Natuna gas row reflects RI 'resolve to end corruption'

Natuna gas row reflects RI 'resolve to end corruption'

SINGAPORE (Reuters): The controversy stirred over the award of
a S$500 million gas pipeline project reveals Indonesia's resolve
to stamp out corruption rather than add to the country's
political risk, analysts said on Thursday.

They said the probe at the instigation of legislators has
resulted in more transparency, which was a boost for future
capital intensive investments even though the underlying
political risk remained.

"This not your conventional political risk, it's the
government trying to do the right thing," said Merrill Lynch
energy analyst James Brown. "You normally treat political risk in
the negative context, to me this is positive."

"This is not to say there is no political risk. The risk is
there because this is not a normal environment," said Song Seng
Wun, regional economist at GK Goh Securities.

Song said the government's move to scrutinize such a high
profile project to ensure some transparency was positive.

"You probe this project and say okay, it's clean. That
certainly can give greater confidence to potential foreign
investors," he said.

The project, to build a 640-km pipeline from the West Natuna
gas field into Singapore's Jurong Island, irked Indonesian
legislators when it was revealed the leading contender was linked
to allies of ousted President Soeharto.

The Indonesian operation of McDermott International Inc of the
United States, which had made the lowest offer, was part owned by
Muhammad "Bob" Hasan--a former Soeharto minister and Soeharto's
close friend and golfing partner.

The other bidders were Saipam of Italy, ETPM of Britain and
Nippon Steel of Japan.

Indonesian Energy and Mines Minister Kuntoro Mangkusubroto
ordered Pertamina in March to investigate allegations that the
tendering process was flawed and promised that the contract would
be retendered if found to be tainted.

The possibility of a retender raised some concerns in
Singapore that gas, secured under an initial $4 billion 22-year
agreement, might not flow on the agreed 2001 date.

"If they delay, then we will have to find alternatives, but I
think Pertamina will quickly find a solution," Philip Yeo,
Chairman of the Economic Development Board (EDB) told reporters
last month.

Analysts said that Indonesia, which was in the midst of its
worst economic crisis for more than 30 years, would do its best
to make sure that the project got off the ground on time.

"I think the awareness and the importance of projects like
Natuna to the government as a source of revenue, and as a
endorsement of whatever confidence in the economy, is far more
important...so it (project) is safe," Song said.

Indonesian investment Minister Hamzah Haz said on Wednesday
that foreign investment approvals between January 1 and March 15
had dropped 90 percent to $560 million from $5.1 billion in the
same period last year.

The fall was blamed on fears of growing violence in the run-up
to the June 7 elections.