limitations, including the following:

i. Fair values presented do not take into consideration the effect of future currency fluctuations.

ii. Estimated fair values are not necessarily indicative of the amounts that the Company and its subsidiary would record upon disposal/termination of the financial instruments.

133

PERUSAHAAN PERSEROAN (PERSERO)
PT. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

58. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(3) Additional Financial Statement disclosures required by U.S. GAAP and U.S. SEC (continued)

c. Research and Development

Research and development expenditures, as determined under U.S. GAAP, amounted to approximately Rp7,074 million and Rp9,460 million in 2003 and 2004, respectively.

d. Comprehensive Income


	2003			2004
Net income under U.S. GAAP		3,911,776			5,405,612
Unrealized gain (loss) in value of securities		—			490
Translation adjustment in associated companies		(4,367	)		57,998

Equity at end of year		3,907,409			5,464,100

Adjustments to net income in determined the comprehensive income covered the translation adjustment in associated companies and unrealized gain (loss) in value of securities. Other comprehensive gain (loss) components are as follows:


	2003		2004
Unrealized gain (loss) in value of securities		—		490
Translation adjustment in associated companies		160,599		282,230

Equity at end of year		160,599		282,720

***

134

	a.		Establishment and General Information

			Perusahaan Perseroan (Persero) P.T. Telekomunikasi Indonesia Tbk (the “Company”) was originally part of “Post en Telegraafdienst”, which was established in 1884 under the framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies and published in State Gazette No. 52 dated April 3, 1884.

			In 1991, based on Government Regulation No. 25 year 1991, the status of the Company was changed into a state-owned limited liability corporation (“Persero”). The Company was established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H. The deed of establishment was approved by the Minister of Justice of the Republic of Indonesia in his decision letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991, and was published in State Gazette of the Republic of Indonesia No. 210 dated January 17, 1992, Supplement No. 5. The articles of association have been amended several times, the most recent amendment was made through deed No. 4 dated January 10, 2002, of Notary A. Partomuan Pohan, S.H., LLM., concerning the change in the Company’s objective, scope of activities, directors’ scope of authorities and the composition of the Company’s board of commissioners. The notarial deed was approved by the Minister of Justice and Human Rights of the Republic of Indonesia in his decision letter No. C-00682HT.01.04.Th.2002 dated January 15, 2002.

			In accordance with article 3 of its articles of association, the scope of the Company’s activities is as follows:

	1.		The Company’s objective is to provide telecommunications and information facilities and services, in accordance with prevailing regulations.

	2.		To achieve the above objective, the Company is involved in the following activities:

	i.		Planning, building, providing, developing, operating, marketing or selling, leasing and maintaining telecommunications and information networks in accordance with prevailing regulations.

	ii.		Planning, developing, providing, marketing or selling and improving telecommunications and information services in accordance with prevailing regulations.

	iii.		Performing activities and other undertakings in connection with the utilization and development of the Company’s resources and optimizing the utilization of the Company’s property, plant and equipment, information systems, education and training, and repairs and maintenance facilities.

	a.		Establishment and General Information (continued)

			The Company’s principal business is the provision of domestic telecommunications services, including telephone, telex, telegram, satellite, leased lines, electronic mail, mobile communication and cellular services. In order to accelerate the construction of telecommunications facilities, to make the Company a world-class operator, and to increase the technology as well as the knowledge and skills of its employees, in 1996, the Company entered into agreements with investors to develop, manage and operate telecommunications facilities in five of the Company’s seven regional divisions under Joint Operation Schemes (known as “Kerja Sama Operasi” or “KSO”).

			The Company’s head office is located at Jalan Japati No. 1, Bandung, West Java.

			Under Law No. 3/1989 on Telecommunications which took effect on April 1, 1989, Indonesian legal entities are allowed to provide basic telecommunications services in cooperation with the Company as the domestic telecommunications organizing body (or “badan penyelenggara”). Other Indonesian legal entities are also allowed to individually provide non-basic telecommunications services. In providing telecommunications services, these entities are required to obtain licenses from the Minister of Communications of the Republic of Indonesia (the Ministry of Communications assumed responsibility for the telecommunications sector from the previous Ministry of Tourism, Post and Telecommunications in March 1998). Government Regulation No. 8/1993 concerning the provision of telecommunications services, further regulates that cooperation to provide basic telecommunications services can be in the form of joint venture, joint operation or contract management and that the entities cooperating with the domestic telecommunications organizing body must use the organizing body’s telecommunications networks. If the telecommunications networks are not available, the Government Regulation requires that the cooperation be in the form of a joint venture that is capable of constructing the necessary networks.

