KBC receives US$75 million payout from insurance firm

KBC receives US$75 million payout from insurance firm

The Jakarta Post, Jakarta

The United States-based power producer Karaha Bodas
Corporation (KBC) has admitted to receiving US$75 million from an
insurance claim from Lloyd's of London following the suspension
of its geothermal power project in West Java.

Nevertheless, the firm vowed to continue the litigation
process to obtain $261.1 million in compensation from state oil
and gas company Pertamina.

The company stated however, that it would not take double
compensation, meaning that it would return the $75 million
Llyod's, if Pertamina finally pays them what it owes, as called
for by verdict in an international arbitration court.

"Under the rules, KBC will return the insurance claim to
Lloyd's if Pertamina agrees to pay the compensation," company
spokesperson Mohammad Saleh said over the weekend.

Pertamina was ordered by a panel of arbitrators in Geneva,
Switzerland in 2000 to pay KBC a total of $261.1 million in
compensation following the suspension of its power project in
1998. The amount comprises $111.1 million in expenses plus
interest and $150 million in losses of potential profit.

The project was actually suspended by the government as part
of the agreement with the International Monetary Fund. But, KBC
filed the arbitration proceedings against Pertamina, because it
signed the contract with the state company as the holder of
authority at the time over the country's geothermal resources.

Following the Geneva verdict, and subsequently Pertamina's
defiant refusal to recognize it, KBC filed lawsuits asking courts
in the U.S., Singapore and Hong Kong -- where Pertamina has
assets -- to reaffirm the arbitration ruling and order Pertamina
to pay the compensation.

Those lawsuits are still in progress.

In a related development, a local governmental group, the
Development and Finance Comptroller (BPKP), in its study of the
KBC project, the results of which were made available to The
Jakarta Post last week, alleged inconsistencies in KBC's various
reports about the total cost of its project.

In its report to the arbitration panel, KBC said it had spent
$93.1 million for the project before it was suspended in 1998,
while in its report to Pertamina, it claimed to have spent $77.1
million. Meanwhile, in its report to the tax office, the company
claimed the expenses amounted to $84 million.

BPKP suggested that Pertamina should conduct a thorough due
diligence study to ascertain the exact amount of costs spent by
KBC in the project. Pertamina could ask for international auditor
PricewaterhouseCooopers (PwC), which audited KBC's books from
1997 to 1998, to help provide it with KBC's expense reports.

BPKP also advised Pertamina to hire a certification firm to
estimate the amount of geothermal resources contained in KBC's
concession in the Telaga Bodas area.

Experts hired by Pertamina and KBC respectively are divided in
their opinions about value of the geothermal resources.

Malcom A. Grant, a geothermal expert from New Zealand, who was
presented by Pertamina during the arbitration hearing, said the
Karaha Bodas geothermal project was not commercially viable as
its geothermal steam resources were only enough to generate a
maximum of 75 megawatts (MW) of power.

But, another geothermal expert, Subir K. Sanyai of GeothermEx,
who was presented by KBC during the hearing, claimed the Karaha
Bodas geothermal resources were enough to generate up to 260 MW
of power for 30 years.

The arbitrators at last accepted Sanyai's opinion, ordering
Pertamina to pay $150 million in compensation for loss of
potential profit, in addition to the $111 million in compensation
for expenses.

Sources said Pertamina was basically willing to pay the
compensation but it considered the compensation demanded by KBC
was too high.