PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK

6-K 1 u92582e6vk.htm PT TELEKOMUNIKASI INDONESIA PT TELEKOMUNIKASI INDONESIA PAGEBREAK

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

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

For the month of July , 20 05

Perusahaan Perseroan (Persero) PT TELEKOMUNIKASI INDONESIA

(Translation of registrants 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):

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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) PT TELEKOMUNIKASI INDONESIA
		(Registrant)
Date	July 29, 2005	By	/s/ Rochiman Sukarno
			(Signature) Rochiman Sukarno Head of Investor Relation Unit

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PREFACE

We are pleased to submit the un-audited Consolidated Financial Statements of Perusahaan Perseroan (Persero) PT Telekomunikasi, Tbk for the six months period ended June 30, 2005 and its comparison for the same period in 2004 which consists of Balance Sheet, Statements of Income, Statements of Changes in Stockholders Equity and Statements of Cash Flows prepared in accordance with Generally Accepted Accounting Principles in Indonesia and includes reconciliation and additional disclosures required in accordance with U.S. Generally Accepted Accounting Principles. The Consolidated Financial Statements are prepared to fulfill Companys responsibility in providing information as a public company.

For the first half period of 2005, the Company recorded consolidated Net Income of Rp3,703 billion, increased by 47.57% compared to the same period of previous year which was recorded net income of Rp2,509 billion. Operating Income also increased by 18.98% from Rp6,708 billion to Rp7,981 billion.

Operating Revenues increased by 20.15% from Rp16,134 billion to Rp19,384 billion which was mainly resulted from the revenue growth of Cellular, Data and Internet, and Interconnection by Rp1,451 billion (29.27%), Rp916 billion (42.72%) and Rp776 billion (28.20%), respectively. Those revenues contributed 67.04% to the total Operating Revenues.

The increase in Net Income was also contributed by a decline in foreign exchange losses from Rp1,255 billion in the first half of 2004 while in the first half of 2005 amounted to Rp357 billion.

Operating Expenses increased by 20.98% from Rp9,436 billion to Rp11,404 billion which was primarily due to the increase in Personnel Expenses of Rp1,070 billion (39.99%) also Operation and Maintenance Expenses of Rp596 billion (27.08%). The increase in Personnel Expenses was mainly due to improvement of employees remuneration commencing from July 2004 and implementation of early retirement program in March 2005. The increase of Operation and Maintenance Expenses was in line with additional infrastructure and network installed in order to enhance quality and coverage of services.

On behalf of the Board of Directors, I would like to thank to all TELKOM Group partners, who have supported us in achieving the results as mentioned in this report.

Bandung, July 27, 2005

/s/ Arwin Rasyid

ARWIN RASYID President Director/CEO

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/TOC

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

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

AS OF JUNE 30, 2004 AND 2005, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005

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TOC

TABLE OF CONTENTS

| CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 2004 AND 2005 | 1 |
| --- | --- |
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND
2005 | 3 |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND
2005 | 4 |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS PERIOD ENDED
JUNE 30, 2004 AND 2005 | 6 |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS PERIOD ENDED
JUNE 30, 2004 AND 2005 | 8 |

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

CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF JUNE 30, 2004 AND 2005 (Figures in table are presented in millions, except share data)

	Notes	2004 — Rp	2005 — Rp	US (Note 3)
		(Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	2c,2f,6,46	6,983,664	6,009,872	616
Temporary investments	2c,2g,46	52,866	100,418	10
Trade accounts receivable	2c,2h,7,46
Related parties net of allowance for doubtful
accounts of Rp142,263 million in 2004
and Rp115,673 million in 2005		670,191	462,403	48
Third parties net of allowance for doubtful
accounts of Rp485,478 million in 2004
and Rp543,659 million in 2005		2,835,907	2,963,365	304
Other accounts receivable net of allowance for
doubtful accounts of Rp30,727 million in 2004
and Rp12,493 million in 2005	2c,2h,46	57,949	69,033	7
Inventories net of allowance for obsolescence of
Rp42,027 million in 2004 and Rp48,638
million in 2005	2i,8	139,644	139,680	14
Prepaid expenses	2c,2j,9,46	589,259	998,558	102
Prepaid taxes	40a	39,395	1,574
Other current assets	2c,10,46	163,302	45,808	5
Total Current Assets		11,532,177	10,790,711	1,106
NON-CURRENT ASSETS
Long-term investments net	2g,11	75,318	91,062	9
Property, plant and equipment net of accumulated
depreciation of Rp25,922,963 million in 2004
and Rp32,248,211 million in 2005	2k,2l,12	37,660,319	41,103,370	4,215
Property,
plant and equipment under revenue sharing arrangements net of accumulated
depreciation of Rp777,766 million in 2004
and Rp467,230 million in 2005	2m,13,49	228,923	440,456	45
Prepaid pension cost	2q,43	185,513	43,020	5
Advances and other non-current assets	2c,14,46	261,912	1,133,373	116
Goodwill and other intangible assets net of
accumulated amortization of Rp1,402,812
million in 2004 and Rp2,305,110 million in 2005	1c,2d,15	5,623,170	4,952,349	508
Advance payments for investment in shares of stock	5e	65,458
Escrow account	16	624,298	84,237	9
Total Non-current Assets		44,724,911	47,847,867	4,907
TOTAL ASSETS		56,257,088	58,638,578	6,013

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

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

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued) AS OF JUNE 30, 2004 AND 2005 (Figures in table are presented in millions, except share data)

	Notes	2004 — Rp	Rp		US (Note 3)
		(Restated)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable	2c,17,46
Related parties		767,978		707,462		72
Third parties		2,788,977		3,121,744		320
Other accounts payable		51,256		26,578		3
Taxes payable	2s,40b	1,008,045		1,433,424		147
Dividends payable		680,270		3,529,047		362
Accrued expenses	2c,18,46	1,846,623		1,343,184		138
Unearned income	19	746,869		1,210,464		124
Advances from customers and suppliers	20	384,147		281,147		29
Short-term bank loans	2c,21,46	773,595		791,738		81
Current maturities of long-term liabilities	2c,22,46	2,441,383		2,142,747		220
Total Current Liabilities		11,489,143		14,587,535		1,496
NON-CURRENT LIABILITIES
Deferred tax liabilities net	2s,40e	3,382,662		3,127,699		321
Unearned income on revenue-sharing arrangements	2m,13,50	100,368		321,661		33
Unearned initial investor payments under joint
operation scheme	2n,49	28,266		19,506		2
Provision for long service award	2c,2r,44,46	534,870		569,599		58
Provision for post-retirement health care benefits	2c,2r,45,46	1,952,335		1,886,327		193
Provision for other post-retirement benefits	45b, 45d	11,402		21,677		2
Long-term liabilities net of current maturities
Two-step loans related party	2c,23,46	6,750,786		5,081,358		521
Notes and bonds	24	1,742,959		1,598,827		164
Bank loans	2c,25,46	2,569,807		1,826,436		187
Liabilities for acquisition of subsidiaries and KSO IV	26	3,942,516		3,484,116		357
Other long-term debt		9,150
Total Non-current Liabilities		21,025,121		17,937,206		1,838
MINORITY INTEREST IN NET ASSETS OF SUBSIDIARIES	27	3,912,474		5,128,664		526
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	1b,28	5,040,000		5,040,000		517
Additional paid-in capital	29	1,073,333		1,073,333		110
Difference in value of restructuring transactions
between entities under common control	30	(7,288,271	)	(7,288,271	)	(747	)
Difference due to change of equity in associated
companies	2g	385,595		385,595		40
Unrealized gain on investment in securities available for sale	2g	136		2,383
Translation adjustment	2g	232,078		231,252		24
Retained earnings
Appropriated		1,559,068		1,803,397		185
Unappropriated		18,828,411		19,737,484		2,024
Total Stockholders Equity		19,830,350		20,985,173		2,153
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		56,257,088		58,638,578		6,013

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

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

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005 (Figures in table are presented in millions, except share and per ADS data)

	Notes	2004 — Rp	Rp		US (Note 3)
		(Restated)
OPERATING REVENUES
Telephone	2p,31
Fixed lines		5,426,655		5,473,578		561
Cellular		4,957,675		6,408,876		657
International				106,064		11
Interconnection	2p,32,46	2,750,678		3,526,238		362
Joint operation schemes	2n,33,48	293,836		316,188		32
Data and Internet	34	2,144,363		3,060,411		314
Network	35	274,836		194,046		20
Revenue-sharing arrangements	2m,36,49	63,308		101,182		10
Other telecommunications services		222,734		198,007		20
Total Operating Revenues		16,134,085		19,384,590		1,987
OPERATING EXPENSES
Personnel	37	2,675,323		3,745,204		384
Depreciation	2k,2l,2m,11,12	2,990,228		3,189,975		327
Operations, maintenance and telecommunication
services	38	2,200,010		2,795,867		287
General and administrative	39	1,150,958		1,223,321		125
Marketing		409,587		449,239		46
Total Operating Expenses		9,426,106		11,403,606		1,169
OPERATING INCOME		6,707,979		7,980,984		818
OTHER INCOME (CHARGES)
Interest income	46	184,416		136,178		14
Interest expense	46	(813,119	)	(647,594	)	(66	)
Gain (loss) on foreign exchange net	2e	(1,254,947	)	(357,003	)	(37	)
Equity in net income (loss) of associated
companies	2g,10	2,824		6,792		1
Others net		244,180		265,947		27
Other income (charges) net		(1,636,646	)	(595,680	)	(61	)
INCOME BEFORE TAX		5,071,333		7,385,304		757
TAX EXPENSE	2s,40c
Current tax		(1,836,602	)	(2,545,814	)	(261	)
Deferred tax		164,107		224,395		23
		(1,672,495	)	(2,321,419	)	(238	)
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES		3,398,838		5,063,885		519
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES	27	(889,347	)	(1,360,692	)	(140	)
NET INCOME		2,509,491		3,703,193		379
BASIC EARNINGS PER SHARE	2t,41
Net income per share		124.48		183.69		0.02
Net income per ADS
(40 Series B shares per ADS)		4,979.15		7,347.61		0.78

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

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005 (Figures in table are presented in millions)

				Difference in
				value of
				restructuring	Difference	Unrealized
				transactions	due to change	gain on
			Additional	between entities	of equity	investment				Total
		Capital	paid-in	under common	in associated	in securities	Translation	Retained earnings		stockholders
Description	Notes	stock	capital	control	companies	available for sale	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
Unrealized gain on investment
in securities available for sale	2g						136				136
Foreign currency translation of CSM	2g,11							7,846			7,846
Net income for the year										2,509,491	2,509,491
Balance as of June 30, 2004 - restated		5,040,000	1,073,333	(7,288,271	)	385,595	136	232,078	1,559,068	18,828,411	19,830,350

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

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) (continued) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005 (Figures in table are presented in millions)

				Difference in
				value of
				restructuring	Difference	Unrealized
				transactions	due to change	gain on
			Additional	between entities	of equity	investment					Total
		Capital	paid-in	under common	in associated	in securities	Translation	Retained earnings			stockholders'
Description	Notes	stock	capital	control	companies	available for sale	adjustments	Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp	Rp	Rp		Rp
Balance as of January 1, 2005		5,040,000	1,073,333	(7,288,271	)	385,595	884	229,595	1,680,813	19,139,393		20,261,342
Placement on fixed income mutual fund							1,499					1,499
Foreign currency translation of CSM	2g,11							1,657				1,657
Resolved during the Annual General Meeting
of the Stockholders on June 24, 2005
Declaration of cash dividend	42									(2,921,226	)	(2,921,226	)
Appropriation for general reserve	42								122,584	(122,584	)
Partnership program	42									(61,292	)	(61,292	)
Net income for the year										3,703,193		3,703,193
Balance as of June 30, 2005		5,040,000	1,073,333	(7,288,271	)	385,595	2,383	231,252	1,803,397	19,737,484		20,985,173

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

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

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005 (Figures in table are presented in millions)


Rp		Rp		US$ (Note 3)
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone
Fixed lines	4,757,797		5,820,641		597		596.83579
Cellular	6,072,449		6,495,248		667		666.00851
Joint operation scheme	797,598		305,749		31		31.35083
Interconnection net	1,952,305		3,018,150		309		309.47449
Other services	804,454		3,622,348		371		371.42763
Total cash receipts from operating revenues	14,384,603		19,262,136		1,975		1,975.09726
Cash payments for operating expenses	(6,168,009	)	(7,679,669	)	(787	)	(787.45645	)
Cash generated from operations	8,216,594		11,582,467		1,188		1,187.64081
Interest received	187,470		136,685		14		14.01538
Income tax payments	(2,157,157	)	(2,754,115	)	(282	)	(282.40092	)
Interest paid	(613,602	)	(550,979	)	(56	)	(56.49618	)
Cash receipt (refund) from/to customers and advances	19,021		(14,612	)	(1	)	(1.49828	)
Net Cash Provided by Operating Activities	5,652,326		8,399,446		863		861.26080
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments and maturity of
time deposits	345,594		15,485		2		1.58780
Purchase of marketable securities and placements
in time deposits	(394,454	)	(95,953	)	(10	)	(9.83881	)
Proceeds from sale of property, plant and equipment	3,544		80,117		8		8.21502
Acquisition of property, plant and equipment	(2,095,457	)	(4,808,148	)	(493	)	(493.01697	)
Payment of advances for acquisition of property,
plant and equipment	(85,958	)	261,990		27		26.86388
Increase (decrease) in advances and others			(7,355	)	(1	)	(0.75417	)
Net Cash Used in Investing Activities	(2,226,731	)	(4,553,864	)	(467	)	(466.94325	)
CASH FLOWS FROM FINANCING ACTIVITIES
Received of long-term liabilities	166,901		1,018,546		104		104.43948
Repayments of bonds	(490,803	)	(780,565	)	(80	)	(80.03743	)
Repayments of long-term liabilities	(1,178,344	)	(2,054,601	)	(211	)	(210.67429	)
Repayments of promissory notes			(290,000	)	(31	)	(29.73597	)
Cash dividends paid			(554,550	)	(57	)	(56.86234	)
Decrease (increase) in escrow accounts	(147,726	)	(47,956	)	(5	)
Net Cash Used in Financing Activities	(1,649,972	)	(2,709,126	)	(280	)	(277.78785	)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	1,775,623		1,136,456		116		116.52971
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS	113,569		17,292		2		1.77308
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR	5,094,472		4,856,124		498		497.93632
CASH AND CASH EQUIVALENTS AT END OF YEAR	6,983,664		6,009,872		616		616.23912

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 AND 2005 (Amounts in millions)

Rp	Rp	US$ (Note 3)
(Restated)
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities:
Increase in property under construction through
the incurrence of long-term debts	741,584	281,722	29
Payment of insurance premium through
the incurrence of long-term debts		60,455	6
Acquisition of subsidiary through the issuance of
Promissory Notes	3,257,566

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 (RESTATED) AND 2005 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL

| a. |
| --- |
| 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. 26 dated July 30, 2004, of Notary A. Partomuan
Pohan, S.H., LLM., among others, to increase the Companys authorized, issued and fully
paid share capital by means of a 2-for-1 stock split. The notarial deed was approved by the
Minister of Justice and Human Rights of the Republic of Indonesia in his decision letter
No. C-23270 HT.01.04.TH.2004 dated September 17, 2004, and was published in State Gazette
of the Republic of Indonesia No. 5 dated January 18, 2005. |
| In accordance with article 3 of its articles of association, the scope of the Companys
activities is as follows: |

| 1. | The Companys 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 Companys resources and optimizing the
utilization of the Companys property, plant and equipment, information systems,
education and training, and repairs and maintenance facilities. |

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2004 (RESTATED) AND 2005 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| a. |
| --- |
| The Companys 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 Companys seven regional divisions under Joint Operation Schemes
(known as Kerja Sama Operasi or KSO). |
| The Companys head office is located at Jalan Japati No. 1, Bandung, West Java. |
| Pursuant to 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). 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 bodys 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 Companys right to provide other domestic telecommunications services. |
| Under Law No. 36/1999 on Telecommunications, which took effect from September 2000,
telecommunications activities cover: |

i.	Telecommunications networks
ii.	Telecommunications services
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.

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

GENERAL (continued)

| a. |
| --- |
| 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, which initially
would expire in December 2010 and December 2005, respectively, 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 Companys 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, addresses the following matters: |

a.	Compensation for early termination of exclusive rights
	The Government shall pay to the Company an amount of Rp478,000 million net of tax and
Indosat shall pay to the Government an amount of Rp178,000 million net of tax. As of
the date of issuance of these consolidated financial statements, the Company has not
received any payments.
b.	License synchronization for the Company and Indosat
	The Company was given the right to use access code of 007 for operating international
telephone network and Indosat was given the right to use access code of 011 for
operating DLD fixed telephone network.

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.

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GENERAL (continued)

| a. |
| --- |
| 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 Companys Board of Commissioners and Board of Directors
as of June 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

Based on the resolution of the Extraordinary General Meeting of Stockholders, the minutes of which have been summarized by Notary in form of resume No. 210/VI/2005 dated June 24, 2005 of A. Partomuan Pohan, S.H., LLM., the Stockholders have approved to change Board of Directors, accordingly the composition of the Companys Board of Commissioners and Board of Directors as of June 30, 2005 was as follows:

President Commissioner	:	Tanri Abeng
Commissioner	:	Anggito Abimanyu
Commissioner	:	Gatot Trihargo
Independent Commissioner	:	Arif Arryman
Independent Commissioner	:	Petrus Sartono
President Director	:	Arwin Rasyid
Vice President Director / Chief Operating Officer	:	Garuda Sugardo
Director of Finance	:	Rinaldi Firmansyah
Director of Network & Solution	:	Abdul Haris
Director of Enterprise & Wholesale	:	Arief Yahya
Director of Human Resources	:	John Welly
Director of Consumer	:	Guntur Siregar

As of June, 2004 and 2005, the Company had 30.305 employees and 28.318 employees, respectively, including KSO Unit employees.