			The Minister of Tourism, Post and Telecommunications of the Republic of Indonesia (“MTPT”), through his two decision letters both dated August 14, 1995, reaffirmed the status of the Company as the organizing body for the provision of domestic telecommunications services.

			Further, effective from January 1, 1996, the Company was granted the exclusive right to provide local wireline and fixed wireless services for a minimum period of 15 years and the exclusive right to provide domestic long-distance telecommunications services for a minimum period of 10 years. The exclusive rights also apply to telecommunications services provided for and on behalf of the Company through a KSO. This grant of rights does not affect the Company’s right to provide other domestic telecommunications services.

			On September 8, 1999, the Government issued Law No. 36/1999 on Telecommunications to replace Law No. 3/1989. Under the new Law, which took effect from September 2000, telecommunications activities cover:

			National state-owned companies, regional state-owned companies, privately-owned companies and cooperatives are allowed to provide telecommunications networks and services. Special telecommunications can be provided by individuals, government agencies and legal entities other than telecommunications networks and service providers.

			Under Law No. 36/1999, activities that result in monopolistic practices and unfair competition are prohibited. In connection with this law, Government Regulation No. 52/2000 was issued, which provides that interconnection fees shall be charged to originating telecommunications network operators where telecommunications service is provided by two or more telecommunications network operators.

			Based on press release No. 05/HMS/JP/VIII/2000 dated August 1, 2000 from the Director General of Post and Telecommunications and the correction thereto No. 1718/UM/VIII/2000 dated August 2, 2000, the period of exclusive rights granted to the Company to provide local and domestic long-distance fixed-line telecommunications services was shortened to expire in August 2002 and August 2003, respectively. In return, the Government is required to pay compensation to the Company, the amount of which is to be estimated by an independent appraiser appointed by the Government.

			Based on a press release from the Coordinating Minister of Economics dated July 31, 2002, the Government decided to terminate the Company’s exclusive rights as a network provider for local and long-distance services with effect from August 1, 2002. On August 1, 2002, PT Indonesian Satellite Corporation Tbk (“Indosat”) was granted a license to provide local and long-distance telecommunications services.

			On March 30, 2004, the Minister of Communications issued Announcement No. PM.2 year 2004 regarding the Implementation of Restructuring in the Telecommunications Sector which, among others, conveys the compensation for early termination of exclusive rights.

			On May 13, 2004, pursuant to the Ministry of Communications Decree No. KP. 162/2004, the Company was granted a commercial license to provide International Direct Dialing (IDD) services.

			Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been notarized by deed No. 37 dated June 21, 2002 of A. Partomuan Pohan, S.H., LLM., the composition of the Company’s Board of Commissioners and Board of Directors as of September 30, 2003 was as follows:

			As of September 30, 2003 and 2004, the Company had 32,305 employees and 29,397 employees, respectively, including those in the KSO Units, while the subsidiaries had 3,722 employees and 4,384 employees, respectively.

	b.		Public offering of shares of the Company

			The Company’s total number of shares immediately prior to its initial public offering was 8,400,000,000, which consisted of 8,399,999,999 series B shares and 1 series A Dwiwarna share, all of which were owned by the Government of the Republic of Indonesia (the “Government”). On November 14, 1995, the Government sold the Company’s shares through an initial public offering on the Jakarta Stock Exchange and Surabaya Stock Exchange. The shares offered consisted of 933,333,000 new series B shares and 233,334,000 series B shares owned by the Government. A share offering was also conducted on the New York Stock Exchange and London Stock Exchange for 700,000,000 series B shares owned by the Government of the Republic of Indonesia, which were converted into 35,000,000 American Depositary Shares (ADS). Each ADS represents 20 series B shares.

