Govt plans to detain KBC executives for alleged tax evasion

Govt plans to detain KBC executives for alleged tax evasion

Leony Aurora, The Jakarta Post/Jakarta

In the midst of a lengthy and ongoing dispute between Indonesia
and U.S. power firm Karaha Bodas Company (KBC), the Directorate
General of Tax is planning to immediately detain three top KBC
executives due to tax arrears dating back to the 1990s.

Director General Hadi Purnomo said on Tuesday that the
detention was for unpaid value-added taxes in 1999 amounting to
Rp 12 billion (US$1.33 million).

The executives to be jailed were only identified by their
title and their initials; the company's director, RDMC, finance
manager, MC -- both U.S. citizens -- and LSP, an Indonesian
shareholder, Antara news agency reported.

"The letter (ordering the detention) from the Ministry of
Finance was issued last Friday," Hadi later told The Jakarta
Post. "We will execute it immediately."

Hadi said that the U.S. citizens might have left the country.
"So, we will send an extradition request to the U.S. government,"
he said

The local shareholder would also be detained as soon as
possible, Hadi added.

KBC is owned by U.S. firms Caithness Energy LLC and Florida
Power & Light Co., as well as local firm PT Sumirah Daya Sakti.
It was one of 27 independent power producers whose projects were
terminated by the government -- as recommended by the
International Monetary Fund -- following the 1997 economic
crisis.

An international arbitration court in Switzerland ruled in
2000 that state oil and gas firm Pertamina, with whom KBC held a
contract for a joint geothermal energy project, had to pay $271
million in damages to KBC for the termination of the project.

The tax office said that the company failed to report that
additional income in 2000, even though it has not yet been paid
by Pertamina. "The compensation is already considered a tax
object. Collectively, the unpaid taxes and fines reach $176
million," Hadi explained.

Additionally, KBC allegedly did not submit an income tax
report for 1998, even after the March 31, 1999 deadline set by
the tax office. State losses amounted to $21 million.

The office had previously announced that it would detain all
of the KBC shareholders for tax evasion. Government Regulation
No. 137/2000 authorizes the Directorate General of Tax to detain
alleged tax evaders without charge or trial for up to one year,
after which the office must either release them or hand the case
over to the police.

The Indonesian government is conducting separate efforts to
settle the dispute with the U.S. power firm and lower the amount
owed, which currently stands at approximately $300 million,
including accrued interest.

It is seeking to reduce the company's compensation claim
through an out-of-court settlement. Officials said that they were
confident such a settlement was possible because there had also
been allegations of a markup in the value of the power project.

The government also asked the police to check for any
improprieties in the awarding of the contract by Pertamina to
KBC. The police have so far questioned 24 people from both
parties and charged three suspects for allegedly making
fictitious transactions including a markup of some US$19 million
in project construction costs.

Several critics have urged the government not to allow
Pertamina to pay the claim because they say that the project was
given to KBC without a proper tender process.

The government also plans to appeal to the State Supreme Court
of New York, asking the court not to freeze $256 million of
Pertamina accounts in U.S. banks.