Govt must stop selling assets to dubious SPVs: Experts

Rendi A. Witular, The Jakarta Post, Jakarta

Experts have urged the government to stop selling state assets to investors using special purpose vehicles (SPVs) registered in tax-havens due to the lack of transparency.

The practice could encourage corruption and collusion, legal expert Pradjoto told The Jakarta Post Friday.

An SPV is a company -- usually based in tax-havens such as the Cayman Islands, Mauritius, the Virgin Islands or Fiji -- established as a third-party company that represents the original investor to acquire assets.

The purpose of using SPVs is usually for tax efficiency and secrecy of the ultimate stakeholders' identity.

The returns of revenue and transactions are tax free. Moreover, the governments of the havens also have favorable policies protecting the identity of the companies' owners.

The government recently sold a 41.9 percent stake in state- owned telecommunications company PT Indosat to Singapore Technologies Telemedia (STT). But the latter used a Mauritius- based SPV called Indonesian Communication Ltd. (ICL) to acquire the stake.

This has raised criticism because the SPV has no obligation to disclose who its owners are, although the government has assured the public that ICL is fully owned by STT.

The issue of transparency in the sale of state assets is high in the minds of many people, particularly as political parties gear up for the 2004 general elections.

The sale of a number of state assets has also been conducted via the SPV mechanism. A prominent example is the sale of government shares in the giant Bank Central Asia (BCA) last year, which was bought by a consortium called Farallon Capital, which used the Mauritius-registered Farindo Holdings as the investment vehicle.

There were fears that the former owner of BCA, the Salim family, could be behind the SPV. The government has actually banned Salim from repurchasing assets which had been pledged to the government to repay debts to the state.

Pradjoto said that selling strategic assets like Indosat to dubious SPVs could harm the interests of the public because the assets could easily fall into the hands of shady, unknown businessmen.

Economist Dradjat Wibowo said that selling state assets without ensuring transparency was against the drive to uphold good corporate governance.

"The funny thing is that certain ministers who claim to back good governance are now consenting to such mechanisms," he said.

Dradjat said that to prevent similar transactions from reoccurring in the future, the political parties and the media needed to keep a watchful eye on the government.

He said that in the longer-term, a special law on privatization programs must be launched to help ensure transparency in the privatization process.

"The only, probably effective pressure will come from political parties and the media," Dradjat said.