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

GENERAL (continued)

| b. |
| --- |
| The Companys 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 Companys 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 represented 20 Series B shares at that time. |
| 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. |
| Under Law No.1/1995 on Limited Liability Companies, the minimum total par value of the
Companys issued shares of capital stock must be at least 25% of the total par value of
the Companys authorized capital stock, or in the Companys 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. |
| Based on the Annual General Meeting of Stockholders, the minutes of which were notarized
by deed No. 26 dated July 30, 2004 of A. Partomuan Pohan, S.H., LLM., resolved to decrease
the par value of the Companys shares from Rp500 to Rp250 by means of a 2-for-1 stock
split. The Series A Dwiwarna share with par value of Rp500 was split to one Series A
Dwiwarna share with par value of Rp250 and one Series B share with par value of Rp250. As
a result of the stock split, the Companys authorized capital stock increased from one
Series A Dwiwarna share and 39,999,999,999 Series B shares to one Series A Dwiwarna share
and 79,999,999,999 Series B shares, and the Companys issued capital stock increased from
one Series A Dwiwarna share and 10,079,999,639 Series B shares to one Series A Dwiwarna
share and 20,159,999,279 Series B shares. After the stock split, each ADS represented 40
Series B shares. |
| As of June 30, 2005, all of the Companys Series B shares were listed on the Jakarta Stock
Exchange and Surabaya Stock Exchange and 37,263,744 ADS shares were listed on the New York
Stock Exchange and London Stock Exchange. |

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

GENERAL (continued)

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

			Percentage of		Start of	Total assets
			ownership		commercial	before eliminations
Subsidiaries	Domicile	Nature of business	2004	2005	operations	2004	2005
			%	%
PT Dayamitra	Balikpapan	Telecommunications	90.32	100.00	1995	603,603	738,058
Telekomunikasi
PT Pramindo Ikat	Medan	Telecommunications	100.00	100.00	1995	1,639,756	1,411,755
Nusantara		construction & services
PT AriaWest International	Bandung	Telecommunications	100.00	100.00	1995	1,436,908	1,206,365
PT Multimedia Nusantara	Jakarta	Pay TV	100.00	100.00	1998	11,142	27,073
PT Graha Sarana Duta	Jakarta	Real estate, construction	100.00	100.00	1982	69,871	87,520
		and services
PT Indonusa Telemedia	Jakarta	Multimedia	90.39	90.39	1997	53,450	67,013
PT Telekomunikasi	Jakarta	Telecommunications	65.00	65.00	1995	18,063,586	22,261,045
Selular
PT Napsindo	Jakarta	Telecommunications	60.00	60.00	1999	38,895	23,027
Primatel International
PT Infomedia Nusantara	Jakarta	Data and information	51.00	51.00	1984	279,862	327,604
		service
PT Pro Infokom Indonesia	Jakarta	System information	51.00		2003	1,430
		network

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

			Nature of	Ownership — percentage		Start of — Commercial
Indirect subsidiaries	Stockholders	Domicile	Business	2004	2005	Operations
				%	%
Telekomunikasi
Selular Finance Limited	PT Telekomunikasi	Mauritius	Fund raising	100.00	100.00	2002
	Selular
Aria West International	PT AriaWest	Netherlands	Finance	100.00	100.00	1996
Finance B.V.	International
PT Balebat Dedikasi	PT Infomedia	Bogor	Printing	51.00	51.33	2000
Prima	Nusantara

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

GENERAL (continued)

| c. |
| --- |
| PT Pramindo Ikat Nusantara (Pramindo) |
| Pramindo is the investor in KSO I (Note 48), 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). |
| 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
5b). |
| PT AriaWest International (AWI) |
| AWI is the investor in KSO III (Note 48), 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 Companys acquisition of AWI (Note
5c). |
| The CSPA provides for certain conditions that have to be satisfied at or prior to the
closing date to effect the acquisition, e.g. completion of the restructuring of AWIs
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. |
| 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
Indocitras 69% ownership interest in Metra (Note 11j). |
| 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 15). |

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

GENERAL (continued)

| c. |
| --- |
| PT Indonusa Telemedia (Indonusa) |
| Indonusa is engaged in providing multimedia telecommunications services. |
| On August 8, 2003, the Company increased its investment in Indonusa from 57.5% to 88.08%
through a share-swap agreement with PT Centralindo Pancasakti Cellular (CPSC) (Note 11). |
| 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 Companys ownership in
Indonusa increased from 88.08% to 90.39%. |
| 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 Companys cross-ownership transaction with Indosat in 2001 increased the Companys
ownership interest in Telkomsel to 77.72%. |
| 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 million
(equivalent to Rp3,948,945 million). This transaction reduced the Companys 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. |
| Based on the notarial Deed No. 47 dated December 30, 2002 of Notary H. Yunardi, S.H., the
Company purchased 28% of Napsindos shares from PT Info Asia Sukses Makmur Mandiri for
US$4.9 million (equivalent to Rp43,620 million), thereby increasing the Companys
ownership interest to 60% after the settlement of payment on January 28, 2003. |

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

GENERAL (continued)

c.	Subsidiaries (continued)
	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.
	PII was established to develop a national information network system as the back-bone for
the development of the Indonesian e-Government. PII was intended to maximize the
utilization of both the Companys and PLNs existing infrastructures.
	On January 20, 2005, the Company sold its entire 51% equity interest in PII to PT Prima
Infokom Indonesia for Rp471 million.
	Telekomunikasi Selular Finance Limited (TSFL)
	Telkomsel has 100% direct ownership interest in TSFL, a company established in Mauritius
on April 22, 2002. TSFLs objective is to raise funds for the development of Telkomsels
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 July 27, 2005.

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| 2. |
| --- |
| The accounting and reporting policies adopted by the Company and subsidiaries conform to
accounting principles generally accepted 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 54. |

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.
	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.
	All significant inter-company balances and transactions have been eliminated in
consolidation.
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 Companys 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.
	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
reported as Difference in value of restructuring transactions between entities under
common control in the stockholders equity section.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

d.	Acquisitions of subsidiaries (continued)
	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 Rp9,375 and Rp9,405 to US$1 as of
June 30, 2004 and Rp9,745 and Rp9,760 to US$1 as of June 30, 2005.
	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 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.
g.	Investments

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

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 Companys 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 Companys 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, the period of time the fair value of the ownership interest has been below
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 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 percentage of the interest sold.

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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 Indonesian Rupiah using the rates of exchange prevailing at that date,
while revenues and expenses are translated into Indonesian 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 Companys best estimate of the amount of probable credit
losses in the Companys 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. In the other hand, the allowance for past due
balances in between 7 until 12 months, 13 months and 24 months, for governmental and
military customers, are 25%, 50% and 100% from balances, respectively. 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 Subscriber
Identification Module (SIM) card, Removable User Identity Module (RUIM) card and
prepaid voucher blanks.
	Cost is determined using the weighted average method for components, SIM card, RUIM 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.

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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	515
Telegraph, telex and data communication equipment	515
Transmission installation and equipment	520
Satellite, earth station and equipment	315
Cable network	515
Power supply	310
Data processing equipment	310
Other telecommunications peripherals	5
Office equipment	35
Vehicles	58
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. |

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

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 differences 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
	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 on 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
Companys share as provided in the agreement.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n.	Joint operation schemes
	Revenues from joint operation schemes include amortization of the investors initial
payments, Minimum Telkom Revenues (MTR) and the Companys 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 Companys share of DKSOR is recognized on the basis of the Companys 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 SIM cards
in the case of cellular and RUIM in the case of fixed wireless telephone, and pulse
reload vouchers, are recognized as follows:

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

p. Revenue and expense recognition

ii. Cellular and fixed wireless telephone revenues

| 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. |
| --- |
| 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 Companys 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 average remaining service period of active employees
expected to receive benefits under the plan, except to the extent that the benefits
relate to pensioners which are recognized immediately in the statement of income.
ii.	Early retirement benefits
	Early retirement program is voluntary for the employee. Early retirement expense is
recognized when an offer made by the Company has been accepted by the employee and is
without realistic possibility of withdrawal.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

r. Employee benefits other than pension

i.	Long service awards (LSA)
	The Companys 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 Companys 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 dependents.
	The Companys 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 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, such as difference in value of
restructuring transactions between entities under common control (Note 2d) and effect of
foreign currency translation adjustment for certain investments in associated companies
(Note 2g.iii), in which case income tax is also charged or credited directly to equity.
t.	Earnings per share and earnings per American Depositary Share (ADS)
	Basic earnings per share is computed by dividing net income by the weighted average number
of shares outstanding during the year. In connection with the stock split discussed in
Note 1b, the prior years share and per share amount have been restated to reflect the
stock split. Net income per ADS is computed by multiplying basic earnings per share by 40,
the number of shares represented by each ADS.

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

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 Companys 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 is 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. Actual results could differ from those
estimates.

| 3. |
| --- |
| The consolidated financial statements are stated in Indonesian Rupiah. The translations of
Indonesian 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
Rp9,752 to US$1 published by Reuters on June 30, 2005. The convenience translations should not
be construed as representations that the Indonesian 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. |

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| 4. |
| --- |
| The Company made restatement of financial statements as previously reported related with
accounting changes for amendment of the joint operation scheme in Division Regional IV (KSO
IV) dated January 20, 2004 between the Company and MGTI. The Company, previously, recorded
the amendment of the joint operation scheme in Division Regional IV as revenue sharing
agreement. Subsequently, the Company concluded that the amendment of the joint operation
scheme, substantially, as take over of operational of KSO IV and MGTIs property, plant and
equipment. The operational KSO IV and MGTIs property, plant and equipment meet the criteria
of a business. As the Company gained control in the business (KSO IV), the Company treated the
transaction as a business combination using the purchase method of accounting. Therefore, the
Company made certain adjustment to the previous financial statement for the six months period
ended June 30, 2004. |
| Set forth below are the effects of the restatements on the previously reported consolidated
net income for the six months period ended June 30, 2004: |

Previously		As
Reported		Restated
Consolidated Balance Sheet
Total assets	55,823,493		56,257,088
Total liability	31,715,005		32,514,264
Total stockholders equity	20,196,014		19,830,350
Consolidated Statement of Profit and Loss
Operating income	16,108,605		16,134,085
Operating expense	9,379,843		9,426,106
Other income (expense) net	(1,134,209	)	(1,636,646	)
Net income	2,875,156		2,509,491
Consolidated Statement of Changes in Equity
Retained earning unapproriated	19,194,075		18,828,411

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

| 5. |
| --- |
| In relation with economic crisis in Indonesia since mid of 1997, part of KSO Investors had
difficulty in fulfill their liabilities as stated in KSO agreement. Company and part of KSO
Investors make agreement but did not resolve the problem clearly. Then Company acquired
Dayamitra (KSO Investor at KSO VI), Pramindo (KSO Investor at KSO I) and AWI (KSO Investor in
KSO III) and acquired control at KSO IV. |

| a. |
| --- |
| On May 17, 2001, the Company acquired 90.32% of the shares of Dayamitra for an aggregate
purchase price of US$134.2 million (including consultants fees of approximately US$3.3
million or Rp37,325 million). Pursuant to the terms of the agreement, the Company paid the
initial payment amount of US$18.3 million (Rp206,675 million) on May 17, 2001, the closing
date of the transaction, and US$8.9 million (Rp100,989 million) on August 10, 2001 as a
post-closing working capital adjustment to the purchase price. The remaining amount of
US$103.6 million (Rp1,171,157 million) was paid through an escrow arrangement discussed
below, in eight quarterly installments of US$12.9 million, from August 17, 2001 to May 17,
2003. The estimated present value of US$103.6 million at the discount rate of 14% was
estimated to be US$89.1 million (Rp1,006,310 million). |
| The acquisition of Dayamitra has been accounted for using the purchase method of
accounting. 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 of 9.6
years (Note 15). There was no goodwill arising from this acquisition. |
| 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: |

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

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

ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

a.
Net cash outflow on the acquisition of Dayamitra amounted to Rp241,300 million.
In connection with the Dayamitra transaction, the Company also entered into the following
agreements:

| 1. |
| --- |
| 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 paid to the selling
stockholder the option purchase price of US$6.3 million plus US$1 million as payment
for Dayamitras adjusted working capital, or a total of US$7.3 million. The amount was
payable in eight quarterly installments of US$0.9 million beginning on August 17, 2001
and ending on May 17, 2003. Payments were made through an escrow account established
under the Escrow Agreement discussed below. As of December 31, 2003, the option
purchase price that had been paid by the Company amounted to US$7.3 million or
equivalent to Rp65,458 million and is presented in Advance payments for investments in
shares of stock in the consolidated balance sheet (Note 5e). |
| The Company was entitled to exercise the option any time after Dayamitra satisfied all
of its obligations under the JBIC (formerly J-Exim) loan 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
was US$16.2 million less certain amounts that are stipulated in the Option Agreement. |
| Dayamitra repaid the JBIC loan and the JBIC loan agreement was terminated on March 25,
2003. |
| On December 14, 2004, the Company exercised the option by entering into a Sale and
Purchase Agreement to acquire TMCs 9.68% outstanding shares in Dayamitra with the
strike price of US$16.2 million which the payment will be due on March 26, 2006.
Payment of the strike price will be made through an escrow account established under
the Escrow Agreement discussed below. The Company is required to deposit US$12.6
million (representing the strike price of US$16.2 million less funds available in the
escrow account on November 30, 2004 of US$2.4 million and withholding tax of US$1.2
million) in sixteen monthly installments of US$0.8 million beginning on December 26,
2004 through March 26, 2006. |

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

a. Dayamitra (continued)

| | The purchase price for 9.68% outstanding shares of Dayamitra was US$22.1 million or
equivalent to Rp203,028 million which represents the present value of the option strike
price (US$16.2 million) using a discount rate of 7.5% at the acquisition date plus the
option purchase price (US$6.3 million) and payment for Dayamitras adjusted working
capital (US$1 million). This additional acquisition resulted in intangible assets of
Rp231,477 million. The amount is being amortized over the remaining term of the KSO
agreement of 6 years (Note 15). There was no goodwill arising from this additional
acquisition. Had this acquisition taken place on January 1 of the previous year,
consolidated income would not have been significantly different from the reported
amounts. |
| --- | --- |
| | As of June 30, 2005, the remaining option strike price to be paid to TMC, before
unamortized discount, amounted to US$15.0 million (Rp146,664 million) and is presented
as Liabilities for acquisitions of subsidiaries and KSO IV (Note 26). |
| 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
16). |

| b. |
| --- |
| 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 Pramindos shares. The Selling Stockholders
shares were transferred to an escrow account (hereafter referred as escrow shares). |
| Legal title to the escrow shares was 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. |

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

| b. |
| --- |
| The aggregate purchase price amounted to US$390.3 million (Rp3,464,040 million) plus
Rp250,000 million, represented by an initial payment of approximately US$9.3 million
(Rp82,218 million), consultants fees of US$5.9 million (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$375.1 million, of which the
present value at the discount rate of 8.76% at the effective date of the acquisition was
estimated to be US$332.8 million (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 of 8.4 years (Note 15). There was no goodwill
arising from this acquisition. |
| In addition, the portion that relates to Indosats 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: |

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
Indosats 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.

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

b.
The allocation of the acquisition cost was as follows:

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% Indosats ownership in Pramindo	296,038
Total purchase consideration	3,338,653

	Net cash outflow on the acquisition of Pramindo amounted to Rp243,561 million.
	The outstanding promissory notes issued for the acquisition of Pramindo are presented as
Liabilities for acquisitions of subsidiaries and KSO IV in the consolidated balance
sheet as of December 31, 2003 (Note 26). As of December 31, 2003, the outstanding
promissory notes, before unamortized discount, amounted to US$191.2 million (Rp1,615,473
million). On January 28, 2004, the Company obtained a loan to finance the payment of
these promissory notes (Note 24c). On March 15, 2004, the Company repaid the remaining
balance of these promissory notes and legal title to all of Pramindos shares has been
completely transferred to the Company.
c.	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 AWIs debts of Rp2,577,926 million. The purchase
consideration included non-interest bearing promissory notes with a face value of US$109.1
million (Rp927,272 million), of which the present value at the discount rate of 5.16% at
the closing date was estimated to be US$92.7 million (Rp788,322 million). The promissory
notes are to be paid in 10 equal semi-annual installments beginning July 31, 2004.

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

| c. |
| --- |
| 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: |

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

| Intangible assets identified from this acquisition represent right to operate the
business in the KSO area and the amount is being amortized over the remaining term of the
KSO agreement of 7.4 years (Note 15). |
| --- |
| The Companys 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 and KSO IV in the consolidated balance
sheets as of December 31, 2003 and 2004 (Note 26). As of December 31, 2003 and 2004, the
outstanding promissory notes, before unamortized discount, amounted to US$109.1 million
(Rp921,818 million) and US$98.2 million (Rp913,091 million), respectively. |
| The allocation of the acquisition cost described above was based on an independent
appraisal of fair values. 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 million. Based on this settlement and
subsequent receipt of trade receivables from KSO III, the Company decided to reverse the
provision for bad debts that had previously been recognized (Note 7d) and has accrued the
costs related to the settlement at December 31, 2002. |

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

| d. |
| --- |
| On January 20, 2004, the Company and PT Mitra Global Telekomunikasi Indonesia (MGTI),
the investor in KSO IV, entered into an agreement to amend and restate their joint
operation agreement (KSO agreement). The principal provisions in the original KSO
agreement that have been amended are: |

| | The rights to operate fixed-line telecommunication services are transferred to the
Company, where KSO IV is operated under the management, supervision, control and
responsiblity of the Company. |
| --- | --- |
| | Responsibilities for funding construction of new telecommunication facilities and
payments of operating expenses incurred in KSO IV are assigned to the Company. |
| | Risk of loss from damages or destruction of assets operated by KSO IV is
transferred to the Company. |
| | At the end of the KSO period (December 31, 2010), all rights, title and interest
of MGTI in existing property, plant and equipment (including new additional
installations) and inventories shall be transferred to the Company at no cost. |
| | The Companys rights to receive Minimum Telkom Revenues (MTR) and share in
Distributable KSO Revenues (DKSOR) under the original KSO agreement were amended so
that MGTI receives fixed monthly payments (Fixed Investor Revenues) beginning in
February 2004 through December 2010 totaling US$517.1 million and the Company is
entitled to the balance of KSO revenues net of operating expenses and payments to
MGTI for Fixed Investor Revenues. In addition, payments for Fixed Investor Revenues
must be made to MGTI before any payments can be made to the Company. |
| | In the event funds in KSO IV are insufficient to pay Fixed Investor Revenues to
MGTI, the Company is required to pay the shortfall to MGTI. |

| As a result of the amendment of the KSO agreement, the Company obtained the legal right to
control financial and operating decisions of KSO IV. Accordingly, the Company has
accounted for this transaction as a business combination using the purchase method of
accounting. |
| --- |
| The purchase price for this transaction was approximately US$390.7 million or equivalent
to Rp3,285,362 million which represents the present value of fixed monthly payments
(totaling US$517.1 million) to be paid to MGTI beginning in February 2004 through December
2010 using a discount rate of 8.3% plus direct cost of the business combination. The
allocation of the acquisition cost was as follows: |

Property, plant and equipment	2,377,134
Intangible assets	908,228
Total purchase consideration	3,285,362

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

ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

d.	Amendment of the Joint Operation Scheme in Division Regional IV (KSO IV) (continued)
	The allocation of the acquisition cost described above was based on an independent
appraisal of fair values. Intangible assets identified from this acquisition represent
right to operate the business in the KSO area and the amount is being amortized over the
remaining term of the KSO agreement of 6.9 years (Note 15). There was no goodwill arising
from this acquisition.
	The Companys consolidated results of operations include the operating results of KSO IV
since February 1, 2004 being the nearest convenient balance date.
	As of June 30, 2004 and 2005, the remaining monthly payments to be made to MGTI, before
unamortized discount, amounted to US$495.4 million (Rp4.659.393 million) and US$428.3
million (Rp4,180,533 million) are presented as Liabilities for acquisitions of
subsidiaries and KSO IV (Note 26).
e.	Advance payments for investments in shares of stock

Dayamitra (Note 5a)	65,458

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

CASH AND CASH EQUIVALENTS

Cash on hand	21,834	27,385
Cash in banks
Related parties
Rupiah
Bank Negara Indonesia	241,768	265,130
Bank Mandiri	41,120	98,599
Bank Rakyat Indonesia	27,449	9,104
Bank Pos Nusantara	2,595	1,404
Total	312,932	374,236
Foreign currencies
Bank Mandiri	55,145	101,325
Bank Negara Indonesia	1,390	2,042
Bank Rakyat Indonesia	576	649
Total	57,111	104,016
Total related parties	370,043	478,252
Third parties
Rupiah
Citibank NA	2,417	324
Bank Bukopin	60,796	1,564
Bank Central Asia	4,977	5,612
Bank Niaga	1,225	1,762
ABN AMRO Bank	99,751	105,728
Bank Danamon	112	552
Lippo Bank	3,379	1,548
Bank Internasional Indonesia	11	1,517
Bank Buana Indonesia	193	1,216
Bank Muamalat Indonesia	76	75
Bank Mega	1,236	683
Deutsche Bank	10,477	21,710
Total	184,650	142,293
Foreign currencies
Citibank NA	2,706	6,619
Deutsche Bank	1,638	3,384
Standard Chartered Bank	97	98
ABN AMRO Bank	30,986	109
Bank Internasional Indonesia	17	14
Bank Central Asia	71	98
The Bank of Tokyo Mitsubishi	120	15
Total	35,635	10,336
Total third parties	220,285	152,628
Total cash in banks	590,328	658,265

