Govt must stop selling assets to dubious SPVs: Experts

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.