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)