PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK

6-K 1 u92815e6vk.htm PT TELEKOMUNIKASI INDONESIA PT Telekomunikasi Indonesia PAGEBREAK

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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 __, 2006

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 31, 2006	By	/s/ Harsya Denny Suryo
		(Signature)
		Harsya Denny Suryo
	Vice President Investor Relation & Corporate Secretary

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

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

AS OF JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

TABLE OF CONTENTS

PREFACE
CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, 2005 AND 2006	1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006	3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006	4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006	8

/TOC

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PREFACE

We are pleased to submit the un-audited Financial Statements of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk (unaudited) for the six months period ended June 30, 2006 and 2005 which consists of Consolidated Balance Sheets, Consolidated Statement of Income, Consolidated Statement of Changes in Equity and Statement of Cash Flows prepared in accordance with Generally Accepted Accounting Principles in Indonesia.

In compliance with the public companys obligation, we submit the Consolidated Financial Statements to inform the Companys financial performance, especially financial information for the first semester period in 2006.

We have restated certain accounts in the Consolidated Financial Statements for the six months period ended June 30, 2005, in relation with the changes of Indonesian accounting standard related to employee benefit (PSAK 24-Revised) and the changes in useful life of Wireless Local Loop (WLL) equipments based on the regulation related to restructuring frequencies spectrum in telecommunication industry.

In the first semester of 2006 we held Annual Shareholders General Meeting on June 30, 2006 which approved the audited Consolidated Financial Statements for the year 2005 and distribution net income.

The Company recorded consolidated Net Income of Rp5,819 billion where is increased by 53.00% compared to the same period in 2005. Consolidated Operating Income also increased by 33.66% from Rp8,089 billion to Rp10,812 billion.

Operating Revenues increased by 23,79% which was mainly resulted from the increase in Cellular, Interconnection, and Data and Internet of 47.34%, 13.34% and 33.83. respectively. On the other hand, fixed line revenue slightly decreased by 2.49% due to the slightly decrease in traffic for long distance calls. Operating Expenses increased by 16.73% mainly contributed by increase in Depreciation Expense, General and Administrative Expenses and Operation and Maintenance Expenses of 30.37%, 22.35% and 20.78%, respectively .

In the first semester of 2006, the appreciation of Rupiah to US Dollar has significant impact to the increase of Net Income, from Rp357 billion loss on foreign exchange in 2005 to Rp587 billion gain on foreign exchange in 2006.

On behalf of the Board of Directors, we would like to thank and appreciate all of TELKOM Group partners, who have supported us in achieving the result as presented in the Financial Report.

Bandung, July , 2006

ARWIN RASYID President Director/CEO

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PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

AS OF JUNE 30, 2005 AND 2006 (Figures in table are presented in millions of Rupiah and thousands of United States Dollars)

	Notes	2005 — Rp	2006 — Rp	US$ (Note 3)
		(As restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	2c,2f,6,46	6,009,872	9,346,253	1,008,824
Temporary investments	2c,2g,46	100,418	42,877	4,628
Trade accounts receivable	2c,2h,7,46
Related parties net of allowance for doubtful
accounts of Rp115,673 million in 2005
and Rp112,975 million in 2006		462,403	621,521	67,086
Third parties net of allowance for doubtful
accounts of Rp543,659 million in 2005
and Rp652,856 million in 2006		2,963,365	3,067,309	331,082
Other accounts receivable net of allowance for
doubtful accounts of Rp12,493 million in 2005
and Rp3,944 million in 2006	2c,2h,46	69,033	177,422	19,151
Inventories net of allowance for obsolescence of
Rp48,638 million in 2005 and Rp49,602
million in 2006	2i,8	139,680	178,441	19,261
Prepaid expenses	2c,2j,9,46	998,558	1,238,811	133,716
Prepaid taxes	40a	1,574	55,830	6,026
Other current assets	2c,10,46	45,808	155,018	16,733
Total Current Assets		10,790,711	14,883,482	1,606,507
NON-CURRENT ASSETS
Long-term investments net	2g,11	91,062	98,126	10,592
Property, plant and equipment net of accumulated
depreciation of Rp32,361,721 million in 2005
and Rp40,519,257 million in 2006	2k,12	40,989,777	47,066,592	5,080,316
Property,
plant and equipment under revenue
sharing arrangements net of accumulated
depreciation of Rp467,230 million in 2005
and Rp500,845 million in 2006	2m,13,49	440,456	512,838	55,355
Property, plant and equipment under capital lease
net of accumulated depreciation of Rp108,280
million in 2006	2l,12		155,716	16,808
Prepaid pension benefit cost	43	1,362	460	50
Advances and other non-current assets	2c,14,46	1,133,373	476,626	51,446
Goodwill and other intangible assets net of
accumulated amortization of Rp2,305,110
million in 2005 and Rp3,239,653 million in 2006	1c,2d,15	4,952,349	4,453,806	480,739
Escrow accounts	16	84,237	9,799	1,058
Total Non-current Assets		47,692,616	52,773,963	5,696,364
TOTAL ASSETS		58,483,327	67,657,445	7,302,871

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 BALANCE SHEETS (UNAUDITED) (continued) AS OF JUNE 30, 2005 AND 2006 (Figures in table are presented in millions of Rupiah and thousands of United States Dollars)

	Notes	2005 — Rp	2006 — Rp	US$ (Note 3)
		(As restated)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Trade accounts payable	2c,17,46
Related parties		707,462	757,987		81,816
Third parties		3,121,744	3,758,545		405,693
Other accounts payable		26,578	23,488		2,535
Taxes payable	2s,40b	1,433,424	1,986,462		214,417
Dividends payable		3,529,047	6,459,063		697,184
Accrued expenses	2c,18,46	1,286,390	2,092,779		225,892
Unearned income	19	1,210,464	1,902,520		205,356
Advances from customers and suppliers		281,147	271,031		29,255
Short-term bank loans	2c,20,46	791,738	17,100		1,846
Current maturities of long-term liabilities	2c,21,46	2,142,747	2,494,710		269,276
Total Current Liabilities		14,530,741	19,763,685		2,133,270
NON-CURRENT LIABILITIES
Deferred tax liabilities net	2s,40e	2,711,005	2,228,391		240,530
Unearned income on revenue-sharing arrangements	2m,13,49	321,661	369,433		39,876
Unearned initial investor payments under joint
operation scheme	2n,48	19,506	4,717		509
Provision for long service award	2c,2r,44,46	481,721	575,541		62,124
Provision for post-retirement health care benefits	2c,2r,45,46	2,947,126	2,928,934		316,146
Accrued pension and other post-retirement benefits costs	2r,43	1,400,080	1,229,987		132,763
Long-term liabilities net of current maturities
Obligation under capital lease			225,921		24,386
Two-step loans related party	2c,22,46	5,081,358	4,348,922		469,418
Notes and bonds	23	1,598,827	994,494		107,345
Bank loans	2c,24,46	1,826,436	1,905,074		205,632
Liabilities of business acquisitions	25	3,484,116	2,642,069		285,182
Total Non-current Liabilities		19,871,836	17,453,483		1,883,911
MINORITY INTEREST	26	5,128,664	6,140,456		662,794
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,27	5,040,000	5,040,000		544,012
Additional paid-in capital	28	1,073,333	1,073,333		115,854
Less: cost of treasury stock (55,443,500 shares)	29		(413,740	)	(44,659	)
Difference in value of restructuring transactions
between entities under common control	30		90,000		9,715
Difference due to change of equity in associated
companies		385,595	385,595		41,621
Unrealized holding gain available-for-sale securities	2g	2,383	1,597		172
Translation adjustment	2g	231,252	233,198		25,171
Retained earnings
Appropriated		1,803,397	1,803,397		194,657
Unappropriated		10,416,126	16,086,441		1,736,353
Total Stockholders Equity		18,952,086	24,299,821		2,622,896
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		58,483,327	67,657,445		7,302,871

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 STATEMENTS OF INCOME (UNAUDITED)

FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006 (Figures in table are presented in millions of Rupiah and thousands of United States Dollars, except per share and per ADS data)

	Notes	2005 — Rp	Rp		US$ (Note 3)
		(As restated)
OPERATING REVENUES
Telephone	2q,31
Fixed lines		5,473,578		5,337,166		576,088
Cellular		6,408,876		9,442,926		1,019,259
Interconnection	2q,32,46	3,632,302		4,116,689		444,351
Joint operation schemes	2n,33,48	316,188		302,789		32,683
Data and Internet	34	3,060,411		4,095,813		442,098
Network	35	194,046		295,059		31,848
Revenue-sharing arrangements	2m,36,49	101,182		203,518		21,967
Other telecommunications services		198,007		202,585		21,867
Total Operating Revenues		19,384,590		23,996,545		2,590,161
OPERATING EXPENSES
Personnel	37	3,523,483		3,497,333		377,498
Depreciation	2k,2l,2m,12,13	3,303,568		4,306,831		464,875
Operations, maintenance and telecommunication
services	38	2,795,867		3,376,910		364,500
General and administrative	39	1,223,321		1,496,738		161,556
Marketing		449,239		507,013		54,727
Total Operating Expenses		11,295,478		13,184,825		1,423,156
OPERATING INCOME		8,089,112		10,811,720		1,167,005
OTHER INCOME (CHARGES)
Interest income		136,178		325,992		35,187
Interest expense		(647,594	)	(585,803	)	(63,231	)
Gain (loss) on foreign exchange net	2e	(357,003	)	586,597		63,317
Equity in net income (loss) of associated companies	2g,11	6,792		(3,218	)	(347	)
Others net		265,947		52,119		5,626
Other income (charges) net		(595,680	)	375,687		40,552
INCOME BEFORE TAX		7,493,432		11,187,407		1,207,557
TAX EXPENSE	2s,40c
Current tax		(2,545,814	)	(3,636,860	)	(392,559	)
Deferred tax		216,485		166,084		17,927
		(2,329,329	)	(3,470,776	)	(374,632	)
INCOME BEFORE MINORITY INTEREST IN NET
INCOME OF SUBSIDIARIES		5,164,103		7,716,631		832,925
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES	26	(1,360,692	)	(1,897,671	)	(204,833	)
NET INCOME		3,803,411		5,818,960		628,092
BASIC EARNINGS PER SHARE	2t,41
Net income per share		188.66		288.71		31.16
Net income per ADS
(40 Series B shares per ADS)		7,546.45		11,548.30		1,246.51

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, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

				Difference in
				value of
				restructuring	Difference
				transactions	due to change	Unrealized
			Additional	between entities	of equity	holding gain (loss)					Total
		Capital	paid-in	under common	in associated	on available-for-sale	Translation	Retained earnings			stockholders
Description	Notes	stock	capital	control	companies	securities	adjustment	Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp	Rp	Rp		Rp
Balance as of January 1, 2005, as previously reported		5,040,000	1,073,333	(7,288,271	)	385,595	884	229,595	1,680,813	19,139,393		20,261,342
Difference in value of transactions between entities
under common control				7,288,271						(7,288,271	)
Cummulative effect due to change in accounting policy-accounting for employee benefits,
net of tax effect
of Rp2,133,305 million										(2,133,305	)	(2,133,305	)
Balance as of January 1, 2005, as restated		5,040,000	1,073,333			385,595	884	229,595	1,680,813	9,717,817		18,128,037
Unrealized
holding gain (loss) on available-for-sale securities	2g						1,499					1,499
Foreign currency translation of CSM	2g							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										(61,292	)	(61,292	)
Net income for the year										3,803,411		3,803,411
Balance as of June 30, 2005, as restated		5,040,000	1,073,333			385,595	2,383	231,252	1,803,397	10,416,126		18,952,086

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, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)


					value of
					restructuring	Difference
					transactions	due to change	Unrealized
			Additional		between entities	of equity	holding gain (loss)							Total
		Capital	paid-in		under common	in associated	on available-for-sale		Translation		Retained earnings			stockholders
Description	Notes	stock	capital	Treasury stock	control	companies	securities		adjustment		Appropriated	Unappropriated		equity
		Rp	Rp	Rp	Rp	Rp	Rp		Rp		Rp	Rp		Rp
Balance as of January 1, 2006		5,040,000	1,073,333			90,000	385,595	(748	)	233,253		1,803,397	14,667,571		23,292,401
Unrealized holding gain (loss) on
available-for-sale securities	2g							2,345							2,345
Foreign currency translation of CSM	2g,11									(55	)				(55	)
Cash receipts from compensation for early
termination of exclusive rights
Resolved during the Annual General Meeting
of the Stockholders on June 30, 2006
Declaration of cash dividends	42												(4,400,090	)	(4,400,090	)
Treasury stock acquired at cost	29			(413,740	)										(413,740	)
Net income for the year													5,818,960		5,818,960
Balance as of June 30, 2006		5,040,000	1,073,333	(413,740	)	90,000	385,595	1,597		233,198		1,803,397	16,086,441		24,299,821

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 STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah and thousands of United States Dollars)

Rp		Rp		US$ (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from operating revenues
Telephone
Fixed lines	5,820,641		5,930,123		640,091
Cellular	6,495,248		9,032,754		974,986
Joint operation schemes	305,749		268,756		29,009
Interconnection net	3,018,150		4,216,705		455,146
Other services	3,622,348		4,587,909		495,214
Total cash receipts from operating revenues	19,262,136		24,036,247		2,594,446
Cash payments for operating expenses	(7,679,669	)	(7,347,101	)	(793,038	)
Cash generated from operations	11,582,467		16,689,146		1,801,408
Interest received	136,685		305,193		32,942
Income tax paid	(2,754,115	)	(3,864,969	)	(417,181	)
Interest paid	(550,979	)	(519,651	)	(56,091	)
Cash receipt (refund) from (to) customers and advances	(14,612	)	103,495		11,171
Net Cash Provided by Operating Activities	8,399,446		12,713,214		1,372,249
CASH FLOWS FROM INVESTING ACTIVITIES
(Placement) Proceed of time deposits and
short-term investments net	(80,468	)	(18,468	)	(1,993	)
Proceeds from sale of property, plant and equipment	80,117		2,027		219
Acquisition of property, plant and equipment	(4,808,148	)	(7,334,216	)	(791,647	)
(Increase) decrease in advance for acquisition of
property, plant and equipment	261,990		(78,071	)	(8,427	)
Decrease (increase) in advances and others	(7,355	)	74,372		8,028
Acquisition of intangible assets			(436,000	)	(47,061	)
Net Cash Used in Investing Activities	(4,553,864	)	(7,790,356	)	(840,881	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Medium-term Notes	(290,000	)	(145,000	)	(15,651	)
Repayments of long-term liabilities	(2,054,601	)	(1,230,711	)	(132,842	)
Repayment of obligation under capital lease			(6,588	)	(711	)
Cash dividends paid	(554,550	)
(Increase) decrease in escrow accounts	(47,956	)	122,698		13,244
Redemption of Telkomsels notes	(780,565	)
Payment for purchase of treasury stock			(413,740	)	(44,659	)
Proceeds from borrowings	1,018,546		785,195		84,753
Net Cash Used in Financing Activities	(2,709,126	)	(888,146	)	(95,866	)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS	1,136,456		4,034,712		435,502
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS	17,292		(63,143	)	(6,816	)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR	4,856,124		5,374,684		580,138
CASH AND CASH EQUIVALENTS AT END OF YEAR	6,009,872		9,346,253		1,008,824

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, 2005 AND 2006 (Amounts in millions)

Rp	Rp	US$ (Note 3)
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities:
Increase in property under construction through
the incurrence of long-term debts	281,722	42,284	29
Payment of insurance premium through
the incurrence of long-term debts	60,455		6
Acquisition of subsidiary through the issuance of
Promissory Notes

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

JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006 (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. 4 dated April 6, 2006, of Notary A.
Partomuan Pohan, S.H., LLM., among others, to amend the directors authorities and
responsibilities. |
| 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. |

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 1995, 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).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006 (Figures in tables are presented in millions of Rupiah, unless otherwise stated)

GENERAL (continued)

| a. |
| --- |
| 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 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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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 (Note 30). |
| 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 May 13, 2004, pursuant to the Ministry of Communications Decree No. KP. 162/2004, the
Company was granted a commercial license to provide International Direct Dialing (IDD)
services. |
| Based on the resolution of the Annual General Meeting of Stockholders, the minutes of which
have been summarized by deed No. 36 dated June 24, 2005 of A. Partomuan Pohan, S.H., LLM.,
the composition of the Companys Board of Commissioners and Board of Directors as of June
30, 2005 and 2006 were 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 and Solution	:	Abdul Haris
Director of Enterprise and Wholesale	:	Arief Yahya
Director of Human Resources	:	John Welly
Director of Consumer	:	Guntur Siregar

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GENERAL (continued)

a.	Establishment and General Information (continued)
	As of June 30, 2005 and 2006, the Company had 28,318 employees and 27,922 employees,
respectively, while the subsidiaries had 5,475 employees and 6,039 employees,
respectively.
b.	Public offering of shares of the Company
	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, 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.
	On July 30, 2004, 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.

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GENERAL (continued)

b.	Public offering of shares of the Company (continued)
	Based on the resolution of the Extraordinary General Meeting of Stockholders on December
21, 2005, the Stockholders authorized the plan to repurchase up to a maximum of 5% of the
Companys issued and outstanding Series B shares for a total repurchase amount not
exceeding Rp5,250,000 million. As of July 20, 2006, the Company has repurchased 72,964,500
shares of the Companys issued and outstanding Series B shares, representing less than
0.5% of the Companys issued and outstanding Series B shares, for a total repurchase
amount of Rp519,886 million.
	As of June 30, 2006, all of the Companys Series B shares were listed on the Jakarta Stock
Exchange and Surabaya Stock Exchange and 37,241,194 ADS shares were outstanding on either
the New York Stock Exchange or London Stock Exchange.
c.	Subsidiaries
	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	2005	2006	Operations	2005	2006
			%	%
PT Pramindo Ikat Nusantara	Medan	Telecommunications construction & services	100	100	1995	1,411,755	1,349,595
PT AriaWest International	Bandung	Telecommunications	100	100	1995	1,206,365	954,776
PT Multimedia Nusantara	Jakarta	Multimedia	100	100	1998	27,073	60,349
PT Graha Sarana Duta	Jakarta	Real estate, construction and services	100	100	1982	87,520	117,889
PT Dayamitra
Telekomunikasi	Balikpapan	Telecommunications	100	100	1995	738,058	548,057
PT Indonusa Telemedia	Jakarta	Pay TV	90	96	1997	67,013	61,679
PT Telekomunikasi
Selular	Jakarta	Telecommunications	65	65	1995	22,261,045	31,526,321
PT Napsindo
Primatel Internasional	Jakarta	Telecommunications	60	60	1999	23,027	5,612
PT Infomedia Nusantara	Jakarta	Data and information service	51	51	1984	327,604	399,396
		System information

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GENERAL (continued)

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

			Nature of	Ownership — Percentage		Start of — Commercial
Indirect Subsidiaries	Stockholders	Domicile	Business	2005	2006	Operations
				%	%
Telekomunikasi Selular
Finance Limited	PT Telekomunikasi Selular	Mauritius	Fund raising	100	100	2002
Telkomsel Finance B.V.	PT Telekomunikasi Selular	Netherlands	Finance		100	2005
Aria West International
Finance B.V.	PT AriaWest International	Netherlands	Finance	100	100	1996
PT Balebat Dedikasi
Prima	PT Infomedia Nusantara	Bogor	Printing	51	51	2000
PT Finnet Indonesia	PT Multimedia Nusantara	Jakarta	Banking data and communication		60	2006

| PT Pramindo Ikat Nusantara (Pramindo) |
| --- |
| Pramindo is the investor in KSO I, 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. The Company acquired control of
Pramindo on August 15, 2002, the date when the Company entered into a Stockholders Voting
Agreement pursuant to which the Company obtained the right to vote all Pramindos shares
and the right to nominate all the members of the Board of Directors and Board of
Commissioners of Pramindo. |
| PT AriaWest International (AWI) |
| AWI is the investor in KSO III, 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 5b). |

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GENERAL (continued)

| c. |
| --- |
| PT Multimedia Nusantara (Metra) |
| Metra is engaged in providing multimedia telecommunications services. |
| On July 21, 2005, the annual general meeting of stockholders of Metra resolved to issue
additional share capital totaling Rp26,000 million to the Company. The Company paid the
entire amount on October 21, 2005. |
| PT Graha Sarana Duta (GSD) |
| GSD is currently engaged primarily in leasing of offices as well as providing building
management and maintenance services, civil consultant and developer. |
| 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). |
| PT Dayamitra Telekomunikasi (Dayamitra) |
| Dayamitra is the investor in KSO VI, the joint operating scheme that provides
telecommunications services in Kalimantan. The Companys acquisition of a 90.32% ownership
interest in Dayamitra was effective on May 17, 2001, the date when the Deed of Share
Transfer was signed. The Company also entered into an Option Agreement to acquire the
remaining 9.68% interest from the selling stockholders. On December 14, 2004, the Company
exercised the option to acquire the remaining 9.68% outstanding shares of Dayamitra by
entering into a Sale and Purchase Agreement with TM Communications (HK) Ltd. (Note 5a). |
| PT Indonusa Telemedia (Indonusa) |
| Indonusa is engaged in providing pay television and content 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%. |
| The Company purchased 5.29% of Indonusas shares from PT Megacell Media for Rp4,000
million, thereby increasing the Companys ownership interest from 90.39% to 95.68% after
the settlement of payment on November 22, 2005. |

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GENERAL (continued)

| c. |
| --- |
| 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$429.0 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 from 32% to 60% after the settlement of payment on January 28, 2003. As
of June 30, 2006 the Napsindos operation has been frozen. |
| 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. |
| 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. |

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GENERAL (continued)

c.	Subsidiaries (continued)
	Telkomsel Finance B.V. (TFBV)
	TFBV, a wholly owned subsidiary of Telkomsel, was established in Amsterdam (the
Netherlands) on February 7, 2005, for the purpose of borrowing, lending and raising funds,
including issuance of bonds, promissory notes or debt instruments.
	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.
	PT Finnet Indonesia (Finnet)
	Finnet is a company established in January 2006 that engaged in banking data and
communication. The issued capital is 60% owned by Metra.
d.	Authorization of the financial statements
	The consolidated financial statements were authorized for issue by the Board of Directors
on July 31, 2006 .

| 2. |
| --- |
| The consolidated financial statements of the Company and subsidiaries have been prepared in
accordance with accounting principles generally accepted in Indonesia (Indoesian GAAP).
Indonesian GAAP varies in certain significant respects from 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 55. |

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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. Intangible assets acquired in a purchase business combination are
amortized over their respective contractual lives. 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 Company continually assesses whether events or changes in circumstances have occurred
that would require revision of the remaining estimated useful life of intangible assets
and goodwill, or whether there is any indication of impairment. If any indication of
impairment exists, the recoverable amount of intangible assets and 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.
	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 (see Note 4).