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

CASH AND CASH EQUIVALENTS (continued)


Time deposits
Related parties
Rupiah
Bank Mandiri	777,320	1,252,071
Bank Rakyat Indonesia	835,925	347,165
Bank Negara Indonesia	1,144,266	343,640
Bank Tabungan Negara	241,860	80,155
Total	2,999,371	2,023,031
Foreign currencies
Bank Negara Indonesia	141,343	100
Total	141,343	100
Total related parties	3,140,714	2,023,131
Third parties
Rupiah
Standard Chartered Bank	710,950	520,220
Bank Mega	86,606	76,145
Bank Bukopin	88,302	75,135
Bank BTPN		61,955
Bank Jabar	70,449	87,080
Bank Niaga	1,001,540	108,520
Deutsche Bank	60,145	810,500
Bank Danamon		61,535
ABN AMRO Bank	3,000
Bank NISP	69,449	64,070
Bank Bumiputra	18,303	18,303
Bank Tugu	14,500
Bank Yudha Bhakti	44,337
Bank Muamalat Indonesia		9,000
Bank Syariah Mega Indonesia		10,000
BankInternasional Indonesia		6,000
Total	2,167,581	1,908,463
Foreign currencies
Standard Chartered Bank	526,363
The Hongkong Shanghai Bank
Corporation		188,529
Deutsche Bank	536,844	1,231,483
Total	1,063,207	1,420,012
Total third parties	3,230,788	3,328,475
Total time deposits	6,371,502	3,986,740
Total cash and cash equivalents	6,983,664	6,009,872

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

6.
Range of interest rates per annum for time deposits is as follows:

Rupiah	4.75% 6.50 %	4.00% 7.86 %
Foreign currencies	0.60% 2.50 %	0.65% 2.50 %

| The related parties which the Company places its funds are Government-owned banks. The
Company places a majority of its cash and cash equivalents in these banks because they have
the most extensive branch network in Indonesia and are considered to be financially sound
banks as they are owned by the Government. |
| --- |
| Refer to Note 46 for details of related party transactions. |

TRADE ACCOUNTS RECEIVABLE

a.
Related parties:

KSO Units	276,740		150,211
Government agencies	457,280		364,016
PT Mandara Selular Indonesia (PT Mobisel Selular Indonesia)	37,141
PT Citra Sari Makmur	21,693		1,314
PT Aplikanusa Lintasarta	4,279		3
PT Patra Telekomunikasi Indonesia	11,540
PT Gratika	1,090
Others	2,691		62,532
Total	812,454		578,076
Allowance for doubtful accounts	(142,263	)	(115,673	)
Net	670,191		462,403

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

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7. TRADE ACCOUNTS RECEIVABLE (continued)

a. By Debtor (continued)

Third parties:

Residential and business subscribers	3,152,897		3,256,748
Overseas international carriers	90,854		250,276
Others	77,634
Total	3,321,385		3,507,024
Allowance for doubtful accounts	(485,478	)	(543,659	)
Net	2,835,907		2,963,365

b. By Age

Related parties:

Up to 6 months	621,781		415,934
7 to 12 months	44,757		45,950
13 to 24 months	29,686		85,369
More than 24 months	116,230		30,823
Total	812,454		578,076
Allowance for doubtful accounts	(142,263	)	(115,673	)
Net	670,191		462,403

Third parties:

Up to 3 months	2,691,676		1,875,396
More than 3 months	629,709		1,631,628
Total	3,321,385		3,507,024
Allowance for doubtful accounts	(485,478	)	(543,659	)
Net	2,835,907		2,963,365

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

7. TRADE ACCOUNTS RECEIVABLE (continued)

c. By Currency

Related parties

Rupiah	692,810		576,027
United States Dollar	119,644		2,049
Total	812,454		578,076
Allowance for doubtful accounts	(142,263	)	(115,673	)
Net	670,191		462,403

Third parties

Rupiah	3,242,143		3,263,748
United States Dollar	79,242		243,276
Total	3,321,385		3,507,024
Allowance for doubtful accounts	(485,478	)	(543,659	)
Net	2,835,907		2,963,365

d. Movements in the allowance for doubtful accounts

Beginning balance	443,892		522,066
Additions	218,196		220,725
Bad debts write-off	(34,347	)	(83,459	)
Ending balance	627,741		659,332

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.

Refer to Note 46 for details of related party transactions.

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

8. INVENTORIES


Components:
Telephone terminals and spare parts	1,596		7,280
Cable and transmission installation spare parts	25,304		23,624
Other spare parts	13,603		13,155
Total	40,502		44,059
Allowance for obsolescence	(12,835	)	(10,992	)
Net	27,667		33,067
Modules:
Cable and transmission installation spare parts	59,764		53,684
Telephone terminals and spare parts	33,750		34,858
Other spare parts	272		10,163
Total	93,786		98,705
Allowance for obsolescence	(28,855	)	(37,451	)
Net	64,931		61,254
Cards:
SIM cards, RUIM cards and prepaid voucher blanks	47,382		45,554
Allowance for obsolescence	(336	)	(195	)
Net	47,046		45,359
Total	139,644		139,680

Movements in the allowance for obsolescence are as follows:

Beginning balance	40,489		53,719
Additions	3,774		787
Inventory write-off	(2,237	)	(5,869	)
Ending balance	42,027		48,638

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

At June 30, 2005, inventory held by a certain subsidiary was insured against fire, theft and other specified risks for US$0.8 million. Management believes that the insurance amount is adequate to cover such risks.

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

9. PREPAID EXPENSES

Rental	381,695	584,621
Salary	165,091	308,352
Insurance	16,289	14,058
Telephone directory issuance cost	5,051
Other	21,133	91,527
Total	589,259	998,558

10. OTHER CURRENT ASSETS

Bank Mandiri	162,114	44,827
Deutsche Bank dan Citibank	1,188	981
Total	163,302	45,808

As of June 30, 2005, the balance consists of the Companys time deposits of US$4.6 million ( Rp44,827 million) pledged as collateral for credit facility obtained by Napsindo (Note 22a) which will be matured in August 2005 amounted US$1.8 million and amounted US$2.8 million being processed for extension until April 2006. The Company intends to settle the loan at the end of guarantee period. The balance also consists of Telkomsels deposit of Rp981 million pledged as collateral for bank guarantees.

As of June 30, 2004, the balance consists of the Companys time deposits of US$13.7 million (Rp129,334 million) pledged as collateral for credit facility obtained by Napsindo (Note 22a) and Rp32,780 million pledged as collateral for bank guarantees, and Telkomsels Rupiah time deposits of Rp1,188 million pledged as collateral for bank guarantees covering payments of customs duties.

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

11. LONG-TERM INVESTMENTS


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		1,829	7,846	62,097
PT Metro Selular Nusantara	20.17
PT Patra Telekomunikasi Indonesia*	30.00	11,332		995		12,327
PT Mobile Selular Indonesia	25.00
PT Pasifik Satelit Nusantara	22.57
PT Menara Jakarta	20.00
		63,754		2,824	7,846	74,424
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
Sub Total		894				894
Total		64,648		2,824	7,846	75,318

Deduction represents cash dividends received by the Company


Percentage				Equity in
of	Opening	Addition /		net income	Translation	Ending
ownership	balance	(deduction)		(loss)	adjustment	balance
Equity method:
PT Citra Sari Makmur	25.00	60,116			2,044	1,657	63,817
PT Patra Telekomunikasi Indonesia	30.00	12,421			4,748		17,169
PT Pasifik Satelit Nusantara	43.69
		72,537			6,792	1,657	80,986
Cost method:
PT Batam Bintan Telekomunikasi	5.00	587					587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199					199
Bridge Mobile Pte. Ltd.	14.29		9,290				9,290
Medianusa Pte. Ltd.		108	(108	)
PT Mandara Selular Indonesia	1.33
		894	9,182				10,076
		73,431	9,182		6,792	1,657	91,062

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

11. LONG-TERM INVESTMENTS (continued)

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 Rp47,307 million being the difference between the fair value of assets received and the carrying amount of the Companys 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.

As of June 30, 2004 and 2005, the carrying amount of investment in CSM was equal to the underlying equity in net assets of CSM.

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.

As of June 30, 2004 and 2005, the carrying amount of investment in Patrakom was equal to the underlying equity in net assets of Patrakom.

c. PT Pasifik Satelit Nusantara (PSN)

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

As of 2001, the Companys share of losses in PSN has exceeded the carrying amount of the investment. Accordingly, the investment has been reduced to zero.

On August 8, 2003, as a result of share-swap transaction with CPSC, the Company interest in PSN effectively increased to 43.69%. The Company decided to increase its ownership interest in PSN as part of the share-swap transactions that was premised on the Companys assessment that PSNs satellite services will allow it to capitalize on a government program which calls for the provision of telecommunication services to remote areas of Indonesia.

In 2003, PSN entered into a negotiation with its current creditors to restructure its debts. As of the date of issuance of these consolidated financial statements, the debt restructuring was not yet effective.

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11. LONG-TERM INVESTMENTS (continued)

d. 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.

e. PT Pembangunan Telekomunikasi Indonesia (Bangtelindo)

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

f. Bridge Mobile Pte. Ltd

On November 3, 2004, Telkomsel together with six other international mobile operators in Asia Pacific established Bridge Mobile Pte. Ltd. (Singapore), a company that is engaged in providing regional mobile services in the Asia Pacific region.

Telkomsel contributed US$1.0 million which represents a 14.286% ownership interest.

g. 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. On November 30, 2004, Infomedia sold its entire ownership in Medianusa Pte. Ltd. for SGD0.024 million (Rp134.794 million) and recognized a gain of Rp27 million.

h. PT Mandara 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.

As of December 31, 2002, the value of investment has been reduced to nil because the Companys share of loss exceeded the carrying amount of investment in Mobisel.

On July 28, 2003, Mobisels stockholders agreed to a restructuring program which included a debt to equity conversion of Mobisels 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 Companys interest to 7.44%.

In January 2004, the Companys ownership interest was further diluted to 6.4% following the debt to equity conversion of Mobisels debt to PT Property Java, Boston Investment Limited and Inquam (Indonesia) Limited Company.

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11. LONG-TERM INVESTMENTS (continued)

h. PT Mandara Selular Indonesia (Mobisel) (continued)

On December 20, 2004, Mobisels stockholders agreed to issue 306,000,000 new Series B shares to a new stockholder and an existing stockholder. The issuance of 306,000,000 new Series B shares resulted in dilution of the Companys interest in Mobisel to 3.63%.

On May 25, 2005, Mobisels stockholders agreed to issue 1,179,418,253 series B shares to a new stockholder and an existing stockholder. The issuance of 1,179,418,253 series B shares resulted in dilution of the Companys interest in Mobisel to 1.33%.

i. 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.

j. 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 MJs 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 Indocitras 69% ownership interest in Metra (Note 1c).

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

12. PROPERTY, PLANT AND EQUIPMENT

2004	acquisitions	Additions	Deductions		Reclassifications		2004
At cost or revalued amounts:
Direct acquisitions
Land	298,964		9,207	(2,385	)			305,786
Buildings	1,819,095	7,021	3,491	(643	)	70,274		1,899,238
Switching equipment	10,473,392	612,502	41,205	(2,949	)	45,917		11,170,067
Telegraph, telex and data
communication equipment	199,314							199,314
Transmission installation and
equipment	16,818,179	271,678	50,305	(527,293	)	2,305,619		18,918,488
Satellite, earth station and
equipment	6,209,827		1,721	(163,490	)	263,103		6,311,161
Cable network	15,488,797	1,427,049	9,263	(144,916	)	92,026		16,872,219
Power supply	1,149,458	18,644	1,869	(2,869	)	19,966		1,187,068
Data processing equipment	3,252,667	32,012	200,226	(21,787	)	29,730		3,492,848
Other telecommunications
peripherals	735,188			(363	)	145		734,970
Office equipment	660,491	101	34,622	(543	)	3,485		698,156
Vehicles	187,853	3,859	196	(4,004	)	26		187,930
Other equipment	107,573		359	(4,835	)	7,117		110,214
Property under construction:
Buildings	54,888		68,384			(63,282	)	59,990
Switching equipment	158,056		2,221			(9,265	)	151,012
Transmission installation and
equipment	93,907		2,082,323			(1,929,664	)	246,566
Satellite, earth station and
equipment	607,172		229,917					837,089
Cable network	14,524		862,025			(719,225	)	157,324
Power supply	106		5,225			(322	)	5,009
Data processing equipment	10,526		37,057			(23,764	)	23,819
Other telecommunications
peripherals	16,483		182			(1,890	)	14,775
Leased assets
Vehicles	239							239
Total	58,356,699	2,372,866	3,639,798	(876,077	)	89,996		63,583,282
Accumulated depreciation:
Direct acquisitions
Buildings	812,319		55,412	(530	)	2,986		870,187
Switching equipment	5,266,488		341,230	(667	)	29,261		5,636,312
Telegraph, telex and data
communication equipment	194,249		475					194,724
Transmission installation and
equipment	4,956,895		1,335,238	(473,176	)	20,739		5,839,696
Satellite, earth station and
equipment	2,158,379		75,183	(163,490	)			2,070,072
Cable network	6,613,281		752,130	(3,555	)	9,837		7,371,693
Power supply	797,925		50,802	(382	)	3,276		851,621
Data processing equipment	1,469,816		258,559			544		1,728,919
Other telecommunications
peripherals	572,190		38,508	(20,977	)	36		589,757
Office equipment	497,467		24,207	(532	)	(37	)	521,105
Vehicles	173,134		3,338	(3,984	)			172,488
Other equipment	69,302		6,973					76,275
Leased assets
Vehicles	114							114
Total	23,581,559		2,942,055	(667,293	)	66,642		25,922,963
Net Book Value	34,775,140							37,660,319

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

PROPERTY, PLANT AND EQUIPMENT (continued)

2005	Additions	Deductions	Reclassifications		2005
At cost or revalued amounts:
Direct acquisitions
Land	327,339	9,837	21,100	(225	)	315,851
Buildings	2,170,055	64,147	2,527	4,461		2,236,136
Switching equipment	10,360,100	11,405		121,386		10,492,891
Telegraph, telex and data
communication equipment	213,855	992		(353	)	214,494
Transmission installation and
equipment	26,922,143	2,673,393		7,807		29,603,343
Satellite, earth station and
equipment	3,354,803	31,284		(494,322	)	2,891,765
Cable network	17,701,074	133,162	413	391,997		18,225,820
Power supply	1,194,710	7,101		50,130		1,251,941
Data processing equipment	3,786,741	291,329		(2,393	)	4,075,677
Other telecommunications
peripherals	824,634	71,392		(2,052	)	893,974
Office equipment	661,666	34,638		6,483		702,787
Vehicles	191,403	12	822	(475	)	190,118
Other equipment	112,626	1,952				114,578
Property under construction:
Buildings	53,412	4,778		(1,155	)	57,035
Switching equipment		97				97
Transmission installation and
equipment	175,131	861,990		(8,403	)	1,028,718
Satellite, earth station and
equipment	776,899					776,899
Cable network	25,508	528,033		(287,544	)	265,997
Power supply	69	3,481				3,550
Data processing equipment	16,681	2,679		(10,891	)	8,469
Other telecommunications
peripherals		1,029				1,029
Leased assets
Vehicles	413					413
Total	68,869,262	4,732,730	24,862	(225,549	)	73,351,581
Accumulated depreciation:
Direct acquisitions
Buildings	952,638	68,203	1,370	159		1,019,630
Switching equipment	5,601,273	384,477		91,095		6,076,845
Telegraph, telex and data
communication equipment	198,653	1,658		(10	)	200,301
Transmission installation and
equipment	8,208,259	1,431,473		(13,476	)	9,626,256
Satellite, earth station and
equipment	1,532,282	101,265	413	(446,879	)	1,186,255
Cable network	8,235,661	760,419		117,417		9,113,497
Power supply	904,780	42,368		49,696		996,844
Data processing equipment	2,112,821	306,356		(11,232	)	2,407,945
Other telecommunications
peripherals	712,578	35,613		6,390		754,581
Office equipment	562,757	19,761	807	2,727		584,438
Vehicles	180,864	2,735		(475	)	183,124
Other equipment	94,527	3,885				98,412
Leased assets
Vehicles	70	14				84
Total	29,297,163	3,148,307	2,590	(204,588	)	32,248,211
Net Book Value	39,572,099					41,103,370

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

12. PROPERTY, PLANT AND EQUIPMENT (continued)

Proceeds from sale of property, plant and equipment	3,704	80,117
Net book value	2,027	22,272
Gain/(loss) on disposal	1,677	57,845

In accordance with the amended and restated KSO agreement with MGTI (Note 5d), ownership rights to the acquired property, plant and equipment in KSO IV are legally retained by MGTI until the end of the KSO period (December 31, 2010).

As of June 30, 2004 and 2005, the net book value of property, plant and equipment included in the Companys property, plant and equipment that are utilized by the KSOs amounted to Rp765,262 million and Rp394,433 million, respectively. The legal ownership of these property, plant and equipment are still retained by the Company.

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 2005-2034. Management believes that there will be no difficulty in obtaining the extension of the landrights when they expire.

Some of the Companys land of 1,770,660 sqm is still under the name of 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 between January 2005 and June 2005. Management believes that there is no impediment to the completion of the construction in progress.

As of June, 2005, property, plant and equipment of the Company and subsidiaries, except for land, were insured with various insurances companies against fire, theft and other specified risks for a coverage of Rp22,174,958 million and US$2,502.7 million. In addition, Telkom-1 satellites is insured for US$51.6 million. Management believes that the insurance coverage is adequate.

Certain property, plant and equipment of the Company and subsidiaries have been pledged as collateral for lending agreements.

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

PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

2004	Additions	Deductions		2004
At cost:
Land	3,160				3,160
Buildings	20,255		(7,058	)	13,197
Switching equipment	537,890		(47,470	)	490,420
Transmission installation
and equipment	93,028		(20,739	)	72,289
Cable network	318,381		(11,454	)	306,927
Other telecommunications
peripherals	123,972		(3,276	)	120,696
Total	1,096,686		(89,997	)	1,006,689
Accumulated depreciation:
Land	1,449	65			1,514
Buildings	9,804	414	(3,529	)	6,689
Switching equipment	341,525	24,812	(31,462	)	334,875
Transmission installation
and equipment	89,720	2,761	(20,739	)	71,742
Cable network	225,175	24,710	(7,636	)	242,249
Other telecommunications
peripherals	123,972	1	(3,276	)	120,697
Total	791,645	52,763	(66,642	)	777,766
Net Book Value	305,041				228,923

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

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

2005	Additions	Deductions		2005
At cost:
Land	3,382				3,382
Buildings	13,422		(4,825	)	8,597
Switching equipment	418,137		(124,552	)	293,585
Transmission installation
and equipment	259,119	1,901			261,020
Cable network	396,140	7,896	(115,578	)	288,458
Other telecommunications
peripherals	103,497		(50,853	)	52,644
Total	1,193,697	9,797	(295,808	)	907,686
Accumulated depreciation:
Land	1,601	85			1,686
Buildings	7,077	255	(2,654	)	4,678
Switching equipment	286,122	11,170	(91,412	)	205,880
Transmission installation
and equipment	68,966	10,530			79,496
Cable network	227,517	10,440	(114,924	)	123,033
Other telecommunications
peripherals	103,287	23	(50,853	)	52,457
Total	694,570	32,503	(259,843	)	467,230
Net Book Value	499,127				440,456

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:

Gross amount	1,006,689		907,685
Accumulated amortization:
Beginning balance	(984,954	)	(833,365	)
Addition (Note 36)	(24,560	)	(53,044	)
Deduction	103,193		300,385
Ending balance	(906,321	)	(586,024	)
Net	100,368		321,661

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

14. ADVANCES AND OTHER NON-CURRENT ASSETS

Advances and other non-current assets consist of:

Advances for purchase of property, plant and equipment	9,677	808,075
Security deposits		28,365
Restricted cash	29,697	160,022
Deferred landrights charges	72,500	88,654
Others	150,038	48,257
Total	261,912	1,133,373

In the advances for purchase of property, plant and equipment include advance payment for procurement and insurance of launching of Telkom-2 Satellite of Rp598,185 million.

