Graft watchdog urges govt not to pay OPIC claim

Graft watchdog urges govt not to pay OPIC claim

JAKARTA (JP): An independent corruption watchdog urged the
government on Monday not to pay a US$260 million-worth insurance
claim by the United States owned Overseas Private Investment
Corporation (OPIC), as the claim was linked to a power project
tainted by corruption.

Chairman of the Indonesian Corruption Watch (ICW) Teten
Masduki said a report of the Development and Finance Control
Agency (BPKP) found indications of corruption in the power
project covered by OPIC's insurance.

"The government is willing to pay (OPIC's claim), because it
doesn't want to highlight the corruption found in the contract,"
Teten told reporters, following a seminar on OPIC's claim.

He cited a 1999 report by BPKP, which claimed to have found
corrupt practices in power purchase contracts for the geothermal
power plant Dieng in Central Java.

"Based on investigations into the procurement procedures
before the contract was signed, and on the contract's valuation,
we suspect corruption among officials of the government, PLN (the
state owned electricity company), Pertamina (the state owned oil
and gas company), and the local and foreign companies," BPKP's'
report said.

In 1994, PLN agreed to purchase power from Pertamina's Dieng
power plant, of which Himpurna California Energy Ltd (HCE) was
the contractor.

Among the irregularities BPKP found in the contract, was that
its terms and conditions were never discussed before with PLN.

"PLN gave no written approval for the contract. From the
beginning, PLN's president was never involved in the process of
determining the rates," the agency said.

BPKP also claimed the U.S dollar rates in the contract were
against government regulation 37/1992, which demanded that
independent power producer sell electricity at rupiah rates.

The agency further questioned the appointment of HCE's local
partner, Himpurna Enersindo Abadi, a company founded by retired
Indonesian military officers.

It said the government appointed Himpurna without a tender
process, thus the competitiveness of this appointment was
questionable.

"Himpurna's presence in the contract is unnecessary...it's
role is more that of an intermediary, a broker actually, and
that's what caused the price of the contract to swell," Teten
continued.

Legislator Irwan Prayitno of Commission VIII said his
commission would ask the government to consider paying the OPIC
claim.

"The government should have consulted legislators first,
before deciding to pay the claim," he said.

OPIC's claim followed PLN's refusal to pay for power from
Dieng, and after the government suspended the Patuha power
project in West Java.

The decisions prompted MidAmerican Company Ltd, formerly known
as CalEnergy International, to file arbitration proceedings
against PLN.

PLN lost the case, and was ordered to pay MidAmerican $572
million in compensation.

As the state company was unable to pay, MidAmerican resorted
to OPIC to cash in its $290 million insurance claim. The U.S.
government then billed Indonesia.

At first the government flatly rejected OPIC's claim, due in
part to the indications of corruption found in Dieng's power
contract.

Pressure from the U.S government, plus other threats to seize
Indonesian assets, and concern of risking isolation from
international creditors forced the government to strike a deal
with OPIC.

The government would have to pay $260 million under the terms
used by the Paris Club, which is a group of foreign creditors of
Indonesian sovereign debts.

By paying the claim, the government would take over
MidAmerican's ownership in the two power projects.

The government hopes to meet the insurance claim by selling
Dieng and Patuha to other independent power producers.

MidAmerican reportedly invested some $164 million for the
Dieng power plant, which has a capacity of 60 megawatts.

The Patuha project was valued at $284 million for its four
times 55 Megawatt capacity. MidAmerican developed the project
with local partner, Patuha Power Ltd.

Separately, PLN president Eddie Widiono said the government
may also have to pay for MidAmerican's debts worth $140 million
it owed to foreign lenders.

He said OPIC's insurance covered only MidAmerican's own
investment or equity worth $290 million in the Dieng project.

On top of its equity, MidAmerican received $140 million in
foreign loans to finance the two projects, he said.

"We're now in negotiation with the lenders on the terms and
conditions of the payment," he said. (bkm)