			In December 1996, the Government completed a block sale of 388,000,000 series B shares, and later in 1997, distributed 2,670,300 series B shares as an incentive to stockholders who did not sell their shares within one year from the date of the initial public offering. In May 1999, the Government sold 898,000,000 series B shares.

	b.		Public offering of shares of the Company (continued)

			Under Law No.1/1995 on Limited Liability Companies, the minimum total par value of the Company’s issued shares of capital stock must be at least 25% of the total par value of the Company’s authorized capital stock, or in the Company’s case Rp5,000,000 million. To comply with the Law, it was resolved at the Annual General Meeting of Stockholders on April 16, 1999 to increase the issued share capital by way of capitalization of certain additional paid-in capital. The bonus shares were distributed to the then existing stockholders in August 1999.

			In December 2001, the Government conducted another block sale of 1,200,000,000 shares or 11.9% of the total outstanding series B shares. In July 2002, the Government sold 312,000,000 shares or 3.1% of the total outstanding series B shares.

			On September 28, 2004, the Company splitted its share capital based on a resolution of the Annual General Meeting of Stockholders, the minutes of which have been notarized by deed No. 313/VII/2004 dated July 10, 2004 of A. Partomuan Pohan, S.H., LL.M. The stockholders have approved to split the nominal value of 1 series A Dwiwarna share and series B shares from Rp500 to Rp250 per share.

			The authorized capital increase from 40,000,000,000 shares to 80,000,000,000 shares and the issued capital increase from 10,079,999,640 to 20,159,999,280. The splitted share of Series A Dwiwarna were 1 share established as Series A Dwiwarna owned by the Government of the Republic of Indonesia and the other 1 share as Series B owned by the Government of the Republic of Indonesia.

			On September 29, 2004, the Company obtained an approval from The New York Stock Exchange with regard of the stock split and changes the ratio of shares represented by each ADS from 20 shares Series B to 40 shares Series B.

			As of September 30, 2004, all of the Company’s series B shares were listed on the Jakarta Stock Exchange and Surabaya Stock Exchange and 22,391,424 ADS shares were listed on the New York Stock Exchange and London Stock Exchange.

	c.		Subsidiaries

			The Company consolidates the following subsidiaries as a result of majority ownership or its right to control operations.

			PT Pramindo Ikat Nusantara (“Pramindo”)

			Pramindo is the investor in KSO I (Note 52), the joint operating scheme that provides telecommunications services in Sumatra. On April 19, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) (as amended on August 1, 2002) to acquire 100% of the issued and paid-up share capital of Pramindo (Note 5b).

	c.		Subsidiaries (continued)

			PT Pramindo Ikat Nusantara (“Pramindo”) (continued)

			Effective with the closing of the first tranche, the Company obtained control over the operations of Pramindo and KSO Unit I. As a result, the Company has consolidated Pramindo as of the date of the acquisition reflecting a 100% ownership interest in Pramindo (Note 2b).

			On April 21, 2004, the Company sold one share of Pramindo to a related party for Rp22,800, thereby reducing the Company’s ownership interest to 99.99%.

			PT AriaWest International (“AWI”)

			AWI is the investor in KSO III (Note 52), the joint operating scheme that provides telecommunication services in West Java. On May 8, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) to acquire 100% of the issued and paid-up capital of AWI. The acquisition was effective on July 31, 2003, the date when the Company entered into the First Amendment to the Conditional Sale and Purchase Agreement with the stockholders of AWI in which both parties agreed to the Company’s acquisition of AWI (Note 5c).

			The CSPA provides for certain conditions that have to satisfied at or prior to the closing date to effect the acquisition, e.g. completion of the restructuring of AWI’s loan, amendment of KSO III agreement, final and unconditional dismissal with prejudice of any proceeding. Those conditions have been satisfied at or prior to July 31, 2003.

			On December 31, 2003, the Company sold one share of AWI to a related party for Rp114,000, thereby reducing the Company’s ownership interest to 99.99%.

			PT Multimedia Nusantara (“Metra”)

			Metra is engaged in providing pay television and multimedia telecommunications services.

			On April 8, 2003, the Company increased its ownership interest in Metra from 31% to 100% through a share-swap agreement with PT Indocitra Grahabawana (“Indocitra”). Pursuant to the agreement, the Company sold its investment in PT Menara Jakarta in exchange for Indocitra’s 69% ownership interest in Metra (Note 13f).