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 liability 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 Rp9,745 and Rp9,760 to US$1 as of
June 30, 2005, and Rp9,262 and Rp9,267 to US$1 as of June 30, 2006.
	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.
g.	Investments

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

| iii. |
| --- |
| 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 guaranteed obligations of the associated company or committed to provide
further financial support to 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. |
| 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. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Investments (continued)

| iv. |
| --- |
| 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. 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
Property, Plant 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.
j.	Prepaid expenses
	Prepaid expenses are amortized over their beneficial periods using the straight-line
method.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

k.
Property, plant and equipment directly acquired are stated at cost, except for certain
revalued assets, less accumulated depreciation and impairment losses.
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. |
| 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 to which it
relates. 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. |

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 at least 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.
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.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n.	Joint operation schemes (continued)
	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.	Treasury Stock
	Treasury stock is stated at acquisition cost and is shown under the Stockholders Equity
section of the consolidated balance sheets. The cost of treasury stock resold is
determined by the weighted average method. The difference between the cost of treasury
stock resold and the selling price is debited/credited to Additional Paid-in Capital.
q.	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:

| 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. |

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Revenue and expense recognition (continued)

| 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.
r.	Employee benefits

i.	Pension and post-retirement health care benefit plans
	The Companys net obligations in respect of the defined pension benefit and
post-retirement health care benefit plans are calculated at the 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.
ii.	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.
iii.	Early retirement benefits
	Early retirement benefits are accrued at the time the Company makes a commitment to
provide early retirement benefits as a result of an offer made in order to encourage
voluntary redundancy. The Company is demonstrably committed to a termination when,
and only when, the Company has a detailed formal plan for the early retirement and is
without realistic possibility of withdrawal.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 carryforwards, 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. Net income per ADS is computed by multiplying basic
earnings per share by 40, the number of shares represented by each ADS.
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.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

| w. |
| --- |
| 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.	TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS
	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
Rp9,264 to US$1 published by Reuters on June 30, 2006. 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.
4.	CHANGES IN METHODS OF ACCOUNTING

| a. |
| --- |
| In June 2004, the Indonesian Financial Accounting Standards Board issued PSAK No. 24
(Revised 2004), Employee Benefits (PSAK 24R), which is a revision of PSAK No. 24,
Accounting for Pension Benefits. PSAK 24R changes, for the Company, the method of
accounting for its employee benefit plans by requiring the vested portion of prior service
cost be immediately recognized and that the cumulative unrecognized actuarial gain or loss
exceeding ten percent of the greater of the present value of the projected benefit
obligation and the fair value of plan assets be amortized over the expected average
remaining working lives of the employees participating in the plan. |
| PSAK 24R requires the Company to adopt its provisions retrospectively as of January 1,
2004, (the Transition Date) by way of the recognition of: (i) a liability computed in
accordance with the provisions of PSAK 24R determined as of the Transition Date (the
Transition Liability) and (ii) the difference between the Transition Liability and the
liability previously recognized for employee benefits as of the same date pursuant to then
in effect accounting standards, as a cumulative effect of a change in method of accounting
in stockholders equity. Accordingly, the Company has restated its accompanying
consolidated balance sheet as of the Transition Date by increasing its liability for
employee benefits previously reported by Rp3,218,724 million with a corresponding decrease
in consolidated stockholders equity of Rp2,618,665 million, net of tax of Rp600,059
million. The adoption of PSAK 24R in 2005, has resulted in an increase to previously
reported net income for the six months period ended June 30, 2005 in the amount of
Rp179,733 million, net of tax of Rp41,988 million. |

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CHANGES IN METHODS OF ACCOUNTING (continued)

b.	The changes of estimated useful life of WLL equipments
	In 2005, the Government of Indonesia, in its efforts to rearrange the frequency spectra
utilized by telecommunications industry, issued a series of regulations which caused the
Company no longer be able to utilize certain frequency spectra it currently uses to
support its fixed wireline cable network by the end of 2006. As a result of these
regulations, certain of the Companys cable network facilities, which primarily comprise
of Wireless Local Loop (WLL) and Approach Link equipment, operating in the affected
frequency spectra can no longer be used by the end of 2006.
	Following the Governments decisions, at the end of 2005 the Company assess the useful
life and resulted to change the estimated remaining useful lives of WLL and Approach Link
equipment included in cable network and the Jakarta and West Java BSS equipment included
in transmission installation and equipment to have been fully depreciated by December 31,
2006 and June 30, 2007, respectively. The change has resulted in an decrease to
previously reported net income for the six months period ended June 30, 2005 in the amount
of Rp79,515 million, net of tax of Rp34,078 million.
c.	Restructuring Transactions Between Entities Under Common Control
	In July 2004, the Indonesian Financial Accounting Standards Board issued PSAK No. 38
(Revised 2004), Accounting for Restructuring Transactions between Entities under Common
Control, (PSAK 38R). PSAK 38R changes the Companys method of accounting for previously
recorded restructuring transactions between entities under common control when certain
conditions are met. The provisions of PSAK 38R were effective for the Company beginning
January 1, 2005, the initial application date.
	Pursuant to a ruling issued by the Indonesian Capital Market and Financial Institution
Supervisory Agency (BAPEPAM) regarding the initial application of PSAK 38R by public
entities, the Company is required to reclassify the previously recorded difference in
value of restructuring transactions between entities under common control as a direct
adjustment to retained earnings as of the initial application date when the common control
relationship between the transacting parties no longer exists as of January 1, 2005.
	As discussed in Note 30, the difference in value of restructuring transactions between
entities under common control as of January 1, 2005 amounting to Rp7,288,271 million arose
from transactions between the Company and Indosat, which at the time of the transactions
was also controlled by the Government and therefore was an entity under common control
with the Company. This common control relationship ceased to exist in December 2002 when
the Government sold its 41.94% ownership interest in Indosat to STT Communications Ltd.
(STTC) and waived its special voting rights with respect to the Series A Dwiwarna share.
In accordance with the BAPEPAM ruling, the Company has reclassified the difference in
value of restructuring transactions between entities under common control resulting from
the cross-ownership transactions and acquisition of Pramindo as a charge to retained
earnings as of January 1, 2005. This reclassification has no effect on net consolidated
stockholders equity.

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CHANGES IN METHODS OF ACCOUNTING (continued)

The effects of this restatement on previously reported consolidated financial statements as of and for the six months period ended June 30, 2005 for the application of PSAK 24R, changes in the estimated useful life of WLL equipments and Restructuring Transactions Between Entities Under Common Control is summarized below. This restatement had no net effect on previously reported net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities in the consolidated statements of cash flows.

Reported		As Restated
Balance sheet:
Assets:
Property, plant and equipment	41,103,370		40,989,777
Prepaid pension benefit costs	43,020		1,362
Total non-current assets	47,847,867		47,692,616
Total assets	58,638,578		58,483,327
Liabilities:
Accrued expenses	1,343,184		1,286,390
Total current liabilities	14,587,535		14,530,741
Deferred income tax liabilities net	3,127,699		2,711,005
Accrued long service awards	569,599		481,721
Accrued post-retirement health care benefits	1,886,327		2,947,126
Accrued pension and other post-retirement benefits costs	21,677		1,400,080
Total non-current liabilities	17,937,206		19,871,836
Total liabilities	32,524,741		34,402,577
Stockholders equity:
Difference in value of restructuring transactions between
entities under common control	(7,288,271	)
Retained earnings unappropriated	19,737,484		10,416,126
Total stockholders equity	20,985,173		18,952,086
Statement of income:
Operating expenses depreciation	3,189,975		3,303,568
Operating expenses personnel	3,745,204		3,523,483
Total operating expenses	11,403,606		11,295,478
Operating income	7,980,984		8,089,112
Income before tax	7,385,304		7,493,432
Tax expense	(2,321,419	)	(2,329,329	)
Net income	3,703,193		3,803,411
Net income per share in full Rupiah amount	183.69		188.66
Net income per ADS in full Rupiah amount	7,347.73		7,546.45

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

ACQUISITION OF KSO INVESTORS AND KSO IV

a.
In connection with the acquisition of 90.32% of the shares of Dayamitra on May 17, 2001,
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. |
| 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. |
| 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 then 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 net income would not have been significantly different from the reported
amounts. |

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

a. Dayamitra (continued)

As of June 30, 2005 and 2006, the remaining option strike price to be paid to TMC, before unamortized discount, amounted to US$15.0 million (equivalent Rp146,664 million) and nil (Note 25). As of March 27, 2006, the option strike price has been fully repaid.

| 2. |
| --- |
| 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. |
| --- |
| 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. |
| 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 then 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. |

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

ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

b.	AWI (continued)
	The outstanding promissory notes issued for the acquisition of AWI are presented as
Liabilities of business acquisitions in the consolidated balance sheets as of June 30,
2005 and 2006 (Note 25). As of June 30, 2005 and 2006, the outstanding promissory notes,
before unamortized discount, amounted to US$87.2 million (Rp851,782 million) and US$62.2
million (Rp567,288 million), respectively.
	The allocation of the acquisition cost described above was based on an independent
appraisal of fair values.
c.	Amendment of the Joint Operation Scheme in Regional Division IV (KSO IV)
	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 telecommunications services are transferred to
the Company, where KSO IV is operated under the management, supervision, control and
responsibility 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.

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ACQUISITION OF KSO INVESTORS AND KSO IV (continued)

| c. |
| --- |
| 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

| 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, 2005 and 2006, the remaining monthly payments to be made to MGTI, before
unamortized discount, amounted to US$428.3 million (Rp4,180,533 million) and US$357.3
million (Rp3,311,022 million) and is presented as Liabilities of business acquisitions
(Note 25). |

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

CASH AND CASH EQUIVALENTS

Cash on hand	27,385	29,407
Cash in banks
Related parties
Rupiah
Bank Mandiri	98,599	81,334
Bank Negara Indonesia	265,130	50,530
Bank Rakyat Indonesia	9,104	1,414
Bank Pos Nusantara	1,404	1,929
Total	374,237	135,207
Foreign currencies
Bank Mandiri	101,325	47,686
Bank Negara Indonesia	2,042	4,755
Bank Rakyat Indonesia	649	622
Total	104,016	53,063
Total related parties	478,253	188,270
Third parties
Rupiah
ABN AMRO Bank	105,728	108,837
Bank Bukopin	1,564	12,772
Bank Central Asia	5,612	10,686
Deutsche Bank	21,710	5,363
Lippo Bank	1,548	4,587
Citibank NA	324	2,034
Bank Niaga	1,762	512
Bank Danamon	552	375
Bank Mega	683	293
Bank Bumi Putra Indonesia		95
Bank Internasional Indonesia	1,517	14
Bank Buana Indonesia	1,216	3
Bank Muamalat Indonesia	75
Total	142,291	145,571
Foreign currencies
Citibank NA	6,619	5,413
Deutsche Bank	3,384	1,345
ABN AMRO Bank	109	135
Standard Chartered Bank	98	94
Bank Internasional Indonesia	14	87
Bank Daichi		59
Bank Central Asia	98	30
The Bank of Tokyo Mitsubishi	15
Total	10,337	7,163
Total third parties	152,628	152,734
Total cash in banks	630,881	341,004

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CASH AND CASH EQUIVALENTS (continued)


Time deposits
Related parties
Rupiah
Bank Mandiri	1,252,071	1,835,858
Bank Negara Indonesia	343,640	1,551,285
Bank Rakyat Indonesia	347,165	573,035
Bank Tabungan Negara	80,155	201,290
Total	2,023,031	4,161,468
Foreign currencies
Bank Mandiri		716,600
Bank Negara Indonesia	100	5,192
Total	100	721,792
Total related parties	2,023,131	4,883,260
Third parties
Rupiah
Standard Chartered Bank	520,220	949,900
Deutsche Bank	810,500	699,240
Bank Niaga	108,520	183,700
Citibank NA		152,350
The Hongkong and Shanghai Banking Corporation		150,000
Bank Jabar	87,080	137,860
Bank Mega	76,145	97,975
Bank Danamon	61,535	96,215
Bank Bukopin	75,135	95,470
Bank NISP	64,070	44,015
Bank BTPN	61,955	43,330
Bank Syariah Mega Indonesia	10,000	14,265
Bank Muamalat Indonesia	9,000	21,085
Bank Yudha Bhakti		8,000
Bank Permata		2,000
Bank Nusantara Parahyangan		1,000
Bank Bumi Putra Indonesia	18,303
Bank Internasional Indonesia	6,000
Total	1,908,463	2,696,405
Foreign currencies
Deutsche Bank	1,231,483	1,396,177
The Hongkong and Shanghai Banking Corporation	188,529
Total	1,420,012	1,396,177
Total third parties	3,328,475	4,092,582
Total time deposits	5,351,606	8,975,842
Total cash and cash equivalents	6,009,872	9,346,253

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

Rupiah	4.00% - 7.86 %	4.50% - 12.50 %
Foreign currencies	0.65% - 2.50 %	3.25% - 3.50 %

| | 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. |
| 7. | TRADE ACCOUNTS RECEIVABLE |
| | Trade accounts receivable from related parties and third parties arise from services provided
to both retail and non-retail customers. |

a.
Related parties:

Government agencies	364,016		542,090
KSO Units	150,211		147,190
PT Citra Sari Makmur	1,314		22,186
PT Patra Telekomunikasi Indonesia			9,071
PT Aplikanusa Lintasarta	3		3
Others	62,532		13,956
Total	578,076		734,496
Allowance for doubtful accounts	(115,673	)	(112,975	)
Net	462,403		621,521

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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TRADE ACCOUNTS RECEIVABLE (continued)

a.
Third parties:

Residential and business subscribers	3,256,748		3,398,431
Overseas international carriers	250,276		321,734
Total	3,507,024		3,720,165
Allowance for doubtful accounts	(543,659	)	(652,856	)
Net	2,963,365		3,067,309

b.
Related parties:

Up to 6 months	415,934		562,720
7 to 12 months	45,950		34,229
13 to 24 months	85,369		79,383
More than 24 months	30,823		58,164
Total	578,076		734,496
Allowance for doubtful accounts	(115,673	)	(112,975	)
Net	462,403		621,521

Third parties:

Up to 3 months	1,875,396		2,977,468
More than 3 months	1,631,628		742,697
Total	3,507,024		3,720,165
Allowance for doubtful accounts	(543,659	)	(652,856	)
Net	2,963,365		3,067,309

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TRADE ACCOUNTS RECEIVABLE (continued)

c.
Related parties

Rupiah	576,027		710,551
United States Dollar	2,049		23,945
Total	578,076		734,496
Allowance for doubtful accounts	(115,673	)	(112,975	)
Net	462,403		621,521

Third parties

Rupiah	3,263,748		3,414,673
United States Dollar	243,276		305,492
Total	3,507,024		3,720,165
Allowance for doubtful accounts	(543,659	)	(652,856	)
Net	2,963,365		3,067,309

d. Movements in the allowance for doubtful accounts

Beginning balance	522,066		685,668
Additions	220,725		268,331
Bad debts write-off	(83,459	)	(188,168	)
Ending balance	659,332		765,831

| 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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INVENTORIES

Components	44,059		43,422
Allowance for obsolescence	(10,992	)	(8,107	)
Net	33,067		35,315
Modules	98,705		103,251
Allowance for obsolescence	(37,451	)	(41,305	)
Net	61,254		61,946
SIM cards, RUIM cards and prepaid voucher blanks	45,554		81,370
Allowance for obsolescence	(195	)	(190	)
Net	45,359		81,180
Total	139,680		178,441

Movements in the allowance for obsolescence are as follows:

Beginning balance	53,719		48,347
Additions	787		1,304
Inventory write-off	(5,868	)	(49	)
Ending balance	48,638		49,602

| Management believes that the allowance is adequate to cover probable losses from decline in
inventory value due to obsolescence. |
| --- |
| At June 30, 2006, inventory held by a certain subsidiary was insured against fire, theft and
other specified risks for US$0.6 million. Management believes that the insurance amount is
adequate to cover such risks. |

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PREPAID EXPENSES

Rental	584,621	892,829
Salary	308,352	264,258
Insurance	14,058	17,469
Telephone directory issuance cost		30,675
Other	91,527	33,580
Total	998,558	1,238,811

OTHER CURRENT ASSETS

Bank Mandiri	44,827	155,018
Deutsche Bank and Citibank	981
Total	45,808	155,018

| As of June 31, 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 20c)
and Rp981 million pledged as collateral for bank guarantees. |
| --- |
| As of June 30, 2006, the balance consists of the Companys time deposits of US$13.6 million
(Rp126,003 million) and Rp29,015 million pledged as collateral for bank guarantees. |

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LONG-TERM INVESTMENTS


Percentage
of	Opening	Addition /	Equity in	Translation	Ending
Ownership	Balance	(Deduction)	Net Income	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:
Bridge Mobile Pte. Ltd.	14.29	9,290				9,290
PT Batam Bintan Telekomunikasi	5.00	587				587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199				199
PT Mandara Selular Indonesia	3.13
		10,076				10,076
		82,613		6,792	1,657	91,062


Percentage
of	Opening		Equity in		Translation		Ending
Ownership	Balance	Addition	Net Income		Adjustment		Balance
Equity method:
PT Citra Sari Makmur	25.00	66,254		(2,052	)	(55	)	64,147
PT Patra Telekomunikasi Indonesia	40.00	25,070		(1,167	)			23,903
PT Pasifik Satelit Nusantara	22.38
		91,324		(3,219	)	(55	)	88,050
Cost method:
Bridge Mobile Pte. Ltd.	12.50	9,290						9,290
PT Batam Bintan Telekomunikasi	5.00	587						587
PT Pembangunan Telekomunikasi
Indonesia	3.18	199						199
		10,076						10,076
		101,400		(3,219	)	(55	)	98,126

a.
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, 2005 and 2006, the carrying amount of investment in CSM was equal to the
underlying equity in net assets of CSM.

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LONG-TERM INVESTMENTS (continued)

b.	PT Patra Telekomunikasi Indonesia (Patrakom)
	Patrakom is engaged in providing satellite communication system services, related services
and facilities to companies in the petroleum industry.
	On August 26, 2005, the Company purchased 10% of Patrakoms outstanding shares
from Indosat for Rp4,250 million, thereby increasing the Companys ownership interest
from 30% to 40%.
	As of June 30, 2005 and 2006, the carrying amount of investment in Patrakom was
approximate 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 December 31, 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 Companys 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 2005, the Companys ownership interest was diluted to 35.5% as a result of debt to
equity conversions consummated by PSN.
	On January 20, 2006, PSNs stockholders agreed to issue new shares to a new stockholder.
The issuance of new shares resulted in dilution of the Companys interest in PSN to 22.38%
d.	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 (Rp9,290 million) which represents a 14.286% ownership
interest.
	On April 14, 2005, Telkomsels ownership interest was diluted to 12.50% following issuance
of new shares by Bridge Mobile Pte. Ltd to a new stockholder.

