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.