Restricted cash represents time deposits with original maturities of more than one year held by the Company and its subsidiaries and are pledged as collateral for bank guarantee.

Deferred land rights charges represent costs to extend the contractual life of the landrights which are deferred and amortized over the new contractual life.

15. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill and other intangible assets for the years ended June 30, 2004 and 2005 are as follows:


		intangible
	Goodwill	assets		Total
Gross carrying amount:
Balance as of December 31, 2004	106,348		7,151,111		7,257,459
Addition
Balance as of June 30, 2005	106,348		7,151,111		7,257,459
Accumulated amortization:
Balance as of December 31, 2004	(76,221	)	(1,769,813	)	(1,846,034	)
Amortization expense for 6
months period in 2005	(10,634	)	(448,442	)	(459,076	)
Balance as of June 30, 2005	(86,855	)	(2,218,255	)	(2,305,110	)
Net book value	19,493		4,932,856		4,952,349
Weighted-average amortization period	5 years	8,08 years

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

15. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)


		intangible
	Goodwill	assets		Total
Gross carrying amount:
Balance as of December 31, 2003	106,348		6,011,406		6,117,754
Addition acquisition of KSO IV (Note 5d)			908,228		908,228
Balance as of June 30, 2004	106,348		6,919,634		7,025,982
Accumulated amortization:
Balance as of December 31, 2003	(54,951	)	(918,753	)	(973,704	)
Amortization expense for 6 months period
in 2004	(10,635	)	(418,473	)	(429,108	)
Balance as of June 30, 2004	(65,586	)	(1,337,226	)	(1,402,812	)
	40,762		5,582,408		5,623,170
Net book value
Weighted-average amortization period	5 tahun	8,15 tahun

Other intangible assets resulted from the acquisitions of Dayamitra, Pramindo, AWI and KSO IV, and represent the rights to operate the business in the KSO areas (Note 5). Goodwill resulted from the acquisition of GSD (Note 1c).

16. ESCROW ACCOUNTS

Escrow accounts consist of the following:

Citibank N.A., Singapore	618,175	77,915
Bank Mandiri	6,123	6,322
	624,298	84,237

a. Citibank N.A., Singapore

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

In 2004, the Company has repaid the entire obligations under the Conditional Sale and Purchase Agreement; therefore, as of December 31, 2004, this escrow account is used to facilitate the payment of the Companys obligations under the Option Agreement with TMC.

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

ESCROW ACCOUNTS (continued)

a.	Citibank N.A., Singapore (continued)
	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.
b.	Bank Mandiri
	The escrow account with Bank Mandiri was established by Dayamitra in relation with the
credit facilities from Bank Mandiri (Note 25f).

TRADE ACCOUNTS PAYABLE


Related parties
Payables to other telecommunications carriers	271,497	113,853
Concession fees	349,285	356,047
Purchases of equipment, materials and services	52,845	209,475
Others	94,351	28,087
Total	767,978	707,462
Third parties
Purchases of equipment, materials and services	2,542,440	2,954,334
Payables related to revenue-sharing arrangements	126,423	92,000
Payables to other telecommunication providers	120,114	75,410
Total	2,788,977	3,121,744
	3,556,955	3,829,206

Trade accounts payable by currency are as follows:

Rupiah	1,539,869	1,635,868
U.S. Dollar	1,403,529	1,541,290
Euro	604,066	646,293
Japanese Yen	1,206	943
Great Britain Pound Sterling	1,495
Singapore Dollar	6,790	4,574
Dutch Guilder		238
Total	3,556,955	3,829,206

Refer to Note 46 for details of related party transactions.

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

ACCRUED EXPENSES

Salaries and employee bonuses	669,887	480,903
Interest and bank charges	343,677	223,978
General, administrative and marketing	351,892	215,036
Operations, maintenance and telecommunications services	481,167	423,267
Total	1,846,623	1,343,184

UNEARNED INCOME

Prepaid pulse reload vouchers	729,412	1,194,535
Other telecommunication services	9,235	4,966
Other	8,222	10,963
Total	746,869	1,210,464

20.	ADVANCES FROM CUSTOMERS AND SUPPLIERS
	Represent security deposits received from customers related to services and performance
guarantee deposits from suppliers related to procurement contracts.
21.	SHORT-TERM BANK LOANS
	Short-term bank loans consist of:

Hongkong Shanghai Bank Corporation(HSBC)		578,240
Bank Central Asia		170,000
Bank Mndiri	41,946	43,498
ABN AMRO Bank	731,649
Total	773,595	791,738

| a. |
| --- |
| On December 20, 2004, the Company entered into a revolving loan agreement with HSBC for a
maximum facility of Rp500,000 million. The facility will be available for withdrawal until
January 20, 2005 and any amount drawn down under this facility is payable within 6 months
from the withdrawal date. The facility bears interest at one-month Certificate of Bank
Indonesia (SBI) plus 1% of the amount drawn down which is payable at the maturity date
of the loan. On January 20, 2005, the Company drew down Rp100,000 million from the
facility. |

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SHORT-TERM BANK LOANS

a.	Hongkong Shanghai Bank Corporation (HSBC) (continued)
	On March 28, 2005, the maximum facility was amended to Rp100,000 million with interest
rate at one-month SBI plus 1% and US$49.0 million with interest rate at LIBOR plus 1.8%.
As of June 30, 2005 the principal balance was Rp578,240 million.
b.	Bank Central Asia
	On December 27, 2004, the Company entered into a loan agreement with Bank Central Asia
(BCA) for a short-term loan with a maximum facility of US$49.0 million. The loan is due
on
June 28, 2005. The facility is unsecured and bears interest at 1-month LIBOR plus 2.85%
(i.e. 5.27% as of June 30, 2005). In April 15, 2005, the loan has been repaid.
	On December 3, 2004, Telkomsel entered into a Loan Agreement with Deutsche Bank AG,
Jakarta (as Arranger and Agent) and Bank Central Asia (BCA, as Lender) covering a
total facility of Rp170,000 million (Facility). The Facility bears interest at
three-month SBI plus 1%, to be paid quarterly in arrears. The facility is available during
the period commencing on the date of the agreement and ending on the earlier of sixty (60)
days after the date of agreement and the date of which the Facility is fully drawn,
cancelled or terminated. The repayment of amount drawn is on the first anniversary of the
utilization date of the Facility. The lender (transferor), may at any time, subject to
giving five business days prior notice to the Agent, transfer its rights, benefits, and
obligations under this agreement to any bank or financial institution. Such transfer is
conducted by way of delivery of Transfer Agreement from the transferor to the Agent and
acknowledgement of the Telkomsel on the transfer. As of June 30, 2005 the loan balance was
Rp170,000 million.
c.	Bank Mandiri
	On August 28, 2001, Napsindo entered into a loan agreement with Bank Mandiri for a
facility of US$1.8 million for a oneyear term. The loan is secured with the Companys
time deposits (Note 10) with interest rate at 2% above the pledged time deposits interest
rate (i.e. 3% as of December 31, 2003 and 2.65% as of December 31, 2004). On November 11,
2003, the facility was extended until August 28, 2004. The facility can be extended upon
approval by the Company. Subsequently, on September 23, 2004, this loan facility was
extended for another one-year term and will expire on August 28, 2005.
	On April 24, 2003, Napsindo also entered into a loan agreement with Bank Mandiri for a
facility of US$2.7 million for a oneyear term. The facility has been extended and will be
due on July 29, 2005. The loan is secured by the Companys time deposits and bears
interest at 2% above the pledged time deposits interest rate (i.e. 3% as of June 30, 2004
and 2.65% as of June 30, 2005).
	As of June 30, 2004 and 2005, principal outstanding under these facilities amounted to
US$4.5 million ( Rp41,946 million) and US$4.5 million
( Rp43,498 million).

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

SHORT-TERM BANK LOANS (continued)

| d. |
| --- |
| On January 28, 2004, the Company signed a short-term loan agreement with ABN AMRO Bank
N.V., Jakarta Branch for a facility of US$129.7 million. The loan was used to settle the
outstanding promissory notes at March 15, 2004 which were issued for the acquisition of
Pramindo (Note 5b). The principal and interest are payable in 10 monthly installments from
March 2004 to December 2004. The loan bears interest at LIBOR plus 2.75%. As of June 30,
2004, the loan was Rp731,649 (US$77,7 million). |
| On December 21, 2004, the Company entered into a loan agreement with ABN AMRO Bank N.V.
for a short-term loan with a maximum facility of US$65.0 million. The loan principal of
US$30.0 million and US$35.0 million is due on March 31, 2005 and June 30, 2005,
respectively. The loan is unsecured and bears interest at 3-month U.S. Dollar LIBOR plus
2.5% (i.e. 5.02% as of December 31, 2005). On June 30, 2005, the loan has been fully
repaid. |

MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities

Two-step loans	23	887,768	625,244
Medium-term Notes	24		224,188
Bank loans	25	1,005,189	535,437
Liabilities for acquisitions of subsidiaries and KSO IV	26	548,426	757,878
Total		2,441,383	2,142,747

b. Long-term portion

Notes	Total	2006	2007	2008	2009	Later
Two-step loans	23	5,081.4	287.6	510.0	466.6	450.0	3,367.2
Bonds	24	989.2		989.2
Medium-term Notes	24	609.6	144.8	464.8
Bank loans	25	1,826.4	376.4	827.1	332.1	290.8
Liabilities for acquisitions of
subsidiaries and KSO IV	26	3,484.1	332.3	727.0	810.0	785.4	829.4
Total		11,990.7	1,141.1	3,518.1	1,608.7	1,526.2	4,196.6

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

| 23. |
| --- |
| 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
drawdown. 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. |
| On December 15, 2004, the Company repaid a portion of its Rupiah denominated two-step loans
totaling Rp701,272 million before its maturity. Further, on December 24, 2004, the Company
repaid a portion of its U.S. Dollar denominated two-step loans with principal amount of
US$48.8 million and its entire Euro denominated two-step loans with principal amount of
EUR14.5 million before their maturities. These early repayments of two-step loans have been
approved by the Ministry of Finance of the Republic of Indonesia Directorate General of
Treasury. |
| The details of the two-step loans are as follows: |

Creditors	Interest Rate — 2004	2005	Outstanding — 2004	2005
Overseas banks	3.00% 13.25 %	3.10% 10.36 %	7,226,865		5,607,142
Consortium of contractors	2.20% 13.25 %	3.20% 8.49 %	411,689		99,460
Total			7,638,554		5,706,602
Current maturities			(887,768	)	(625,244	)
Long-term portion			6,750,786		5,081,358

The details of two-step loans obtained from overseas banks as of June 30, 2004 and 2005 are as follows:

Currencies	Interest Rate — 2004	2005	Outstanding — 2004	2005
U.S. Dollar	4.00% 7.69 %	4.00% 6.81 %	3,076,589	2,365,873
Rupiah	7.33% 8.45 %	8.30% 10.36 %	2,600,506	1,917,480
Japanese Yen	3.10 %	3.10 %	1,360,152	1,323,789
Euro	6.69% 13.25 %		189,618
Total			7,226,865	5,607,142

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 2024.

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23.
Details of two-step loans obtained from a consortium of contractors as of June 30, 2004 and
2005 are as follows:

Currencies	Interest Rate — 2004	2005	Outstanding — 2004	2005
Rupiah	9.69% 13.25 %		282,079
Japanese Yen	3.20 %	3.20 %	129,610	99,460
Total			411,689	99,460

| 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 June 15, 2008. |
| --- |
| Two-step loans which are payable in Rupiah bear either a fixed interest rate, 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% or a floating interest rate offered by
the lenders plus 5.25%. 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 June 30, 2005, 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 originating from World Bank
and ADB, respectively. |

As of June 30, 2005, the Company complied with the above mentioned ratios.

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NOTES AND BONDS

Bonds	983,921	989,207
Medium-term Notes		833,808
Guaranteed Notes	759,038
Total	1,742,959	1,823,015
Current maturities		(224,188	)
Long-term portion	1,742,959	1,598,827

| a. |
| --- |
| 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 Poors is
BB-. |
| As of June 30, 2004 and 2005, the outstanding principal amount of the bonds and the
unamortized bond issuance costs are as follows: |

Principal	1,000,000		1,000,000
Bond issuance costs	(16,079	)	(10,793	)
Net	983,921		989,207

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

Debt to EBITDA ratio should not exceed 3:1

As of June 30, 2005, the Company complied with the covenants.

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NOTES AND BONDS (continued)

| b. |
| --- |
| On December 13, 2004, the Company entered into an agreement with PT ABN AMRO Asia
Securities Indonesia, PT Bahana Securities, PT BNI Securities and PT Mandiri Sekuritas
(collectively referred as Initial Purchasers) to issue Medium-term Notes (the Notes)
for a total principal amount of Rp1,125,000 million. Proceeds from issuance of the Notes
were used to finance the payment of the remaining balance of the borrowings assumed in
connection with the AWI acquisition amounting to US$123.0 million (Note 26a). |
| The Notes consist of four Series with the following maturities and interest rates: |

Series — A	290,000	Maturity — June 15, 2005	7.70 %
B	225,000	December 15, 2005	7.95 %
C	145,000	June 15, 2006	8.20 %
D	465,000	June 15, 2007	9.40 %
Total	1,125,000

| Interest on the Notes is payable semi-annually beginning June 15, 2005 through June 15,
2007. The Notes are unsecured and will at all times rank pari passu with other unsecured
debts of the Company. The Company may at any time, before the maturity dates of the
Notes, repurchase the Notes in whole or in part. |
| --- |
| On June 15, 2005 Notes Seris A have been repaid by the Company. |
| As of June 30, 2004 and 2005, the outstanding principal and unamortized debt issuance
costs are
as follows: |

Principal	835,000
Debt issuance costs	(1,192	)
	833,808
Current maturities	(224,188	)
Long-term portion	609,620

The current rating for the Notes issued by Pefindo is AAA.
During the period when the Notes are outstanding, the Company should comply with all
covenants or restrictions including maintaining financial ratios as follows:

1.	Debt service coverage ratio should exceed 1.5:1
2.	Debt to equity ratio should not exceed 2:1
3.	Debt to EBITDA ratio should not exceed 3:1

As of June 30, 2005, the Company complied with the covenants.

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NOTES AND BONDS (continued)

| c. |
| --- |
| In April 2002, TSFL, Telkomsels wholly-owned subsidiary, issued US$150.0 million
Guaranteed Notes (the Notes) which are unconditionally and irrevocably 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, Hongkong Branch. |
| 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 to the date fixed for redemption, provided that
if only part of the Notes are redeemed, the principal amount of the outstanding Notes
after such redemption will be at least US$100.0 million. |
| The Notes are listed on the Singapore Exchange Securities Trading Limited. The Notes will
constitute direct, unconditional, unsubordinated and unsecured obligations of TSFL and
will at all times rank pari passu and without any preference among themselves. The
payment obligations of TSFL under the Notes shall, save for such exceptions as may be
provided by applicable laws, at all times rank at least equivalent with all other present
and future unsecured and unsubordinated obligations of TSFL. The net proceeds from the
sale of the Notes were used by TSFL to lend to Telkomsel in financing its capital
expenditures. |
| Based on the On-Loan Agreement, dated April 30, 2002 between Telkomsel and TSFL, TSFL
lent the proceeds from the subscription of the Notes to Telkomsel at an interest rate of
9.765% per annum, payable under the same terms as above. Subsequently, 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.
The loan will mature on April 30, 2007 or on such an earlier date as the loan may become
repayable. |
| In 2004 and 2005, as part of managements plan to minimize foreign exchange exposures and
to reduce interest charges, Telkomsel purchased a portion of Notes through Deutsche Bank
AG (the principal paying agent of the Notes) with nominal US$53.4 million (equivalent to
Rp459,474 million) at purchase value of US$58.6 million (equivalent to Rp504,101 million)
and with nominal US$17.3 million (equivalent to Rp145,447 million) at US$11.1 million
(equivalent to Rp160,509 million), respectively. A portion of the Notes purchased in 2004,
amounting to US$20 million, were previously held by PT Bank Central Asia, Tbk. On April
26, 2005, Telkomsel purchased the remaining Notes with nominal of US$79.37 million at
US$81.35 million. |
| The current rating for the Notes issued by Pefindo is AAA, by Standard and Poors is BB-
and by
Fitch is B+. |

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

NOTES AND BONDS (continued)

c.
As of June 30, 2004 and 2005, the outstanding principal amount of the bonds and the
unamortized bond issuance costs are as follows:


		Rupiah			Rupiah
US$		Equivalent		US$	Equivalent
Principal	80.8		760,421
Diskonto	(0.2	)	(1,383	)
Net	80.6		759,038

25.
The details of long-term bank loans as of June 30, 2004 and 2005 are as follows:

			2004
			Outstanding		Outstanding
			Original	Rupiah	Original	Rupiah
Lenders	Currency	Total Facility	Currency	Equivalent	Currency	Equivalent
Group of lenders	US$		147.7	1,388,746
Citibank N.A.	EUR	73.4	58.7	668,164	44.0	516,473
	US$	114.8	74.9	704,510	74.2	721,867
Bank Central Asia	Rp	173,000.0		157,801	114,791.0	114,791
Deutsche Bank	Rp	108,817.7		25,125
Bank Finconesia	Rp			15,884
Bank Mandiri	Rp	82,425.3		63,233	36,305.0	36,305
Syndicated banks	Rp	90,000.0		21,175
	US$	4.0	1.2	10,834
Bank Niaga	Rp	7,765.0		390	9,291.0	9,291
The Export-Import
Bank of Korea	US$	124.0	40.5	380,818	88.8	867,114
Consortium of banks	Rp	150,000.0		138,316	96,032.0	96,032
Total				3,574,996		2,361,873
Current maturities of bank loans				(1,005,189	)	(535,437	)
Long-term portion				2,569,807		1,826,436

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

BANK LOANS (continued)

a.	Group of lenders
	AWI had a loan of US$270.9 million 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$74.0
million and entering into a credit agreement with the lenders to finance the remaining
outstanding balance of the loan amounting to US$197.0 million, with JP Morgan Chase Bank,
Hong Kong office, as the facility agent. This loan bears an interest at LIBOR plus 3.5%
per annum, net of 10% withholding tax (i.e. 4.65% as of December 31, 2003). The Company
must pay an annual facility agent fee of US$0.1 million. The loan is repayable in 8
semi-annual installments beginning on December 31, 2003 with the first through the seventh
installment of US$24.7 million and final installment of US$24.4 million. The Company has
repaid the entire outstanding balance in December 2004 using the proceeds from issuance of
Medium-term Notes (Note 24b) and the credit agreement was terminated on January 3, 2005.
b.	Citibank N.A.

| 1. |
| --- |
| 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 Original Lender and Agent) and
Citibank N.A., Jakarta branch (as Arranger) covering a total facility of EUR76.2
million which is divided into several tranches. |
| The agreement was subsequently amended on October 15, 2003, amending the Facility
amount to EUR73.4 million and repayment dates. |
| The interest rate per annum on the Facility is determined based on the aggregate of
the applicable margin, EURIBOR and mandatory cost, if any (i.e., 2.98% as of June 30,
2004 and 2.963% as of June 30, 2005). 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 EUR 6.1 million, 15% of which was paid in cash. The remaining
balance was settled through utilization of the Facility. |

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

BANK LOANS (continued)

b. Citibank N.A. (continued)

1.
The schedule of the principal payments on this long-term loan as of December 31, 2004
is as follows:

	Amount — EUR	Rupiah
Year	(in millions)	equivalent
2005	7.3	86,079
2006	14.7	172,157
2007	14.7	172,157
2008	7.3	86,079

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$23.4 million. |
| --- | --- |
| | 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. |
| | 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 June 30, 2004 and 2005, the outstanding loan was US$16.4 million and US$14.7
million, respectively. 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%. |
| b. | On April 10, 2002, the Company entered into a loan agreement with
Citibank N.A. (as Arranger) and Citibank International plc (as 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$21.0 million. 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. |

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

BANK LOANS (continued)

b. Citibank N.A. (continued)

High Performance Backbone (HP Backbone) Loans (continued)

| Amounts drawn from the facility bear fixed interest rate of 4.14%. The loans are
payable in ten semi-annual installments beginning in December 2003. Total
principal outstanding as of June 30, 2004 and 2005 was US$14.8 million and US$11.1
million, respectively. |
| --- |
| During the period when the loans are outstanding, the Company should comply with
all covenants or restrictions including maintaining 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 April 10, 2002 to
January 1, 2003 |
| --- | --- |
| b. | 2.75:1 for the period of January 2, 2003 to
January 1, 2004 |
| c. | 2.5:1 for the period of January 2, 2004 to
January 1, 2005 |
| d. | 2:1 for the period of January 2, 2005 to the
fully repayment date of the loans |

Debt to EBITDA ratio should not exceed:

| a. | 3.5:1 for the period of April 10, 2002 to
January 1, 2004 |
| --- | --- |
| b. | 3:1 for the period of January 2, 2004 to the
fully repayment date of the loans |

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 obtained a written waiver from Citibank International plc with regard to entering into the AWI loan (Notes 5c and 26a). As of Jun3 30, 2005, the Company complied with the covenants.