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LONG-TERM INVESTMENTS (continued)

e.	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.
f.	PT Pembangunan Telekomunikasi Indonesia (Bangtelindo)
	Bangtelindo is primarily engaged in providing consultancy services on the installation and
maintenance of telecommunications facilities.
g.	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 zero because the
Companys share of loss exceeded the carrying amount of investment in Mobisel.
	In July 2003 and January 2004, Mobisel carried out a series of debt to equity conversions
resulting in dilution of the Companys ownership interest to 6.4%.
	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 27, 2005, the Companys ownership interest was further diluted to 1.33% following
the issuance of 1,179,418,253 new Series B shares by Mobisel.
	On January 13, 2006, the Company sold its entire ownership interest in Mobisel to Twinwood
Ventures Limited (third party) for Rp22,561 million. The resulting gain on the sale was not
significant to the consolidated statement of income.

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) and paid cash of Rp5,398 million to the Company.

From the KMTIP 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.

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PROPERTY, PLANT AND EQUIPMENT

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	4,732,731	(24,862	)	(225,549	)	73,351,582
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	874,012			117,417		9,227,090
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	3,271,820	(2,590	)	(204,588	)	32,361,805
Net Book Value	39,572,099						40,989,777

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12. PROPERTY, PLANT AND EQUIPMENT (continued)

2006	Additions	Deductions		Reclassifications		2006
At cost or revalued amounts:
Direct acquisitions
Land	334,447	39,200	(1,942	)			371,705
Buildings	2,567,559	14,940			43,585		2,626,084
Switching equipment	10,829,881	31,746			1,062,665		11,924,292
Telegraph, telex and data
communication equipment	215,792						215,792
Transmission installation and
equipment	31,554,134	324,764	(726,972	)	3,043,249		34,195,175
Satellite, earth station and
equipment	4,944,004	47,661	(34	)	(5,542	)	4,986,089
Cable network	18,697,500	94,987			(39,621	)	18,752,866
Power supply	1,312,395	5,186			64,686		1,382,267
Data processing equipment	7,842,373	57,450			364,145		8,263,968
Other telecommunications
peripherals	904,151	102	(35	)	(301	)	903,917
Office equipment	649,938	7,437			504		657,879
Vehicles	186,383	1,707	(736	)	(2,468	)	184,886
Other equipment	115,544	1,256					116,800
Property under construction:
Buildings	21,775	60,284			(43,699	)	38,360
Switching equipment	13,172	1,194,686			(1,062,627	)	145,231
Transmission installation and
equipment	714,399	3,540,976			(3,040,475	)	1,214,900
Satellite, earth station and
equipment	133				(119	)	14
Cable network	3,771	26,952			(28	)	30,695
Power supply	61	67,559			(63,321	)	4,299
Data processing equipment	1,567,260	371,410			(371,564	)	1,567,106
Other telecommunications
peripherals	3,524						3,524
Leased assets
Vehicles	330						330
Transmission installation and
equipment	257,380	6,287					263,667
Total	82,735,906	5,894,590	(729,719	)	(50,931	)	87,849,846
Accumulated depreciation and impairment:
Direct acquisitions
Buildings	1,109,838	108,185			19		1,218,042
Switching equipment	6,472,592	711,533			1,228		7,185,353
Telegraph, telex and data
communication equipment	201,527	19,513					221,040
Transmission installation and
equipment	11,991,282	1,737,950	(726,980	)	(8	)	13,002,244
Satellite, earth station and
equipment	1,306,061	271,876					1,577,937
Cable network	10,331,744	679,204			64,302		11,075,250
Power supply	1,032,190	138,994			1,627		1,172,811
Data processing equipment	2,938,131	534,405			(2,615	)	3,469,921
Other telecommunications
peripherals	793,983	30,017	(1	)	(301	)	823,698
Office equipment	543,138	11,001			504		554,643
Vehicles	179,601	2,316	(736	)	(2,468	)	178,713
Other equipment	101,564	2,560					104,124
Leased assets
Vehicles	70						70
Transmission installation and
equipment	90,942	17,268			(64,518	)	43,692
Total	37,092,663	4,264,822	(727,717	)	(2,230	)	40,627,538
Net Book Value	45,643,243						47,222,308

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PROPERTY, PLANT AND EQUIPMENT (continued)

Proceeds from sale of property, plant and equipment	80,117	22,003
Net book value	22,272
(Loss) gain on disposal	57,845	22,003

| 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, 2005 and 2006, the net
book value of these property, plant and equipment was Rp1,821,510 million and Rp1,444,790
million, respectively. |
| --- |
| As of June 30, 2005 and 2006, the net book value of property, plant and equipment included
in the Companys property, plant and equipment that are utilized by the KSO amounted to
Rp394,433 million and Rp310,878 million, respectively. The legal ownership of these
property, plant and equipment are still retained by the Company. |
| In the first quarter of 2005, the Government, in its efforts to rearrange the frequency
spectra utilized by the telecommunications industry, issued a series of regulations which
resulted in the Company not being able to utilize certain frequency spectra it currently
uses to support its fixed wireline cable network commencing at the end of 2006. As a result
of these regulations, certain of the Companys cable network facilities within the fixed
wireline segment, which comprise primarily of Wireless Local Loop (WLL) and Approach Link
equipment operating in the affected frequency spectra, can no longer be used commencing at
the end of 2006. Accordingly, the Company has shortened its estimate of the remaining useful
lives for WLL and Approach Link equipment in the first quarter of 2005 and begun
depreciating the then remaining net book value of those assets through December 31, 2006.
The effect of this change in estimate increased depreciation expense by Rp113,593 million
(Rp79,515 million after tax) and Rp21,406 (Rp14,984 million after tax) for the six months
period ended June 30, 2005 and 2006 respectively. |
| Further, on August 31, 2005, the Minister of Communication and Information (MoCI) issued a
press release which announced that in order to conform with the international standards and
as recommended by the International Telecommunications Union Radiocommunication Sector
(ITU-R), the 1900 MHz frequency spectrum would only be used for the International Mobile
Telecommunications-2000 (IMT-2000 or 3-G) network. The MoCI also announced that the
CDMA-based technology network which the Company uses for its fixed wireless services can
only operate in the 800 MHz frequency spectrum. At present, the Company utilizes the 1900
MHz frequency spectrum for its fixed wireless network in Jakarta and West Java areas while
for other areas, the Company utilizes the 800 MHz frequency spectrum. As a result of the
Governments decision, the Companys Base Station System (BSS) equipment in Jakarta and
West Java areas which are part of transmission installation and equipment for fixed wireless
network can no longer be used commencing at the end of 2007. Management expects the BSS
equipment will be completely replaced with BSS equipment operating in 800 MHz by the end of
June 2007. On January 13, 2006, the MoCI issued MoCI Regulation No. 01/PER/M.KOMINFO/1/2006
which reaffirmed the Governments decision that the Companys fixed wireless network can
only operate in the 800 MHz frequency spectrum and that the 1900 MHz is allocated for 3-G
network. |

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| 12. |
| --- |
| Following the Governments decisions, the Company reviewed the recoverable amount of
cash-generating unit to which the affected fixed wireless asset belongs. The recoverable
amount was estimated using value in use which represents the present value of estimated future
cash flows from cash-generating unit using a pretax discount rate of 16.89%, representing the
Companys weighted average cost of capital as of December 31, 2005. In determining
cash-generating unit to which an asset belongs, assets are grouped at the lowest level that
includes the asset and generates cash inflows that are largely independent of the cash inflows
from other assets or group of assets. Based on this review, in 2005, the Company recognized a
write-down of Rp616,768 million related to transmission installation and equipment of fixed
wireless assets and recorded this amount as a component of operating expenses in the
consolidated statement of income. In addition, the Company recognized a loss relating to
non-cancelable contracts for procurement of the 1900 MHz transmission installation and
equipment in Jakarta and West Java areas amounting to Rp79,359 million. The loss was included
as a component of operating expenses in the consolidated statement of income with a
corresponding liability included in Accrued expenses in the consolidated balance sheet. In
addition, the Company changed its estimate of the remaining useful lives for the Jakarta and
West Java BSS equipment and depreciates the remaining net book value of these assets through
June 30, 2007. The effect of this change in estimate increased depreciation expense by
Rp253,167 million (Rp177,217 million after tax) in the six months period ended June 30, 2006. |
| On August 18, 2005, the Company disposed of its Palapa B-4 satellite which had been fully
depreciated as of July 1, 1999. On November 17, 2005, the Companys Telkom-2 satellite was
launched, and on December 20, 2005, the Telkom-2 satellite passed the final acceptance test
and was put into service. |
| As of June 30, 2006, the Company operated two satellites which primarily provide backbone
transmission links for its network and earth station satellite up-linking and down-linking
services to domestic and international users. As of June 30, 2006, there were no events or
changes in circumstances that would indicate that the carrying amount of the Companys
satellites may not be recoverable. |
| 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 2006-2035. Management believes that there will be no difficulty in obtaining the
extension of the landrights when they expire. |
| Some of the Companys land, on which the Company was granted the right to use by the Ministry
of Communications of the Republic of Indonesia (formerly Ministry of Tourism, Post and
Telecommunications), 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. |
| As of June 30, 2006, property, plant and equipment of the Company and subsidiaries, except for
land, were insured with various insurance companies against fire, theft and other specified
risks for a coverage of Rp55,926,935 million plus US$3,297 million. In addition, the Telkom-1
satellite are insured for US$45.2 million.. Management believes that the insurance coverage is
adequate. |

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| 12. |
| --- |
| On December 26, 2004, telecommunication facilities of the Company and its subsidiaries in
Banda Aceh and certain areas nearby in Nanggroe Aceh Darussalam with net book value of
Rp54,863 million were destroyed by earthquake and tsunami. For the year ended December 31,
2004, the Company has recorded the loss in Other income (expenses) in the consolidated
statements of income. These telecommunication facilities were covered by insurance. In 2005,
the Company and its subsidiaries have received a portion of its insurance claims amounting to
Rp27,580 million and recorded this amount in Other income (expenses) in the consolidated
statements of income. |
| On May 27, 2006, Yogyakarta, Division Regional IV Central Java was experiencing a natural
disaster of tectonic earthquake. At the date of issuance of the consolidated financial
statements, the Company is still in process identifying the lost caused by the earthquake and
tsunami. These telecommunication facilities were covered by insurance. Based on the
preliminary assessment, the possible lost will not material. |
| Certain property, plant and equipment of the Company and subsidiaries have been pledged as
collateral for lending agreements (Notes 20 and 24). |
| As of June 30, 2006, the Company has lease commitments for certain transmission installation
and equipment, and vehicles with the option to purchase the leased assets at the end of the
lease terms. Future minimum lease payments for the assets under capital leases as of June 30,
2006 are as follows : |

Year — 2006	33,613
2007	73,443
2008	73,443
2009	73,443
2010	73,443
Later	142,775
Total minimum lease payments	470,160
Interest	(226,004	)
Net present value of minimum lease payments	244,156
Current maturities	(18,234	)
Long-term portion	225,922

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

PROPERTY, PLANT AND EQUIPMENT UNDER REVENUE-SHARING ARRANGEMENTS

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


At cost:
Land	3,428		1,218		4,646
Buildings	8,021		(1,218	)	6,803
Switching equipment	275,035	7,879	38		282,952
Transmission installation
and equipment	283,438	268	(2,141	)	281,565
Cable network	268,413				268,413
Other telecommunications peripherals	169,304				169,304
Total	1,007,639	8,147	(2,103	)	1,013,683
Accumulated depreciation:
Land	1,771	96	720		2,587
Buildings	4,366	190	(720	)	3,836
Switching equipment	185,689	11,267	(6	)	196,950
Transmission installation
and equipment	83,294	12,468			95,762
Cable network	114,126	10,502	(1,195	)	123,433
Other telecommunications
peripherals	68,988	9,289			78,277
Total	458,234	43,812	(1,201	)	500,845
Net Book Value	549,405				512,838

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| 13. |
| --- |
| 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	907,686		1,013,683
Accumulated amortization:
Beginning balance	(833,365	)	(582,155	)
Addition (Note 35)	(48,468	)	(64,198	)
Deduction	295,808		2,103
Ending balance	(586,025	)	(644,250	)
Net	321,661		369,433

14.
Advances and other non-current assets consist of:

Advances for purchase of property, plant and equipment	808,075	338,536
Deferred landrights charges	88,654	82,550
Security deposits	28,365	31,208
Restricted cash	160,022	1,511
Others	48,257	22,821
Total	1,133,373	476,626

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15.
The changes in the carrying amount of goodwill and other intangible assets for the six months
period ended June 30, 2005 and 2006 are as follows:


		Intangible
	Goodwill	Assets		Total
Gross carrying amount 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	7.97 years


		Intangible
	Goodwill	Assets		Total
Gross carrying amount:
Balance as of December 31, 2005	106,348		7,151,111		7,257,459
Addition License for 3G Telkomsel			436,000		436,000
Balance as of June 30, 2006	106,348		7,587,111		7,693,459
Accumulated amortization:
Balance as of December 31, 2005	(97,491	)	(2,666,696	)	(2,764,187	)
Amortization expense for 6 months period in 2006	(8,857	)	(466,609	)	(475,466	)
Balance as of June 30, 2006	(106,348	)	(3,133,305	)	(3,239,653	)
Net book value			4,453,806		4,453,806
Weighted-average amortization period	5 years	8.09 years

| 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). |
| --- |
| The estimated annual amortization expense relating to goodwill for the year ending December
31, 2006 is Rp8.857 million. The estimated annual amortization expense relating to other
intangible assets for each of the next five years beginning from January 1, 2006 is Rp673,171
million per year. |
| On February 8, 2006, Telkomsel has obtained a 3-G mobile cellular operating license for
1940-1945 MHz and 2130-2135 MHz frequency bandwidth for a 10-year period, which is extendable
subject to evaluation. The upfront fee for the 3-G license amounted to Rp436,000 million was
recognized as other intangible asset and amortized over the useful life of the license (10
years). |

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16.
Escrow accounts consist of the following:

Citibank N.A., Singapore	77,915	3,326
Bank Mandiri	6,322	6,473
	84,237	9,799

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, and since then this escrow account is used to facilitate the payment
of the Companys obligations under the Option Agreement with TMC.
	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 24e).

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TRADE ACCOUNTS PAYABLE


Related parties
Payables to other telecommunications providers	113,853	189,133
Concession fees	356,047	478,217
Purchases of equipment, materials and services	209,475	90,637
Others	28,087
Total	707,462	757,987
Third parties
Purchases of equipment, materials and services	2,954,334	3,475,652
Payables related to revenue-sharing arrangements	92,000	72,362
Payables to other telecommunication providers	75,410	210,531
Total	3,121,744	3,758,545
Total	3,829,206	4,516,532

Trade accounts payable by currency are as follows:

Rupiah	1,635,868	3,697,726
U.S. Dollar	1,541,290	747,448
Euro	646,293	69,602
Singapore Dollar	4,574	1,174
Great British Pound Sterling		582
Japanese Yen	943
Dutch Guilder	238
Total	3,829,206	4,516,532

Refer to Note 46 for details of related party transactions.

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ACCRUED EXPENSES

Salaries and benefits	412,737	852,634
Operations, maintenance and telecommunications services	423,267	528,548
General, administrative and marketing	215,036	528,607
Interest and bank charges	223,978	182,990
Early retirement benefits	11,372
Total	1,286,390	2,092,779

UNEARNED INCOME

Prepaid pulse reload vouchers	1,194,535	1,873,131
Other telecommunication services	4,966	4,232
Other	10,963	25,157
Total	1,210,464	1,902,520

SHORT-TERM BANK LOANS

The Hongkong and Shanghai Banking Corporation (HSBC)	578,240
Bank Central Asia	170,000
Bank Mandiri	43,498
Bank Niaga		9,100
Bank Bumiputera Indonesia		8,000
Total	791,738	17,100

| 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 is 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 bore interest at a rate equal to one-month
Certificate of Bank Indonesia plus 1% on the amount drawn down and was payable at the
maturity date of the loan. |
| On March 28, 2005, the maximum facility was amended to provide principal of Rp100,000
million with interest rate at one-month Certificate of Bank Indonesia plus 1%, and US$49.0
million with interest rate at LIBOR plus 1.8%. |

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SHORT-TERM BANK LOANS (continued)

a.	The Hongkong and Shanghai Banking Corporation (HSBC) (continued)
	On January 20, 2005 and April 14, 2005, the Company drew down Rp100,000 million and
US$49.0 million, respectively. As of June 30, 2005, the principal outstanding amounted to
Rp578,240 million. On October 14, 2005, the loan has been fully repaid and the loan
agreement was terminated.
b.	Bank Central Asia
	On December 3, 2004, Telkomsel entered into a loan agreement with Deutsche Bank AG,
Jakarta (as Arranger and Agent) and Bank Central Asia (as Lender and Transferor)
with a total facility of Rp170,000 million. Under the agreement, the Lender may transfer
its rights, benefits and obligations to any bank or financial institution by delivering
the Transfer Agreement to the Agent and notifying Telkomsel. The facility bears interest
at a rate equal to the 3-month Certificates of Bank Indonesia plus 1% (i.e., 13.09% as of
December 31, 2005) payable in arrears. The loan is due on February 1, 2006. As of June 30,
2005, the principal outstanding amounted to Rp170,000 million. On February 1, 2006,
Telkomsel repaid the entire loan balance and the loan agreement was terminated.
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 one-year term. The loan is secured with the Companys
time deposits (Note 10) with interest rate at 2% above the pledged time deposits interest
rate (2.65% as of June 30, 2005). The loan facility has been extended several times, the
most recent of which was on September 23, 2004 where the loan facility was extended for
another one-year term and expired 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 one-year term. On May 4, 2004, the facility was extended
for another one year term and expired on April 24, 2005. The loan was secured by the
Companys time deposits (Note 10) and bore interest at 2% above the pledged time deposits
interest rate (2.65% as of June 30, 2005).
	As of June 30, 2005, principal outstanding under these facilities amounted to US$4.5
million (Rp43,498 million). On July 29, 2005, the Companys time deposits pledged for
these facilities were used to repay the principal outstanding and on August 1, 2005, the
loan agreements were terminated.
d.	Bank Niaga
	On April 25, 2005, Balebat entered into a loan agreement with Bank Niaga for a total
facility of Rp2,400 million comprising of revolving credit facility of Rp800 million which
bears interest at 12% per annum and matured on July 25, 2005. This loan agreement also includes an
investment credit facility of Rp1,600 million which is discussed in Note 24f. On July 26,
2005, the interest rate and maturity date for revolving credit facility was amended to
12.5% per annum and May 30, 2006, respectively. The total credit facility of Rp2,400
million is secured by Balebats property located in West Java.

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SHORT-TERM BANK LOANS (continued)

d.	Bank Niaga (continued)
	On June 13, 2006, under the Notice of Loan Facility Agreement, this facility (Note 24f)
was combined with the loan facility of Rp500 million and the maturity was extended to May
30, 2007 with interest rate of 16.5% per annum. As of June 30, 2006 the outstanding loan
amounted to Rp1,100 million.
	On October 18, 2005, GSD entered into a loan agreement with Bank Niaga for a maximum
facility of Rp3,000 million for a one-year term. The loan facility is secured by certain
GSDs property, bears interest at 14.5% per annum and will expire on October 18, 2006. On
June 7, 2006, the loan agreement was amended to increase maximum facility and interest
rate to Rp8,000 million and 16.25% per annum, respectively. As of June 30, 2006, the
principal outstanding amounted to Rp5,000 million.
	In October 2005, GSD also entered into a credit agreement with the Bank Niaga, Bandung to
obtain a Rp12 billion short-term facility, which expires on October 18, 2006. The
borrowing under this facility bears interest at 14.5% per annum. On June 7, 2006, the
credit agreement was amended to reduce the maximum facility to Rp7,000 million and
increase the interest rate to 16.25% per annum. Principal outstanding as of June 30, 2006
was Rp3,000 million.
e.	Bank Bumiputera Indonesia
	On February 15, 2006, GSD entered into a loan agreement with Bank Bumiputera amounted to
Rp8,000 million which bears interest at 17% per annum and repayable monthly. The loan is
payable within 12 months from the signing date and will mature on February 15, 2007. As of
June 30, 2006 the loan has fully drawn-down and the principal outstanding amounted to
Rp8,000 million.

