KBC power project unfeasible: Pertamina

KBC power project unfeasible: Pertamina

Rendi A. Witular
The Jakarta Post
Garut

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

Pertamina's spokesman Mochamad Harun said the state company
would most likely abandon the project if Karaha Bodas Co. (KBC)
kept refusing to resume the project.

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

Harun referred to the assessment study made by New-Zealand
based geothermal consultant Malcolm A. Grant in April, 2000,
which stipulated that the project was unfeasible in light of the
fact that the nine-square-kilometer concession held by KBC
contained a mere 30-Megawatt (MW) proven reserve and a 75
probable reserve of geothermal steam.

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

Grant, in its study, whose copy was made available to The
Jakarta Post, stated that based on the international standard, in
order to be profitable, a geothermal power project must have a
proven reserve of 10 MW per one square kilometer. The Karaha
Bodas project could thus only become feasible 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 to the power generator and
other exploration infrastructure.

The report also said out of nine wells explored by KBC, 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
KBC, ordering Pertamina to pay US$261 million in compensation to
KBC, including $100 million in compensation for spending and $150
million in compensation for loss of profits.

KPC filed an arbitration proceeding against Pertamina, as the
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 recommendations of the
International Monetary Fund (IMF).

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

However, during a recent visit to the location, The Jakarta
Post only saw some plugged geothermal wells hidden behind bushes,
while the road leading to the location was unasphalted and barely
passable. 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 located some
three kilometers away.

Pertamina's officials said the Karaha Bodas abandoned wells
now leak out a high concentration of H2S, which, if inhaled
during humid weather, could kill men. But, fortunately, the
nearby community live three kilometers away -- outside the impact
area of the dangerous gas, Pertamina officials said.

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

Pertamina has also reportedly persuaded KBC to resume the
project, but KBC was thus far reluctant to do so, which according
to some local analysts due to the unfeasibility of the project.

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

It remains unclear if this would stop KBC from demanding the
$271 million compensation from Pertamina.

When asked for comments, an APCO official said he had yet to
talk with KBC on the issue.