Graft probe of Balongan project nearing completion

Graft probe of Balongan project nearing completion

JAKARTA (JP): Minister of Mines and Energy Kuntoro
Mangkusubroto has said officials looking into alleged graft in
the development of the US$2.45 billion Balongan refinery in West
Java would wind up their investigation by October.

The Attorney General's Office and the Development Finance
Comptroller (BPKP) started the investigation in June at the
request of Kuntoro and the House of Representatives in response
to allegations that the developers might have marked up the
project's value.

"Don't worry. The investigation has not been stopped. It's
still going on. We plan to have the results by October," Kuntoro
said in a weekly news conference on Friday.

The Balongan refinery in Indramayu was built by the state oil
and gas company Pertamina through Japan's JGC Corporation and
Foster Wheeler of America from 1990 to 1995.

Project financing was provided by Java Petroleum Investment
Co. Ltd., which is a consortium grouping Mitsui Corp. Marubeni
Corp. Sumitomo, Itochu and 20 Japanese bankers.

The refinery, which can process 125,000 barrels per day (bpd),
has two production units: a crude distillation unit (CDU), which
produces naptha, kerosene, gas oil and residue, and a residue
catalytic cracker (RCC), which turns out liquefied petroleum gas
(LPG) and Premium, Super TT and Premix gasoline.

The refinery's RCC unit has reportedly experienced technical
problems on several occasions, raising suspicions that the plant
was not constructed to specifications.

Several legislators, including Djusril Djusan of the majority
Golkar party, have claimed the project's real value is about
US$1.6 billion. They have accused several top Pertamina and
government officials of embezzling $800 million from the project
by marking up its value to $2.45 billion.

Aside from the legal audit being carried out by the Attorney
General's Office and BPKP, the ministry and Pertamina are
conducting a technical audit of the refinery.

Kuntoro also said the ministry had asked the Attorney General
to probe only Balongan out of all of Pertamina's operations.

Pertamina has said that it awarded 140 contracts to Soeharto's
family and cronies during the former president's long tenure.

Kuntoro said an investigation into the 140 projects would be
left to Pertamina and that the company would decide if it should
discontinue the contracts to improve efficiency.

Analysts believe that Soeharto's family and cronies had
obtained the contracts through collusion, which many argue is one
of the main reasons behind Pertamina's inefficiency.

Kuntoro also said the government had yet to investigate
alleged markups by PT Inti Karya Persada Teknik (IKPT) in the
development of its liquefied natural gas (LNG) plants in Bontang,
East Kalimantan.

IKPT, controlled by Soeharto's close friend Mohammad "Bob"
Hasan, has built Train F and Train G in the country's largest LNG
complex. It is currently developing Train H.

IKPT did not win the projects through competitive bidding.

According to local reports, IKPT reported the costs for Train
G's development, completed early this year, to be above $950
million, while it said Train H cost $1.13 billion.

"It is difficult to investigate the case because the projects
are too complex and we can't find any comparisons to start an
investigation and to prove the markup allegations," Kuntoro said.

Kuntoro promised that the government would have an open
bidding system for the development of its next LNG plant. (jsk)