			On July 21, 2003, the Company sold one share of Metra to a related party for Rp10,000, thereby reducing the Company’s ownership interest to 99.99%.

	c.		Subsidiaries (continued)

			PT Graha Sarana Duta (“GSD”)

			GSD is currently engaged primarily in leasing of offices as well as providing building management and maintenance services.

			On April 6, 2001, the Company acquired a 100% ownership interest in GSD from Koperasi Mitra Duta and Dana Pensiun Bank Duta, for a purchase consideration of Rp119,000 million. This acquisition resulted in goodwill of Rp106,348 million which is being amortized over a period of five years (Note 17).

			On November 28, 2001, the Company sold one share of GSD to a related party for Rp9.5 million thereby reducing the Company’s ownership interest to 99.99%.

			PT Indonusa Telemedia (“Indonusa”)

			Indonusa is engaged in providing multimedia telecommunications services.

			The Company increased its investment in Indonusa from 35% in 2000 to 57.5% in 2001, by acquiring 2,800,000 shares for Rp28,000 million. This acquisition resulted in goodwill of Rp654 million which was fully amortized in 2001.

			On August 8, 2003, the Company increased its investment in Indonusa to 88.08% through a share-swap agreement with PT Centralindo Pancasakti Cellular (“CPSC”) (Note 13).

			Pursuant to the extraordinary meeting of stockholders of Indonusa on October 29, 2003, Indonusa agreed to convert its payable to the Company amounting to Rp13,500 million to 1,350,000 shares of Indonusa. Following such conversion, the Company’s ownership in Indonusa increased from 88.08% to 90.39%.

			PT Dayamitra Telekomunikasi (“Dayamitra”)

			Dayamitra is the investor in KSO VI (Note 52), the joint operating scheme that provides telecommunications services in Kalimantan. The Company’s acquisition of a 90.32% ownership interest in Dayamitra was effective on May 17, 2001, the date when the Deed of Share Transfer was signed. The Company also entered into an Option Agreement to acquire the remaining 9.68% interest from the selling stockholders (Note 5a).

			PT Telekomunikasi Selular (“Telkomsel”)

			Telkomsel is engaged in providing telecommunications facilities and mobile cellular services using Global System for Mobile Communication (“GSM”) technology on a nationwide basis.

			The Company’s cross-ownership transaction with Indosat in 2001 increased the Company’s ownership interest in Telkomsel to 77.72%. The accounting treatment for the cross-ownership transaction is discussed further in Note 4.

	c.		Subsidiaries (continued)

			PT Telekomunikasi Selular (“Telkomsel”) (continued)

			On April 3, 2002, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) with Singapore Telecom Mobile Pte. Ltd. (“Singtel”). Pursuant to the agreement, the Company sold 23,223 ordinary registered shares of Telkomsel, representing 12.72% of the issued and paid-up capital of Telkomsel for a total consideration of US$429,000,000 (equivalent to Rp3,948,945 million). This transaction reduced the Company’s ownership in Telkomsel from 77.72% to 65%.

			PT Napsindo Primatel Internasional (“Napsindo”)

			Napsindo is engaged in providing “Network Access Point” (NAP), “Voice Over Data” (VOD) and other related services.

			In connection with an increase in Napsindo’s paid-in capital, the Company increased its investment in Napsindo by Rp13,840 million on October 31, 2000. The increase in investment was made to maintain the Company’s ownership interest at 32% and was effective on March 29, 2001.

			Based on the notarial Deed No. 47 dated December 30, 2002 of Notary H. Yunardi, S.H., the Company purchased 28% of Napsindo’s shares from PT Info Asia Sukses Makmur Mandiri for US$4,900,000 (equivalent to Rp43,620 million), thereby increasing the Company’s ownership interest to 60% after the settlement of payment on January 28, 2003.

			PT Infomedia Nusantara (“Infomedia”)

			Infomedia is engaged in providing telecommunications information services and other information services in the form of print and electronic media. In 2002, Infomedia established a new line of business to provide call center services.