MATURITIES OF LONG-TERM LIABILITIES

a. Current maturities

Two-step loans	22	625,244	508,541
Medium-term Notes	23b	224,188	464,621
Bank loans	24	535,437	844,425
Liabilities of business acquisitions	25	757,878	658,889
Obligations under capital leases	12		18,234
Total		2,142,747	2,494,710

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MATURITIES OF LONG-TERM LIABILITIES (continued)

b. Long-term portion

Notes	Total	2007	2008	2009	2010	Later
Two-step loans	22	4,348.9	228.0	441.9	428.3	402.7	2,848.0
Bonds	23a	994.5	994.5
Bank loans	24	1,905.3	584.0	739.1	362.7	219.3	0.2
Liabilities of business acquisitions	25	2,642.0	344.1	765.1	745.3	724.3	63.2
Obligations under capital leases	12	225.9	20.5	26.0	33.0	41.9	104.5
Total		10,116.6	2,171.1	1,972.1	1,569.3	1,388.2	3,015.9

| 22. |
| --- |
| 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: |

Currencies	Interest Rate — 2005	2006	Outstanding — 2005	2006
Overseas banks	3.10% - 10.36 %	3.10% - 11.64 %	5,607,142		4,796,882
Consortium of contractors	3.20% - 8.49%	3.20%	99,460		60,581
Total			5,706,602		4,857,463
Current maturities			(625,244	)	(508,541	)
Long-term portion			5,081,358		4,348,922

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22.
The details of two-step loans obtained from overseas banks as of June 30, 2005 and 2006 are as
follows:

Currencies	Interest Rate — 2005	2006	Outstanding — 2005	2006
U.S. Dollar	4.00% - 6.81%	4.00% - 6.45%	2,365,873	1,961,242
Rupiah	8.30% - 10.36 %	8.54% - 11.64 %	1,917,480	1,688,182
Japanese Yen	3.10%	3.10%	1,323,789	1,147,458
Total			5,607,142	4,796,882

| The loans are intended for the development of telecommunications infrastructure and supporting
equipment. The loans are repayable in semi-annual installments and are due on various dates
through 2024. |
| --- |
| Details of two-step loans obtained from a consortium of contractors as of June 30, 2005 and
2006 are as follows: |

Currencies	Interest Rate — 2005	2006	Outstanding — 2005	2006
Japanese Yen	3.20 %	3.20 %	99,460	60,581

| 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 are due on various dates through 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, 2006, 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 is required to 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, 2006, the Company complied with the above mentioned ratios.

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NOTES AND BONDS

Bonds	989,207		994,494
Medium-term Notes	833,808		464,621
Total	1,823,015		1,459,115
Current maturities	(224,188	)	(464,621	)
Long-term portion	1,598,827		994,494

| 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 16, 2007. The trustee of the bonds
is PT Bank Negara Indonesia (Persero) Tbk and the custodian is PT Danareksa Sekuritas.
Effective January 17, 2006, PT Bank Rakyat Indonesia Tbk became the trustee of the bonds
replacing PT Bank Negara Indonesia (Persero) Tbk. |
| As of June 30, 2006, the rating for the bonds issued by Pefindo is AAA and by Standard and
Poors is BB+. |
| As of June 30, 2005 and 2006, 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	(10,793	)	(5,506	)
Net	989,207		994,494

During the period when the bonds are outstanding, the Company is required to 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

The Company has breached a covenant in the bonds indenture which stipulated that during the period when the bonds are outstanding, the Company will not make any loans to or for the benefit of any person which in aggregate exceed Rp500,000 million. As of March 24, 2006, the Company has obtained a written waiver from PT Bank Rakyat Indonesia Tbk, the trustee of the bonds, with regard to providing loans to certain subsidiaries which in aggregate exceed Rp500,000 million.

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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. |
| 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, December 15, 2005 and June 15, 2006, the Company repaid the Series A,
Series
B and Series C Notes. |
| As of June 30, 2005 and 2006, the outstanding principal and unamortized debt issuance
costs are as follows: |

Principal	835,000		465,000
Debt issuance costs	(1,192	)	(379	)
	833,808		464,621
Current maturities	(224,188	)	(464,621	)
Long-term portion	609,620

As of June 30, 2006, the rating for the Notes issued by Pefindo is AAA.

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NOTES AND BONDS (continued)

b.
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, 2006, the Company complied with the covenants.

BANK LOANS

The details of long-term bank loans as of June 30, 2005 and 2006 are as follows:

			2005
			Outstanding		Outstanding
			Original		Original
		Total Facility	Currency	Rupiah	Currency	Rupiah
Lenders	Currency	(in millions)	(in millions)	Equivalent	(in millions)	Equivalent
The Export-Import Bank of Korea	US$	124.0	88.8	867,114	117.6	1,089,517
Citibank N.A.	US$	113.3	74.2	721,867	50.8	471,929
	EUR	73.4	44.0	516,473	29.3	346,935
	Rp	500,000.0				200,000
Bank Central Asia	Rp	573,000.0	114,791.0	114,791		257,395
Consortium of banks	Rp	150,000.0	96,032.0	96,032		53,748
Bank Mandiri	Rp	82,425.0	36,305.0	36,305		303,416
Bank Niaga	Rp	12,800.0	9,291.0	9,291		8,205
Bank Bukopin	Rp	5,300.0				4,553
Lippo Bank	Rp	18,500				13,801
Total				2,361,873		2,749,499
Current maturities of bank
loans				(535,437	)	(844,425	)
Long-term portion				1,826,436		1,905,074

| a. |
| --- |
| 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 (Note 51a.ii) 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 of each year beginning
in December 2006. As of June 30, 2005 and 2006, principal outstanding amounted to US$88,8
million (Rp867,114 million) and US$117.6 million (Rp1,089,517 million), respectively. |

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BANK LOANS (continued)

b. Citibank N.A.

| 1. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with Siemens
Aktiengesellschaft (AG) (Note 51a.i), 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., 2.96% as of June 30,
2005 and 3.33% as of June 30, 2006). Interest is payable semi-annually, starting on
the utilization date of the Facility (May 29, 2003). |
| As of June 30, 2005 and 2006, the outstanding balance was EUR44.0 million (Rp516,473
million) and EUR29.3 million (Rp346,935 million), respectively. |
| The schedule of the principal payments on this long-term loan as of June 30, 2006 is
as follows: |

	Amount — EUR	Rupiah
Year	(in millions)	Equivalent
2006	7.3	86,734
2007	14.7	173,467
2008	7.3	86,734
	29.3	346,935

High Performance Backbone (HP Backbone) Loans

| a. |
| --- |
| 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 dated November 30, 2001, with PT Pirelli Cables Indonesia
and PT Siemens Indonesia for the construction and provision of a high performance
backbone in Sumatra. |
| 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. |

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BANK LOANS (continued)

b. Citibank N.A . (continued)

High Performance Backbone (HP Backbone) Loans (continued)

| | As of June 30, 2005 and 2006, the outstanding loan was US$14.7 million (Rp143,146
million) and US$10.5 million (Rp97,103 million), respectively. The loan is payable
in ten semi-annual installments beginning in April 2004. |
| --- | --- |
| | Amounts drawn from the facility bear interest at a rate equal to the 6-month LIBOR
plus 0.75% (i.e., 2.97% and 5.04% as of June 30, 2005 and 2006, respectively). |
| 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. |
| | 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, 2005 and 2006 was US$11.1 million (Rp108,673 million)
and US$7.3 million (Rp68,789 million), respectively. |
| | During the period when the loans are outstanding, the Company is required to 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 full
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 full
repayment date of the loans |

The Company has breached a covenant in the loan agreements which stipulates that the Company will not make any loans or grant any credit to or for the benefit of any person which in aggregate exceed 3% of shareholders equity. As of May 12, 2006, the Company has obtained a written waiver from Citibank International plc with regard to providing loans to certain subsidiaries which in aggregate exceed 3% of stockholders equity.

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BANK LOANS (continued)

b. Citibank N.A. (continued)

| 3. |
| --- |
| On December 2, 2002, pursuant to the partnership agreement with PT Ericsson Indonesia
(Note 51a.i), 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, 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., 4.02% and 4.02% as of June 30, 2005 and 2006, respectively). Interest is
payable semi-annually, starting on the utilization date of the Facility (July 31,
2003). |
| In addition to the interest, in 2004, Telkomsel was also charged an insurance premium
for the insurance guarantee given by EKN in favor of Telkomsel for loan utilization
amounting to US$1.5 million, 15% of which was paid in cash. The remaining balance was
settled through utilization of the Facility. |
| As of June 30, 2005 and 2006, the outstanding balance was US$48.4 million (Rp470,018
million) and US$32.9 million (Rp306,037 million), respectively. |
| The schedule of the principal payments on this long-term loan as of June 30, 2006 is
as follows: |

	Amount — US$	Rupiah
Year	(in millions)	Equivalent
2006	7.7	71,998
2007	15.5	143,996
2008	9.7	90,043
	32.9	306,037

On March 21, 2006, Telkomsel signed a loan agreement with Citibank, N.A., Indonesia in the facility amount of Rp500,000 million. The loan is payable to Citibank in five (5) equal semi-annual installments from the date which is six (6) months after the end of availability period (the period commencing March 21, 2006 to the earlier of the date falling 12 months or the date on which the facility is fully drawn). The loan bears floating interest rate of three months Certificate of Bank Indonesia + 1.75%. The principal outstanding as of June 30, 2006 amounted to Rp200,000 million.

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BANK LOANS (continued)

b.
The following table summarizes the principal outstanding on loans from Citibank N.A. as of
June 30, 2005 and 2006:

	2005
	Foreign		Foreign
	Currencies	Rupiah	Currencies	Rupiah
	(in millions)	Equivalent	(in millions)	Equivalent
Hermes Export Facility	EUR 44.0	516,473	EUR 29.3	346,935
HP Backbone loans	US$ 25.8	251,819	US$ 17.8	165,892
EKN-Backed Facility	US$ 48.4	470,018	US$ 32.9	306,037
			Rp500,000	200,000
Total		1,238,310		1,018,864
Current maturities		(399,680	)	(430,699	)
Long-term portion		838,630		588,165

| 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
(10.02% and 13.68% as of June 30, 2005 and 2006, respectively). The loans are payable in
twelve unequal quarterly installments beginning in July 2004. The loan was originally
scheduled to mature in October 2006 and was amended in 2004 to mature in April 2007. |
| Total principal outstanding as of June 30, 2005 and 2006 was Rp114,791 million and
Rp57,395 million, respectively. |
| The loan facility from Bank Central Asia is not collateralized. |
| During the period when the loan is outstanding, the Company is required to comply with all
covenants or restrictions including maintaining financial ratios as follows: |

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

The Company has breached a covenant in the loan agreement which stipulates that the Company will not make any loans to or for the benefit of any person which in aggregate exceed Rp500,000 million. As of April 24, 2006, the Company has obtained a written waiver from Bank Central Asia with regard to providing loans to certain subsidiaries which in aggregate exceed Rp500,000 million.

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BANK LOANS (continued)

c.	Bank Central Asia (continued)
	On March 16, 2006, Telkomsel signed a loan agreement with Bank Central Asia in the
facility amount of Rp400,000 million. The loan is payable to Bank Central Asia in five (5)
equal semi-annual installments from the date which is six (6) months after the end of
availability period (the period commencing March 16, 2006 to the earlier of the date
falling 12 months or the date on which the facility is fully drawn). The loan bears
floating interest rate of three months Certificate of Bank Indonesia + 1.75%. Principal
outstanding as of June 30, 2006 amounted to Rp200,000 million.
d.	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 draw-down 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 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 draw-down 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 and 2006, interest rate charged on the loan was 10.19% and 12.94%,
respectively, and principal outstanding was Rp96,032 million and Rp53,748 million,
respectively.
	During the period when the loan is outstanding, the Company is required to comply with
all covenants or restrictions including maintaining financial ratios as follows:

1.	Debt to equity ratio should not exceed 3:1
2.	EBITDA to interest expense should exceed 5:1

	As of June 30, 2006, the Company complied with the above mentioned ratios.
e.	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 which is subject to change to
reflect change in market rate (14% as of June 30, 2005), and payable on a monthly basis.
The loan is obtained to refinance Dayamitras payable to six contractors. As of June 30,
2005, principal outstanding under this facility was Rp22,328 million. On December 23,
2005, the loan was fully repaid and on January 4, 2006, the loan agreement was
terminated.

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BANK LOANS (continued)

e.	Bank Mandiri (continued)
	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 which is subject to change to reflect change in
market rate (11.25% and 14% as of June 30, 2005 and 2006, respectively). 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. As of
June 30, 2005 and 2006, principal outstanding under this facility was Rp35,253 million
and Rp3,328 million, respectively.
	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 VI. In addition, Dayamitra is required to maintain a minimum balance of Rp6,000
million in an escrow account established to facilitate loan repayments (Note 16b).
	On March 13, 2003, Balebat entered into a loan agreement with Bank Mandiri for a facility
of Rp2,500 million. This facility is secured by Balebats operating equipment and will
mature in July 2006. As of June 30, 2005 and 2006, interest rate charged on the loan was
19% and 17%, respectively, and is payable on a monthly basis. The principal is repayable
on a monthly basis. As of June 30, 2005 and 2006, principal outstanding under this
facility amounted to Rp1,052 million and 88 million, respectively.
	On March 20, 2006, Telkomsel signed a loan agreement with Bank Mandiri in the facility
amount of Rp600,000 million. The loan is payable to Bank Mandiri in five (5) equal
semi-annual installments from the date which is six (6) months after the end of
availability period (the period commencing March 20, 2006 to the earlier of the date
falling 12 months or the date on which the facility is fully drawn). The loan bears
floating interest rate of three months Certificate of Bank Indonesia + 1.75%. The
Principal outstanding as of June 30, 2006 amounted to Rp300,000 million.
f.	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, 2005 principal outstanding amounted to Rp108 million. On December 27, 2005, the loan
was fully repaid.
	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 interest rate was subsequently increased to 17% per annum on December
1, 2005. 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, 2006, principal outstanding
under these facilities amounted to Rp2,811 million and Rp1,833 million, respectively.

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BANK LOANS (continued)

f.	Bank Niaga (continued)
	On December 22, 2005 the loan agreement has been amended to increase the credit facility
of Rp4,000 million with maturity date of December 22, 2006 and interest rate of 12.5% per
annum. On June 13, 2006 under the Notice of Loan Facility Agreement this facility was
combined with the loan facility of Rp800 million as stated in Note 20d and the maturity
date will be due on May 30, 2007 with interest rate of 16.5% per annum. As of June 30,
2006, the outstanding loan of Rp4,800 facility was Rp2,194 million.
	As discussed in Note 20d, on April 25, 2005, Balebat entered into a loan agreement with
Bank Niaga for a total facility of Rp2,400 million which includes an investment credit
facility of Rp1,600 million with maturity date of October 25, 2009. The investment credit
facility loan is payable in 48 unequal monthly installments beginning in November 2005
through October 2009. The investment credit facility bears interest at a rate equal to
market rate plus 2% (17% as of June 30, 2006). As of June 30, 2006, the principal
outstanding amounted to Rp1,367 million.
g.	Bank Bukopin
	On May 11, 2005, Infomedia entered into loan agreements with Bank Bukopin for maximum
facilities totaling Rp5,300 million. The loan is obtained to finance acquisition of a
property. The loan is payable in 60 monthly installments. A portion of the facilities of
Rp4,200 million will mature in June 2010 and the remainder of Rp1,100 million will mature
in December 2010. As of June 30, 2006, interest rate charged on the loan was 15.75%. The
facilities are secured by certain Infomedias property. As of June 30, 2006, the principal
outstanding amounted to Rp4,553 million.
h.	Bank Lippo
	On May 29, 2006, Infomedia entered into a loan agreement with Bank Lippo for a facility of
Rp18,500 million to finance Call Center project with Telkomsel. The facility bore interest
at 15.5% per annum and secured by Infomedias receivables on Call Center contract with
Telkomsel amounted to Rp23,125 million until the due date of the loan within 30 months
from the withdrawal date. As of June 30, 2006, the principal outstanding amounted to
Rp13,801 million.

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| 25. |
| --- |
| This amount represents the Companys obligation under the Promissory Notes issued 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. |


AWI transaction (Note 5b)
PT Aria Infotek	447,185		318,448
The Asian Infrastructure Fund	106,473		75,821
MediaOne International I B.V.	298,124		212,298
Less discount on promissory notes	(62,814	)	(39,279	)
	788,968		567,288
Dayamitra transaction (Note 5a)
TM Communication (HK) Ltd.	146,664
Less discount on promissory notes	(7,119	)
	139,545
KSO IV transaction (Note 5c)
MGTI	4,180,533		3,311,022
Less discount	(867,052	)	(577,352	)
	3,313,481		2,733,670
Total	4,241,994		3,300,958
Current maturity net of discount (Note 21a)	(757,878	)	(658,889	)
Long-term portion net of discount	3,484,116		2,642,069

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MINORITY INTEREST

		2005	2006
Minority interest in net assets of subsidiaries:
Telkomsel		5,034,547	6,026,686
Infomedia		94,117	110,957
Metra			2,808
GSD			5
Total		5,128,664	6,140,456
		2005	2006
Minority interest in net income (loss) of subsidiaries:
Telkomsel		1,327,158	1,865,832
Infomedia		33,534	33,030
Pramindo			1
Metra			(1,192	)
Total		1,360,692	1,897,671
27. CAPITAL STOCK
	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	8.84	445,493
The Bank of New York	1,483,205,776	7.36	370,801
Board of Commissioners
Petrus Sartono	19,116		5
Board of Directors
John Welly	4
Public (below 5% each)	6,574,333,172	32.61	1,643,583
Total	20,159,999,280	100.00	5,040,000

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CAPITAL STOCK (continued)

	2006	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.)	1,851,027,794	9.18	462,757
The Bank of New York	1,489,647,776	7.39	372,412
Board of Commissioners
Petrus Sartono	19,116		5
Board of Directors
Guntur Siregar	19,980		5
Garuda Sugardo	16,524		4
Abdul Haris	1,000
John Welly	4
Public (below 5% each)	6,443,352,874	31.96	1,610,838
Sub total	20,104,555,780	99.72	5,026,139
Treasury stock (Note 29)	55,443,500	0.28	13,861
Total	20,159,999,280	100.00	5,040,000

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 | |

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| 29. |
| --- |
| Based on the resolution of the Extraordinary General Meeting of Stockholders on December 21,
2005, the Stockholders authorized the plan to repurchase the Companys issued Series B shares.
The proposals to a stock repurchase programs, under the following terms and conditions: (i). maximum stock repurchase is 5% of the Companys issued Series B shares
with total cost not to exceed Rp5,250,000 million; (ii). the period determined for the
acquisition was not more than 18 months (December 21, 2005 to June 20, 2007), in
accordance with Bapepam Regulation No.XI.B.2. |
| As of June 30, 2006 the Company has repurchased 55,443,500 shares of the Companys issued
and outstanding Series B shares representing 0.28% of the Companys issued and outstanding
Series B shares, for a total repurchased amount of Rp413,740 million. |
| The movement of shares held in treasury arising from the programs for repurchase of shares was
the following: |

	2006 — Number of share	Rp
Balance as of January 1, 2006
Number of shares acquired	55,443,500	413,740
Balance as of June 30, 2006	55,443,500	413,740
Historical unit cost of repurchase of treasury shares:	Rp
Weighted average	7,103
Minimum	6,750
Maximum	8,400

| | The acquisition unit cost considers the total cost for the shares repurchase programs. None of
the shares acquired were sold up to the balance sheet date. |
| --- | --- |
| 30. | DIFFERENCE IN VALUE OF RESTRUCTURING TRANSACTIONS BETWEEN ENTITIES UNDER COMMON CONTROL |
| | Cross-ownership transactions and acquisition of Pramindo |
| | On April 3, 2001, the Company signed a Conditional Sale and Purchase Agreement with Indosat,
for a series of transactions to consolidate their cross-ownership in certain companies. The
transactions under the agreement are as follows: |

| i. | Acquisition by the Company of Indosats 35% equity interest in Telkomsel
for US$945.0 million (Telkomsel Transaction); |
| --- | --- |
| ii. | Acquisition by Indosat of the Companys 22.5% equity interest in PT
Satelit Palapa Indonesia (Satelindo) for US$186.0 million (Satelindo
Transaction); |

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30.
Cross-ownership transactions and acquisition of Pramindo (continued)

| iii. | Acquisition by Indosat of the Companys 37.66% equity interest in PT
Aplikanusa Lintasarta (Lintasarta) and convertible bonds of Rp4,051 million issued
by Lintasarta for US$38.0 million (Lintasarta Transaction); and |
| --- | --- |
| iv. | The acquisition by Indosat of all of the Companys rights and novation of
all of the Companys obligations, under the KSO IV Agreement dated October 20, 1995,
between the Company and PT Mitra Global Telekomunikasi Indonesia (MGTI), together
with all of the Companys assets being used as KSO IV assets, for US$375.0 million
(KSO IV Transaction). |

| Lintasartas convertible bonds were subsequently converted into shares, thereby reducing the
Companys 37.66% equity interest to 37.21% prior to the consummation of the Lintasarta
Transaction. |
| --- |
| The Telkomsel and Lintasarta Transactions were consummated on May 16, 2001 based on Deed of
Share Transfer No. 1/V/2001/triplo and No. 2/V/2001/duplo, respectively, of Notary Ny. Liliana
Arif Gondoutomo, S.H. |
| The Satelindo Transaction was consummated on July 23, 2001 after DeTeAsia Holding GmbH and PT
Bimagraha Telekomindo (the other Satelindo stockholders) waived their pre-emptive rights on
7.26% and 13.06% of Satelindos shares, respectively. |
| On February 1, 2002, the Company and Indosat announced the cancellation of the KSO IV
Transaction. As a result, the Company settled this portion of the cross-ownership transaction
in cash. |
| At the time of the transaction, the Government was the majority and controlling shareholder of
both the Company and Indosat. Accordingly, the Telkomsel, Satelindo and Lintasarta
Transactions have been accounted for as a restructuring of entities under common control. The
Companys acquisition of a controlling interest in Telkomsel was accounted for in a manner
similar to that of pooling of interests accounting (carryover basis). Accordingly, for
reporting purposes, the financial statements of the Company and those of Telkomsel have been
combined, as if they had been combined from the beginning of the earliest period presented.
The effects of the transactions between the Company and Telkomsel before the combination were
eliminated in preparing the combined financial statements. On the consummation dates of the
transactions, 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
was included as Difference in value of restructuring transactions between entities under
common control in the stockholders equity section. |
| In connection with the acquisition of Pramindo on August 15, 2002, the portion representing
Indosats 13% equity interest in Pramindo has been accounted for as a restructuring of
entities under common control. On the acquisition date, the difference between the purchase
consideration and the historical amount of the net assets acquired amounting to Rp296,038
million was included as Difference in value of restructuring transactions between entities
under common control in the stockholders equity section. |

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| 30. |
| --- |
| Cross-ownership transactions and acquisition of Pramindo (continued) |
| The difference in value of restructuring transactions between entities under common control
arising from cross-ownership transactions and acquisition of Pramindo can be summarized as
follows: |


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 5b)	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

On December 20, 2002, the Government sold its 41.94% ownership interest in Indosat to STTC and waived its special voting rights with respect to the Series A Dwiwarna share. As a result, as of December 20, 2002, the Government ceased to be the majority and controlling shareholder of Indosat and consequently, the Company no longer considers Indosat as a common control entity as of that date. As discussed in Note 4b, in connection with the adoption of PSAK 38R and pursuant to a ruling issued by BAPEPAM regarding the initial application of PSAK 38R by public companies, the Company has reclassified the difference in value of restructuring transactions between entities under common control account resulting from the cross-ownership transactions and acquisition of Pramindo as a charge to retained earnings as of January 1, 2005.