EKN-Backed Facility

| On December 2, 2002, pursuant to the partnership agreement with PT Ericsson Indonesia,
Telkomsel entered into the EKN-Backed Facility agreement (Facility) with Citibank
International plc (as Original Lender and Agent) and Citibank N.A., Jakarta branch
(as Arranger) covering a total facility amount of US$70.5 million which is divided
into several tranches. |
| --- |
| The agreement was subsequently amended on December 17, 2004, among others, to reduce
the total Facility to US$68.9 million. |
| 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 (i.e., 4.27% and 4.02% as of June 30, 2004 and 2005, respectively). Interest is
payable semi-annually, starting on the utilization date of the Facility. |
| In addition to the interest, in 2004 and 2005, 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$4.2 million and US$1.5 million, respectively, 15% of which
was paid in cash. The remaining balance was settled through utilization of the
Facility. |

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

BANK LOANS (continued)

b. Citibank N.A. (continued)

3.
The schedule of the principal payments on this long-term loan as of June 30, 2005 is
as follows:

US$	Rupiah
Year	equivalent
2005	7.7	75,195
2006	15.4	150,390
2007	15.5	150,391
2008	9.7	94,042

| c. |
| --- |
| 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., 10,68%-11,52% and 10.02% as of June 30, 2004 and 2005, respectively). The loans are
payable in twelve unequal quarterly installments beginning January 2004. The loan will
mature in October 2006. |
| Total principal outstanding as of June 30, 2004 and 2005 were Rp157,801 million and
Rp114,791 million, respectively. |
| The loan facility from Bank Central Asia is not collateralized. |
| During the period when the loan is outstanding, the Company should comply with all
covenants or restrictions including maintaining financial ratios as follows: |

1.	EBITDA to interest ratio should not exceed 4:1
2.	EBITDA to interest and principal ratio should exceed 1.5:1
3.	Debt to EBITDA ratio should not exceed 3:1

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

BANK LOANS (continued)

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. The loan has been repaid in March, 2005.
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 Regional Division 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. As of December 31, 2004, the
facility has been repaid.
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 December 31, 2003, 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 and September 1, 2004, Bank Mandiri agreed to decrease the
interest rate to 14% per annum commencing in January 2004 and 11.25% per annum commencing
from September 1, 2004, respectively.
	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 from the end of the third quarter of 2004 until end of the fourth quarter of
2006 and bears interest at 14% per annum. On September 1, 2004, Bank Mandiri agreed to
decrease the interest rate to 11.25% commencing from September 1, 2004. 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 Dayamitras telecommunications equipment/network
with CDMA technology financed by these facilities, and Dayamitras share in the DKSOR of
KSO Unit VI. As of June 30, 2004 and 2005, total principal outstanding under these
facilities amounted to
Rp61,368 million and Rp35,253 million, respectively.
	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 Balebats operating equipment and will mature in July 2006. The
principal is repayable on a monthly basis. as of June 30, 2004 and 2005, principal
outstanding under this facility amounted to Rp1,865 million and Rp1,051 million,
respectively.

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

25. BANK LOANS (continued)

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
(BCA, lender), providing a total facility of US$4.0 million 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 (i.e., 3.38% and 4.875% as of June 30, 2004 and 2005, respectively). Amounts
drawn in Rupiah bear interest at 19% fixed for the first year and 5% plus the average of
BCAs and Bukopins interest rates (the highest of 1, 3, 6 or 12-month time deposit rate)
thereafter (i.e., 11.625% and 11.125% as of June 30, 2004 and 2005, respectively).
	Total outstanding IP Backbone loans for Rupiah and U.S. Dollars as of June 30, 2004 and
2005 are Rp21,175 million and US$1,1 million (Rp10,834 million) and nil, respectively.
	The Company pledged the property under construction as collateral for the IP Backbone loan
with a maximum amount of US$14.6 million and Rp401 million.
	As of March 15, 2005, all of the loans has been repaid.
h.	Bank Niaga
	On July 18 and December 3, 2003, Balebat entered into loan agreements with Bank Niaga for
facilities totaling Rp565 million. The facilities bear interest at 15% per annum and are
secured by Balebats time deposits and vehicles. The principal and interest are payable on
a monthly basis which will end in October 2005 and December 2005, respectively. As of June
30, 2004 and 2005, principal outstanding amounted to Rp390 million and Rp108 million,
respectively.
	On April 25, 2005 Balebat entered into a loan agreement with Bank Niaga on a credit
facility of Rp2,400 million which consists of credit for investment Rp1,600 million with
an interest rate 12% per annum and will matured on October 25, 2009 and credit for working
capital of Rp800 million with interest 12% per annum and will be matured on July 25, 2005.
As of June 31, 2005 the principal balance was Rp2.400 million.
	On December 28, 2004, Balebat entered into a loan agreement with Bank Niaga providing a
total facility of Rp7,200 million comprising of Rp5,000 million to finance construction of
plant (Investment Facility) which bears interest at 13.5% per annum and Rp2,200 million
to finance purchase of machinery (Specific Transaction Facility) which bears interest at
12% per annum. The Investment Facility is repayable in 36 monthly installments commencing
from March 31, 2005. The Specific Transaction Facility is repayable in 60 monthly
installments commencing from June 29, 2005. These facilities are secured by Balebats
property, plant and equipment with a value of Rp8,450 million. As of June 30, 2005,
principal outstanding under these facilities amounted to Rp6,782 million.

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

25 BANK LOANS (continued)

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 for a total facility of US$124.0 million. The loan is used to finance the CDMA
procurement from the Samsung Consortium and available until April 2006. The loan bears
interest, commitment and other fees totaling 5.68%. The loan is unsecured and payable in
10 semi-annual installments on June 30 and December 30 in each year beginning in 2006.
As of June 30, 2005, principal outstanding amounted to US$88.8 million (equivalent
Rp867,114 million).
j.	Consortium of banks
	On June 21, 2002, the Company entered into a loan agreement with a consortium of banks
for a facility of Rp400,000 million to finance the Regional Division V Junction Project.
Bank Bukopin, acting as the facility agent, charged interest at the rate of 19.5% for the
first year from the signing date and at the rate of the average 3-month deposit rate plus
4% for the remaining years. The drawdown period expires 19 months from the signing of the
loan agreement and the principal is payable in 14 quarterly installments 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 drawdown period was amended to expire 18
months from the signing of the Addendum, the repayment schedule was amended to 14
quarterly installments starting from May 21, 2004 and ending on June 21, 2007 and the
value of the project equipment secured was reduced to Rp187,500 million.
	As of June 30, 2005, interest rate charged on the loan was 10.19% and the principal
outstanding amounted to Rp96,032 million.

| 26. |
| --- |
| This amount represents the Companys obligation under the Promissory Notes issued to the
Selling Stockholders of Pramindo in respect of the Companys acquisition of 100% of Pramindo,
to the Selling Stockholders of AWI in respect of the Companys acquisition of 100% of AWI, to
TM Communication (HK) Ltd. in respect of the Companys exercise of the Option Agreement to
purchase the remaining 9.68% of Dayamitra shares and to MGTI in respect of the Companys
acquisition of KSO IV. |

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

26. LIABILITIES OF BUSINESS ACQUISITIONS (continued)


AWI transaction (Note 5c)
PT Aria Infotek	538,650		447,185
The Asian Infrastructure Fund	128,250		106,473
MediaOne International I B.V.	359,100		298,124
Less discount on promissory notes	(102,510	)	(62,814	)
	923,490		788,968
Dayamitra transaction (Note 5a)
TM Communication (HK) Ltd.			146,664
Less discount on promissory notes			(7,119	)
			139,545
KSO IV transaction (Note 5d)
MGTI	4,659,393		4,180,533
Less discount	(1,091,941	)	(867,052	)
	3,567,452		3,313,481
Total	4,490,942		4,241,994
Current maturity net of discount	(548,426	)	(757,878	)
Long-term portion net of discount	3,942,516		3,484,116

27. MINORITY INTEREST


Minority interest in net assets of subsidiaries:
Telkomsel	3,789,360	5,034,547
Infomedia	85,165	94,117
Dayamitra	35,571
Indonusa	1,913
PII	465
Total	3,912,474	5,128,664


Minority interest in net income (loss) of subsidiaries:
Telkomsel	847,810		1,327,158
Infomedia	41,370		33,534
Dayamitra	3,715
Indonusa	(47	)
Napsindo	(2,068	)
PII	(1,433	)
Total	889,347		1,360,692

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

28. CAPITAL STOCK

	2004	Percentage	Total
Description	Number of shares *	of ownership	Paid-up capital
		%	Rp
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.)	896,045,651	8.89	448,023
The Bank of New York	657,263,408	6.52	328,632
Board of Commissioners:	9,558		4
Board of Directors:	53,622		11
Public (below 5% each)	3,366,392,045	34.02	1,683,212
Total	10,079,999,640	100.00	5,040,000

Number of shares has been restated to reflect a two-for-one stock split as resolved in the Annual General Meeting of Stockholders on July 30, 2004 (Note 1b).

	2005	Percentage	Total
Description	Number of shares	of ownership	Paid-up capital
		%	Rp
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.)	1,781,970,500	6.79	445,493
The Bank of New York	1,277,626,736	7.06	319,407
Board of Commissioners	19,116		5
Public (below 5% each)	6,779,912,216	34.96	1,694,977
Total	20,159,999,280	100.00	5,040,000

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

ADDITIONAL PAID-IN CAPITAL

| 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 | |

| 30. |
| --- |
| 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. |


Consideration		amount of
paid/		net assets/	Deferred	Change
(received)		investment	income tax	in equity		Total		Tax		Net
Cross-ownership transactions with Indosat in 2001:
Acquisition of 35% equity
interest in Telkomsel	10,782,450		1,466,658	337,324			8,978,468				8,978,468
Sale of 22.5% equity
interest in Satelindo*	(2,122,260	)			(290,442	)	(2,412,702	)	(627,678	)	(1,785,024	)
Sale of 37.66% equity
interest in 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
Acquisition of 13% equity interest in Pramindo
in 2002 from Indosat (Note 4b):
	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

*
Lintasarta : PT Aplikanusa Lintasarta

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

31. TELEPHONE REVENUES


Fixed lines
Local and domestic long-distance usage	3,932,379	3,659,418
Monthly subscription charges	1,319,033	1,628,167
Installation charges	108,441	99,613
Phone cards	10,842	5,124
Others	55,960	81,256
Total	5,426,655	5,473,578
Cellular
Air time charges	4,616,791	5,957,166
Monthly subscription charges	282,517	192,115
Connection fee charges	44,989	30,969
Features	13,378	228,626
Total	4,957,675	6,408,876
Total Telephone Revenues	10,384,330	11,882,454

INTERCONNECTION REVENUES NET

Cellular	2,444,535	3,143,046
International	245,538	295,884
Other	60,605	87,308
Total	2,750,678	3,526,238

REVENUE UNDER JOINT OPERATION SCHEMES

Minimum Telkom Revenues	165,553	134,315
Share in Distributable KSO Revenues	127,863	181,142
Amortization of unearned initial investor payments
under Joint Operation Schemes	420	731
Total	293,836	316,188

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 48).

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

DATA AND INTERNET REVENUES

SMS	1,595,446	2,304,542
Internet	192,001	441,674
Data communication	117,964	97,810
VOIP	179,945	109,985
e-Business	59,007	106,400
Total	2,144,363	3,060,411

NETWORK REVENUES

Satellite transponder lease	102,156	108,718
Leased lines	172,680	85,328
Total	274,836	194,046

REVENUE-SHARING ARRANGEMENT REVENUES

Revenue-Sharing Arrangement revenues	38,748	48,138
Amortization of unearned income (Note 13)	24,560	53,044
Total	63,308	101,182

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

37. OPERATING EXPENSES PERSONNEL

Salaries and related benefits	904,732	955,124
Vacation pay, incentives and other benefits	555,327	816,033
Early retirements	80,500	558,421
Net periodic post-retirement benefit cost (Note 45)	243,655	326,055
Net periodic pension cost (Note 43)	515,735	447,507
Employee income tax	189,302	428,033
Long service awards (Note 44)	82,861	61,641
Housing	72,176	105,608
Medical	2,371	5,027
Other employee benefits (Note 43)	11,402	21,677
Others	17,262	20,078
Total	2,675,323	3,745,204

OPERATING EXPENSES OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES

Operations and maintenance	1,085,606	1,391,851
Radio frequency usage charges	240,527	275,836
Electricity, gas and water	189,482	197,227
Cost of phone cards	155,414	295,819
Concession fees	249,083	319,813
Insurance	77,191	75,251
Leased lines	70,544	53,539
Vehicles and supporting facilities	74,959	102,478
Travelling	19,436	12,717
Others	37,768	71,336
Total	2,200,010	2,795,867

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

OPERATING EXPENSES GENERAL AND ADMINISTRATIVE

Professional fees	37,062	51,786
Collection expenses	155,568	174,481
Amortization of goodwil and other intangible assets (Note 14)	429,108	459,076
Training, education and recruitment	86,534	69,919
Travel	91,746	73,707
Security and screening	50,619	78,883
General and social contribution	40,409	45,254
Printing and stationery	32,144	17,725
Meetings	28,065	16,952
Provision for doubtful accounts and inventory
obsolescence	171,455	218,312
Research and development	6,172	3,783
Others	22,076	13,443
Total	1,150,958	1,223,321

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

INCOME TAX

a.	Prepaid taxes
	The Company
	Refundable corporate income tax overpayment	38,370
		38,370
	Subsidiaries
	Corporate income tax	746	1,574
	Value added tax	279
		1,025	1,574
		39,395	1,574
b.	Taxes payable
	The Company
	Income tax	52,638	53,060
	Article 21	3,575	3,523
	Article 22	10,015	29,864
	Article 23	87,205	97,044
	Article 25	3,968	14,619
	Article 26	154,490	157,105
	Value added tax	181,991	280,149
		493,882	635,364
	Subsidiaries
	Income tax
	Article 21	13,098	5,460
	Article 22	233
	Article 23	38,626	45,212
	Article 25	140
	Article 26	319	58,499
	Article 29	380,478	619,959
	Value added tax	81,269	68,930
		514,163	798,060
		1,008,045	1,433,424

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

INCOME TAX (continued)

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


Current
The Company	715,436		923,868
Subsidiaries	1,121,166		1,621,946
	1,836,602		2,545,814
Deferred
The Company	(260,399	)	(252,491	)
Subsidiaries	96,292		28,096
	(164,107	)	(224,395	)
	1,672,495		2,321,419

d.
The reconciliation of consolidated income before tax to income before tax attributable to
the Company and the components of consolidated income tax expense are as follows:

Consolidated income before tax	5,071,333		7,385,304
Add back consolidation eliminations	1,838,591		2,695,873
Consolidated income before tax and eliminations	6,909,924		10,081,177
Deduct income before tax of the subsidiaries	(3,923,356	)	(5,706,610	)
Income before tax attributable to the Company	2,986,568		4,374,567
Tax calculated at progressive rates	895,953		1,312,353
Non-taxable income	(545,812	)	(810,800	)
Non-deductible expenses	(22,353	)	(19,503	)
Deferred tax (assets) liabilities originating from
temporary differences previously unrecognized	119,451		164,524
Deferred tax assets that cannot be utilized, net
Corpopreviouslyeunrecognized temporary differences, net	11,104		24,800
Total income tax expense of the Company	458,343		671,374
Income tax expense of the subsidiaries	1,217,458		1,650,045
Total consolidated income tax expense	1,675,801		2,321,419

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

40. INCOME TAX (continued)

d. The reconciliation of consolidated income before tax and the estimated taxable income for the six months period ended June 30, 2004 and 2005 are as follows (continued):

Income before tax attributable to the Company	2,975,549		4,374,568
Temporary differences:
Depreciation of property, plant and equipment	(40,800	)	242,527
Gain on sale of property, plant and equipment	(177,292	)	(535	)
Allowance/(write back) for doubtful accounts	89,203		49,592
Accounts receivable written-off	(21,941	)	(17,525	)
Allowance for inventory obsolescence	75,512		(4,429	)
Inventory written-off	(676	)	(910	)
Provision for early retirement benefits	80,000		558,421
Payment for early retirement benefits	(120,146	)	(581,130	)
Provision for bonus			45,363
Net periodic pension cost	125,310		107,602
Long service awards	41,395		26,761
Amortization of intangible assets	429,108		448,441
Amortization of deferred stock issuance costs			136,684
Amortization of landrights	(1,973	)	(846	)
Temporary differences of KSO units	7,110		38,360
Accrue interest income on AWI loan	45,835
Depreciation
of property, plant and equipment
under revenue-sharing arrangements	67,107		31,918
Amortization
of unearned income on revenue
under revenue-sharing arrangements	(24,560	)	(53,044	)
Payments of liability of business acquisition and the related interest
incl. Interest	(75,248	)	(325,220	)
Consultant fees for acquisition of business	(27,797	)
Unrealized foreign exchange loss on liability of business	385,134		179,499
	855,281		881,529

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

INCOME TAX (continued)