			PT Pro Infokom Indonesia (“PII”)

			On January 29, 2003, the Company together with PT Indonesia Comnets Plus, a subsidiary of Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara (“PLN”), and PT Prima Infokom Indonesia established PT Pro Infokom Indonesia (“PII”). The establishment was notarized by deed of A. Partomuan Pohan, S.H., LLM., notary in Jakarta, under Article of Association No. 24, dated January 29, 2003. As of September 30, 2004, the Company had an ownership interest of 51% in PII.

			PII was established to develop a national information network system as the back-bone for the development of the Indonesian e-Government. PII is intended to maximize the utilization of both the Company’s and PLN’s existing infrastructures.

			PII will act as a service provider that manages the government secure intranet and government information center management where all government institutions, including state-owned companies, are expected to take advantage of this network.

	c.		Subsidiaries (continued)

			PT Pro Infokom Indonesia (“PII”) (continued)

			Pursuant to the Annual General Meeting of PII Shareholders as stated in notarial deed No. 258/VI/2004 dated June 17, 2004 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved to discontinue the PII operation since July 1, 2004.

			Telekomunikasi Selular Finance Limited (“TSFL”)

			Telkomsel has 100% direct ownership interest in TSFL, a company established in Mauritius on April 22, 2002. TSFL’s objective is to raise funds for the development of Telkomsel’s business through the issuance of debenture stock, bonds, mortgages or any other securities.

			Aria West International Finance B.V. (“AWI BV”)

			AWI BV, a company established in the Netherlands, is a wholly owned subsidiary of AWI. AWI BV is engaged in rendering services in the field of trade and finance.

			PT Balebat Dedikasi Prima (“Balebat”)

			Infomedia has 51.33% direct ownership interest in Balebat, a company engaged in the printing business, domiciled in Bogor.

	d.		Authorization of the financial statements

			The consolidated financial statements were authorized for issue by the Board of Directors on October 29, 2004.

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

		The consolidated financial statements of the Company and subsidiaries have been prepared in accordance with generally accepted accounting principles in Indonesia (“Indonesian GAAP”). Indonesian GAAP varies in certain significant respects to accounting principles generally accepted in the United States of America (U.S. GAAP). Information relating to the nature and effect of such differences is presented in Note 58.

	a.		Basis for preparation of financial statements

			The consolidated financial statements, except for the statements of cash flows, are prepared on the accrual basis of accounting. The measurement basis used is historical cost, except for certain accounts recorded on the basis described in the related accounting policies.

			The consolidated statements of cash flows are prepared using the direct method and present the changes in cash and cash equivalents from operating, investing and financing activities.

	a.		Basis for preparation of financial statements (continued)

			Figures in the consolidated financial statements are rounded to and presented in millions of Indonesian Rupiah (“Rp”) unless otherwise stated.

	b.		Principles of consolidation

			The consolidated financial statements include the financial statements of the Company and its subsidiaries in which the Company directly or indirectly has ownership of more than 50%, or the Company has the ability to control the entity, even though the ownership is less than or equal to 50%. Subsidiaries are consolidated from the date on which effective control is obtained and are no longer consolidated from the date of disposal. The Company does not consolidate a subsidiary if control is expected to be temporary.

			All significant inter-company balances and transactions have been eliminated in consolidation.

			In the case of PT Pramindo Ikat Nusantara (“Pramindo”), the Company has evaluated the scope and terms of this investment and concluded that it has the ability to exercise control over Pramindo and the right to obtain all of the future economic benefits of ownership as though the Company owned 100% of the shares. The factors that the Company considered include, among others, the fact that the purchase price is fixed, its ability to vote 100% of the shares at general stockholders’ meetings, subject to certain protective rights retained by the selling stockholders, its ability to appoint all of the board members and management and its consequent ability to exclusively determine the financial and operating policies of Pramindo subject to certain protective rights, its issuance of irrevocable and unconditional promissory notes in settlement of the purchase consideration to the selling stockholders, the placement of the 70% of Pramindo shares not yet transferred to the Company in an escrow account by the selling stockholders and the protective provisions in the various agreements for the Company to take over all shares (including powers of attorney issued by the selling stockholders) or collapse the KSO arrangement once the full amount payable for the shares has been paid (Note 5b).

