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.