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| 30. |
| --- |
| Compensation for early termination of exclusive rights |
| As discussed in Note 1a, on July 31, 2002, the Government decided to terminate the Companys
exclusive rights to provide local and domestic long-distance fixed-line telecommunications
services with effect from August 1, 2002. |
| 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, provides that the Government shall pay compensation for early termination of exclusive
rights to the Company amounting to Rp478,000 million net of tax. |
| On December 15, 2005, the Company signed an agreement on Implementation of Compensation for
Termination of Exclusive Rights with the Ministry of Communications and Information
Directorate General of Post and Telecommunications. Pursuant to this agreement, the
Government agreed to pay Rp478,000 million to the Company over a five-year period where
Rp90,000 million shall be paid from the 2005 State budget, Rp90,000 million from the 2006
State budget and the remaining Rp298,000 million shall be paid gradually or in one lump-sum
payment based on the States financial ability. In addition, the Company is required by the
Government to use funds received from this compensation for development of telecommunications
infrastructure. |
| On December 30, 2005, the Company received the first payment of Rp90,000 million and recorded
this amount in Difference in value of restructuring transactions between entities under
common control in the stockholders equity section. The amount is recorded as a component of
stockholders equity because the Government is the majority and controlling shareholder of the
Company. The Company will record the remaining amount of Rp388,000 million when received. |

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31. TELEPHONE REVENUES


Fixed lines
Local and domestic long-distance usage	3,659,418	3,493,794
Monthly subscription charges	1,628,167	1,706,835
Installation charges	99,613	86,258
Others	86,380	50,279
Total	5,473,578	5,337,166
Cellular
Air time charges	5,957,166	8,769,332
Monthly subscription charges	192,115	161,566
Connection fee charges	30,969	62,189
Features	228,626	449,839
Total	6,408,876	9,442,926
Total Telephone Revenues	11,882,454	14,780,092

32. INTERCONNECTION REVENUES NET

Cellular	3,143,046	3,591,353
International	401,948	411,656
Other	87,308	113,680
Total	3,632,302	4,116,689

33. REVENUE UNDER JOINT OPERATION SCHEMES

Minimum Telkom Revenues	134,315	138,344
Share in Distributable KSO Revenues	181,142	163,921
Amortization of unearned initial investor payments
under Joint Operation Schemes	731	524
Total	316,188	302,789

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33. REVENUE UNDER JOINT OPERATION SCHEMES (continued)

Distributable KSO Revenues represent the entire KSO revenues, less Minimum Telkom Revenue and operational expenses of the KSO Units. These revenues are shared between the Company and the KSO Investors based upon agreed percentages (Note 48).

34. DATA AND INTERNET REVENUES

SMS	2,304,542	3,165,478
Internet	367,438	419,074
Data communication	271,073	347,486
VoIP	112,334	147,250
e-Business	5,024	16,525
Total	3,060,411	4,095,813

35. NETWORK REVENUES

Leased lines	85,328	73,440
Satellite transponder lease	108,718	221,619
Total	194,046	295,059

36. REVENUE-SHARING ARRANGEMENT REVENUES

Revenue-Sharing Arrangement revenues	48,138	139,320
Amortization of unearned income (Note 13)	53,044	64,198
Total	101,182	203,518

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37. OPERATING EXPENSES PERSONNEL

Salaries and related benefits	955,124	1,115,350
Vacation pay, incentives and other benefits	766,500	1,278,396
Early retirements	558,421
Net periodic post-retirement health care benefit cost (Note 45)	244,293	299,689
Net periodic pension cost (Note 43)	338,419	220,837
Employee income tax	428,033	350,429
Long service awards (Note 44)	100,939	80,838
Housing	105,608	103,430
Medical	5,027	5,900
Other employee benefits (Note 43)	5,755	5,126
Others	15,364	37,338
Total	3,523,483	3,497,333

38. OPERATING EXPENSES OPERATIONS, MAINTENANCE AND TELECOMMUNICATION SERVICES

Operations and maintenance	1,391,851	1,813,475
Concession fees	319,813	416,096
Radio frequency usage charges	275,836	314,423
Cost of phone, SIM and RUIM cards	295,819	286,815
Electricity, gas and water	197,227	196,721
Vehicles and supporting facilities	102,478	120,061
Insurance	75,251	74,263
Leased lines	53,539	80,390
Travelling	12,717	18,092
Others	71,336	56,574
Total	2,795,867	3,376,910

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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39. OPERATING EXPENSES GENERAL AND ADMINISTRATIVE

Amortization of goodwill and other intangible assets (Note 15)	459,076	457,299
Provision for doubtful accounts and inventory
obsolescence	218,312	269,636
Collection expenses	174,481	213,491
General and social contribution	45,254	156,447
Travel	73,707	100,176
Security and screening	78,883	89,613
Training, education and recruitment	69,919	83,323
Professional fees	51,786	65,657
Meetings	16,952	26,320
Printing and stationery	17,725	20,962
Research and development	3,783	3,503
Others	13,443	10,311
Total	1,223,321	1,496,738

40. INCOME TAX

a. Prepaid taxes


The Company
Refundable corporate income tax overpayment

Subsidiaries
Corporate income tax	1,574	48,683
Income tax
Article 23		7,147
	1,574	55,830
	1,574	55,830

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40. INCOME TAX (continued)

b. Taxes payable


The Company
Income tax
Article 21	53,060	70,170
Article 22	3,523	3,280
Article 23	29,864	37,321
Article 25	97,044	4,376
Article 26	14,619	777
Article 29	157,105	459,004
Value added tax	280,149	311,243
	635,364	886,171
Subsidiaries
Income tax
Article 21	5,460	11,386
Article 22		216
Article 23	45,212	61,740
Article 25		179,969
Article 26	58,499	51,097
Article 29	619,959	750,641
Value added tax	68,930	45,242
	798,060	1,100,291
	1,433,424	1,986,462

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


(As restated*)
Current
The Company	923,868		1,284,080
Subsidiaries	1,621,946		2,352,780
	2,545,814		3,636,860
Deferred
The Company	(244,581	)	(176,005	)
Subsidiaries	28,096		9,921
	(216,485	)	(166,084	)
	2,329,329		3,470,776

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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40. INCOME TAX (continued)

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


(As restated*)
Consolidated income before tax	7,493,432		11,187,407
Add back consolidation eliminations	2,695,873		3,844,286
Consolidated income before tax and eliminations	10,189,305		15,031,693
Deduct income before tax of the subsidiaries	(5,706,610	)	(8,104,659	)
Income before tax attributable to the Company	4,482,695		6,927,034
Less: Income subject to final tax	(44,143	)	(326,641	)
	4,438,552		6,600,393
Tax calculated at progressive rates	1,344,791		1,980,101
Non-taxable income	(810,800	)	(1,152,320	)
Non-deductible expenses	(19,503	)	167,879
Deferred tax assets originating from
previously unrecognized temporary differences, net	127,163		61,404
Deferred tax assets that cannot be utilized, net	24,800
Corporate income tax expense	666,451		1,057,064
Final income tax expense	12,836		51,012
Total income tax expense of the Company	679,287		1,108,076
Income tax expense of the subsidiaries	1,650,042		2,362,701
Total consolidated income tax expense	2,329,329		3,470,777

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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40. INCOME TAX (continued)

d. (continued)


(As restated*)
Income before tax attributable to the Company	4,482,695		6,927,034
Less: Income subject to final tax	(44,143	)	(326,641	)
	4,438,552		6,600,393
Temporary differences:
Depreciation of property, plant and equipment	356,120		476,792
Gain on sale of property, plant and equipment	(535	)	1,234
Allowance for doubtful accounts	49,592		150,045
Accounts receivable written-off	(17,525	)	(64,812	)
Allowance for inventory obsolescence	(4,429	)	1,362
Inventory written-off	(910	)
Accrued early retirement benefits	558,421
Payment for early retirement benefits	(581,130	)
Accrued employee benefits	(11,431	)	270,609
Net periodic pension cost	(10,147	)	(143,868	)
Long service awards	61,345		45,157
Amortization of intangible assets	448,441		448,441
Amortization of deferred stock issuance costs	136,684
Amortization of landrights	(846	)	(2,438	)
Temporary differences of KSO units	38,360
Depreciation of property, plant and equipment
under revenue-sharing arrangements	31,918		42,438
Amortization of unearned income on revenue-
sharing arrangements	(53,044	)	(64,187	)
Payments of liability of business acquisition and the related interest	(325,220	)	(206,704	)
Foreign exchange loss on liability of business
acquisition	179,499		(176,988	)
Foreign exchange losses capitalized to property under construction			2,476
Capital leases			11,805
Total temporary differences	855,163		791,362

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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40. INCOME TAX (continued)

d. (continued)


(As restated*)
Permanent differences:
Net periodic post-retirement health care benefit cost	240,975		295,636
Amortization of goodwill and intangible assets	10,635		8,858
Amortization of deferred interests			26,256
Depreciation expense	5,251
Equity in net income of associates and subsidiaries	(2,702,666	)	(3,841,068	)
Interest income	(11,844	)
Income from land/building rental	(9,024	)
Others	209,790		228,847
Total permanent differences	(2,256,883	)	(3,281,471	)
Taxable income subject to corporate income tax	3,036,832		4,110,286
Corporate income tax expense	911,032		1,233,068
Final income tax expense	12,836		51,012
Total current income tax expense of the Company	923,868		1,284,080
Current income tax expense of the subsidiaries	1,621,946		2,352,780
Total current income tax expense	2,545,814		3,636,860

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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40. 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,
2004		Acquisitions	of Income		2005
			(As restated*)		(As restated*)
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	)
Accrued early retirement
benefits				3,441		3,441
Accrued for employee bonuses	5,926			(3,428	)	2,498
Accrued long service awards	164,750			8,150		172,900
Net periodic pension cost	433,439			(3,717	)	429,722
Liabilities of business acquisitions	1,009,932			(9,012	)	1,000,920
Total deferred tax assets	1,841,905			8,223		1,850,128
Deferred tax liabilities:
Interest receivables
Difference between book and
tax property, plant and
equipments net book value	(2,198,654	)		110,735		(2,087,919	)
Landrights	(1,571	)		(253	)	(1,824	)
Revenue-sharing arrangements	(41,637	)		(8,655	)	(50,292	)
Intangible assets	(1,614,386	)		134,531		(1,479,855	)
Total deferred tax liabilities	(3,856,248	)		236,358		(3,619,890	)
Deferred tax liabilities of the
Company, net	(2,014,343	)		244,581		(1,769,762	)
Deferred tax liabilities of the
subsidiaries, net	(913,224	)		(28,019	)	(941,243	)
Total deferred tax liabilities, net	(2,927,567	)				(2,711,005	)

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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40. INCOME TAX (continued)

e. Deferred tax assets and liabilities (continued)


			Credited
December 31,		Business	to Statements		June 30,
2005		Acquisitions	of Income		2006
(As restated *)
The Company
Deferred tax assets:
Allowance for doubtful
accounts	205,396			(20,268	)	185,128
Allowance for inventory
obsolescence	13,652			417		14,069
Long-term investments	6,666			(3,468	)	3,198
Accrued employee benefits	63,003			81,183		144,186
Accrued long service awards	148,791			13,547		162,338
Net periodic pension cost	384,237			(43,160	)	341,077
Capital leases	6,408			1,116		7,524
Liabilities of business acquisitions	945,403			(119,631	)	825,772
Accrued expenses	58,265					58,265
Total deferred tax assets	1,831,821			(90,264	)	1,741,557
Deferred tax liabilities:
Difference between book and
tax property, plant and
equipments net book value	(1,766,217	)		139,045		(1,627,172	)
Landrights	(2,604	)		(731	)	(3,335	)
Revenue-sharing arrangements	(37,176	)		(6,577	)	(43,753	)
Intangible assets	(1,345,324	)		134,532		(1,210,792	)
Total deferred tax liabilities	(3,151,321	)		266,269		(2,885,052	)
Deferred tax liabilities of the
Company, net	(1,319,500	)		176,005		(1,143,495	)
Deferred tax liabilities of the
subsidiaries, net	(1,072,310	)		(12,586	)	(1,084,896	)
Total deferred tax liabilities, net	(2,391,810	)				(2,228,391	)

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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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.	BASIC EARNINGS PER SHARE
	Net income per share is computed by dividing net income by the weighted average number of
shares outstanding during the year, totaling 20,159,999,280 and 20,155,200,411 in 2005 and
2006, respectively. See also Notes 1b and 2s.
	The Company does not have potentially dilutive ordinary shares.
42.	CASH DIVIDENDS AND GENERAL RESERVE
	Pursuant to the Annual General Meeting of Shareholders as stated in notarial deed No. 36 dated
June 24, 2005 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved the distribution
of cash dividends for 2004 amounting to Rp3,064,604 million or Rp152.01 per share (of which
Rp143,377 million or Rp7.11 per share was distributed as interim cash dividends in December
2004) and appropriation of Rp122,584 million for general reserve.
	Pursuant to the Annual General Meeting of Shareholder as stated in notarial resume No.
210/VI/2006 dated June 30, 2006 of A. Partomuan Pohan, S.H., LL.M., the stockholders approved
the distribution of cash dividends for 2005 amounting to Rp4,400,090 million or minimum of
Rp218.86 per share. As of June 30, 2006 the declaration of dividend was recorded as Dividend
Liability.

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PENSION PLANS

| a. |
| --- |
| The Company sponsors a defined benefit pension plan and a defined contribution pension
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, 2005 and 2006 amounted to Rp335,654
million and Rp347,551 million, respectively. |
| In 2002, the Company amended its defined benefit pension 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 pension 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 pension plan is determined based on a certain percentage of the participants
salaries and amounted to Rp421 million and Rp884 million for six months period ended June
30, 2005 and 2006, respectively. |
| The following table presents the change in projected benefit obligation, the change in
plan assets, funded status of the plan and the net amount recognized in the Companys
balance sheets for the six months period ended June 30, 2005 and 2006 for its defined
benefit pension plan: |

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43. PENSION PLANS (continued)

a. The Company (continued)


(As restated*)
Change in projected benefit obligation
Projected benefit obligation at beginning of year	7,315,182		7,140,100
Service cost	69,059		93,980
Interest cost	394,915		384,293
Plan participants contributions	20,686		19,142
Actuarial gain	(397,090	)	(387,586	)
Benefits paid	(175,110	)	(152,958	)
Projected benefit obligation at end of year	7,227,642		7,096,971
Change in plan assets
Fair value of plan assets at beginning of year	4,884,523		5,429,954
Actual return on plan assets	77,877		338,801
Employer contribution	354,104		347,551
Plan participants contributions	20,686		19,142
Benefits paid	(175,110	)	(152,958	)
Fair value of plan assets at end of year	5,162,080		5,982,490
Funded status	(2,065,562	)	(1,114,481	)
Unrecognized prior service cost	1,259,535		1,120,513
Unrecognized net actuarial gain	(554,598	)	(1,148,241	)
(Accrued) prepaid pension benefit cost	(1,360,625	)	(1,142,209	)

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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43. PENSION PLANS (continued)

a.
The movement of the accrued pension benefit cost during the six months period ended June
30, 2005 and 2006 is as follows :


(As restated*)
Accrued pension benefit cost at beginning of year	1,447,911		1,283,021
Net periodic pension cost less amounts charged
to KSO Units	257,488		196,625
Amounts charged to KSO Units under contractual
agreement	9,330		10,114
Contributions	(354,104	)	(347,551	)
Accrued pension benefit cost at end of year	1,360,625		1,142,209

As of June 30, 2005 and 2006, plan assets consist mainly of Indonesian Government Bonds and corporate bonds.

The actuarial valuations for the defined benefit pension plan performed based on measurement date of December 31, 2004 and 2005 for each of the years were prepared on March 15, 2005 and February 27, 2006, 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 December 31, 2004 and 2005 are as follows.

Discount rate	11 %	11 %
Expected long-term return on plan assets	10.5 %	10.5 %
Rate of compensation increase	8 %	8.8 %

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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43. PENSION PLAN (continued)

a.
The components of net periodic pension cost are as follows:


(As restated *)
Service cost	69,059		93,980
Interest cost	394,915		384,293
Expected return on plan assets	(266,667	)	(338,801	)
Amortization of prior service cost	69,511		69,511
Recognized actuarial loss (gain)			(2,245	)
Net periodic pension cost	266,818		206,738
Amount charged to KSO Units under contractual
agreement	(9,330	)	(10,114	)
Total net periodic pension cost less amounts charged to
KSO Units (Note 37)	257,488		196,624

| b. |
| --- |
| Telkomsel provides a defined benefit pension plan for its employees under which pension
benefits to be paid are based on the employees latest basic salary and number of years of
service. PT Asuransi Jiwasraya (Jiwasraya), a state-owned life insurance company,
manages the plan. Up to 2004, the employees contributed 5% of their monthly basic salaries
to the plan and Telkomsel contributed any remaining amount required to fund the plan.
Beginning in 2005, the entire contributions are borne by Telkomsel. |

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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43. PENSION PLAN (continued)

b.
The components of the net periodic pension cost are as follows:

Service cost	5,036		10,660
Interest cost	3,324		8,084
Expected return on plan assets	(416	)	(1,062	)
Amortization of prior service cost	(32	)	(32	)
Recognized actuarial loss	660		2,609
Amortization of net obligation at the date of
initial application of PSAK No. 24	89		89
Net periodic pension cost (Note 37)	8,661		20,348

The net periodic pension cost for the pension plan is calculated based on the actuarial calculation prepared by PT Watson Wyatt Purbajaga, an independent actuary in association with Watson Wyatt Worldwide. The principal actuarial assumptions used by the independent actuary based on measurement date of December 31, 2004 and 2005 for each of the years are as follows:

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

The reconciliation of the funded status of the plan with the net amount recognized in the balance sheets of Telkomsel as of June 30, 2005 and 2006 is as follows:

Projected benefit obligation	(95,325	)	(165,848	)
Fair value of plan assets	16,077		49,744
Funded status	(79,248	)	(116,104	)
Unrecognized prior service cost	(1,003	)	(939	)
Unrecognized net actuarial loss	63,888		101,845
Unrecognized net obligation at the date of
initial application of PSAK No. 24	2,273		2,095
Accrued pension benefit cost	(14,090	)	(13,103	)

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43. PENSION PLANS (continued)

| c. |
| --- |
| Infomedia provides a defined benefit pension plan for its employees. The reconciliation of
the funded status of the plan with the net amount recognized in the balance sheets as of
June 30, 2005 and 2006 is as follows: |

Projected benefit obligation	(4,051	(5,519
Fair value of plan assets	5,413	5,979
Funded status	1,362	460
Prepaid pension benefit cost	1,362	460

The net periodic pension cost of Infomedia amounted to Rp16 million and Rp16 million for the six months period ended June 30, 2005 and 2006, respectively.

d.	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, 2005 and 2006 amounted to Rp21,677 million and
Rp31,128 million, respectively. The total related employee benefit cost charged to expense
amounted to Rp5,755 million and Rp5,712 million for the six months period ended June 30,
2005 and 2006, respectively.
e.	Additional THT benefit
	Starting January 1, 2005 the Company has increased the pension benefit by using additional
two times of basic salary for pre-1992 employees who will leave the Company due to
reaching normal retirement age, death and disability during year 2005 until 2006. These
additional benefit will be paid directly from the Company. The total related obligation
recognized as of June 30, 2005 and 2006 amounted to Rp3,688 million and Rp43,547 million,
respectively. The total related employee benefit cost charged to expense amounted to
Rp72,270 million and Rp3,865 million for the six months period ended June 30, 2005 and
2006, respectively.

