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.