	c.		Transactions with related parties

			The Company and subsidiaries have transactions with related parties. The definition of related parties used is in accordance with Indonesian Statement of Financial Accounting Standards (“PSAK”) No.7 “Related Party Disclosures”.

	d.		Acquisitions of subsidiaries

			The acquisition of a subsidiary from a third party is accounted for using the purchase method of accounting. The excess of the acquisition cost over the Company’s interest in the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill and amortized using the straight-line method over a period of not more than five years.

	d.		Acquisitions of subsidiaries (continued)

			The acquisition transaction with entities under common control is accounted for in a manner similar to that in pooling of interests accounting (carryover basis). The difference between the consideration paid or received and the related historical carrying amount, after considering income tax effects, is recognized directly in equity and are reported as “Difference in value of restructuring transactions between entities under common control” in the stockholders’ equity section.

			The Company continually assesses whether events or changes in circumstances have occurred that would require revision of the remaining estimated useful life of goodwill, or whether there is any indication of impairment. If any indication of impairment exists, the recoverable amount of goodwill is estimated based on the expected future cash flows which are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

	e.		Foreign currency translation

			The functional currency of the Company and its subsidiaries is the Indonesian Rupiah and the books of accounts of the Company and its subsidiaries are maintained in Indonesian Rupiah. Transactions in foreign currencies are translated into Indonesian Rupiah at the rates of exchange prevailing at transaction date. At the balance sheet date, monetary assets and monetary liabilities balances denominated in foreign currencies are translated into Indonesian Rupiah based on the buy and sell rates quoted by Reuters prevailing at the balance sheet date. The Reuters buy and sell rates, applied respectively to translate monetary assets and monetary liability balances, were Rp8,405 and Rp8,415 to US$1 as of September 30, 2003, and Rp9,150 and Rp9,170 to US$1 as of September 30, 2004.

			The resulting foreign exchange gains or losses, realized and unrealized, are credited or charged to income of the current year, except for foreign exchange differences incurred on borrowings during the construction of qualifying assets which are capitalized to the extent that the borrowings can be attributed to the construction of those qualifying assets (Note 2k).

	f.		Cash and cash equivalents

			Cash and cash equivalents consist of cash on hand and in banks and all unrestricted time deposits with maturities of not more than three months from the date of placement. For the purpose of the statements of cash flows, bank overdrafts that are repayable on demand and form an integral part of cash management of the Company and subsidiaries are included as a component of cash and cash equivalents.

	i.		Time deposits

			Time deposits with maturities of more than three months are presented as temporary investments.

	ii.		Investments in securities

			Investments in available-for-sale securities are stated at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from income of the current year and are reported as a separate component in the stockholders’ equity section until realized. Realized gains or losses from the sale of available-for-sale securities are recognized in the income of the current year, and are determined on a specific-identification basis. A decline in the fair value of any available-for-sale securities below cost that is deemed to be other-than-temporary is charged to income of the current year.

	iii.		Investments in associated companies

			Investments in shares of stock in which the Company has 20% to 50% of the voting rights, and over which the Company exerts significant influence, but not control, over the financial and operating policies are accounted for using the equity method. Under this method, the Company recognizes the Company’s proportionate share in the income or loss of the associated company from the date that significant influence commences until the date that significant influence ceases. When the Company’s share of loss exceeds the carrying amount of the associated company, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Company has incurred obligations in respect of the associated company.

			On a continuous basis, but no less frequently than at the end of each year, the Company evaluates the carrying amount of its ownership interests in investee companies for possible impairment. Factors considered in assessing whether an indication of other than temporary impairment exists include the achievement of business plan objectives and milestones including cash flow projections and the results of planned financing activities, the financial condition and prospects of each investee company, the fair value of the ownership interest relative to the carrying amount of the investment and other relevant factors. Impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on quoted market prices (if any), projected discounted cash flows or other valuation techniques as appropriate.