Permanent differences:
Net periodic post-retirement benefit cost	241,113		322,737
Amortization of goodwill and intangible assets			10,635
Amortization of discount on promissory notes	45,255
Depreciation Expense			5,251
Gain on sale of long-term investments	(1,819,374	)	(2,702,666	)
Interest income	(75,293	)	(55,987	)
Income from land/building rental	(12,547	)	(9,024	)
Others	125,135		209,790
Total permanent differences	(1,495,711	)	(2,219,264	)
Taxable income subject to corporate income tax	2,346,138		3,080,975
Total current income tax expense of the Company	718,742		923,868
Current income tax expense of the subsidiaries	1,121,166		1,621,946
Total current income tax expense	1,839,908		2,545,814

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

INCOME TAX (continued)

e.
The details of the Companys and subsidiaries deferred tax assets and liabilities are as
follows:


				credited
December 31,		Business		to statements		June 30,
2003		acquisitions		of income		2004
The Company
Deferred tax assets:
Allowance for doubtful
accounts	118,845				26,355		145,200
Allowance for inventory
obsolescence	11,527				1,006		12,533
Land rights
Provision for early retirement
benefits	39,843				(12,044	)	27,799
Provision for employee bonuses	84,385				(21,250	)	63,135
Provision for long service
awards	142,084				12,419		154,503
Liabilities of business acquisitions
KSO IV			985,609		89,195		1,074,804
Total deferred tax assets	396,684		985,609		95,681		1,477,974
Deferred tax liabilities:
Interest receivables	(13,750	)			13,750
Long-term investments	(14,138	)					(14,138	)
Difference between book and
tax property, plant and
equipments net book value	(1,568,675	)	(713,140	)	(15,436	)	(2,297,251	)
Landrights	(546	)			(592	)	(1,138	)
Revenue-sharing arrangements
Intangible assets	(58,453	)			4,324		(54,129	)
Net periodic pension cost	(1,527,798	)	(272,469	)	125,079		(1,675,188	)
Total deferred tax liabilities	(88,914	)			37,593		(51,321	)
Deferred tax liabilities of the
Company, net	(3,272,274	)	(985,609	)	164,718		(4,093,165	)
Deferred tax liabilities of the
subsidiaries, net	(2,875,590	)			260,399		(2,615,191	)
	(671,180	)			(96,291	)	(767,471	)
Total deferred tax liabilities, net	(3,546,770	)					(3,382,662	)

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

INCOME TAX (continued)

e. Deferred tax assets and liabilities (continued)


		Acquisition	credited
December 31,		of	to statements		June 30,
2004		AWI	of income		2005
The Company
Deferred tax assets:
Allowance for doubtful
accounts	207,679			19,265		226,944
Allowance for inventory
obsolescence	15,494			(1,770	)	13,724
Long-term investments	4,685			(4,706	)	(21	)
Provision for early retirement
benefits				3,441		3,441
Provision for employee bonuses	42,665			13,610		56,275
Provision for long service
awards	164,750			(2,225	)	162,525
Business acquisition liabilities	1,009,932			(9,012	)	1,000,920
Total deferred tax assets	1,445,205			18,603		1,463,808
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(2,198,654	)		76,657		(2,121,997	)
Land rights	(1,571	)		(253	)	(1,824	)
Revenue-sharing arrangements	(41,637	)		(8,655	)	(50,292	)
Intangible assets	(1,614,386	)		134,531		(1,479,855	)
Net periodic pension cost	(27,904	)		31,608		3,704
Total deferred tax liabilities	(3,884,152	)		233,888		(3,650,264	)
Deferred tax liabilities of the
Company, net	(2,438,947	)		252,491		(2,186,456	)
Deferred tax liabilities of the
subsidiaries, net	(913,224	)		(28,019	)	(941,243	)
Total deferred tax liabilities, net	(3,352,171	)				(3,127,699	)

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

INCOME TAX (continued)

| f. |
| --- |
| Under the 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. |
| The Company and its subsidiaries are being audited by the tax authorities for various
fiscal years. These tax audits are not finalized at the date of these financial
statements; however, management believes that the outcome of these tax audits will not be
significant. |

| 41. |
| --- |
| Net income per share is computed by dividing net income by the weighted average number of
shares outstanding during the six months period ended June 30, 2004 and 2005, respectively,
totaling 20,159,999,280. See also Notes 1b and 2t. |
| The Company does not have potentially dilutive ordinary shares. |

| 42. |
| --- |
| 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 Rp331.16 per share (pre-split),
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 Rp210.82 per share (pre-split),
and appropriated Rp425,012 million for general reserves. |
| | Dividends for 2000 amounting to Rp888,654 million or Rp88.16 per share (pre-split),
and appropriated Rp126,950 million for general reserves. |

| Pursuant to the Annual General Meeting of Shareholders as stated in notarial deed No. 25 dated
July 30, 2004 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution
of cash dividends for 2003 amounting to Rp3,043,614 million or Rp301.95 per share (pre-split)
and appropriation of Rp121,745 million for general reserve. |
| --- |
| On December 7, 2004, the Company decided to distribute 2004 interim cash dividends of
Rp143,377 million or Rp7.11 per share to the Companys stockholders. |
| Pursuant to the Annual General Meeting of Shareholders as stated in Annual General Meeting of
Shareholders Minutes of Meeting notarial deed No. 210/VI/2005 dated June 24, 2005 of A.
Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution of cash dividends for
2004 amounting to Rp3,064,605 million or Rp152.01 per share, social contribution fund of
Rp30,646 million and appropriation of Rp122,584 million for general reserve. |

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

PENSION PLAN

| a. |
| --- |
| The Company sponsors a defined benefit pension plan and a defined contribution plan. |
| The defined benefit pension plan is provided 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 Telkom
Pension Fund (Dana Pensiun Telkom). The participating employees contribute 18% (before
March 2003: 8.4%) of their basic salaries to the plan. The Companys contributions to the
pension fund for the six months period ended June 30, 2004 and 2005 amounted to Rp413,629
million, and Rp335,654 million respectively. |
| In 2002, the Company amended its defined pension benefit plan to increase the pension
benefits for certain 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 defined contribution plan is provided for employees hired with permanent status on or
after July 1, 2002. The plan is managed by a financial institution pension fund (Dana
Pensiun Lembaga Keuangan). The Companys annual contribution to the defined contribution
plan is determined based on a certain percentage of the participants salaries. |
| 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 Companys balance sheets as
of June 30, 2004 and 2005 for its defined benefit pension plan. Proportional estimation of
benefit pension plan was calculated based on actuary forecast in 2005 and 2004 : |

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

PENSION PLAN (continued)

a. Pension (continued)


Change in benefit obligation
Benefit obligation at beginning of year	6,852,923		7,315,182
Service cost	72,965		120,643
Interest cost	370,247		394,915
Plan participants contributions	21,953		21,419
Actuarial loss (gain)	(77,563	)	(65,136	)
Benefits paid	(152,139	)	(168,794	)
Benefit obligation at end of year	7,088,386		7,618,229
Change in plan assets
Fair value of plan assets at beginning of year	3,671,309		4,884,523
Actual return on plan assets	318,373		273,306
Employer contribution	419,990		335,654
Plan participants contributions	21,953		21,419
Benefits paid	(152,139	)	(168,794	)
Fair value of plan assets at end of year	4,279,486		5,346,108
Funded status	(2,808,900	)	(2,272,121	)
Unrecognized prior service cost	1,577,020		1,420,235
Unrecognized net actuarial loss	1,282,819		788,966
Unrecognized net obligation at the date of initial application of
PSAK No. 24	134,574		105,940
Prepaid pension benefit costs	185,513		43,020

| Plan assets consist mainly of Rupiah time deposits at June 30, 2004 and Indonesian
Government Bonds at June 30, 2005. |
| --- |
| 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. |

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

PENSION PLAN (continued)

| a. |
| --- |
| The actuarial valuations for the defined benefit pension plan performed based on
measurement date of December 31 for each of the years 2003 and 2004 were prepared on May
21, 2004, May 21, 2004 and March 15, 2005, respectively, 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 2003 and 2004 are as follows. |

Discount rate	11 %	11 %
Expected long-term return on plan assets	7.5% - 11 %	10.5 %
Rate of compensation increase	8% - 9 %	8 %

The components of consolidated net periodic pension cost are estimated based on actuarial projection cost for 2005 as stated in the 2004 independent actuary report, through proportional calculation, as follows:

Service cost	63,119		119,118
Interest cost	370,247		394,915
Expected return on plan assets	(218,336	)	(271,944	)
Amortization of prior service cost	78,392		78,392
Recognized actuarial loss (gain)	207,996		112,709
Amortization of net obligation
at the date of initial application of PSAK No. 24	14,317		14,317
Net periodic pension cost (Note 38)	515,735		447,507

In addition, the pension cost charged to the KSO Units under the contractual agreement amounted to Rp18,241 million and Rp9,270 million on June 30, 2004 and 2005, respectively.

b. Obligation Under Labor Law

Under Law No. 13/2003 concerning labor regulation, the Company and its subsidiaries are required to provide a minimum pension benefit, if not already covered by the sponsored pension plans, to their employees upon retiring at the age of 55. The total related obligation recognized as of June 30, 2004 and 2005 amounted to Rp11,402 million and Rp21,677 million, respectively. The total related employee benefit cost charged to expense amounted to Rp2,220 million and Rp5.755 million for the six months period ended June 30, 2004 and 2005, respectively.

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

LONG SERVICE AWARDS

| a. |
| --- |
| The Company provides certain cash awards for its employees who meet certain length of
service requirement. The benefits are either paid at the time the employee reaches certain
anniversary dates during employment, upon retirement or termination. |
| The actuarial valuations for the long service awards performed based on measurement date
of December 31 for the year 2002 was prepared on January 15, 2004, while the actuarial
valuations as of December 31, 2003 and 2004 were prepared on May 21, 2004 and March 15,
2005, respectively, 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 as of December 31, 2003 and 2004 are
as follows: |

Discount rate	11 %	11 %
Rate of compensation increase	8 %	8 %

The movement of the long service awards during the sis month period ended June 30, 2004 and 2005 is as follows:

Liability at beginning of year	491,037		572,303
Net periodic benefit cost (Note 37)	82,861		61,641
Benefits paid	(39,028	)	(64,345	)
Liability at end of year	534,870		569,599

| 45. |
| --- |
| 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). |

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

POST-RETIREMENT BENEFITS (continued)

The components of net periodic post-retirement benefit cost are estimated based on actuarial projection cost for 2005 as stated in the 2004 independent actuary report, through proportional calculation, as follows:

Service cost	30,661		69,151
Interest cost	205,555		253,997
Expected return on plan assets	(30,542	)	(53,366	)
Amortization of prior service gain	(184	)	(184	)
Recognized actuarial loss	26,002		44,294
Amortization of unrecognized transition obligation	12,163		12,163
Net periodic post-retirement benefit cost (Note 37)	243,655		326,055

| In addition, the cost of post-retirement benefits charged to the KSO Units under the
contractual agreement amounted to Rp7,795 million and Rp5,502 million in 2004 and 2005,
respectively. |
| --- |
| The actuarial valuations for the post-retirement health care benefits performed based on
measurement date of December 31 for the year 2002 was prepared on January 15, 2004, while the
actuarial valuations as of December 31, 2003 and 2004 were prepared on May 21, 2004 and March
15, 2005, respectively, 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 as of December 31, 2003
and 2004 are as follows: |

Discount rate	11 %	11 %
Expected long-term return on plan assets	11 %	8 %
Health care cost trend rate assumed for next year	12 %	12 %
The ultimate trend rate	8 %	8 %
Year that the rate reaches the ultimate trend rate	2006	2007

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

| 45. |
| --- |
| 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 Companys balance sheets as of
June 30, 2004 and 2005 which estimated based on actuarial projection cost for 2005 as stated
in the 2004 independent actuary report, through proportional calculation, as follows: |


Change in benefit obligation
Benefit obligation at beginning of year	3,787,389		4,681,005
Service cost	38,082		69,151
Interest cost	205,555		253,997
Actuarial (gain) loss	264,809		292,474
Benefits paid	(61,638	)	(62,876	)
Benefit obligation at end of year	4,234,197		5,233,751
Change in plan assets
Fair value of plan assets at beginning of year	505,340		1,138,768
Actual return on plan assets	16,087		53,366
Employer contributions	362,265		275,791
Benefits paid	(61,639	)	(62,876	)
Fair value of plan assets at end of year	822,053		1,405,049
Funded status	(3,412,144	)	(3,828,702	)
Unrecognized prior service gain	(1,750	)	(1,382	)
Unrecognized net actuarial loss	1,206,147		1,712,670
Unrecognized net transition obligation	255,412		231,087
Accrued post-retirement benefit costs	(1,952,335	)	(1,886,327	)

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

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

| 46. |
| --- |
| In the normal course of business, the Company and its subsidiaries entered into transactions
with related parties. It is the Companys 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 Companys majority stockholder. |
| --- | --- |
| | Interest expense for two-step loans amounted to Rp259,880 million and Rp116,469
million in 2004 and 2005, respectively. Interest expense for two-step loan reflected
37.4% and 25.7% of total interest expense in 2004 and 2005, respectively. |
| ii. | The Company and its subsidiaries 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 Rp249,083 million and Rp319,813 million in 2004 and 2005,
respectively. Concession fees reflected 2.6% and 2.8% of total operating expenses in
2004 and 2005, respectively. Radio frequency usage charges amounted to Rp240,527
million and Rp275,836 million in 2004 and 2005, respectively. Radio frequency usage
charges reflected 2.6% and 2.6% of total operating expenses in 2004 and 2005,
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 Rp8,008 million and Rp10,637 million in 2004 and 2005,
respectively, which reflected 0.1% and 0.1% of total operating expenses in 2004 and
2005, 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 Rp24,274 million, and Rp26,607 million in 2004 and 2005, respectively, which
reflected 0.3% and 0.2% of total operating expenses in 2004 and 2005, respectively. |

| c. |
| --- |
| Following the merger of Indosat, PT Indosat Multimedia Mobile (IM3), Satelindo and PT
Bimagraha Telekomindo on November 20, 2003, all rights and obligations arising from the
agreements entered by the Company with IM3 and Satelindo were transferred to Indosat. |
| The Company has an agreement with Indosat for the provision of international
telecommunications services to the public. |

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RELATED PARTY INFORMATION (continued)

c.
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 Companys
fixed-line network and Indosats cellular network in connection with the implementation of
Indosat Multimedia Mobile services and the settlement of the related interconnection
rights and obligations. |
| --- |
| The Company also has an agreement with Indosat for the interconnection of Indosats GSM
mobile cellular telecommunications network with the Companys PSTN, enabling the Companys
customers to make outgoing calls to or receive incoming calls from Indosats customers. |
| The Companys compensation relating to leased lines/channel services, such as
International Broadcasting System (IBS), AVD and bill printing is calculated at 15% of
Indosats revenues from such services. Through year-end 2003, Indosat leased circuits from
the Company to link Jakarta, Medan and Surabaya. In 2004, Indosat did not use this
service. |
| 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. |

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RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| 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. | Telkomsels GSM mobile cellular telecommunications network is connected to
Indosats international gateway exchanges to make outgoing or receive incoming
international calls through Indosats international gateway exchanges. |
| --- | --- |
| ii. | Telkomsels GSM mobile cellular telecommunications network is connected to
Indosats mobile cellular telecommunications network, enabling Telkomsels cellular
subscribers to make outgoing calls to or receive incoming calls from Indosats
cellular subscribers. |
| iii. | Telkomsel receives as compensation for the interconnection, a specific
percentage of Indosats revenues from the related services which are made through
Indosats international gateway exchanges and mobile cellular telecommunications
network. |
| iv. | Billings for calls made by Telkomsels customers are handled by Telkomsel.
Telkomsel is obliged to pay Indosats share of revenue regardless whether billings to
customers have been collected. |
| v. | The provision and installation of the necessary interconnection equipment
is Telkomsels responsibility. Interconnection equipment installed by one of the
parties in another partys 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 Indosats 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 Rp10,248 million and Rp9,745 million in 2004 and 2005, respectively, reflecting 0.1% and 0.1% of total operating expenses in 2004 and 2005, respectively. Other agreements between Telkomsel and Indosat are as follows:

| i. |
| --- |
| 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 from 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. Operating and maintenance costs are shared based on an agreed formula. |

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RELATED PARTY INFORMATION (continued)

c. Indosat (continued)

| i. | Agreement on Construction and Maintenance for Jakarta-Surabaya Cable System
(J-S Cable System) (continued) |
| --- | --- |
| | Telkomsels share in operating and maintenance costs amounted to Rp464 million and
Rp526 million for the six months period ended June 30, 2004 and 2005, 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$2.7 million. In addition to the upfront payment, Telkomsel is also
charged annual operating and maintenance costs amounting to US$0.1 million. |

| Pursuant to the expiration of the agreement between Telkomsel and Indosat with regard to
the provision of international telecommunication services to GSM mobile cellular
customers, in April 2004 Telkomsel and Indosat entered into an interim agreement. Under
the terms of the interim agreement, Telkomsel receives 27% of the applicable tariff for
outgoing international calls from Telkomsel subscribers and Rp800 per minute for incoming
international calls to Telkomsel subscribers. The interim agreement is effective from
March 1, 2004 until such date that Telkomsel and Indosat enter into a new agreement. |
| --- |
| The Company and its subsidiaries earned net interconnection revenues from Indosat of
Rp37,919 million in 2004, respectively, reflecting 0.24% of total operating revenues. The
Company and its subsidiaries were charged net interconnection charges from Indosat of
Rp62,528 million in 2005, reflecting 0.32% of total operating revenues in 2005. |
| The Company leased international circuits from Indosat. Payments made in relation to the
lease expense amounted to Rp16,447 million and Rp6,014 million in 2004 and 2005,
respectively, which reflected 0.1% and 0.1% of total operating expenses for 2004 and 2005,
respectively. |
| 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 an additional amount of
Rp59,860 million as lease expense up to 2024. As of June 30, 2004 and 2005, the prepaid
portion is shown in the consolidated balance sheets as Advances from customers and
suppliers. |

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RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| The Company provides leased lines to Indosat and its subsidiaries, namely Indosat Mega
Media and Lintasarta. The leased lines can be used by those companies for telephone,
telegraph, data, telex, facsimile or other telecommunication services. Revenue earned from
these transactions amounted to Rp49,667 million and Rp61,917 million in 2004 and 2005,
respectively, which reflected 0.5% and 0.6% of total operating revenues in 2004 and 2005,
respectively. |
| Lintasarta utilizes the Companys Palapa B4 and Telkom-1 satellite transponders or
frequency channels. Revenue earned from these transactions amounted to Rp7,986 million and
Rp4,225 million in 2004 and 2005, respectively, which reflected 0.1% and 0.04% of total
operating revenues in 2004 and 2005, respectively. |
| Telkomsel has an agreement with Lintasarta and PT Artajasa Pembayaran Elektronis
(Artajasa) for the usage of data communication network system. The charges from
Lintasarta and Artajasa for the services amounted to Rp9,277 million and Rp9,917 million,
in 2004 and 2005, respectively, reflecting 0.1% and 0.1% of total operating expenses in
2004 and 2005, respectively. |

d. Others

(i)	The Company provides telecommunication services to Government agencies.
(ii)	The Company has entered into agreements with Government agencies and
associated companies, namely CSM and Patrakom, for utilization of the Companys
Palapa B4 and Telkom-1 satellite transponders or frequency channels. Revenue earned
from these transactions amounted to Rp30,276 million and Rp18,950 million in 2004 and
2005, respectively, which reflected 0.2% and 0.3% of total operating revenues in 2004
and 2005, respectively.
(iii)	The Company provides leased lines to associated companies, namely CSM and
PSN (2002: including 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
Rp10,613 million and Rp14,027 million in 2004 and 2005, respectively, reflecting
0.2%, and 0.1% of total operating revenues in 2004 and 2005, respectively.
(iv)	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 and Koperasi Pegawai Telkom. Total purchases made
from these related parties amounted to Rp99,536 million and Rp68,304 million in 2004
and 2005, respectively, reflecting 2.7%, and 1.7% of total fixed asset purchases in
2004 and 2005, respectively.