44. 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. |

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44. LONG SERVICE AWARDS (continued)

| a. |
| --- |
| The actuarial valuations for the long service awards performed based on measurement date
of December 31 for each of the years were prepared on March 15, 2005 and February 27,
2006, 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 December 31, 2004 and 2005 are as follows: |

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

The movement of the accrued long service awards during the six months period ended December 30, 2005 and 2006 is as follows:


(As restated*)
Accrued long service awards at beginning of year	426,705		495,969
Net periodic benefit cost (Note 37)	96,225		74,977
Benefits paid	(61,593	)	(29,820	)
Accrued long service awards at end of year	461,337		541,126

| b. |
| --- |
| Telkomsel provides certain cash awards for its employees based on the employees length of
service. 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 obligation with respect to these awards is determined based on actuarial valuation using
the Projected Unit Credit Method, and amounted to Rp20,384 million and Rp34,415 million as of
June 30, 2005 and 2006, respectively. The related benefit cost charged to expense amounted to
Rp4,714 million and Rp5,861 million for the six months period ended June 30, 2005 and 2006,
respectively. |

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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45. POST-RETIREMENT HEALTH CARE BENEFITS

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

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


(As restated *)
Service cost	43,818		53,757
Interest cost	253,997		302,787
Expected return on plan assets	(51,749	)	(72,632	)
Recognized actuarial loss	4,041		22,370
Net periodic post-retirement benefit cost	250,107		306,282
Amounts charged to KSO Units under contractual
agreement	(5,814	)	(6,592	)
Total net periodic post-retirement benefit cost less
amounts charged to KSO Units (Note 37)	244,293		299,690

The actuarial valuations for the post-retirement health care benefits performed based on measurement date of December 31 for each of the years were prepared on March 15, 2005 and February 27, 2006, 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 December 31, 2004 and 2005 are as follows:

Discount rate	11 %	11 %
Expected long-term return on plan assets	8 %	8 %
Health care cost trend rate assumed for next year	12 %	9 %
The ultimate trend rate	8 %	9 %
Year that the rate reaches the ultimate trend rate	2007	2006

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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45. POST-RETIREMENT HEALTH CARE BENEFITS (continued)

The following table presents the change in projected 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, 2005 and 2006:


(As restated*)
Change in projected benefit obligation
Projected benefit obligation at beginning of year	4,681,005		5,574,489
Service cost	43,818		53,757
Interest cost	253,997		302,787
Actuarial loss	211,917		252,366
Benefits paid	(62,990	)	(69,283	)
Projected benefit obligation at end of year	5,127,747		6,114,116
Change in plan assets
Fair value of plan assets at beginning of year	1,138,768		1,493,897
Actual return on plan assets	22,605		72,633
Employer contributions	286,688		425,368
Benefits paid	(62,990	)	(69,283	)
Fair value of plan assets at end of year	1,385,071		1,922,615
Funded status	(3,742,676	)	(4,191,501	)
Unrecognized net actuarial loss	795,550		1,262,567
Accrued post-retirement health care benefit cost	(2,947,126	)	(2,928,934	)

The movement of the accrued post-retirement health care benefit cost during the six months period ended June 30, 2005 and 2006 is as follows:


(As restated*)
Accrued post-retirement health care benefit cost at beginning of year	2,983,707		3,048,021
Net periodic post-retirement health care benefit cost less amounts charged to KSO Units	244,293		299,689
Amounts charged to KSO Units under contractual agreement	5,814		6,592
Contributions	(286,688	)	(425,368	)
Accrued post-retirement health care benefit cost at end of year	2,947,126		2,928,934

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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46. RELATED PARTY INFORMATION

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 Rp166,469 million and Rp200,218
million in 2005 and 2006, respectively. Interest expense for two-step loan reflected
25.7% and 34.2% of total interest expense in 2005 and 2006, 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 Rp319,813 million and Rp235,910 million in 2005 and 2006,
respectively. Concession fees reflected 2.8% and 1.8% of total operating expenses in
2005 and 2006, respectively. Radio frequency usage charges amounted to Rp275,836
million and Rp329,046 million in 2005 and 2006, respectively. Radio frequency usage
charges reflected 2.6% and 2.5% of total operating expenses in 2005 and 2006,
respectively. |
| iii. | Beginning in 2005, the Company and its subsidiaries pay Universal Service
Obligation (USO) charges to the Ministry of Communications and Information (MoCI)
of the Republic of Indonesia pursuant to the MoCI Regulation
No.15/PER/M.KOMINFO/9/2005 of September 30, 2005. |
| | USO charges amounted to Rp180,356 million in 2006, which reflected 1.4% of total
operating expenses in 2006. |

b. Commissioners and Directors Remuneration

| i. | The Company and its subsidiaries provide honorarium and facilities to
support the operational duties of the Board of Commissioners. The total of such
benefits amounted to Rp10,637 million and Rp9,609 million in 2005 and 2006,
respectively, which reflected 0.1% and 0.1% of total operating expenses in 2005 and
2006, 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 Rp26,607 million and Rp47,459 million in 2005 and 2006, respectively, which
reflected 0.2% and 0.3% of total operating expenses in 2005 and 2006, respectively. |

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46. RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| Through December 19, 2002, the Government was the majority and controlling shareholder of
Indosat and therefore, Indosat was under the same common control as the Company.
Following the sale of the Governments 41.94% ownership interest in Indosat on December
20, 2002 (Note 30), the Governments ownership interest in Indosat was reduced to
approximately 15%. The Company still considers Indosat as a related party because the
Government can exert significant influence over the financial and operating policies of
Indosat by virtue of its right to appoint one director and one commissioner of Indosat. |
| 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. |
| 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.

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46. RELATED PARTY INFORMATION (continued)

| c. |
| --- |
| 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. |
| 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 Rp9,741 million and Rp9,205 million in 2005 and 2006, respectively, reflecting 0.1% and 0.1% of total operating expenses in 2005 and 2006, 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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46. 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 Rp526 million and
Rp497 million for the years 2005 and 2006, 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 revenue (were charged) net interconnection charges from Indosat of (Rp62,528 million) and Rp254,814 million in 2005 and 2006, respectively, reflecting 0.32% and 2.36% of total operating revenues in 2005 and 2006, 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, 2005 and 2006, the prepaid portion is shown in the consolidated balance sheets as Advances from customers and suppliers.

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46. 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 Rp61,917 million and Rp81,425 million in 2005 and 2006,
respectively, which reflected 0.6% and 0.6% of total operating revenues in 2005 and 2006,
respectively. |
| Lintasarta utilizes the Companys satellite transponders or frequency channels. Revenue
earned from these transactions amounted to Rp4,225 million and Rp2,758 million in 2005 and
2006, respectively, which reflected less than 0.04% and less than 0.1% of total operating
revenues in 2005 and 2006, 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 Rp9,917 million and Rp18,928 million
in 2005 and 2006, respectively, reflecting 0.1% and 0.1% of total operating expenses in
2005 and 2006, respectively. |

d. Others

| (i) | The Company provides telecommunication services to substantially all
Government agencies in Indonesia. |
| --- | --- |
| (ii) | The Company has entered into agreements with Government agencies and
associated companies, namely CSM, Patrakom and KSO VII, for utilization of the
Companys satellite transponders or frequency channels. Revenue earned from these
transactions amounted to Rp18,950 million and Rp43,090 million in 2005 and 2006,
respectively, which reflected 0.2% and 0.3% of total operating revenues in 2005 and
2006, respectively. |
| (iii) | The Company provides leased lines to associated companies, namely CSM,
Patrakom and PSN. 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 Rp14,027 million and Rp20,743
million in 2005 and 2006, respectively, reflecting 0.1% and 0.2% of total operating
revenues in 2005 and 2006, 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 Rp68,304 million and Rp31,483 million in 2005
and 2006, respectively, reflecting 1.7%, and 0.4% of total fixed asset purchases in
2005 and 2006, respectively. |

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46. RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (v) | PT INTI is also a major contractor and supplier of equipment, including
construction and installation services for Telkomsel. Total purchases from PT INTI in
2005 and 2006 amounted to Rp27,752 million and Rp40,573 million, respectively,
reflecting 0.7% and 0.6% of total fixed asset purchases in 2005 and 2006,
respectively. |
| --- | --- |
| (vi) | Telkomsel has an agreement with PSN for lease of PSNs transmission link.
Based on the agreement, which was made on 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 Rp41,203 million and
Rp24,684 million in 2005 and 2006, respectively, reflecting 1% and 0.2% of total
operating expenses in 2005 and 2006, 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 Rp83,614 million and Rp104,811 million in 2005 and 2006,
respectively, reflecting 0.7% and 0.5% of total operating expenses in 2005 and 2006,
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 Rp2,712,116 million
and Rp5,072,927 million as of June 30, 2005 and 2006, respectively, reflecting 4.3%
and 8.7% of total assets as of June 30, 2005 and 2006, respectively. Interest income
recognized during 2005 and 2006 was Rp29,093 million and Rp185,585 million reflecting
21.4% and 56.9% of total interest income in 2005 and 2006, respectively. |
| (ix) | The Companys subsidiaries have loans from a state-owned bank. Interest
expense on the loans for 2005 and 2006 amounted to Rp3,543 million and Rp778 million,
respectively, representing 0.5% and 0.1% of total interest expense in 2005 and 2006,
respectively. |
| (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
Rp21,027 million and Rp103,974 million in 2005 and 2006, respectively, reflecting
0.2% and 0.8% of total operating expenses in 2005 and 2006, respectively. |

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46. RELATED PARTY INFORMATION (continued)

d. Others (continued)

| (xi) | The Company and its subsidiaries earned (were charged for) interconnection
revenues (charges) from PSN, with a total of (Rp99 million) and Rp4,634 million in
2005 and 2006, respectively, reflecting (0.02%) and less than 0.04% of total
operating revenues in 2005 and 2006, 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 Rp6,530 million and Rp9,792
million in 2005 and 2006, respectively, reflecting 0.03% and 0.01% of total operating
revenues in 2005 and 2006, respectively. |
| (xiii) | Telkomsel has operating lease agreements with Patrakom and CSM for the usage of
their transmission link for a period of three years, subject to extensions. The
lease charges amounted to Rp88,629 million 2006 representing 0.7% of total operating
expenses in 2006. |
| (xiv) | Kisel is a cooperative that was established by Telkomsels employees to
engage in car rental services, printing and distribution of customer bills,
collection and other services principally for the benefit of Telkomsel. For these
services, Kisel charged Telkomsel Rp25,121 million in 2006. Telkomsel also has
dealership agreements with Kisel for distribution of SIM cards and pulse reload
vouchers. Total SIM cards and pulse reload vouchers which were sold to Kisel amounted
to Rp1,158,559 million in 2006. |
| (xv) | 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 and 2006 amounted to Rp4,558 million and Rp4,663 million, reflecting 0.02%
and 0.02% of total operating revenues in 2005 and 2006, respectively. |
| (xvi) | 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. |

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46. RELATED PARTY INFORMATION (continued)

Presented below are balances of accounts with related parties:


		% of		% of
	Amount	Total Assets	Amount	Total Assets
a.	Cash and cash equivalents (Note 6)	2,501,384	3.46	5,071,530	7.50
b.	Trade accounts receivable, net (Note 7)	462,403	0.75	621,521	0.92
c.	Other accounts receivable
	KSO Units	1,029		93,357	0.14
	State-owned banks (interest)	2,773	0.01	20,340	0.03
	Government agencies	20,099	0.03	450
	Other	13,968	0.02	4,315	0.01
	Total	37,869	0.06	118,462	0.18
d.	Prepaid expenses (Note 9)	25,121	0.04	35,976	0.05
e.	Other current assets (Note 10)	44,827	0.08	155,018	0.23
f.	Advances and other non-current assets
(Note 14)
	Bank Mandiri	161,242	0.27	1,413
	Peruri	813		813
	PT Asuransi Jasa Indonesia	23,104	0.04	2,670
	Total	185,159	0.31	4,896

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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46. RELATED PARTY INFORMATION (continued)


		% of Total		% of Total
	Amount	Liabilities	Amount	Liabilities
g.	Trade accounts payable (Note 17)
	Government agencies	357,271	1.10	478,199	1.28
	KSO Units	4,376	0.01	45,345	0.12
	Indosat	81,119	0.25	94,527	0.25
	Koperasi Pegawai Telkom	11,362	0.03	22,217	0.06
	PSN			182
	PT INTI	169,055	0.52	56,316	0.15
	Others	84,279	0.26	61,201	0.18
	Total	707,462	2.17	757,987	2.04
h.	Accrued expenses (Note 18)
	Government agencies and state-owned banks
	Employees	955,124	2.94	852,630	2.29
	PT Asuransi Jasa Indonesia	17,152	0.05	2,038	0.01
	Total	1,065,362	3.28	951,408	2.56
i.	Short-term bank loans (Note 20)
	Bank Mandiri	43,498	0.13
j.	Two-step loans (Note 22)	7,638,554	23.51	4,857,463	13.05
k.	Accrued long service awards (Note 44)	569,599	1.75	575,541	1.55
l.	Accrued post-retirement health care
benefits (Note 45)	1,886,327	5.80	2,928,934	7.87
m.	Long-term bank loans (Note 24)
	Bank Mandiri	36,305	0.11	303,416	0.82

47. SEGMENT INFORMATION

The Company and its subsidiaries have three main business segments: fixed wireline, fixed wireless and cellular. The fixed wireline 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 fixed wireless segment provides CDMA-based telecommunication services which offers customers the ability to use a wireless handset with limited mobility (within a local code area). 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. In 2005, a re-alignment of management responsibilities caused a change in segment reporting. The fixed wireless telecommunication services business segment is now presented as a separate segment. This change in segment has been reflected for all periods presented.

Segment revenues and expenses include transactions between business segments and are accounted for at prices that management believes represent market prices.

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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47. SEGMENT INFORMATION (continued)


Fixed		Fixed						Total Before				Total
Wireline		Wireless		Cellular		Other		Elimination		Elimination		Consolidated
Segment results
External operating revenues	9,919,947		288,405		8,928,143		248,095		19,384,590				19,384,590
Inter-segment operating
revenues	38,303		69,936		365,257				473,496		(473,496	)
Total revenue	9,958,250		358,341		9,293,400		248,095		19,858,086		(473,496	)	19,384,590
Segment expense	(6,966,968	)	(633,389	)	(4,003,713	)	(187,786	)	(11,791,856	)	496,378		(11,295,478	)
Segment result	2,991,282		(275,048	)	5,289,687		60,309		8,066,230		22,882		8,089,112
Interest expense	(553,372	)	(44,905	)	(82,507	)	(22	)	(680,806	)	33,212		(647,594	)
Interest income	150,075		1,104		76,410		1,472		229,061		(92,883	)	136,178
Loss on foreign exchange net	(326,063	)	(10,702	)	(20,348	)	110		(357,003	)			(357,003	)
Other income (expenses) net	185,055				49,387		54,387		288,829		(22,882	)	265,947
Tax expense	(776,397	)	98,856		(1,617,340	)	(34,448	)	(2,329,329	)			(2,329,329	)
Equity in
net income of associated companies	2,702,665								2,702,665		(2,695,873	)	6,792
Income
before minority interest	4,373,245		(230,695	)	3,695,289		81,808		7,919,647		(2,755,544	)	5,164,103

Unallocated minority
interest							(1,253	)	(1,253	)	(1,359,439	)	(1,360,692	)
Net income	4,373,245		(230,695	)	3,695,289		80,555		7,918,394		(4,114,983	)	3,803,411
Other information
Segment assets	36,006,084		3,658,374		22,251,755		415,124		62,331,337		(3,939,072	)	58,392,265
Investments in associates	11,081,085				9,290				11,090,375		(10,999,313	)	91,062
Total consolidated assets	47,087,169		3,658,374		22,261,045		415,124		73,421,712		(14,938,385	)	58,483,327
Segment liabilities	(27,635,294	)	(2,645,126	)	(7,875,172	)	(186,057	)	(38,341,649	)	3,939,072		(34,402,577	)
Minority interest							(7,355	)	(7,355	)	(5,121,309	)	(5,128,664	)
Capital expenditures	13,988		(815,888	)	(3,828,729	)	(28,176	)	(4,658,805	)			(4,658,805	)
Depreciation and amortization	(1,844,711	)	(168,729	)	(1,295,461	)	(12,683	)	(3,321,584	)	6,944		(3,314,640	)
Amortization of goodwill and
other intangible assets	(459,076	)							(459,076	)			(459,076	)
Other non-cash expenses	(131,450	)	(88	)	(84,430	)	(2,344	)	(218,312	)			(218,312	)
Net cash provided by operating
activities	2,794,099		165,443		5,445,356		(5,453	)	8,399,445				8,399,445
Net cash used in investing
activities	(719,530	)	(815,888	)	(2,996,086	)	(22,360	)	(4,553,864	)			(4,553,864	)
Net cash used im financing
activities	(361,314	)	28,757		(2,356,120	)	(20,449	)	(2,709,126	)			(2,709,126	)

The 2005 figures have been restated due to the adoption of PSAK 24R (see Note 4a).

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47. SEGMENT INFORMATION (continued)


Fixed		Fixed						Total Before				Total
Wireline		Wireless		Cellular		Other		Elimination		Elimination		Consolidated
Segment results
External operating revenues	9,856,919		1,138,861		12,785,401		215,364		23,996,545				23,996,545
Inter-segment operating
revenues	(64,411	)	166,383		489,845		59,298		651,115		(651,115	)
Total revenue	9,792,508		1,305,244		13,275,246		274,662		24,647,660		(651,115	)	23,996,545
Segment expense	(7,368,597	)	(691,191	)	(5,667,390	)	(183,164	)	(13,910,342	)	725,517		(13,184,825	)
Segment result	2,423,911		614,053		7,607,856		91,498		10,737,318		74,402		10,811,720
Interest expense	(463,235	)	(86,232	)	(60,176	)	(1,787	)	(611,430	)	25,627		(585,803	)
Interest income	262,550		1,997		84,353		2,719		351,619		(25,627	)	325,992
Loss on foreign exchange net	377,202		108,423		101,091		(119	)	586,597				586,597
Other income (expenses) net	190,205				(77,913	)	14,229		126,521		(74,402	)	52,119
Tax expense	(925,285	)	(191,472	)	(2,324,052	)	(29,967	)	(3,470,776	)			(3,470,776	)
Equity in
net income of associated companies	3,841,068								3,841,068		(3,844,286	)	(3,218	)
Income before minority
interest	5,706,416		446,769		5,331,159		76,573				(3,844,286	)	7,716,631
Unallocated minority
interest	1,192						(2,207	)	(1,015	)	(1,896,656	)	(1,897,671	)
Net income	5,707,608		446,769		5,331,159		74,366		(1,015	)	(5,740,942	)	5,818,960
Other information
Segment assets	36,129,270		5,805,314		30,993,968		517,286		73,445,838		(5,886,519	)	67,559,319
Investments in associates	13,198,160				9,290				13,207,450		(13,109,323	)	98,127
Total consolidated assets	49,327,430		5,805,314		31,003,258		517,286		86,653,288		(18,995,842	)	67,657,446
Segment liabilities	(26,175,653	)	(2,907,527	)	(13,781,814	)	(238,694	)	(43,103,688	)	5,886,519		(37,217,169	)
Minority interest							(9,132	)	(9,132	)	(6,131,325	)	(6,140,457	)
Capital expenditures	(549,941	)	(1,199,183	)	(6,022,551	)	(18,681	)	(7,790,356	)			(7,790,356	)
Depreciation and
amortization	(2,114,904	)	(217,483	)	(1,971,282	)	(16,596	)	(4,320,265	)	4,958		(4,315,307	)
Amortization of goodwill and
other intangible assets	(457,299	)							(457,299	)			(457,299	)
Other non-cash expenses	(194,682	)			(71,732	)	(3,222	)	(269,636	)			(269,636	)
Net cash provided by operating
activities	4,705,471		786,116		7,244,031		(22,404	)	12,713,214				12,713,214
Net cash used in investing
activities	(549,941	)	(1,199,183	)	(6,022,551	)	(18,681	)	(7,790,356	)			(7,790,356	)
Net cash used im financing
activities	(1,735,460	)	517,314		316,230		13,771		(888,145	)			(888,145	)

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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. |
| Following the Indonesian economics crisis that began in mid-1997, certain KSO investors
experienced difficulties in fulfilling their commitment under the KSO agreements. As remedial
measures instituted by both the Company and those certain KSO investors did not fully remedy
this situation, the Company entered into agreements with some of the KSO investors to acquire
those KSO investors (Dayamitra in 2001, Pramindo in 2002 and AWI in 2003 Note 5) and
currently controls the related KSOs through its ownership of such KSO investors. In January
2004, the Company acquired full operational control of the KSO IV operations (Note 5).
Accordingly, the revenue sharing percentage in those KSOs is no longer relevant as the
financial statements of the acquired KSO investors and the related KSOs are consolidated into
the Companys financial statements since the date of acquisition. Subsequent to January 2004,
only Regional Division VII is operated by a KSO investor, PT Bukaka Singtel International
(BSI), which is not controlled by the Company. |
| Under the Joint Operation Scheme between the Company and BSI, the KSO Unit VII is required to
make payments to the Company consisting of the following: |

<	Minimum Telkom Revenue (MTR)
	Represents the amount guaranteed by the KSO investor to be paid to the Company in
accordance with the KSO agreement.
<	Distributable KSO Revenues (DKSOR)
	DKSOR are the entire KSO revenues, less the MTR and the operational expenses of the KSO
Units, as provided in the KSO agreement. These revenues are shared between the Company and
BSI based on agreed upon percentages.
	The DKSOR from fixed wireless revenues (Telkom Flexi Revenues) are shared between the
Company and BSI based on a ratio of 95% and 5%, respectively.
	The DKSOR from non-Telkom Flexi Revenues are shared between the Company and BSI based on a
ratio of 35% and 65%, respectively.