			Changes in the value of investments due to changes in the equity of associated companies arising from capital transactions of such associated companies with other parties are recognized directly in equity and are reported as “Difference due to change of equity in associated companies” in the stockholders’ equity section. Differences previously credited directly to equity transactions in associated companies are released to the statement of income upon the sale of an interest in the associate in proportion with percentage of the interest sold.

	iii.		Investments in associated companies (continued)

			The functional currency of PT Pasifik Satelit Nusantara and PT Citra Sari Makmur is the U.S. Dollar. For the purpose of reporting these investments using the equity method, the assets and liabilities of these companies as of the balance sheet date are translated into Rupiah using the rates of exchange prevailing at that date, while revenues and expenses are translated into Rupiah at the average rates of exchange for the year. The resulting translation adjustments are reported as part of “Translation adjustment” in the stockholders’ equity section.

	iv.		Other investments

			Investments in shares of stock with ownership interests of less than 20% that do not have readily determinable fair values and are intended for long-term investments are carried at cost and are adjusted only for other-than-temporary decline in the value of individual investments. Any such write-down is charged directly to income of the current year.

	h.		Trade and other accounts receivable

			Trade and other accounts receivable are recorded net of an allowance for doubtful accounts, based upon a review of the collectibility of the outstanding amounts at the end of the year. Accounts are written off against the allowance during the period in which they are determined to be not collectible.

			Trade and other accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days for retail customers are fully provided, and past due balance for non-retail customers over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

	i.		Inventories

			Inventories principally consist of components and modules, which are transferred to Plant, Property and Equipment upon use. Inventories also include SIM card and prepaid voucher blanks.

			Cost is determined using the weighted average method for components, SIM card and prepaid voucher blanks, and the specific-identification method for modules.

			Allowance for obsolescence is primarily based on the estimated forecast of future usage of these items.

	j.		Prepaid expenses

			Prepaid expenses are amortized over their beneficial periods using the straight-line method.

	k.		Property, plant and equipment — direct acquisitions

			Property, plant and equipment directly acquired are stated at cost, except for certain revalued assets, less accumulated depreciation.

			Property, plant and equipment, except land, are depreciated using the straight-line method, based on the estimated useful lives of the assets as follows:

			Land is stated at cost and is not depreciated.

			When the carrying amount of an asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount, which is determined based upon the greater of its net selling price or value in use.

			The cost of maintenance and repairs is expensed as incurred. Expenditures, which extend the useful life of the asset or result in increased future economic benefits such as increase in capacity or improvement in the quality of output or standard of performance, are capitalized and depreciated based on the applicable depreciation rates.

			When assets are retired or otherwise disposed of, their carrying values and the related accumulated depreciation are eliminated from the consolidated financial statements, and the resulting gains or losses on the disposal or sale of property, plant and equipment are recognized in the statement of income.

			Computer software used for data processing is included in the value of the associated hardware.


	k.		Property, plant and equipment — direct acquisitions (continued)

			Property under construction is stated at cost until construction is complete, at which time it is reclassified to the specific property, plant and equipment account it relates to. During the construction period, borrowing costs, which include interest expense and foreign exchange gains or losses incurred to finance the construction of the asset, are capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalization of borrowing cost ceases when the assets are ready for its intended use.

	l.		Property, plant and equipment under capital leases

			Property, plant and equipment acquired under capital leases are stated at the present value of minimum lease payments. At inception of the lease, a corresponding liability, which equals to the present value of minimum lease payments, is also recorded and subsequently reduced by the principal component of each minimum lease payment. The interest component of each minimum lease payment is recognized in the statement of income.

			Leased assets are capitalized only if all of the following criteria are met: (a) the lessee has an option to purchase the leased asset at the end of the lease period at a price agreed upon at the inception of the lease agreement, and (b) the sum of periodic lease payments, plus the residual value, will cover the acquisition price of the leased asset and related interest, and (c) there is a minimum lease period of 2 years.

			Leased assets are depreciated using the same method and over the same estimated useful lives used for directly acquired property, plant and equipment.

	m.		Revenue-sharing arrangements

			Under PSAK 35 paragraph 4, the Company records assets under revenue-sharing agreements as “Property, plant and equipment under revenue-sharing arrangements” (with a corresponding initial credit to “Unearned income under revenue-sharing arrangements” presented in the Liabilities section of the balance sheet) based on the costs incurred by the investors as agreed upon in the contracts entered into between the Company and the investors. Property, plant and equipment are depreciated over their estimated useful lives using the straight-line method.

