Government won't pay OPIC for $290m Calenergy claim

Government won't pay OPIC for $290m Calenergy claim

JAKARTA (Dow Jones): Indonesia won't pay a U.S. government agency for claims paid to Calenergy International after a dispute with its state electricity provider as it can't afford it, Finance Minister Bambang Sudibyo said.

"The government will not pay OPIC's claim of around US$290 million because the government doesn't have the money," Bambang told reporters at parliament late Tuesday.

The U.S. government's Overseas Private Investment Corp, along with Lloyds of London paid Calenergy the $290 million in full last November. The payment came after the U.S. power company lodged a claim under its political risk insurance with OPIC, after PLN failed to pay Calenergy a sum awarded it by an independent arbitration panel last year.

Calenergy filed arbitration proceedings against PLN in September 1998 after the latter refused to pay it for electricity from its geothermal power plant in Dieng, Central Java and after the government suspended its other plant in Patuha, West Java. Calenergy is a unit of Midamerican Energy Holdings (MEC).

PLN was ordered to pay $572 million by an independent arbitration board last year but it refused to do so, forcing Calenergy to call in its OPIC insurance.

Under normal practice, the claim paid out by OPIC then becomes the responsibility of the host country's government, making the claim paid to Calenergy effectively Indonesian government debt.

OPIC has threatened to seize Indonesian assets abroad if the government fails to settle the claim, according to documents obtained by Dow Jones Newswires.

Asked whether he was concerned about OPIC's threat, Bambang said: "I think they're just bluffing."

"The Indonesian government will not pay the claim because the contracts smack of corruption, collusion and nepotism," he said. "Moreover, it's not the government's obligation to pay this as it was OPIC's unilateral decision to make the claim an Indonesian government liability."

Also at parliament, PLN president director Kuntoro Mangkusubtoro said OPIC's problem "is a government matter, not a PLN matter."

Earlier this week, Kuntoro said he only sees two possible solutions to the dispute: either the Indonesian government pays the claim and takes over the Calenergy plants, or both OPIC and the government seek to sell the plants to new investors.

According to industry officials, OPIC is already looking for buyers for the plants, and has approached Unocal Corp. (UCL), which operates a geothermal plant in West Java.

A lawyer close to the proceedings told Dow Jones Newswires that any perspective buyer wouldn't commit any investment however, until the dispute with OPIC is resolved.

An OPIC delegation visited Jakarta last month in a bid to lobby the government to pay the claim, but to no avail. Kuntoro said OPIC officials are set to come to Jakarta again next month.

Indonesia and PLN's relationship with its contracted power suppliers was initially strained by the rupiah's plunge against the dollar early in the economic crisis, which left the state electricity company unable to pay for its dollar-denominated electricity. PLN then shocked the industry - and its financiers - last year by seeking to take the largest power project, PT Paiton Indonesia, to court, arguing that its contract with PLN was negotiated corruptly under the Soeharto regime and should be declared null and void.

President Abdurrahman Wahid's government moved speedily, however, to reassure foreign investors that it would seek to restructure rather than cancel contracts and ordered PLN to halt the case. Wahid installed former mines and energy minister Kuntoro at the helm of PLN and set up a high-level ministerial committee to oversee the restructuring of the company and its contracts with IPPs.

OPIC's spokesman Larry Spirelli has warned that a failure to resolve its dispute with the Indonesian government "certainly reverberates through every other transaction the U.S. has with that host country."

Some industry observers question however, whether the U.S. will crack down on Indonesia while Wahid is seeking to build a fragile democracy and rebuild its shattered economy.

A senior western diplomat said however, that the government's stance on OPIC could have implications for International Monetary Fund support for the country.