Govt seeks out-of-court deal for KBC's claim

Govt seeks out-of-court deal for KBC's claim

The Jakarta Post, Jakarta

The government is seeking to reduce a US$299 million claim made
by Karaha Bodas Co. (KBC) against state oil and gas firm PT
Pertamina over a canceled geothermal power project through an
out-of-court settlement, a senior government official said.

The government will also file an appeal with the State Supreme
Court of New York, asking the court not to freeze US$256 million
of its funds in Pertamina's accounts in U.S. banks.

"We will undertake such efforts because the funds belong to
the government, not Pertamina," said State Minister of State
Enterprises Sugiharto on Friday.

"We will pursue with the action before the Nov. 22 deadline
for the case."

KBC was one of 27 independent power producers whose projects
were terminated by the government -- as recommended by the
International Monetary Fund -- following the 1997 economic
crisis.

KBC is owned by U.S. firms Caithness Energy LLC and Florida
Power and Light Co., and local firm PT Sumirah Daya Sakti.

A Swiss arbitration court ruled in 2000 that Pertamina must
pay damages to KBC for the termination of the project.

In August 2002, a U.S. district court froze $285 million of
Pertamina's funds deposited in Bank of America and Bank of New
York. Pertamina owns $29 million, while the rest belongs to the
Indonesian government.

Pertamina tried to challenge the ruling in the U.S., Canadian,
Hong Kong and Singaporean courts, but failed when the U.S. court
in a final ruling on Oct. 4, rejected Pertamina's bid to nullify
the arbitration award to KBC.

Sugiharto said that the government was sure of the possibility
of a claim cutback through an out-of-court settlement, because
there were indications of a "conflict of interest" in the power
project.

"From experience of similar arbitration cases, claims can be
cut if such conflicts or criminal indications are found in a
case," he said, adding that the government will therefore try to
find new evidence to settle out of court and the appeal.

It had recently asked the police to check for impropriety in
the awarding of the contract by Pertamina to KBC. The police have
so far questioned 24 people from Pertamina and KBC, and charged
three suspects for alleged fictitious transactions and markups
worth US$19 million in the construction of the power project.

Several critics have also urged the government not to allow
Pertamina to pay the claim due to the fact that the project was
given to KBC without going through a proper tender process.

Earlier this week, a number of non-governmental organizations
reported Minister of Energy and Mineral Resources Purnomo
Yusgiantoro to the Corruption Eradication Commission (KPK) over
alleged involvement in the markup of the Karaha Bodas power
project. Purnomo has denied any wrongdoing.