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RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (v) | 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 2004 and 2005 amounted to Rp162,664 million and Rp27,752 million,
respectively, reflecting 4.5% and 0.7% of total fixed asset purchases in 2004 and
2005, respectively. |
| --- | --- |
| (vi) | Telkomsel has an agreement with PSN for lease of PSNs transmission link.
Based on the agreement, which was made in March 14, 2001, the minimum lease period is
2 years since the operation of the transmission link and is extendable subject to
agreement by both parties. The lease charges amounted to Rp20,524 million and
Rp41,203 million in 2004 and 2005, respectively, reflecting 1% and 1% of total
operating expenses in 2004 and 2005, respectively. |
| (vii) | 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 Rp70,893 million and Rp83,614 million in 2004 and 2005,
respectively, reflecting 0.8% and 0.7% of total operating expenses in 2004 and 2005,
respectively. |
| (viii) | 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. Total placements in form of current accounts and
time deposits, and mutual funds in state-owned banks amounted to Rp3,703,486 million
and Rp2,712,116 million as of June 30, 2004 and 2005, respectively, reflecting 6.3%
and 4.3% of total assets as of June 30, 2004 and 2005, respectively. Interest income
recognized during 2004 and 2005 was Rp44,816 million and Rp29,093 million reflecting
24.3% and 21.4% of total interest income in 2004 and 2005, respectively. |
| (ix) | The Companys subsidiaries have loans from a state-owned bank. Interest
expense on the loans for 2005 amounted to Rp3,543 million representing 0.5% of total
interest expense in 2005. |
| (x) | 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
Rp9,762 million and Rp21,027 million in 2004 and 2005, respectively, reflecting 0.1%
and 0.2% of total operating expenses in 2004 and 2005, respectively. |

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RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (xi) | The Company and its subsidiaries earned (were charged for) interconnection
revenues (charges) from PSN (Rp3,722 million and (Rp99 million) in 2004 and 2005,
respectively, which reflect 0.02% and (0.001%) of total operating revenues in 2004
and 2005, respectively. |
| --- | --- |
| (xii) | In addition to revenues earned under the KSO Agreement (Note 48), the
Company also earned income from building rental, repairs and maintenance services and
training services provided to the KSO Units, amounting to Rp6,826 million and Rp6,530
million in 2004 and 2005, respectively, which reflect 0.04% and 0.03% of total
operating revenues in 2004 and 2005, respectively. |
| (xiii) | Infomedia provides electronic media and call center services to KSO Unit VII based
on an agreement dated March 4, 2003. Revenue earned from these transactions in 2005
amounted to Rp4,558 million, reflecting 0.02% of total operating revenues. |
| (xiv) | 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. |

Presented below are balances of accounts with related parties:


		% of		% of
	Amount	total assets	Amount	total assets
a.	Cash and cash equivalents (Note 6)	3,510,757	6.24	2,501,384	4.27
b.	Trade accounts receivable, net (Note 7)	670,191	1.19	462,403	0.79
c.	Other accounts receivable
	KSO Units	6,418	0.01	1,029
	State-owned banks (interest)	3,752	0.01	2,773	0.01
	Government agencies	10,423	0.02	20,099	0.03
	Other	17,053	0.03	13,968	0.02
	Total	37,646	0.07	37,869	0.06
d.	Prepaid expenses (Note 9)	27,183	0.05	25,121	0.04
e.	Other current assets (Note 10)	162,114	0.29	44,827	0.08
f.	Advances and other
non-current assets (Note 14)
	Bank Mandiri	24,429	0.04	161,242	0.27
	PT Asuransi Jasa Indonesia			23,104	0.04
	Peruri	813	0.00	813	0.00
	Total	25,242	0.04	185,159	0.31

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46. RELATED PARTY INFORMATION (continued)


		% of total		% of total
	Amount	liabilities	Amount	liabilities
h.	Trade accounts payable (Note 17)
	Government agencies	350,243	1.09	357,271	1.10
	KSO Units	155,875	0.48	4,376	0.01
	Indosat	193,692	0.60	81,119	0.25
	Koperasi Pegawai Telkom	5,797	0.02	11,362	0.03
	PT INTI	54,109	0.17	169,055	0.52
	Others	8,262	0.03	84,279	0.26
	Total	767,978	2.39	707,462	2.17
i.	Accrued expenses (Note 18)
	Government agencies and
state-owned banks	47,949	0.15	93,086	0.29
	Employees	825,158	2.54	955,124	2.94
	PT Asuransi Jasa Indonesia	17,040	0.05	17,152	0.05
	Total	890,147	2.74	1,065,362	3.28
j.	Short-term bank loans (Note 21)
	Bank Mandiri	41,946	0.13	43,498	0.13
k.	Two-step loans (Note 23)	5,706,602	17.55	7,638,554	23.51
l.	Provision for long
service awards (Note 44)	534,870	1.65	569,599	1.75
m.	Provision for post-retirement
benefits (Note 45)	1,952,335	6.00	1,886,327	5.80
n.	Long-term bank loans (Note 25)
	Bank Mandiri	63,233	0.13	36,305	0.11

| 47. |
| --- |
| The Company and its subsidiaries have two main business segments: fixed line and cellular. The
fixed line segment provides local, domestic long-distance and international (starting 2004)
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 Companys 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 prices that represent market prices. |

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SEGMENT INFORMATION (continued)


						Total before				Total
Fixed lines		Cellular		Other		elimination		Elimination		Consolidated
Operating Revenues
External operating revenues	9,300,050		6,587,414		246,622		16,134,086				16,134,086
Intersegment operating	41,481		245,123		11,064		297,668		(297,668	)
Total operating revenues	9,341,531		6,832,537		257,686		16,431,754		(297,668	)	16,134,086
Operating expenses	(6,327,593	)	(3,256,412	)	(175,475	)	(9,759,480	)	33,373		(9,726,107	)
Segment result
Operating income	3,013,938		3,576,125		82,211		6,672,274		35,705		6,707,979
Interest expense	(695,013	)	(118,106	)			(813,119	)			(813,119	)
Interest income	143,783		38,732		1,901		184,416				184,416
Gain (loss) on foreign
exchange net	(1,225,500	)	(29,412	)	(35	)	(1,254,947	)			(1,254,947	)
Other income (charges)
net	205,294		27,625		46,967		279,886		(35,705	)	244,181
Tax expense	(561,057	)	(1,072,650	)	(38,788	)	(1,672,495	)			(1,672,495	)
Equity in net income
of associated companies	1,819,374						1,819,374		(1,816,550	)	2,824
Income before minority interest	2,700,819		2,422,314		92,256		5,215,389		(1,816,550	)	3,398,839
Unallocated minority
interest					(1,230	)	(1,230	)	(888,117	)	(889,347	)
Net income	2,700,819		2,422,314		91,026		5,214,159		(2,704,667	)	2,509,492
Other information
Segment assets	43,140,216		18,063,586		349,625		61,553,427		(5,411,053	)	56,142,374
Investment in associates	8,542,630				107		8,542,737		(8,467,419	)	75,318
Total consolidated assets	51,682,846		18,063,586		349,732		70,096,164		(13,878,472	)	56,217,692
Total consolidated liabilities	(30,505,093	)	(7,236,853	)	(143,974	)	(37,885,920	)	5,411,053		(32,474,867	)
Minority interest					(6,874	)	(6,874	)	(3,905,600	)	(3,912,474	)
Capital expenditures	(1,431,284	)	(2,173,739	)	(34,776	)	(3,639,799	)			(3,639,799	)
Depreciation and amortization	(1,744,180	)	(1,248,872	)	(7,267	)	(3,000,319	)	7,295		(2,993,024	)
Amortization of goodwill and
other intangible assets	(429,108	)					(429,108	)			(429,108	)
Other non-cash expenses	(116,908	)	(50,032	)	(4,515	)	(171,455	)			(171,455	)

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SEGMENT INFORMATION


						Total before				Total
Fixed lines		Cellular		Other		elimination		Elimination		Consolidated
Operating Revenues
External operating revenues	10,208,351		8,928,143		248,095		19,384,589				19,384,589
Intersegment operating	108,238		365,258				473,496		(473,496	)
Total operating revenues	10,316,589		9,293,401		248,095		19,858,085		(473,496	)	19,384,589
Operating expenses	(7,708,484	)	(4,003,714	)	(187,786	)	(11,899,984	)	496,378		(11,403,606	)
Segment result
Operating income	2,608,105		5,289,687		60,309		7,958,101		22,882		7,980,983
Interest expense	(598,278	)	(82,506	)	(22	)	(680,806	)	33,212		(647,594	)
Interest income	91,508		76,410		1,472		169,390		(33,212	)	136,178
Gain (loss) on foreign
exchange net	(336,765	)	(20,348	)	110		(357,003	)			(357,003	)
Other income (charges)
- net	185,056		49,387		54,387		288,830		(22,882	)	265,948
Tax expense	(669,632	)	(1,617,339	)	(34,448	)	(2,321,419	)			(2,321,419	)
Equity in net income
of associated companies	2,702,665						2,702,665		(2,695,873	)	6,792
Income before minority interest	3,982,659		3,695,291		81,808		7,759,758		(2,695,873	)	5,063,885
Unallocated minority
interest					(1,252	)	(1,252	)	(1,359,439	)	(1,360,691	)
Net income	3,982,659		3,695,291		80,556		7,758,506		(4,055,312	)	3,703,194
Other information
Segment assets	39,819,709		22,251,755		415,124		62,486,588		(3,939,072	)	58,547,516
Investment in associates
Total consolidated assets	11,081,085		9,290				11,090,375		(10,999,313	)	91,062
Total consolidated liabilities	50,900,794		22,261,045		415,124		73,576,963		(14,938,385	)	58,638,578
Minority interest	(30,962,992	)	(7,236,853	)	(143,974	)	(38,343,819	)	4,161,876		(34,181,943	)
Capital expenditures					(6,874	)	(6,874	)	(3,496,270	)	(3,503,144	)
Depreciation and amortization	(801,900	)	(3,828,729	)	(28,176	)	(4,658,805	)			(4,658,805	)
Amortization of goodwill and	(1,899,847	)	(1,295,461	)	(12,683	)	(3,207,991	)	6,943		(3,201,048	)
other intangible assets	(459,076	)					(459,076	)			(459,076	)
Other non-cash expenses	(131,538	)	(84,430	)	(2,344	)	(218,312	)			(218,312	)
Kas bersih yang diperoleh dari aktivitas operasi	2,959,542		5,445,356		(5,453	)	8,399,445				8,399,445
Kas bersih yang digunakan untuk aktivitas investasi	(1,535,418	)	(2,996,086	)	(22,360	)	(4,553,864	)			(4,553,864	)
Kas bersih yang digunakan untuk aktivitas pendanaan	(332,557	)	(2,356,120	)	(20,449	)	(2,709,126	)			(2,709,126	)

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| 48. |
| --- |
| 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 Companys seven regional divisions. |
| Under the Joint Operation Scheme, the KSO Unit is required to make payments to the Company
consisting of the following: |

| n | Minimum Telkom Revenue (MTR) Represents the amount guaranteed by the KSO investor to be paid to the Company in
accordance with the KSO agreement. |
| --- | --- |
| n | 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.

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:

| i. | the net present value, if any, of the KSO Investors 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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| 48. |
| --- |
| 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 1,3 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 years 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).

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48.	JOINT OPERATION SCHEME (KSO) (continued)
	KSO IV
	Effective on January 20, 2004, the Company and PT Mitra Global Telekomunikasi Indonesia
(MGTI, KSO Investor) have amended their joint operation agreement with respect to the KSO
area. Upon the amendment, the Company gained full control over the operation of KSO Unit IV
(Note 5d).
	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.
	On December 14, 2004, the Company acquired the remaining 9.68% outstanding shares 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 years ended December 31, 2002, 2003
and 2004 were Rp3,586,000 million, Rp2,769,530 million and Rp1,250,945 million, respectively.
49.	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 June 30, 2005, the Company has 76 RSA with 59 partners. The RSA were located mostly in
Palembang, Pekanbaru, Jakarta, Central Java and Surabaya with concession period ranging from 4
to 176 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.

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49.	REVENUE-SHARING ARRANGEMENTS (continued)
	Generally, 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.
	The net book value of property, plant and equipment under RSA which have been transferred to
property, plant and equipment amounted to Rp23,355 million and Rp35,965 million in 2004 and
2005, respectively (Note 13).
50.	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.
	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 for 2003 by issuing Ministerial Letter No.
PR.304/1/1/PHB-2003, dated January 16, 2003.
	Based on the Announcement No. PM.2 year 2004 of the Minister of Communication dated March 30,
2004, the Company adjusted the tariffs effective April 1, 2004 as follows:

	Local charges increased by an average of 28%
	DLD charges decreased by an average of 10%
	Monthly subscription charges increased by an average of 12% to 25%, depending on
customer segment.

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| 50. |
| --- |
| Mobile Cellular Telephone Tariffs |
| Tariffs 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 charged
to a cellular subscriber 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 licensed operators.

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| 50. |
| --- |
| Interconnection Tariffs (continued) |
| 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). |

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 Companys network:

	Tariff
	(in full Rupiah)
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
operators network, 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 operators 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.

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TELECOMMUNICATIONS SERVICES TARIFFS (continued)

ii.	Mobile and fixed cellular interconnection with the PSTN (continued)
	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.
iii.	Fixed-line and fixed-wireless network interconnection
	Currently the operators of fixed wireline and fixed wireless network are PT Batam Bintan
Telekomunikasi (BBT), Indosat and Bakrie Telecom (Bakrie).

1.	Local calls
	Local interconnection calls with the network of Bakrie and BBT are operated on a
sender-keeps-all basis.
	For local calls originating from the network of Bakrie and BBT and terminating at a
cellular network and vice versa which transit through the Companys network, the
Company receives 50% of the local interconnection call tariff for local
interconnection with Bakrie and a fixed amount for each minute for local
interconnection call with BBT.
	For local interconnection calls with Indosats network, the operator of the network
on which the calls terminate receives Rp57/minute.
2.	Long-distance calls
	For interconnection with the network of Bakrie and BBT, the Company is entitled to
retain 35% of the prevailing DLD tariff, in cases where DLD calls originate on
Bakries network and terminate at the Companys network, 65% of the prevailing DLD
tariff, in cases where DLD calls originate on the Companys network and terminate at
Bakries network, and 75% of the prevailing DLD tariff, in cases where DLD calls
originate from or terminate at BBTs network.
	For DLD calls originating from the network of Bakrie and BBT and terminating at a
cellular network and vice versa which transit through the Companys network, the
Company receives 60% to 63.75% of the prevailing DLD tariff.
	In addition, BBT is to receive or retain certain fixed amount for each minute of
incoming and outgoing international calls which transit through the Companys network
and international gateway, and certain fixed amount for each successful call and each
minute of incoming and outgoing international calls that transit through the
Companys network and use Indosats international gateway.

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TELECOMMUNICATIONS SERVICES TARIFFS (continued)

iii. Fixed-line and fixed-wireless network interconnection (continued)

| 2 |
| --- |
| With respect to the interconnection long-distance calls from or to Indosat, pending
the implementation of the duopoly system for long-distance calls, Indosat receives
Rp240/minute for local originating calls from or local terminating calls at Indosats
network. |

Based on the Minister of Communication Decree No. 32 year 2004 dated March 11, 2004 and the announcement No. PM.2 year 2004 of the Minister of Communication dated March 30, 2004, cost-based interconnection fees shall be applicable beginning January 1, 2005. However as of the date of issuance of these consolidated financial statements, such cost-based interconnection fees have not been implemented because the preparation for the adjustment of interconnection arrangements has not been completed.

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.

| 51. |
| --- |
| As of June 30, 2005, 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 millions)	in Rupiah
Rupiah		3,463,389
U.S. Dollar	275,444	2,676,400
Euro	28,899	1,512,370
Japanese Yen	119,819	10,543
Total		7,662,702

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51.
The above balance includes the following significant agreements:

| (i) |
| --- |
| In September 2001, Telkomsel entered into procurement agreements with Motorola, Inc., PT
Ericsson Indonesia, Siemens AG, Nokia Corporation (formerly Nokia Oyj) and PT Nokia
Network, for the procurement of equipment and related services. In accordance with the
agreements, 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. |
| Telkomsel procurement (import) under the agreements with Motorola, Inc. and Nokia
Corporation were made partially through the Letter of Credit Facilities from Citibank
N.A. and Deutsche Bank (which expired in 2003). Telkomsels procurement under the
agreements with PT Ericsson Indonesia and Siemens AG were made partially through the
credit facilities from Citibank International plc. (Note 25b). 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. |
| In August 2004, pursuant to the expiration of the above agreements, to maintain a
sustainable growth, Telkomsel entered into agreements with Motorola Inc. and PT Motorola
Indonesia, Ericsson AB and PT Ericsson Indonesia, Nokia Corporation and PT Nokia Network,
and Siemens AG, for the maintenance and procurement of equipment and related services
which consist of the following: |

	Joint Planning and Process Agreement
	Equipment Supply Agreement (ESA)
	Technical Service Agreement (TSA)
	Site Acquisition and Civil, Mechanical and Engineering Agreement (SITAC and
CME)

The agreements contain list of charges (Price List) to be used in determining the fees payable by Telkomsel for all equipment and related services to be procured during the roll-out period depending on confirmed Purchase Order (PO).

The agreements are valid and effective as of the execution date (Effective Date) by the respective parties for a period of three years, provided that the suppliers are able to meet requirements set out in PO. In the event that the suppliers fail to meet those requirements, with a prior written notice, Telkomsel may terminate the agreements at its sole discretion.

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COMMITMENTS (continued)

(i)	Procurement Agreements (continued)
	In accordance with the agreements, the parties also agreed that the charges specified in
the Price List will also apply to equipment and services (ESA and TSA) and services
(SITAC and CME) acquired from the suppliers between May 26, 2004 and the Effective Date
(Pre-Effective Date Pricing), except for those acquired from Siemens under TSA which
are applicable for certain equipment and the related maintenance services acquired or
rendered between July 1, 2004 and Effective Date. Prices as well as discount are subject
to a quarterly review.
(ii)	Procurement of TELKOM-2 Satellite
	The Company has TELKOM-2 Satellite procurement agreement with Orbital Sciences
Corporation (the Contractor) with a total price of US$73.1 million. As of December 31,
2004, the Company has paid US$70.5 million and the remaining balance is expected to be
paid when the satellite has been launched and passed acceptance test.
(iii)	Launching of TELKOM-2 Satellite
	The Company has TELKOM-2 Satellite launching agreement with Arianespace S.A. with a
total price of US$62.9 million. The entire contract price was paid in September 2004.
The launch of TELKOM-2 Satellite, which was previously scheduled in June 2005 was
postponed due to awaiting the other satellite which will be launched together with
Telkom-2 Satellite.
(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 Divisions V, VI and VII and on December 23, 2002, the Company signed a Master
Procurement Partnership Agreement (MPPA). Based on the latest amendment, the total
contract price is US$144.1 million and Rp286,537 million. 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). This project
will be partly financed by The Export-Import Bank of Korea as contemplated in the Loan
Agreement dated August 27, 2003 (Note 25i). As of June 30, 2005, the Company has issued
purchase order which potentially increase its assets and liabilities of US$31,1 million
plus Rp29,143 million.

