CalEnergy lodges claim with OPIC

CalEnergy lodges claim with OPIC

WASHINGTON (Dow Jones): California Energy Corp. (CE) has filed a claim with the U.S. government's Overseas Private Investment Corp. to cover Indonesian power purchase contracts mired in litigation.

CalEnergy, a unit of Omaha, Nebraska-based MidAmerican Energy Holdings Co. (MEC), made the claim on OPIC political risk insurance for the Dieng and Patuha geothermal power plants on Java, OPIC spokesman Larry Spinelli said Monday.

In 1996, OPIC granted US$400 million in political risk insurance for CalEnergy's geothermal investments in Indonesia.

On May 4, an international arbitration panel supervised by the United Nations granted CalEnergy $572.3 million in damages as a result of the Indonesian state electric utility's default on the two projects.

The utility, Perusahaan Listrik Negara, or PLN, didn't begin payment of damages in the required 30 days, triggering a second phase of litigation to collect payment, said CalEnergy's New York-based attorney, Jobe Taylor.

"OPIC's political risk insurance should cover this," Talyor said.

The three-judge arbitration panel's findings show that CalEnergy's contracts weren't tainted by the corruption associated with many foreign investments during President Soeharto's regime, he added.

Spinelli declined to say how long it might take for OPIC to process CalEnergy's claim. A MidAmerican Energy spokeswoman said last week the company expects compensation from either Indonesia or OPIC by the end of 1999.

If OPIC pays CalEnergy's claim, it will likely use its leverage as a government agency to seek repayment from the Indonesian government.

"When you have an outstanding claim between OPIC and a government, it is an outstanding claim between the U.S. and that government...you are always confronted with that," Spinelli said.

OPIC hasn't made new financial commitments for projects in Indonesia since 1996 when, in addition to CalEnergy's projects, it provided risk insurance for $170 million invested in Unocal Corp. (UCL) and Tenneco Inc. (TEN) power projects.

But other U.S. agencies remain active. Thursday, the U.S. Export-Import Bank approved a long-term loan guarantee for $345 million in airplane exports to Indonesia.

PLN has said it could take years before the case is resolved. In a twist in the proceedings, the utility filed a suit at the Jakarta district court last week to overturn the arbitration panel's award, claiming it overlooked Indonesia's laws and special circumstances. This is despite the fact that PLN had approved the arbitration judges, which were operating under United Nations rules.

"It's a kangaroo court situation. It's totally illegal," Taylor said of PLN's lawsuit. CalEnergy lawyers plan to move for immediate dismissal when the district court begins hearings expected June 24, he said.

An Indonesian embassy spokeswoman declined to comment on CalEnergy's litigation.

Taylor said he expects hearings for the second phase of international arbitration to begin in August or September.

Another three-judge panel will decide on the second phase of the case. The panel includes Mr. Setiawansh, a Jakarta-based attorney selected by PLN, Mr. A.A. de Fina, a Melbourne-based attorney selected by CalEnergy, and Mr. Jan Paulsson, the Paris- based attorney with the law firm Freshfields, who was selected by both sides as panel chairman, he said.

Setiawansh is the only new member of the panel, chosen by PLN to replace its panel selection for the arbitration's first phase.

CalEnergy's case has been closely watched as a harbinger for over 20 other Indonesian power sector projects that are in limbo as PLN tries to renegotiate payment terms.

Taylor played down the precedent CalEnergy's case may set for Indonesia's other power sector disputes. CalEnergy's contracts were carefully negotiated for more than two years and didn't depend on relatives or associates of former President Soeharto, he said.

Despite their differences, foreign investors in power plants face similar problems getting payment.

Before Indonesia's financial crisis, PLN signed long-term purchase agreements with foreign investors who required payment in U.S. dollars. With Indonesia's electricity demand projected to grow at double-digit rates, the risk appeared reasonable, and there was no shortage of foreign capital.

But in 1998, as the dollar value of the rupiah plunged and Indonesia's electricity demand declined, PLN was unable to fulfill the power-purchase agreements.

Soon after CalEnergy's Dieng geothermal plant began operation March 15, 1998, PLN asked that it be shut down. CalEnergy also halted construction on its Patuha geothermal plant.

CalEnergy estimates that it lost monthly payments due for the Dieng plant of $5 million to $6 million. The arbitration panel granted $391.7 million in damages for that plant and $180.6 million for the unfinished Patuha plant.