Kuntoro to probe alleged fraud at Balongan refinery

JAKARTA (JP): Minister of Mines and Energy Kuntoro Mangkusubroto said yesterday he would investigate allegations of corruption at the US$2billion Balongan refinery in West Java, which is owned by state oil and gas company Pertamina.

"I learned about the (alleged) scandal from press reports today (yesterday). I will instruct Pertamina's directors to formally explain whether the press reports are true," Kuntoro said.

He promised to thoroughly investigate the case and said he would not hesitate to punish any wrong-doers.

A Pertamina official who wished to remain anonymous said earlier that the Balongan refinery might have been built using poor quality construction materials so that Pertamina officials supervising the project could rake in illegal cost savings.

As a result, the facilities have often experienced troubles since production started in March 1995, the official said.

The refinery was forced to cease operations again on Tuesday because of technical problems.

Unlike the Balangon plant, older refineries developed by other companies, including those in Balikpapan and Cilacap, rarely experienced troubles, he said.

The Balongan refinery was developed by Pertamina and a number of foreign contractors, including Japan's JGC Corporation, Foster Wheeler of the United States and the Far East Trading Corp., a Pertamina affiliate company.

Financing for the project was provided by a consortium which grouped Mitsui Corp., Marubeni Corp., Sumitomo, Itochu and 20 Japanese banks.

The refinery has a crude oil processing capacity of 125,000 billion barrels per day (bpd), with fuel products including liquid natural gas (LNG), propylene, aviation fuel, automotive diesel oil, industrial diesel oil and gasoline.

Pertamina's inspectorate general recently fired several members of staff at the refinery for colluding with a supplier to embezzle Rp 1 billion through buying low quality equipment at marked-up prices. (jsk)