TAX CONFERENCE

The recently enacted "American Jobs Creation Act" gives significant tax breaks to a number of U.S. industries--including shipping.

MARINE LOG and BLANK ROME will present a senior level seminar CHANGES IN U.S. TAXATION OF SHIPPING INCOME in Stamford, Conn. on April 5 & 6, 2004

Make sure you know how the new tax rules work!

March 4, 2005

Frontline to challenge Indonesian verdict

Indonesia's Business Competition Supervisory Commission (KPPU) has declared that state oil and gas company Pertamina and three of its business partners violated monopoloy and comeptition law in a case involving the sale of two of the company's tankers worth US$184 million last year.

"Administrative sanctions were imposed on Pertamina, while the three companies were fined, for colluding to favor a certain bidder during the open tender," reports the Jakarta Post

The Jakarta Post reports that the commission said the tanker sales had caused the state to lose up to $50 million as the market price of each VLCC (very large crude carrier) was between $120 million and $150 million.

The KPPU ordered the Pertamina board of directors and board of commissioners to report their wrongdoing to the shareholders meeting and to suspend the company's director of finance.

Singapore-based financial advisor Goldman Sachs, PT Equinox, an Indonesian shipping company that serves as a Pertamina agent, and the tender winner, Bermuda-based Frontline Ltd were ordered to pay a total of Rp 61.27 billion in fines to the state as well as Rp 180 billion (US$19.4 million) in penalties.

The KPPU also banned Pertamina from doing business with the three until the fines and penalties are paid.

Frontline Ltd. says it "absolutely rejects the correctness of the verdict" and that, following a review of the full text, it intends to "take all steps to challenge it and have it overturned."

Frontline faces a fine of 25 billion rupiah (approx. $2.6 mill.) and an obligation to compensate Pertamina with 120 billion rupiah (approx. USD 12.8 mill.).

Frontline says the background for the verdict is an agreement made between Pertamina (the state controlled Indonesian oil company) and Frontline in June last year pursuant to which Frontline agreed to purchase two VLCCs from Pertamina subsidiaries.

The purchase was made on the basis of an open auction organized by Goldman Sachs on behalf of Pertamina.

Frontline says it submitted, together with a number of other industry players, an indicative bid in line with a detailed request for bids prepared by Goldman Sachs in late May 2004. "The bid obviously reflected Frontline's view of the market price of the vessels at the time."

Frontline says that in early June 2004 it was notified by Goldman Sachs that it had been shortlisted as a possible purchaser of the vessels based on Goldman Sachs' review of all bids received.

Frontline prevailed in the final round and finalized the purchase by way of executing memoranda of agreement for both vessels in a form prepared by Goldman Sachs in late June 2004. In accepting Frontline's bid, Pertamina accepted that this represented the highest of the bids received in the auction, says Frontline.

Frontline says it "categorically denies having had any direct contact with any person in Pertamina's organization in relation to the sale. Frontline furthermore absolutely rejects any allegations that their conduct in this transaction has been anything but proper and professional. The vessels were bought on market terms in an open auction where a number of industry players participated. It should thus be obvious that any loss claimed by Pertamina therefore is caused by the decision to sell rather than the terms of the sale or any improper conduct by Frontline."

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