Govt forms special team to resolve Karaha case

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.