			Unearned income related to the acquisition of the property, plant and equipment under revenue-sharing arrangements is amortized over the revenue-sharing period using the straight-line method.

			At the end of the revenue-sharing period, the respective property, plant and equipment under revenue-sharing arrangements are reclassified to the “Property, plant and equipment” account.

			Revenue earned under revenue-sharing arrangements is recognized on the basis of the Company’s share as provided in the agreement.

	n.		Joint operation schemes

			Revenues from joint operation schemes include amortization of the investor’s initial payments, Minimum Telkom Revenues (“MTR”) and the Company’s share of Distributable KSO Revenues (“DKSOR”).

			Unearned initial investor payments received as compensation from the KSO Investors are presented net of all direct costs incurred in connection with the KSO agreement and are amortized using the straight-line method over the KSO period of 15 years starting from January 1, 1996.

			MTR are recognized on a monthly basis based upon the contracted MTR amount for the current year, in accordance with the KSO agreement.

			The Company’s share of DKSOR is recognized on the basis of the Company’s percentage share of the KSO revenues, net of MTR and operational expenses of the KSO Units, as provided in the KSO agreements.

			Under PSAK No. 39, “Accounting for Joint Operation Schemes”, which supersedes paragraph 14 of PSAK No. 35, “Accounting for Telecommunication Services Revenue”, the assets built by the KSO Investors under the Joint Operation Schemes are recorded in the books of the KSO Investors which operate the assets and are transferred to the Company at the end of the KSO period or upon termination of the KSO agreement.

	o.		Deferred charges for landrights

			Costs incurred to process and extend the landrights are deferred and amortized using the straight-line method over the term of the landrights.

	p.		Revenue and expense recognition

	i.		Fixed line telephone revenues

			Revenues from fixed line installations are recognized at the time the installations are placed in service. Revenues from usage charges are recognized as customers incur the charges.

	ii.		Cellular and fixed wireless telephone revenues

			Revenues from service connections (connection fees) are recognized as income at the time the connections occur. Revenues from airtime (for cellular) and monthly subscription charges are recognized as accessed and as earned. Revenues from prepaid card customers, which consist of the sale of starter packs, also known as Subscriber Identification Module (“SIM”) cards in the case of cellular and Removable Unit Identity Card (“RUIM”) in the case of fixed wireless telephone, and pulse reload vouchers, are recognized as follows:

	1.		Sale of starter packs is recognized as revenue upon delivery of the starter packs to distributors, dealers or directly to customers.

	2.		Sale of pulse reload vouchers is recognized initially as unearned income and recognized proportionately as revenue based on successful calls made by the subscribers or whenever the unused stored value of the voucher has expired.

	iii.		Interconnection revenues

			Revenues from network interconnection with other domestic and international telecommunications carriers are recognized as incurred and are presented net of interconnection expenses.

			Expenses are recognized on an accrual basis.

	q.		Pension benefits

	i.		Defined benefit pension plans

			The Company and certain subsidiaries established defined benefit pension plans covering substantially all of their permanent employees.

			The Company’s net obligation in respect of the defined benefit pension plans is calculated at the net present value of estimated future benefits that the employees have earned in return for their service in the current and prior periods, deducted by any plan assets. The calculation is performed by an independent actuary using the projected unit credit method.

			The benefits earned by the employees are recognized in the statement of income on a straight-line basis over the period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the statement of income.

	ii.		Early retirement benefits

			Early retirement benefits are accrued at the time the Company makes a commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary redundancy. The Company is demonstrably committed to a termination when, and only when, the Company has a detailed formal plan for the early retirement and is without realistic possibility of withdrawal.

	i.		Long service awards (“LSA”)

			The Company’s employees are entitled to receive certain cash awards based on length of service requirement. The benefits are either paid at the time the employee reaches certain anniversary dates during employment, upon retirement or at the time of termination.

			The Company’s obligation with respect to LSA is calculated by an independent actuary using the projected unit credit method.

	ii.		Post-retirement health care plan

			The Company provides a post-retirement health care plan that covers its retired employees who meet age, participation and length of service requirements at retirement, and their eligible dependants.

			The Company’s obligation with respect to post-retirement health care plan is calculated by an independent actuary using the projected unit credit method.