'KBC power project unfeasible'

'KBC power project unfeasible'

Rendi A. Witular, The Jakarta Post, Garut

State oil and gas company Pertamina has said the Karaha Bodas
geothermal power project in West Java, neglected by its owner for
five years, a commercial failure as it contained too small a
geothermal steam to make its development profitable.

Pertamina's spokesman Mochamad Harun said the state company
would most likely abandon the project if the Karaha Bodas company
continued to refuse to resume the project.

"According to an assessment done by an international
consultant, the geothermal project is not profitable for
development, because its geothermal reserve is too small.
Pertamina will likely stop the project," said Harun.

Harun referred to the assessment study done by New Zealand-
based geothermal consultant Malcolm A. Grant in April 2000, which
stipulated that the project was not feasible in light of the fact
that the nine-square-kilometer concession held by the Karaha
Bodas company contained a mere 30 megawatt (MW) proven reserve
and a 75 MW probable reserve of geothermal steam.

In comparison, KBC claimed its concession had enough
geothermal steam to produce up to 400 MW of power.

In the study, a copy of which was made available to The
Jakarta Post, it stated that based on international standards, in
order for a geothermal power project to be profitable, it must
have a proven reserve of 10 MW per square kilometer. The Karaha
Bodas project could only be feasible if it had a 90-MW reserve.

The Grant report further said the Karaha Bodas power project
was also unfeasible given the high hydrogen sulfide (H2S) in its
steam, which quickly causes corrosion in the power generator and
other exploration infrastructure.

The report also said that out of the nine wells explored by
the company, only two contained "clean" geothermal steam.

The Grant report was one of the documents presented by
Pertamina during hearings at the International Arbitration Panel
in Switzerland. Yet the panel of arbitrators decided in favor of
the Karaha Bodas company and ordered Pertamina to pay US$261
million in compensation to the company, including $100 million in
compensation for expenditures and $150 million for its loss of
profits.

The company filed an arbitration proceeding against Pertamina
as a monopoly holder of geothermal resources under the existing
law, following the government's decision to delay the project
along with dozens of other power projects on the recommendation
of the International Monetary Fund (IMF).

Pertamina has repeatedly insisted that the $100 million in
costs claimed by Karaha Bodas was too high, but the company, in
the document provided by its spokesman in Indonesia, APCO,
insisted that the cost figures were true. The company claimed
that it had spent the money for drilling, building an artery road
and a social center as well as a power generation unit for the
adjacent village.

However, during a recent visit to the location, The Jakarta
Post could only see some plugged geothermal wells hidden behind
bushes, while the road leading to the location was unpaved and
difficult for a motor vehicle to travel on, a condition which did
not reflect a huge investment.

The site is located some 8.5 kilometers from Garut, West Java,
in the middle of a dense forest. The nearest village is located
some three kilometers away.

Pertamina officials said the abandoned wells leak a high
concentration of H2S, which, if inhaled during humid weather,
would be fatal to humans. Fortunately, the nearest community is
three kilometers away, outside the deadly range of the poisonous
gas, Pertamina officials said.

Following the arbitration's ruling, a U.S. district court
ordered Pertamina to pay compensation, but Pertamina has appealed
the ruling.

Pertamina has also reportedly persuaded Karaha Bodas to resume
the project, but it has been reluctant to do so, which, according
to some local analysts, is due to the project's unfeasibility.

In a related development, a source at Pertamina said the
company had recently received $80 million from an insurance claim
from Britain's insurance firm Lloyd's of London.

It is unclear if this will stop Karaha Bodas from demanding
the $271 million in compensation from Pertamina.

When asked to comment, an APCO official said he had yet to
discuss the issue with KBC.