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.