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| 48. |
| --- |
| At the end of the KSO period, all rights, title and interests of BSI 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. |

| 49. |
| --- |
| 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, 2006, the Company has 87 RSA with 49 partners. The RSA are located mainly in
Palembang, Pekanbaru, Jakarta, East Java and Kalimantan with concession periods ranging from
16 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 at a nominal price. |
| 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 Rp35,965 million and Rp902 million in 2005 and 2006,
respectively (Note 13). |

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| 50. |
| --- |
| 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. The implementation
of the planned increase in the tariff in 2003, however, was postponed by the Minister of
Communications through 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 Communications 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.
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 time airtime rate
3. PSTN to cellular	: 1 time airtime rate
4. Card phone to cellular	: 1 time airtime rate plus 41% surcharge

b. Usage tariffs

| 1. | Usage local tariffs charged to a cellular subscriber who makes a call to a
fixed line (PSTN). For the use of network, the tariffs per minute 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.

Based on the Announcement No. PM.2 year 2004 of the Minister of Communications dated March 30, 2004, Telkomsel adjusted its tariffs by eliminating the tariff subsidy from long-distance calls. This resulted in a 9% tariff increase.

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| 50. |
| --- |
| Interconnection Tariffs |
| The Government establishes the percentage of tariffs to be received by each operator in
respect of calls that transit multiple networks. The Telecommunications Law and Government
Regulation No. 52 of 2000 provides for the implementation of a new policy to replace the
current revenue sharing policy. Under the new policy, which has not yet been implemented, the
operator of the network on which calls terminate would determine the interconnection charge to
be received by it based on a formula to be mandated by the Government, which would be intended
to have the effect of requiring that operators charge for calls based on the costs of carrying
such calls. On March 11, 2004, the MoC issued Decree No. 32/2004, which stated that cost-based
interconnection fees shall be applicable beginning January 1, 2005. The effective date of this
decree was subsequently postponed until January 1, 2007 based on the Ministry Regulation No.
08/Per/M. KOMINF/02/2006 dated February 8, 2006. |

| i. |
| --- |
| The Governments National Fundamental Technical Plan set forth in Decree 4 of 2001, as
amended by Decree 28 of 2004, sets out the technical requirements, routing plans and
numbering plans for interconnection of the networks of various telecommunications
operators among themselves and with the Companys fixed line network. Under the National
Fundamental Technical Plan, all operators are permitted to interconnect with the Companys
fixed line network for access thereto and to other networks, such as international
gateways and the networks of other cellular operators. In addition, cellular operators may
interconnect directly with other networks without connecting to the Companys fixed line
network. Currently, the fees for interconnection are set forth in Decree No. 506/1997,
Decree No. 46/1998, Decree No. 37/1999 and Decree No. 30/2000. |
| Fixed line Interconnection with Indosat. Currently, the fixed line interconnection
between the Company and Indosat is generally based on their agreement signed in 2005.
Pursuant to the agreement between the Company and Indosat, for interconnection of local
and domestic long-distance calls, the operator of the network on which the calls terminate
receives an agreed amount per minute. |
| Other Fixed Wireline Interconnection. Since September 1, 1998, the Company has been
receiving a share of the tariffs from Batam Bintan Telekomunikasi (BBT), which is a
local operator with a special coverage area on Batam Island, for each successful call that
transits or terminates on the Companys fixed line network. Under the interconnection
agreement, for local interconnection calls, revenues are shared on a sender keeps all
basis. For local calls originating on BBTs network terminating on a cellular network and
vice versa which transit through the Companys fixed line network, the Company receives an
agreed percentage of the prevailing tariff for local calls. For interconnection of
domestic long-distance calls, the operator of the network on which the calls terminate or
transit receives an agreed percentage of the prevailing long-distance tariff. In addition,
BBT is to receive a certain fixed amount for each minute of incoming and outgoing
international calls from and to BBT that transit through the Companys fixed line network
and use the Companys IDD service and 50% of the prevailing interconnection tariff for
incoming and outgoing international calls that transit through the Companys fixed line
network and use Indosats IDD service. |

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50.
Interconnection Tariffs (continued)

i.	Interconnection with Fixed line Network (continued)
	Other Fixed Wireless Interconnection. Fixed wireless networks may interconnect with the
Companys fixed line network at the Companys gateway. At present, other than the Company
and Indosat, PT Bakrie Telecom (BT) also operates a fixed wireless network in Indonesia.
The fixed wireless interconnection between the Company and BT is currently based on the
most recent interconnection agreement signed in 2005. Pursuant to the agreement, for
interconnection of local calls, the operator of the network on which the calls terminate
receives an agreed amount per minute. For local calls originating on BTs network
terminating on a cellular network and vice versa which transit through the Companys fixed
line network, the Company receives an agreed percentage of the prevailing tariff for local
calls. For domestic long-distance calls that originate on the Companys fixed line network
and terminate on BTs network, BT receives an agreed amount per minute. In the reverse
situation and for transit long-distance calls through the Companys fixed line network,
the Company receives an agreed percentage of the prevailing long-distance tariff. In
addition, BT is to receive a certain fixed amount for each minute of incoming and outgoing
international calls to and from BT that transit through the Companys fixed line network
and use the Companys IDD service and 25% of prevailing interconnection tariff of incoming
and outgoing international calls that transit through the Companys fixed line network and
use Indosats IDD service.
ii.	Cellular Interconnection
	In respect of local interconnection calls, including transit calls, between a cellular
network and the Companys fixed line network, the Company receives 50% of the prevailing
fixed-line usage tariff for local pulse. For local calls from the Companys fixed line
network 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. For
local calls between cellular telecommunications networks, the originating cellular
operator pays the terminating cellular operator the air time charges.
	The current Interconnection Decree, effective April 1, 1998, assumes that it is possible
for long-distance calls to be carried by more than one network. Pursuant to the
Interconnection Decree, for long-distance calls which originate on the Companys fixed
line network, the Company is entitled to retain a portion of the prevailing long-distance
tariff, which ranges from 40% of the tariff in cases where the entire long-distance
portion is carried by a cellular operator up to 85% of the tariff in cases where the
entire long-distance portion is carried by the Companys fixed line network. For
long-distance calls that originate from a cellular subscriber, the Company is entitled to
retain a portion of the prevailing long-distance tariff, which ranges from 25% of the
tariff in cases where the call originates from a cellular subscriber, transits the
Companys fixed line network and terminates on another cellular subscriber with the entire
long-distance portion carried by a cellular operator, up to 85% of the tariff in cases
where the entire long-distance portion is carried by the Companys fixed line network and
terminates on the Companys fixed line network.

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50.
Interconnection Tariffs (continued)

| iii. |
| --- |
| Interconnection on the Companys domestic fixed line network for international calls
consists of access charges and usage charges. The following table sets forth the current
international interconnection tariff, effective as of December 1, 1998, for IDD calls
which are routed through Indosats international gateways and which originate, transit or
terminate on the Companys domestic fixed line network and Telkomsels cellular network,
pursuant to Ministerial Decree No. 37 of 1999: |

Description	Tariff
Access Charge	Rp850 / successful call
Usage Charge	Rp550 / successful paid minute

| | In addition, since June 2004, the Company has provided IDD services. Currently, the
Companys IDD service can be accessed by subscribers of all telecommunication operators in
Indonesia. Interconnection and access charges for originating calls using the Companys
IDD service or terminating incoming international calls routed through the Companys
international voice telecommunications gateway are negotiated with each respective
domestic operator. |
| --- | --- |
| iv. | Satellite Phone Interconnection |
| | Since the fourth quarter of 2001, the Company has been receiving a share of revenues
arising from interconnection transactions with PSN, a national satellite operator. Under
the agreement, in respect of the interconnection calls between the Company and PSN, the
Company receives Rp800 per minute for network charges and an additional Rp300 per minute
origination fee if the call originates from the Companys fixed line network. |
| v. | VoIP Interconnection |
| | Previously, MoC Decree No. 23 of 2002 provided that access charges and network lease
charges for the provision of VoIP services were to be agreed between network operators and
VoIP operators. On March 11, 2004, the MoC issued Decree No. 31/2004, which stated that
interconnection charges for VoIP are to be fixed by the MoC. Currently, the MoC has not
yet determined what the new VoIP interconnection charges will be. Until such time as the
new charges are fixed, the Company will continue to receive connection fees for calls that
originate or terminate on the Companys fixed line network at agreed fixed amount per
minute. |

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50.	TELECOMMUNICATIONS SERVICES TARIFFS (continued)
	Public Phone Kiosk (Wartel) Tariff
	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. It also provides that the airtime from the
cellular operators shall generate at a minimum 10% of the kiosk phones revenue.
	Tariff for Other Services
	The tariffs for satellite rental, and other telephony and multimedia services are determined
by the service provider by taking into account the expenditures and market price. The
Government only determines the tariff formula for basic telephony services. There is no
stipulation for the tariff of other services.
	Universal Service Obligation (USO)
	On September 30, 2005, the MoCI issued Regulation No. 15/PER/M.KOMINFO/9/2005, which sets
forth the basic policies underlying the USO program and requires telecommunications operators
in Indonesia to contribute 0.75% of gross revenues (with due consideration for bad debt and
interconnection charges) for USO development.
51.	COMMITMENTS

| a. |
| --- |
| As of June 30, 2006, 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		5,016,214
U.S. Dollar	460	4,278,928
Euro	180	2,128,931
Japanese Yen	156	12,600
Total		11,436,673

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COMMITMENTS (continued)

a.
The above balance includes the following significant agreements:

| (i) |
| --- |
| In August 2004, Telkomsel entered into the following 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: |

	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 lists 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 upon the issuance of 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 each PO. In the event that the suppliers fail to meet those requirements, Telkomsel may terminate the agreements at its sole discretion with a prior written notice.

In accordance with the agreements, the parties also agreed that the charges specified in the Price List will also apply to equipment and technical 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 the Effective Date. Prices as well as discounts thereon are subject to a quarterly review.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(ii)	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), which is related to the
construction of Network and Switching Subsystem (NSS) for nationwide and BSS for
Regional Divisions IV, V, VI, and VII. As of June 30, 2006, the Companys remaining
purchase commitment in connection with this MPPA amounted to US$32.3 million and
Rp28,326 million.
	Samsung Consortium will service and maintain the CDMA 2000 IX system that it
constructs, pursuant to a Service Level Agreement dated the same date as the MPPA in
return for an annual consideration of US$11.6 million.
(iii)	CDMA Procurement Agreement with Ericsson CDMA Consortium
	The Company and Ericsson CDMA Consortium entered into a Master Procurement
Partnership Agreement (MPPA) on December 23, 2002. The MPPA is related to the
construction of BSS for Regional Division II. As of June 30, 2006, the Companys
remaining purchase commitment in connection with this MPPA amounted to US$10.24
million and Rp25,905 million.
	Ericsson Consortium will service and maintain the CDMA 2000 IX system that it
constructs, pursuant to a Service Level Agreement dated the same date as the MPPA in
return for an annual consideration of US$5.3 million.
(iv)	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. As of June 30, 2006, the Companys remaining
purchase commitment in connection with this MPPA amounted to US$5,73 and Rp20,634
million.
	PT INTI will service and maintain the CDMA 2000 IX system that it constructs,
pursuant to a Service Level Agreement dated the same date as the MPPA in return for
an annual consideration of US$2.3 million.

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COMMITMENTS (continued)

a. Capital Expenditures (continued)

(v)	MPPA with Motorola
	On March 24, 2003, the Company signed an MPPA with Motorola, Inc. Under the MPPA,
Motorola is obliged to construct a CDMA fixed wireless access network and integrate
such network with the Companys existing network and all ancillary services relating
thereto in Regional Division I. As of June 30, 2006, the Companys remaining
purchase commitment in connection with this MPPA amounted to US$4.31 and Rp18,358
million.
	Motorola, Inc. will service and maintain the CDMA 2000 IX system that it constructs,
pursuant to a Service Level Agreement dated the same date as the MPPA in return for
an annual consideration of US$3 million.
(vi)	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 total consideration of approximately US$6.6 million and Rp111,655
million. As of June 30, 2006, the Company has paid and/or accrued a total of US$2.9
million plus Rp59,018 million.
(vii)	Ring JASUKA Backbone with NEC-Siemens Consortium
	On June 10, 2005, the Company entered into an agreement with NEC-Siemens Consortium
for the procurement and installation of an optical cable transmission of RING I
(link Jakarta Tanjung Pandan Pontianak Batam Dumai Pekanbaru Palembang
Jakarta) and RING II (link Medan Padang Pekanbaru Medan). Under this
agreement, and its latest amendment the Company is obliged to pay NEC-Siemens
Consortium total consideration of approximately US$45 million and Rp161,261 million.
This agreement is based on a turnkey arrangement. As of June 30, 2006, the Company
has paid and/or accrued a total of US$45 million plus Rp83,562 million.

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COMMITMENTS (continued)

| b. |
| --- |
| Telkomsel is exposed to market risks, primarily changes in foreign exchange rates, and
uses derivative instruments in hedging such risk. None of the derivative transactions
entered into by Telkomsel during 2005 and 2006 met the PSAK 55 criteria for hedge
accounting. Therefore, changes in the fair value of the derivative financial instruments
were recognized in the consolidated statements of income. |
| Telkomsel purchases equipment from several overseas suppliers and, as a result, is
exposed to fluctuations in foreign currency exchange rates. In 2005 and 2006, Telkomsel
entered into forward foreign exchange contracts with Deutsche Bank, Standard Chartered
Bank, The Hongkong and Shanghai Banking Corporation and Citibank Jakarta to mitigate the
foreign exchange risks relating to its purchases. The primary purpose of Telkomsels
foreign currency hedging activities is to protect against the volatility associated with
foreign currency purchases of equipment and other assets in the normal course of
business. |
| As of June 30, 2006, all of the forward contracts had been closed. |

c. Borrowings and other credit facilities

| (i) | Telkomsel has a combined US$20 million facility with Standard Chartered
Bank, Jakarta for import L/C, bank guarantee, standby L/C and foreign exchange. The
facility expires in December 2006. Borrowings under the facility bear interest at
SIBOR plus 2% per annum for drawing in US Dollar, at a rate equal to the three-month
Certificate of Bank Indonesia plus 2% per annum for drawing in Rupiah, and at the
Banks cost of fund plus 2% for drawing in other currencies. Under the facility,
Telkomsel has an outstanding bank guarantee of Rp120 billion (US$12.9 million) as of
June 30, 2006. There were no outstanding borrowings related to the facility as of
June 30, 2005 and 2006. |
| --- | --- |
| (ii) | Telkomsel has a US$40 million facility with Citibank N.A., Jakarta for
L/C and Trust Receipt Loan, which expires on July 31, 2006. Borrowings under this
facility bear interest at the Banks cost of fund plus 2% per annum. There were no
outstanding borrowings under this facility as of June 30, 2005 and 2006. |
| (iii) | Telkomsel has not collateralized any of its assets for its bank
borrowings or other credit facilities. The terms of the various agreements between
Telkomsel and its lenders and financiers require compliance with a number of pledges
and negative pledges as well as financial and other covenants, inter alia, certain
restriction on the amount of dividends and other profit distributions which could
adversely affect Telkomsels capacity to comply with the terms of the agreements.
The terms of the relevant agreement also contain default and cross default clauses.
Management is not aware of any breaches of the terms of these agreements and does
not foresee any such breaches occurring in the future. |

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CONTINGENCIES

| a. | 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 and Rp33,116 million as of June 30, 2005 and 2006,
respectively. |
| --- | --- |
| b. | 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. On
January 4, 2005, KPPU filed an appeal to the Indonesian Supreme Court. As of the date of
issuance of these consolidated financial statements, the Indonesian Supreme Court has not
issued its verdicts. The Company does not believe that these proceedings presently
pending will have a material adverse effect on the Companys consolidated financial
position, results of operations or liquidity. |
| c. | There are on-going investigations by the West Java Police Department as to the
conduct of the Companys Director of Human Resources Development, the Companys Director
of Consumer, and several other employees of the Company (including one former Director of
the Company and one former President Director of Napsindo the Companys subsidiary). As
the details of investigations have not been made public, the Company does not know the
full nature or extent of the investigations or the matters to which they relate, or
whether any charges are likely to be filed. Based on press reports, the Company
understands that the investigations relate principally to an alleged violation of
anti-corruption law regarding (i) the retention by the Company of a consultant and an
alleged overpayment without compliance with proper procedures; and (ii) the alleged
provision of interconnection services to Napsindo, the Companys subsidiary, and
Globalcom, a Malaysian company, at an incorrect tariff, and alleged use by
Napsindo/Globalcom of the Companys network for the provision of illegal VoIP services.
It is also understood that one of the investigations relates to the Companys guarantee
of a bank loan obtained by Napsindo. To the Companys knowledge, no charges have been
filed against any of the persons investigated by the West Java Police Department,
although several of them (but not the Companys Director of Consumer) were held in
custody in West Java pending completion of the investigations. On May 10, 2006, those
individuals were released from the police custody because the police were unable to find
any incriminating evidence to support the charges during the 120-day period they were
held in police custody. 120 days is the maximum period allowed for police custody of
suspects for investigation purpose. At the date of issuance of the consolidated financial
statements, the investigation is ongoing and there can be no assurance that the police
will not find evidence of wrong-doing, charges will not be filed in relation to the
foregoing, or that such persons or other employees of the Company will not be found
guilty of any offence. Although the Company believes that the investigations are without
merits, to the extent any of such persons are in custody, or are found guilty of any
offence, the Company is and would be deprived of their services. In addition, the Company
does not believe that there are any financial ramifications as a result of the
investigations. |

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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 millions)	Equivalent	(in millions)	Equivalent
Assets
Cash and cash equivalents
U.S. Dollar	83.18	810,611	148.16	1,372,274
Euro	61.50	723,848	1.47	119
Japanese Yen	0.06	5	68.45	805,804
Temporary investment
U.S. Dollar			1.99	18,468
Trade accounts receivable
Related parties
U.S. Dollar	0.21	2,049	2.59	23,945
Third parties
U.S. Dollar	24.96	243,276	32.98	305,492
Euro			0.01	88
Other accounts receivable
U.S. Dollar	0.92	9,000	0.32	2,985
Other current assets
U.S. Dollar	4.60	44,827	13.63	126,242
Advances and other
non-current assets
U.S. Dollar	8.27	80,602	6.71	62,168
Escrow accounts
U.S. Dollar	7.90	77,915	0.35	3,277
Total Assets		1,992,133		2,720,862

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued)


