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.