Govt to take action over alleged KKN in Paiton deal

Govt to take action over alleged KKN in Paiton deal

JAKARTA (JP): The government will pursue legal processes against PT Paiton Energy over alleged corruption in its power purchase contract, but will seek to reach an out-of-court compromise on the commercial aspects of the contract, a senior minister said on Thursday.

Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie said the government would punish anyone involved in the alleged corruption, collusive and nepotistic (KKN) practices during the preparation and awarding of the contract.

"As far as foreigners are concerned, if (the court rules that) the corruption involved American businessmen, then the American government will certainly arrest them based on their antiforeign corruption act," Kwik said in a press conference.

Aside from launching the litigation, Kwik said the government would renegotiate the terms of the contract with Paiton.

"We have to clearly differentiate the KKN practices that have given birth to the contract -- which are criminal in nature -- from the commercial aspects of the contract," Kwik said.

Paiton is a joint venture between Japan's Mitsui (32.5 percent), General Electric (12.5 percent) and Edison Mission Energy (40 percent) of the United States and local company PT Batu Hitam Perkasa (15 percent)

PLN filed a lawsuit last October to annul Paiton's power purchase agreement (PPA), claiming the contract contained unfair terms and traces of corruption.

But President Abdurrahman Wahid, in an unexpected move, dropped PLN's lawsuit on Monday and said the government would seek an out-of-court solution to the dispute with a negotiation team led by ministers.

President Abdurrahman Wahid's decision to drop the lawsuit prompted the resignation of PLN's president Adhi Satriya and the company's planning director Hardiv Situmeang.

Kwik explained PLN's lawsuit had mixed commercial matters with the criminal aspects of Paiton's contracts.

He said PLN's legal action was in conflict with Abdurrahman's basic policies which prioritize "friendship" over dispute.

"The legal action, which implies confrontation, could disturb our good relations with other countries," he said, adding that an out-of-court negotiation was better than a legal solution.

He said the government would renegotiate Paiton's power purchase contract for the purpose of reducing the price of its power supplies and to reschedule payments in accordance with the government's financial capability.

"Prices must absolutely go down," he said.

Under the contract signed by Paiton and PLN in 1994, Paiton sells power to PLN at the price of between 5.5 U.S. cents to 8.5 cents per kilowatt hour (kWh), which is higher than the average 6.4 cents per kWh set by other independent power producers and much higher than PLN's selling price of Rp 240 (about 3 cents).

PLN accused Paiton of marking up the cost of its power project by around $1 billion to $2.5 billion which consequently caused the price of its power to be unreasonably high.

State Minister of Investment/State Enterprises Laksmana Sukardi said the government would form a team of negotiators comprising of PLN's officials and professionals to negotiate with Paiton.

The team would be supervised by a ministerial team, including Laksamana, Kwik and mines and energy minister Susilo Bambang Yudhoyono, formed by the President.

Separately PLN's lawyer Adnan Buyung Nasution criticized the government's decision to drop PLN's lawsuit, describing it as an interference in the legal process.

However, he said he appreciated the decision but advised the government to continue the legal process on the criminal aspects of Paiton's contract. (03)