Govt ups the ante in struggle against KBC

Govt ups the ante in struggle against KBC

The Jakarta Post, Jakarta

The government on Tuesday put an executive of American-
controlled Karaha Bodas Company (KBC) into jail, and is ordering
its lawyers to continue legal battles in the United States to
prevent KBC from obtaining compensation for its suspended power
project.

The seemingly-desperate move came on Tuesday, as KBC
distributed copies of the ruling by the Supreme Court annulling
the previous decision by the Central Jakarta District Court that
nullified the ruling by the Swiss arbitration court ordering
Pertamina to pay damages to KBC.

The Supreme Court ruling, which some analysts say is
tantamount to an order for Pertamina to abide by the arbitration
ruling, comes as another blow to Pertamina and the government's
years-long struggle to avoid paying compensation to KBC.

The directorate general of taxation announced on Tuesday that
it had put an Indonesian executive of KBC into the Cipinang
penitentiary on charges of tax evasion.

The office itself refused to identify the person, but a guard
at the penitentiary told The Jakarta Post the man was named
Loedito Setyawan Poerbowasi. He is one of the owners of PT
Sumarah Daya Sakti, which partnered with American firms Caithness
Energy and Florida Power & Light Co to form KBC.

Djangkung Sudjarwadi, a staff expert on human resources at the
directorate, said on Tuesday that his office was still hunting
for two other KBC executives, an American and Canadian citizen
respectively, whose arrests have been ordered by the government
on the same charges. Many believe the two have fled the country.

The tax office has accused KBC of failing to pay taxes
amounting to more than US$180 million.

Aside from launching tax fraud charges, the government is also
probing possible corruption committed by KBC to obtain the
contract to develop its geothermal project in West Java.

State Minister of State Enterprises Sugiharto said on Tuesday
that the government would use the tax fraud and corruption
charges to press KBC to accept an out-of-court settlement in its
dispute with Pertamina.

KBC is among dozens of independent power producers whose
projects were suspended by the government in the wake of economic
crisis in 1997. KBC then filed an arbitration suit in
Switzerland, demanding Pertamina, as the agency that gave it the
contract, to pay compensation.

The arbitration court ruled in favor of KBC, ordering
Pertamina to pay $261 million to KBC. Later, the U.S. courts
upheld the arbitration ruling and ordered Pertamina to pay $291
million in compensation. On the court's order, American banks
froze funds worth about $650 million owned by Pertamina and the
Indonesian government.

Sugiharto said the government is asking the law firm
representing its interests to file an appeal to the U.S. Supreme
Court for the release of funds belonging to the Indonesian
government.

Elsewhere, Sugiharto played down the ruling by the Indonesian
Supreme Court annulling the Central Jakarta District Court's
decision, saying the ruling only decided on the "right" of the
Central Jakarta District Court and did not address "the content"
of Pertamina's complaint.

At the request of Pertamina, the Central Jakarta District
Court ruled in 2002 to annul the arbitration ruling. However, the
Supreme Court said in its ruling dated March 8, 2004 that since
Pertamina had appealed to the Swiss Supreme Court against the
arbitration ruling, the Central Jakarta District had no further
right to decide on Pertamina's request to annul the ruling.