Tue, 14 May 2002

Govt forms special team to resolve Karaha case

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The government formed a special team to help resolve the ongoing dispute between state-owned oil and gas company Pertamina and independent power producer (IPP) Karaha Bodas Co. LLC., said Eddie Widiono, president of state-owned electricity company PLN.

Eddie said on Monday that the team consisted of officials from various ministries, the Attorney General's Office, the National Police, Pertamina and PLN.

"We had a meeting today (Monday) and that was the result -- a special team led by Pertamina to deal with the Karaha issue," he told a press conference.

Eddie did not provide any more details than that.

Karaha, which is mainly controlled by two American firms Florida Power Energy LLC and Caithness Energy LLC, is one of the 27 IPPs whose power projects were suspended by the government in 1998 in the wake of the country's economic crisis.

The suspension prompted Karaha to file a lawsuit at the Switzerland-based international arbitration panel against Pertamina and PLN, both of whom signed a power project contract with Karaha in 1994. Karaha claimed it had invested US$100 million in the project.

Late in 2000, the arbitration panel ruled that Pertamina had to pay $261 million in compensation to Karaha.

But, because Pertamina has refused to pay the compensation, Karaha filed another suit in a U.S. court which upheld the Swiss verdict and called for the freezing of Pertamina's worldwide assets. So far, some $200 million deposited in the Bank of New and Bank of America had been suspended after the U.S. court's decision, as requested by Karaha.

Pertamina, however, said that the funds being suspended, which were the proceeds from sales of liquefied natural gas (LNG), belonged to the government of Indonesia.

The oil and gas company has insisted that it will not pay the compensation because the suspension of the project was not its fault, that it was a case of force majeure.

Pertamina won a ruling from a local court in March ordering Karaha to stop efforts to freeze the company's accounts overseas.

Pertamina has also offered Karaha to resume the project after the government lifted the 1998 decree which suspended the project. But the offer was rejected by Karaha.

Meanwhile, the Police have recently embarked upon an investigation into alleged price mark-ups at the Karaha power project. According to one estimate, the normal investment cost for the Karaha project should have been around $32 million, much lower than the $100 million claimed by Karaha.

Eddie reiterated that PLN was ready to continue the project as long as the government could provide the necessary financing, which would be repaid by PLN in the future.

The power project, located in West Java, could be upgraded to 210 megawatts, said Eddie.

The resumption of the Karaha power project would help the country avoid a power crisis in the future.