Bribery allegation in Paiton project denied

Bribery allegation in Paiton project denied

JAKARTA (JP): Tycoon Hashim Djojohadikusumo denied on Thursday
that independent power producer PT Paiton Energy used bribery to
secure its controversial power purchase contract with state-owned
electricity company PT PLN.

Hashim, who is president commissioner of Paiton, said he was
concerned with the audit results of the Development Finance
Comptroller (BPKP) which suggested that the company bribed
several top government officials and executives of PLN to secure
its contract in 1994.

"The report contains a lot of speculation rather than the
results of a study based on reality and truth," Hashim said.

In its audit results, the comptroller said former president
Soeharto, former mines and energy minister Ginandjar Kartasasmita
and IB Sudjana, former PLN president Zuhal could have received
bribes from Paiton.

As such, it called on the government to check the bank
accounts of those mentioned.

Other people suspected to have received the bribes included
former investment minister Sanyoto Sastrowardoyo, former finance
minister JB Sumarlin and members of PLN's former team of
negotiations for private power projects.

The comptroller said it became suspicious of a possible
bribery after noticing in the company's financial report an item
called "development cost," which it said was not clearly
accounted for by the company. The comptroller labeled the sum as
"speedy money," or funds used to secure the contract.

The comptroller has yet to make public the audit results, but
copies have been made available to the media over the past two
weeks.

The comptroller made the audit at the request of PLN.

Hashim said the so-called development costs were legal and
Paiton clearly recorded the use of the money and the names of the
companies which received payment.

Paiton's data said that of the US$38.2 million development
cost, $23.8 million was paid in fees to 13 legal consultants of
the company's shareholders and lenders and another $711,859 to
two tax consultants.

Paiton paid another $8.7 million to several banks for their
financial advice.

The company also paid $1.28 million in fees to American
strategy consultancy firm Kisingger & Assoc., $274,263 to labor
consultant Corsavero Pty, $28,050 to information system
consultant CSC, $81,216 to coal consultant Marston and $8,615 to
Padjadjaran University for an environmental study.

Paiton also paid a total of $3.2 million to six engineering
service companies.

The comptroller also said that the price in the contract for
the coal supplied by Hashim's company PT Adaro for Paiton's power
plant in Paiton, Probolinggo, East Java had been set too high.

It said the price of coal hovered around $22 and $24 per ton
over the past three years, compared to $39.76 per ton for Adaro's
coal in 1997.

Hashim said the coal price quoted by BPKP was based on
free-on-board (FOB) delivery, while the price set in the contract
for Adaro's coal was based on the cost-and-freight (C&F
delivery).

The $39.76 per ton price also took into account a guarantee
from coal company BHP to supply coal for the power plant for 30
years and an obligation from Adaro to always prepare coal stock
of 640,000 tons on Laut Island in South Kalimantan, Hashim said.

Paiton's decision to select Adaro as a coal supplier was based
on the fact that Adaro produces environmentally clean coal, he
added.

Hashim insisted that there were no irregularities in the
project, pointing out that the lenders studied the project for 15
months before agreeing on the loan.

Hashim acknowledged that he once sent a letter to Soeharto for
assurance that the project may go ahead, but he said he did so
because the then mines and energy minister, IB Sudjana, refused
to meet him.

Paiton Energy is owned by Japan's Mitsui (32.5 percent),
Edison Mission of the United States (40 percent), General
Electric, also of the U.S. (12.5 percent) and local firm PT Batu
Hitam Perkasa (15 percent), and is controlled by Hashim.

The company has developed a 1,230 Megawatt (MW) coal-fired
power plant called Paiton Swasta I in Probolinggo, East Java and
it is worth $2.5 billion.

Under the contract, Paiton sells its power to PLN at a price
between 5.5 cents and 8.5 cents per kilowatt hour (Kwh). This
price is higher than the average of 6.4 cents per Kwh set by
other independent power producers and much higher than PLN's
selling price of Rp 240 (about 3 cents). (jsk)