Legislators urge Karaha Bodas to resume project

Legislators urge Karaha Bodas to resume project

Fitri Wulandari, The Jakarta Post, Jakarta

Legislators urged state oil and gas company Pertamina and the
United States-based independent power producer Karaha Bodas
Company (KBC) to end their legal dispute and sit down at the
negotiating table to discuss the resumption of the latter's
electricity project.

Priyo Budi Santoso and Emir Moeis of the Commission VIII of
the House of Representatives said the power project was important
for the country and the government had sent a strong signal to
the international business community that it wanted the
resumption of the project as well as other power projects, which
were put on hold at the height of the economic crisis in 1997 and
1998.

"The (Karaha) project must resume as it is very significant
for this country," Priyo told The Jakarta Post on Wednesday.

Commission VIII oversees environmental, information and
technological affairs.

On Wednesday, President Megawati Soekarnoputri officially
revived 13 mega projects worth US$7.63 billion, including several
power projects.

KBC, which is principally controlled by two U.S. companies --
Florida Power Energy LLC and Caithness Energy LLC -- was one of
21 power projects which were delayed and reviewed by the
government in 1997 as part of a belt-tightening effort to cope
with the economic crisis. KBC has a geothermal power project in
West Java.

The company is partly owned by PT Sumarah Daya Sakti,
reportedly linked to Tantyo Sudharmono, the son of former Vice
President Sudharmono.

The delay was agreed upon by the International Monetary Fund
(IMF). Pertamina even said the postponement of the projects was
based on the IMF's recommendation.

But, the policy led to a string of arbitration proceedings,
including the one filed by Karaha Bodas.

In 2000, an arbitration panel in Switzerland ordered Pertamina
to pay KBC US$261 million in compensation, including $100 million
in compensation for the costs already incurred by the company and
$160 million for loss of potential profits, according to
documents provided by the company's spokesman in Indonesia, APCO.

Following the arbitration ruling, KBC launched a campaign to
sequester Pertamina assets in the U.S., Singapore and Hong Kong.

The compensation award was, however, dismissed by many
Indonesian experts as too high.

For instance, Riki F. Ibrahim, secretary-general of the
Indonesian Geothermal Association, estimated that the company had
invested less than $100 million when the project was suspended.

Priyo claimed that the amount of compensation demanded by KBC
was disproportionately high.

"The case is like when you hit a hen with your car. The owner
then demands compensation amounting to the price of the hen plus
the eggs to be produced by the hen and the chickens that will
hatch from the eggs," Priyo said.

Priyo and Emir warned that if Pertamina lost the case in the
U.S. court, the House would call for an investigation into a
possible collusion in the awarding of the contract to KBC.

In another development, KBC said in a statement on Wednesday
that the U.S. District Court for Delaware had ruled in its favor
by ordering Pertamina to post a $275 million bond to satisfy the
Swiss arbitral award.

Simson Panjaitan, Pertamina's legal officer, claimed that the
ruling was not yet final, and said that Pertamina had filed an
appeal to have the order quashed.