Foreign			Foreign
Currencies	Rupiah		Currencies	Rupiah
(in millions)	Equivalent		(in millions)	Equivalent
Liabilities
Trade accounts payable
Related parties
U.S. Dollar	14.51	177,892	4.06	37,606
Third parties
U.S. Dollar	143.41	1,399,718	76.60	709,842
Euro	54.82	646,293	5.91	69,602
Japanese Yen	10.66	943
Singapore Dollar	0.79	4,574	0.20	1,174
Great Britain Pound Sterling			0.03	582
Dutch Guilder	0.06	238
Accrued expenses
Euro			43.41	511,310
U.S. Dollar	0.17	223,931	95.93	889,022
Japanese Yen	9.34	1,852	58.46	4,720
French Franc	0.71	933
Singapore Dollar			0.74	4,308
Great Britain Pound Sterling			0.01	132
Nederland Guilder	0.48	1,884
Short-term bank loans
Third parties
U.S. Dollar	53.46	521,770	60.55	561,090
Advances from customers
and suppliers
U.S. Dollar	0.77	7,491	2.18	20,185
Current maturities
of long-term liabilities
U.S. Dollar	131.20	1,280,528	142.49	1,320,446
Euro	14.60	172,158	14.73	173,468
Japanese Yen	1,150.00	101,524	1,143.42	92,315
Long-term liabilities
U.S. Dollar	708.64	6,916,320	593.85	5,503,199
Japanese Yen	14,952.45	1,321,884	13,819.35	1,115,724
Euro	28.36	334,316	14.73	173,468
Total liabilities		13,114,249		11,188,193
Net liabilities		(11,122,116	)	(8,467,331	)

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SUBSEQUENT EVENT

| a. | On July 17, 2006, Pangandaran, area of Division Regional III West Java and Banten
was experienced natural disaster of tectonic earthquake and tsunami. At the date of
issuance of the consolidated financial statements, the Company is still in process
identifying the lost caused by the earthquake and tsunami. These telecommunication
facilities were covered by insurance. Based on the preliminary assessment, the possible
lost will not be material. |
| --- | --- |
| b. | Since July 1 to 20, 2006 the Company has repurchased the Companys Series B shares
of 17,521,000 shares, resulted an accumulated of 72,964,500 shares has been repurchased
as of July 20, 2006. As of July 20, 2006 the outstanding weighted average shares amounted
to 20,149,767,728 shares and the net income per share of Rp288.79 and net income per ADS
of Rp11,551.42 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

| 55. |
| --- |
| The consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in Indonesia (Indonesian GAAP), which differ in certain
significant respects from 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. |
| As discussed in Note 4, the Companys consolidated financial statements prepared in accordance
with Indonesian GAAP as of and for the six months period ended June 30, 2005 have been
restated in connection with the adoption of PSAK 24R. While the restatement affected
previously reported consolidated net income and stockholders equity under Indonesian GAAP,
there was no net effect on consolidated net income and stockholders equity under U.S. GAAP as
previously reported. However, certain reconciling line items in arriving at net income and
stockholders equity under U.S. GAAP have been revised. |

(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 gains and losses resulting from borrowings
used to finance property under construction are capitalized. Capitalization of
foreign exchange gains and losses ceases 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 gains and losses 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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 accounting records of the party to whom
ownership in such properties will be transferred at the end of the revenue-sharing
period, with a corresponding initial credit to unearned income. The property, plant
and equipment are depreciated over their useful lives, while the unearned income is
amortized over the revenue-sharing period. The Company records its share of the
revenues earned net of amounts due to the investors.
	Under U.S. GAAP, the revenue-sharing arrangements are recorded in a manner similar
to capital leases where the fixed assets and obligation under revenue-sharing
arrangements are reflected on the balance sheet. All the revenues generated from the
revenue-sharing arrangements are recorded as a component of operating revenues,
while a portion of the investors share of revenue from the revenue-sharing
arrangements is recorded as interest expense and the balance is treated as a
reduction of the obligation under revenue-sharing arrangements.
e.	Employee benefit plans
	As of January 1, 2005, the Company adopted PSAK 24R in accounting for pension
benefit cost, post-retirement health care benefit cost and long service award
benefit cost for Indonesian GAAP purposes. PSAK 24R requires the adoption of its
provisions restrospectively as of Januari 1, 2004 (Note 4a). Prior to 2004, there
were no differences between Indonesian GAAP and U.S. GAAP with respect to the
accounting for post-retirement health care benefit cost and long service award
benefit cost while for pension benefit cost, there were some differences as follows:

| i. | Under Indonesian GAAP, the prior service cost attributable to
the increase in pension benefits for pensioners was directly charged to expense
in those years. Under U.S. GAAP, because the majority of plan participants are
still active, such prior service cost is deferred and amortized systematically
over the estimated remaining service period for active employees. |
| --- | --- |
| ii. | Under Indonesia GAAP, the Company amortized the cumulative
unrecognized actuarial gain or loss over four years. Under U.S. GAAP, any
cumulative unrecognized actuarial gain or loss exceeding 10 percent of the
greater of the projected benefits 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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)

e. Employee benefit plans (lanjutan)

iii. Under Indonesian GAAP, recognition of a minimum liability is not required. Under U.S. GAAP, the Company would be required to recognize an additional minimum liability when the accumulated benefits obligation exceeds the fair value of the plan assets, and an equal amount would be recognized as an intangible assets, provided that the asset recognized does not exceed the amount of unrecognized prior service cost.

Starting in 2004, the differences between the Companys accounting for pension benefit cost, post-retirement health care benefit cost and long service award cost under Indonesian GAAP and U.S. GAAP are as follows:

| i. | Under Indonesia GAAP, the prior service cost is recognized
immediately if vested or amortized over the vesting period. Under U.S. GAAP,
prior service cost (vested and non-vested benefits) is generally deferred and
amortized systematically over the estimated remaining service period for active
employees. |
| --- | --- |
| ii. | Different dates of implementation caused significant
differences in cumulative unrecognized actuarial gains and losses. However, the
cumulative unrecognized actuarial gains and losses under Indonesian GAAP is now
recognized in a manner similar to U.S. GAAP. |
| iii. | Under Indonesian GAAP, the transition obligation was recognized
on January 1, 2004, the date PSAK 24R was adopted. Under U.S GAAP, the
transition obligation is deferred and amortized systematically over the
estimated remaining service period for active employees. |
| iv. | The differences between Indonesian GAAP and U.S. GAAP in
connection with the recognition of minimum liability remains unchanged. |

| f. |
| --- |
| 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 recognizes the effect of the
differences between U.S. GAAP and Indonesian GAAP at the investee level in the
investment accounts and its share of the net income or loss of those associates. |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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)

g.	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.
h.	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.
i.	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, goodwill is not amortized but rather subjected to an annual test
for impairment.
j.	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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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.	Capital Leases (continued)
	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 net present value of
minimum lease payments are at least 90% of the fair value of the asset.
k.	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 9.68% 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.
l.	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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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)

m.	Asset Retirement Obligations
	Under Indonesian GAAP, legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and/or
the normal operation of long-lived assets are charged to current operations as
incurred.
	Under U.S. GAAP, the estimated fair value of such obligation is accrued at the time
of acquisition with an equal amount 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.
n.	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.
o.	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 a 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. When an impairment loss is recognized, the adjusted carrying
amount of fixed asset becomes its new cost basis and reversals of previously
recognized impairment losses are prohibited.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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)

o.	Impairment of Assets (continued)
	Through the year ended December 31, 2004, there were no impairment charges
recognized by the Company. As discussed in Note 12, in 2005, the Company recognized
impairment charges on BSS equipment which are part of transmission installation and
equipment of fixed wireless assets. The sum of the expected future cash flows
(undiscounted and without interest charges) relating to these impaired assets is
less than the carrying amount of the assets and therefore, for U.S. GAAP reporting
purposes, these assets have been written down to their estimated fair value based on
discounted estimated future cash flows. The estimated fair values of the impaired
assets determined under U.S. GAAP are the same as those determined under Indonesian
GAAP; accordingly, there were no differences between Indonesian GAAP and U.S. GAAP.
p.	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.
	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.
q.	Reversal of Difference in Value of Restructuring Transactions Between
Entities Under Common Control
	Under Indonesian GAAP, the Company is required to reclassify the difference in value
of restructuring transactions between entities under common control as of January 1,
2005 as a direct adjustment to retained earnings when the common control
relationship between the transacting parties no longer exists as of January 1, 2005.
	Under U.S. GAAP, difference in value of restructuring transactions between entities
under common control remains in equity indefinitely as part of the additional
paid-in capital.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(2) A summary of the significant adjustments to consolidated net income for the ix months period ended June 30, 2005 and 2006 and to consolidated stockholders equity as of June 30, 2005 and 2006 which would be required if U.S. GAAP had been applied, instead of Indonesian GAAP, in the consolidated financial statements are set forth below:


		(As restated *)
Net income according to the consolidated
statements of income prepared under
Indonesian GAAP*			3,803,411		5,818,960
U.S. GAAP adjustments increase
(decrease) due to:
Termination benefits	(a	)	11,372
Capitalization of foreign exchange
differences	(b	)	38,129		41,072
Interest capitalized on property under
construction	(c	)	13,738		19,188
Revenue-sharing arrangements	(d	)	84,317		125,324
Pension	(e	)	156,935		(8,071	)
Post-retirement health care	(e	)			(50,603	)
Long service awards	(e	)			5,371
Equity in net income (loss) of associated
companies	(f	)	(46	)	(75	)
Amortization of land rights	(g	)	(7,471	)	(8,348	)
Revenue recognition	(h	)	(54,869	)	(11,667	)
Goodwill	(i	)	10,635		10,635
Capital leases	(j	)	17,689		(12,944	)
Adjustment for consolidation of Dayamitra	(k	)	(9,080	)	3,082
Asset retirement obligations	(m	)	(424	)	(1,961	)
Others			3,819
Deferred income tax:
Deferred income tax on equity method
investments	(n	)			(1,907	)
Deferred income tax effect on U.S. GAAP
adjustments			(91,371	)	37,341
			173,373		146,437
Minority interest			(16,968	)	(5,236	)
Net adjustments			156,405		141,201
Net income in accordance with U.S. GAAP			3,959,816		5,960,161
Net income per share in full Rupiah amount			196.42		295.71
Net income per ADS in full Rupiah amount
(40 Series B shares per ADS)			7,856.78		11,828.53

Net income for the year ended December 31, 2005 under Indonesian GAAP has been restated in connection with the adoption of PSAK 24R (Note 4).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(2) (continued)


		(As restated*)
Stockholders equity according to the consolidated
balance sheets prepared under Indonesian GAAP*			18,952,086		24,299,821
U.S. GAAP adjustments increase (decrease) due to:
Early retirement	(a	)	11,372
Capitalization of foreign exchange differences
net of related depreciation	(b	)	(510,758	)	(430,804	)
Interest capitalized on property under construction
net of related depreciation	(c	)	142,352		171,626
Revenue-sharing arrangements	(d	)	(208,010	)	(97,830	)
Pension	(e	)	2,123,302		1,843,438
Post-retirement health care	(e	)	1,142,561		987,493
Long service awards	(e	)	(122,462	)	(208,024	)
Equity in net income (loss) of associated companies	(f	)	(18,475	)	(18,698	)
Amortization of land rights	(g	)	(86,589	)	(92,355	)
Revenue recognition	(h	)	(769,259	)	(721,012	)
Goodwill	(i	)	74,444		95,714
Capital leases	(j	)	35,377		(42,779	)
Adjustment for consolidation of Dayamitra	(k	)	(70,806	)	(53,570	)
Asset retirement obligations	(m	)	(2,120	)	(4,504	)
Deferred income tax:
Deferred income tax on equity method
investments	(n	)	39,344		34,432
Deferred income tax effect on U.S. GAAP
adjustments			(122,940	)	(105,263	)
			1,657,333		1,357,864
Minority interest			(11,206	)	(17,066	)
Net adjustments			1,646,127		1,340,798
Equity in accordance with U.S. GAAP			20,598,213		25,640,619

Equity as of December 31, 2005 under Indonesian GAAP has been restated in connection with the adoption of PSAK 24R (Note 4).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED 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, 2005 and 2006 are as follows:

Stockholders equity at beginning of year	19,570,912		24,568,488
Changes during the year:
Net income under U.S. GAAP	3,959,816		5,960,161
Dividends	(2,921,227	)	(4,400,090	)
Accumulated other comprehensive income, net of tax	(11,288	)	(74,200	)
Treasury stock			(413,740	)
Stockholders equity at end of period	20,598,213		25,640,619

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


Consolidated balance sheets
Current assets	10,791,854	14,884,625
Non-current assets	47,598,330	54,790,759
Total assets	58,390,184	69,675,384
Current liabilities	14,806,686	20,608,523
Non-current liabilities	17,858,012	17,276,154
Total liabilities	32,664,698	37,884,677
Minority interest in net assets of subsidiaries	5,127,273	6,150,088
Stockholders equity	20,598,213	25,640,619
Total liabilities and stockholders equity	58,390,184	69,675,384

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED 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 | 7,631,875 | | 11,454,712 | |
| --- | --- | --- | --- | --- |
| Income tax in accordance with U.S. GAAP
at 30% statutory tax rate | 2,289,545 | | 3,436,396 | |
| Effect of non-deductible expenses (non-taxable income)
at the enacted maximum tax rate (30%) | | | | |
| Net periodic post-retirement health care benefit cost | 42,143 | | 82,840 | |
| Amortization of discount on promissory notes
and other borrowing costs | 7,503 | | 22,389 | |
| Employee benefits | 7,950 | | 18,004 | |
| Permanent differences of the KSO Units | 3,742 | | 18,266 | |
| Income which was already subject to final tax | (50,351 | ) | (49,403 | ) |
| Equity in net (income) loss of associated companies | (780 | ) | (19,295 | ) |
| Others | 812,898 | | (22,458 | ) |
| Total | 823,105 | | 50,343 | |
| Provision for income tax in accordance
with U.S. GAAP | 3,112,650 | | 3,486,739 | |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

a.	Income Tax (continued)
	For the six months period ended June 30, 2006, all of the Companys operating
revenues occurred in Indonesia, and accordingly, the Company has not been subject to
income tax in other countries.
b.	Fair Value of Financial Instruments
	The following methods and assumptions are used to estimate the fair value of each
class of financial instruments:
	Cash and cash equivalents and temporary investments
	The carrying amount approximates fair value because of the short-term nature of the
instruments.
	Short-term bank loans
	The carrying amount approximates fair value because of the short-term nature of the
instruments.
	Long-term liabilities
	The fair value of long-term liabilities other than bonds and guaranteed notes is
estimated by discounting the future cash flows of each instrument at rates currently
offered to the Company for similar debt instruments of comparable maturities by the
Companys bankers.
	The fair value of bonds and guaranteed notes is based on market prices at balance
sheet date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN INDONESIA AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED 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
2005
Cash and cash equivalents	6,009,872	6,009,872
Temporary investments	100,418	100,418
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
Medium-term notes	833,808	867,764
Bank loans	2,361,873	2,465,455
Liabilities of business acquisitions	4,241,994	4,881,016
2006
Cash and cash equivalents	9,346,253	9,346,253
Temporary investments	42,877	42,877
Short-term bank loans	17,100	17,100
Long-term liabilities:
Two-step loans	4,857,463	4,322,817
Bonds	994,494	1,026,607
Medium-term notes	464,621	445,130
Bank loans	2,749,499	2,640,818
Liabilities of business acquisitions	3,300,958	3,079,408

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

b. Fair Value of Financial Instruments (continued)

ii. Estimated fair values are not necessarily indicative of the amounts that the Company and its subsidiaries would record upon disposal/termination of the financial instruments.

c. Comprehensive Income

Net income under U.S. GAAP	3,959,816	5,960,161
Unrealized holding gain (loss) on available-for-sale
securities	406	2,345
Foreign currency translation adjustments of associates		(55	)
Minimum pension liability adjustments		(76,490	)
	3,960,222	5,885,961

Adjustments to net income to arrive at comprehensive income include unrealized holding gains (losses) on available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments. The foreign currency translation adjustments of associates are reported net of income tax of nil and Rp55 million for the six months period ended June 30, 2005 and 2006, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

e.
The Company
The disclosures under SFAS No. 132 (Revised 2003) and SFAS No. 106 are as follows:

2005		2006		2005		2006
Components of Net Periodic Benefit Cost
Service cost	69,059		93,980		43,818		53,757
Interest cost	394,915		384,293		253,997		302,787
Expected return on plan assets	(266,667	)	(338,801	)	(51,749	)	(72,632	)
Amortization of prior service cost
(gain)	100,633		100,633		(184	)	(184	)
Recognized actuarial loss (gain)	10,622				44,295		60,993
Amortization of transition obligation	14,317		14,317		12,163		12,163
Net periodic benefit cost	322,879		254,422		302,340		356,884
Amounts charged to KSO Units under
contractual agreement	(9,330	)	(10,114	)	(5,814	)	(6,591	)
Total net periodic benefit cost less
amounts charged to KSO Units	313,549		244,308		296,526		350,293

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

| e. |
| --- |
| The Company (continued) |
| The following table presents the change in benefit obligation, the change in plan
assets, funded status of the plan and the net amount recognized in the Companys
balance sheets as of June 30, 2005 and 2006: |

2005		2006		2005		2006
Change in benefit obligation
Benefit obligation at beginning of
year	7,315,182		7,140,100		4,681,005		5,574,489
Service cost	69,059		93,980		43,818		53,757
Interest cost	394,915		384,293		253,997		302,787
Plan participants contributions	20,686		19,142
Actuarial (gain) loss	(397,090	)	(387,586	)	211,917		252,366
Benefits paid	(175,110	)	(152,958	)	(62,990	)	(69,283	)
Benefit obligation at end of
year	7,227,642		7,096,971		5,127,747		6,114,114
Change in plan assets
Fair value of plan assets at
beginning of year	4,884,523		5,429,954		1,138,768		1,493,897
Actual return on plan assets	77,877		338,801		22,605		72,632
Employer contributions	354,104		347,551		286,688		425,368
Plan participants contributions	20,686		19,142
Benefits paid	(175,110	)	(152,958	)	(62,990	)	(69,283	)
Fair value of plan assets at
end of year	5,162,080		5,982,490		1,385,071		1,922,614
Funded status	(2,065,562	)	(1,114,481	)	(3,742,676	)	(4,191,500	)
Unrecognized prior service cost
(gain)	1,760,933		1,559,668		(1,383	)	(1,015	)
Unrecognized net actuarial loss	755,841		317,996		1,656,176		2,049,711
Unrecognized net transition
obligation	105,940		77,306		231,087		206,762
Net amount recognized	557,152		840,489		(1,856,796	)	(1,936,042	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

| e. |
| --- |
| The Company (continued) |
| The accumulated benefit obligation of the Companys defined benefit pension plan was
Rp4,656,605 million and Rp4,829,227 million as of December 31, 2004 and 2005,
respectively. |
| The measurement date used to determine pension and health care benefit measures for
the pension plan and the health care plan is December 31, 2004 and 2005 for the six
months period ended June 30, 2005 and 2006, respectively. |
| The assumptions used by the independent actuary to determine the benefit obligation
of the plans as of December 31, 2004 and 2005 were as follows: |

2004	2005	2004	2005
Discount rate	11 %	11 %	11 %	11 %
Rate of compensation increase	8 %	8.8 %

The assumption used by the independent actuary to determine the net periodic benefit cost of the plans for the years ended December 31, 2004 and 2005 were as follows:

2004	2005	2004	2005
Discount rate	11 %	11 %	11 %	11 %
Expected long-term return on plan assets	11 %	10.5 %	11 %	8 %
Rate of compensation increase	8 %	8 %

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Table of Contents

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005 AND 2006, AND FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2005 AND 2006

(Figures in tables are presented in millions of Rupiah, unless otherwise stated)

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

(3) Additional financial statement disclosures required by U.S. GAAP and U.S. SEC (continued)

e.
The Company (continued)
Assumed health care cost trend rates at December 31 2004 and 2005 are as follows:

Health care cost trend assumed for next year	12 %	9 %
Rate to which the cost trend is assumed to decline
(the ultimate trend rate)	8 %	9 %
Year that the rate reaches the ultimate trend rate	2007	2006

| | The actuarial valuations for the defined benefit pension plan and post-retirement
health care plan as of December 31, 2004 and 2005 were prepared on March 15, 2005,
and February 27, 2006, respectively, by an independent actuary. |
| --- | --- |
| f. | Recent Accounting Pronouncements |
| | SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of
FASB Statements No. 133 and 140. In February 2006, the FASB issued SFAS No. 155
which amends SFAS No. 133 to narrow the scope exception for interest-only and
principal-only strips on debt instruments to include only such strips representing
rights to receive a specified portion of the contractual interest or principal cash
flows. SFAS No. 155 also amends SFAS No. 140 to allow qualifying special-purpose
entities to hold a passive derivative financial instrument pertaining to beneficial
interests that itself is a derivative financial instrument. SFAS No. 155 shall be
effective for all financial instruments acquired, issued, or subject to a
remeasurement (new basis) event occurring after the beginning of an entitys first
fiscal year that begins after September 15, 2006. It is not expected that the
adoption of SFAS No. 155 will have a material effect on the Companys consolidated
financial statements. |
| | SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB
Statements No. 140 In March 2006, FASB issued SFAS No. 156 which amend Statement
140 to require that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. This Statement
permits, but does not require, the subsequent measurement of separately recognized
servicing assets and servicing liabilities at fair value. SFAS No. 156 will be
effective as of the beginning of its first fiscal year that begins after September
15, 2006. |

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