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COMMITMENTS (continued)

(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, which based on the latest amendment
the total contract price is US$72.6 million and Rp170,453 million. 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). As of June 30, 2005, the
Company has issued a purchase order which potentially increase its assets and liabilities
of US$38 million plus Rp14,574 million.
(vi)	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$32.7 million (inclusive of value-added tax). As of December 31, 2004 the Company has
paid approximately 90% of the contract price and the remaining 10% was paid in January
2005.
(vii)	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
Companys existing network and all ancillary services relating thereto in West Java and
Banten. Under the terms of this Agreement, and its latest amendment PT INTI must deliver
the CDMA 2000 IX system within thirty-four months after August 26, 2003 for a total of
approximately US$32.3 million and Rp105,868 million (inclusive of value-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$2.3 million. As
of June 30, 2005, the Company has paid and/or accrued a total of US$48 million plus
Rp18,461 million.
(viii)	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, and 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.

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COMMITMENTS (continued)

(viii)	MPPA with Motorola (continued)
	The MPPA, as amended, consists of 222,500 lines of BSS (radio system) for Regional
Division I Sumatera for a total of approximately US$43.2 million and Rp167,111 million . The agreed price does not include the service level agreement, training for technical
staff and documentation. The network will use Samsungs NSS as already contracted on
December 23, 2002. The agreement is valid until mid of 2006. As of June 30, 2005, the
Company has issued purchase order which potentially increase its assets and liabilities
of US$2.9 million plus Rp12,551 million.
(ix)	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$4.2 million plus Rp79,144 million for the
network located within Kalimantan and approximately US$3.4 million plus Rp78,566 million
for the network located within Sulawesi. As of June 30, 2005, approximately 100% of the
project has been completed and the Company has paid approximately 96% of the total
contract.
(x)	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 and its amendment, the Company is obliged to pay PT
INTI a total consideration of approximately US$6.6 million and Rp111,655 million. As of
December 31, 2004, the Company has has issued purchase order which potentially increase
its assets and liabilities of US$2.9 million plus Rp59,018 million.

CONTINGENCIES

| a. |
| --- |
| 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. |

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CONTINGENCIES (continued)

| | 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 staffs concerns regarding matters related
to the Companys 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 Managements estimate of the outcome of these matters,
the Company accrued Rp99 million at December 31, 2004. |
| c. | In connection with the re-audit of the Companys 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 Companys auditor for the re-audit of the 2002 consolidated
financial statements), the Company, KAP Hans Tuanakotta Mustofa & Halim (formerly KAP
Hans Tuanakotta & Mustofa) (the Companys 2001 auditor) and the Capital Market
Supervisory Agency BAPEPAM (collectively, Defendants), alleging that the Defendants,
through the reaudit of the Companys 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 Rp7,840,000 million in damages from the Company and its
co-defendants. The mediation process to resolve the dispute amicably did not succeed. On
December 8, 2004, the South Jakarta District Court issued its verdict in favor of the
Defendants. KAP Eddy Pianto has filed an appeal to the Jakarta High Court, however, based
on the withdrawal of the appeal deed No. 145/Pdt.G/2004/PNJS dated March 14, 2005 signed
by South Jakarta District Court Officer, stated that KAP Eddy Pianto has withdrawn the
appeal. |
| d. | On August 13, 2004, the Commissions for Business Competition Watch (Komisi Pengawas
Persaingan Usaha, KPPU) issued its verdict in Commission Court, which determined that
the Company had breached several articles of Law No. 5/1999 on Anti Monopolistic
Practices and Unfair Business Competition (Competition Law). In addition, KPPU also
indicated that the Company should allow Warung Telkom (kiosks) to channel international
calls to other international call operators, and abolish the clause in agreements between
the Company and Warung Telkom providers which limit Warung Telkom to sell
telecommunication services of other operators. The Company filed an appeal to the Bandung
District Court which on December 7, 2004, issued its verdicts in favor of the Company.
Subsequently, KPPU has filed an appeal to the Indonesian Supreme Court. |
| e. | Company as a defendant in legal action in respect of landright ownership of 11.720
sqm, located at Jl. DI Panjaitan, Prumpung Jakarta Timur that had been purchased by the
Company from PT IPC Sarinah Jaya. Market value according to fiscal of the land is
Rp27.565 juta. |

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53.
The balances of monetary assets and liabilities denominated in foreign currencies are as
follows:

Foreign		Foreign
currencies	Rupiah	currencies	Rupiah
(in thousands)	equivalent	(in thousands)	equivalent
Assets
Cash and cash equivalent
U.S. Dollar	89,948	846,480	83,182	810,611
Euro	39,681	451,743	61,504	723,848
Japanese Yen	1,689	145	62	5
Trade accounts receivable
Related parties
U.S. Dollar	12,801	119,644	210	2,049
Third parties
U.S. Dollar	8,452	79,242	24,964	243,276
Other accounts receivable
U.S. Dollars	11,944	92,995	924	9,000
Japanese Yen
French Franc	4,466	5,447
Netherland Guilder	756	2,745
Euro			15	179
Other current assets
U.S. Dollar	5,792	51,855	4,600	44,827
Euro
Advances and other non-current assets
U.S. Dollar	20,575	189,689	8,271	80,602
Escrow accounts
U.S. Dollar	70,875	624,298	7,995	77,915
Total Assets		2,464,283		1,992,312

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)

Foreign		Foreign
currencies	Rupiah	currencies	Rupiah
(in thousands)	equivalent	(in thousands)	equivalent
Liabilities
Trade accounts payable
Related parties
U.S. Dollar	77,410	728,105	14,505	141,572
Euro	1,009	11,491
Japanese Yen	266	23
Singapore Dollar	27	151
Third parties
U.S. Dollar	72,215	675,424	143,414	1,399,718
Euro	52,053	592,575	54,821	646,293
Great Britain Pound Sterling	88	1,495
Japanese Yen	13,634	1,183	10,664	943
Dutch Guilder			61	238
Singapore Dollar	1,471	6,639	789	4,574
Accrued expenses
U.S. Dollars	9,799	92,161	170	1,655
Japanese Yen	13,634	1,183	9,337	825
Singapore Dollar	1,471	6,639
French Franc			710	933
Great Britain Pound Sterling	88	1,495
Netherland Guilder			482	1,884
Euro	52,053	592,575
Short-term bank loans
Third parties
U.S. Dollar	82,254	773,528	53,460	521,770
Advances from customers
and suppliers
U.S. Dollar	45,972	432,367	767	7,491
Euro	12,549	143,079

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


Foreign			Foreign
currencies	Rupiah		currencies	Rupiah
(in thousands)	equivalent		(in thousands)	equivalent
Liabilities
(continued)
Current
maturities of long-term liabilities
U.S. Dollar	136,234	1,281,392	131,201	1,280,528
Euro	18,924	215,511	14,603	172,158
Japanese Yen	758,963	65,577	1,147	101,524
Long-term
liabilities
U.S. Dollar	633,865	5,962,631	708,639	6,916,320
Euro	56,399	642,271	28,358	334,316
Japanese Yen	16,482,995	1,424,185	14,952,453	1,321,884
Total
liabilities		13,058,555		12,854,467
Net
liabilities		(10,594,272	)	(10,862,155	)

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| 54. |
| --- |
| 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 accounting principles generally accepted 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 minimum limit (i.e. 12-month requirement) 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.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED 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, revenue-sharing arrangements are recorded in the same manner as
capital lease, whereas the property, plant and equipment, and obligation under
revenue-sharing arrangement presented in the balance sheet. Revenues originated from
the revenue-sharing arrangements are recorded as the component of operating revenues,
while a portion of investors share in revenue recorded as interest expense and the
balance is treated as a reduction of the obligation.
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 has been no
difference in equity since December 31, 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 estimated
remaining service period for active employees.
	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 expected average remaining service period.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

f.	Pension (continued)
	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 land rights is amortized over the economic useful life
which represents the contractual period of 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.

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (continued)

(1) Description of differences between Indonesian GAAP and U.S. GAAP (continued)

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 recognized
when the Company sells the card.
	Under U.S. GAAP, revenue from front-end fees and incremental costs up to, but not
exceeding such fees, are deferred and recognized over the expected term of the
customer relationship. 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 asset 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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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
	On May 17, 2001 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 since May 17, 2001.
	On December 14, 2004 the Company exercised the option to acquire the 9.86% interest
in Dayamitra.
	Under Indonesian GAAP, prior to December 14, 2004, the Company accounted for the
remaining 9.68% of Dayamitra as minority interest. In addition, the option price
that has been paid by the Company was presented as Advance payments for investments
in shares of stock. The Company started consolidating the remaining 9.68% of
Dayamitra on December 14, 2004 following the exercise of the option.
	The difference in the timing of the 9.68% ownership interest recognition gives rise
to differences in the timing and amounts of purchase consideration and liability
recognized under Indonesian GAAP and U.S. GAAP.
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 Companys 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 a long-lived assets are charged to current operations as incurred.

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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)

o.	Asset Retirement Obligations (continued)
	Under U.S. GAAP, the obligations are capitalized to the related long-lived assets and
depreciated over the useful life of the assets. The Company and its subsidiaries
identified their Asset Retirement Obligations by reviewing contractual agreements to
identify whether the Company and its subsidiaries are required to settle any
obligations as a result of the prevailing laws, statute, ordinance, written or by
legal construction of a contract under the doctrine of promissory estoppel.
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 U.S. GAAP, deferred taxes are recognized in full on temporary differences
between the financial statement carrying amounts and tax bases of equity method
investments.
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 asset is the 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 assets 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 or 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 Disposal of Property, Plant and Equipment
	Under Indonesian GAAP, the Company classifies gain (loss) on disposal of property,
plant and equipment as a component of other income (expense) which is excluded from
determination of operating income.

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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)

| r. |
| --- |
| Under U.S. GAAP, gain (loss) on disposal of property, plant and equipment is
classified as a component of operating expenses and hence included in the
determination of operating income. |

(2) A summary of the significant adjustments to consolidated net income for the six months period ended June 30, 2004 and 2005 and to consolidated stockholders equity as of June 30, 2004 and 2005 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below:

| Net income according to the consolidated
statements of income prepared under
Indonesian GAAP | | | 2,509,491 | | 3,703,193 | |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. GAAP adjustments increase
(decrease) due to: | | | | | | |
| Termination benefits | (a | ) | 84,598 | | 11,372 | |
| Capitalization of foreign exchange
differences, net of related depreciation of | (b | ) | 17,891 | | 38,129 | |
| Interest capitalized on property under
construction, net of related depreciation | (c | ) | 17,479 | | 13,738 | |
| Revenue-sharing arrangements | (d | ) | 181,090 | | 84,317 | |
| Pension | (f | ) | 156,935 | | 156,935 | |
| Equity in net income/ (loss) of associated
companies | (g | ) | (371 | ) | (46 | ) |
| Amortization of land rights | (h | ) | (6,884 | ) | (7,471 | ) |
| Depreciation of equipment to be installed | (i | ) | | | | |
| Revenue recognition | (j | ) | 14,835 | | (54,869 | ) |
| Goodwill | (k | ) | 10,635 | | 10,635 | |
| Capital leases | (l | ) | 12,442 | | 17,689 | |
| Adjustment for consolidation of Dayamitra | (m | ) | (21,856 | ) | (9,080 | ) |
| Asset retirement obligations | (o | ) | | | (424 | ) |
| Deferred income tax: | | | | | | |
| Deferred income tax on equity method
investments | (p | ) | | | | |
| Deferred income tax effect on U.S. GAAP
adjustments | | | (145,581 | ) | (91,371 | ) |
| | | | 321,213 | | 169,554 | |
| Minority interest | | | (9,116 | ) | (16,968 | ) |
| Net adjustments | | | 312,097 | | 152,586 | |
| Net income in accordance with U.S. GAAP | | | 2,821,588 | | 3,855,779 | |
| Net income per share | | | 139.96 | | 191.26 | |
| Net income per ADS (40 Series B shares per ADS) | | | 5,598.39 | | 7,650.36 | |

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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)

| Equity according to the consolidated balance sheets
prepared under Indonesian GAAP | | | 19,830,350 | | 20,985,174 | |
| --- | --- | --- | --- | --- | --- | --- |
| U.S. GAAP adjustments increase (decrease) due to: | | | | | | |
| Early retirement | (a | ) | 84,598 | | 11,372 | |
| Capitalization
of foreign exchange differences
net of related depreciation | (b | ) | (526,778 | ) | (510,758 | ) |
| Interest
capitalized on property under construction
net of related depreciation | (c | ) | 113,485 | | 142,352 | |
| Revenue-sharing arrangements | (d | ) | (266,605 | ) | (208,010 | ) |
| Revaluation of property, plant and equipment: | (e | ) | | | | |
| Increment | | | (664,974 | ) | (664,974 | ) |
| Accumulated depreciation | | | 664,974 | | 664,974 | |
| Pension | (f | ) | 279,091 | | 592,961 | |
| Equity in net income/ (loss) of associated companies | (g | ) | (18,623 | ) | (18,475 | ) |
| Amortization of landrights | (h | ) | (72,095 | ) | (86,589 | ) |
| Revenue recognition | (j | ) | (753,714 | ) | (769,259 | ) |
| Goodwill | (k | ) | 53,182 | | 74,444 | |
| Capital leases | (l | ) | 33,565 | | 35,377 | |
| Adjustment for consolidation of Dayamitra | (m | ) | (60,574 | ) | (70,806 | ) |
| Asset retirement obligations | (o | ) | (848 | ) | (2,120 | ) |
| Deferred income tax: | | | | | | |
| Deferred income tax on equity method investments | (p | ) | | | 39,344 | |
| Deferred income tax effect on U.S. GAAP
adjustments | | | 362,424 | | 301,664 | |
| | | | (772,892 | ) | (468,503 | ) |
| Minority interest | | | 56,805 | | (11,206 | ) |
| Net adjustments | | | (716,087 | ) | (479,709 | ) |
| Equity in accordance with U.S. GAAP | | | 19,114,263 | | 20,505,465 | |

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (continued)

(2)
The changes in stockholders equity in accordance with U.S. GAAP for the six months
period ended June 30, 2004 and 2005 are as follows:

Equity at beginning of year	16,284,692	19,570,912
Changes during the year:
Net income under U.S. GAAP	2,821,588	3,855,779
Dividends		(2,921,226	)
Unrealized gain on investment in securities	136
Other comprehensive income, net of tax	7,847
Equity at end of year	19,114,263	20,505,465

With regard to the consolidated balance sheets, the following significant captions determined under U.S. GAAP would have been:


Consolidated balance sheets
Current assets	11,565,742	10,791,854
Non-current assets	44,322,185	47,586,958
Total assets	55,887,927	58,378,812
Current liabilities	11,839,651	14,806,686
Non-current liabilities	21,078,322	17,939,388
Total liabilities	32,917,973	32,746,074
Minority interest in net assets of subsidiaries	3,855,691	5,127,273
Equity	19,114,263	20,505,465
Total liabilities and equity	55,887,927	58,378,812

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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. |
| --- |
| 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: |

| Consolidated income before tax in accordance
with U.S. GAAP | 5,538,127 | | 7,631,875 | |
| --- | --- | --- | --- | --- |
| Income tax in accordance with U.S. GAAP
at 30% statutory tax rate | 1,661,421 | | 2,289,545 | |
| Effect of non-deductible expenses (non-taxable income)
at the enacted maximum tax rate (30%) | | | | |
| Net periodic post-retirement benefit cost | 71,452 | | 42,143 | |
| Amortization of discount on promissory notes
and other borrowing costs | 13,576 | | 7,503 | |
| Employee benefits | 15,073 | | 7,950 | |
| Permanent differences of the KSO Units | 3,100 | | 3,742 | |
| Interest income subject to final tax | (22,353 | ) | (50,351 | ) |
| Equity in net (income) loss of associated
companies | (545,813 | ) | (780 | ) |
| Others | 139,031 | | 812,898 | |
| Total | (325,934 | ) | 823,105 | |
| Provision for income tax in accordance
with U.S. GAAP | 1,335,487 | | 3,112,650 | |

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

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. |
| --- |
| For the six months period ended June 30, 2004 and 2005, all of the Companys
operating revenues occurred in Indonesia, and accordingly, the Company has not been
subject to income tax in other countries. |


Deferred tax assets
Trade accounts receivable	145,200		226,942
Inventories	12,533		13,726
Provision for long service awards	154,503		162,525
Long-term investments			(20	)
Liabilities for acquisitions of subsidiaries and KSO IV	1,074,804		1,000,920
Provision for employee benefits	90,934		205,648
Others	239,598		59,715
Total	1,717,572		1,669,456
Deferred tax liabilities
Property, plant and equipment	(2,297,251	)	(1,973,285	)
Pension benefit costs	(51,321	)	3,706
Prepaid expenses and other receivables	(2,427,281	)	(2,542,518	)
Total	(4,775,853	)	(4,512,097	)
Total deferred tax liabilities net	(3,058,281	)	(2,842,641	)

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

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.
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.
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 9.63% and 8.04%, the average U.S.
Dollar borrowing rate of 1.21% and 2.23%, and the respective average borrowing
rates for 2004 and 2005 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 Companys 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 Companys long-term two-step loans at June 30, 2005
would decrease by Rp220,755 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 liabilities of acquisitions subsidiaries
and KSO IV are 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. |

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

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.
The estimated fair values of the Company and its subsidiaries financial instruments
are as follows:

amount	value
2004
Cash and cash equivalents	6,983,664	6,983,664
Short-term bank loans	773,595	773,595
Long-term liabilities:
Two-step loans	7,638,620	9,439,655
Guaranteed notes	758,232	952,298
Bonds	983,921	1,309,667
Bank loans	4,350,781	4,593,728
Liabilities for acquisitions of subsidiaries and KSO IV	4,489,491	5,056,265
Other	9150	9150
2005
Cash and cash equivalents	6,009,872	6,009,872
Short-term bank loans	791,738	791,738
Long-term liabilities:
Two-step loans	5,706,602	6,415,114
Bonds	989,207	1,200,074
Bank loans	2,361,873	2,465,455
Liabilities for acquisitions of subsidiaries and KSO IV	4,241,993	4,881,016
Medium-term notes	833,808	867,764

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.

b. Fair Value of Financial Instruments (continued)

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.

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

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 Rp6,172 million and Rp3,783 million in 2004 and 2005, respectively.
d.	Comprehensive Income

Net income under U.S. GAAP	2,821,588	3,855,779
Unrealized holding gain on available-for-sale securities	884	2,383
Foreign exchange translation of associates	3,754
	2,826,226	3,858,162

| | Adjustments to net income to arrive at comprehensive income include foreign currency
translation adjustments and unrealized holding gains (losses) of available-for-sale
securities. The foreign exchange translation of associates is reported net of income
tax of Rp3,754 million and nil for the six months period ended June 30, 2004 and
2005, respectively. |
| --- | --- |
| e. | Recent Accounting Pronouncements |
| | SFAS No. 154 Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3. In May 2005, FASB issued SFAS No. 154 which
establishes guidance on how the accounting for and reporting of accounting changes
and error corrections. It establishes, unless impracticable, retrospective
application as the required method for reporting a change in accounting principle in
the absence of explicit transition requirements specific to the newly adopted
accounting principle. SFAS No. 154 will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. |

55.
Certain accounts in the June 30, 2004 financial statements had been reclassified to conform to
the June 30, 2005 presentation.

131

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