Pertamina blames IMF for Karaha Bodas case
Pertamina blames IMF for Karaha Bodas case
Moch. N. Kurniawan, The Jakarta Post, Jakarta
State oil and gas firm Pertamina accused the International Monetary Fund (IMF) on Monday of washing its hands in the legal dispute between Pertamina and independent power producer (IPP) Karaha Bodas Co. LLC, despite its suggestion to suspend the latter's project in late 1990s.
Pertamina's president Baihaki Hakim said Pertamina had recently asked the IMF to testify on the project's suspension at the New York court, which heard the dispute. But the agency turned down the request.
"The IMF's rejection is unfair because it, under the letter of intent (LoI), supported the government in its suspension of many IPP projects.
"Therefore, the IMF should explain the project suspension was its own suggestion for coping with the economic crisis," he told reporters after the hearing with House of Representatives Commission VIII for science, technology and environmental affairs.
He said the IMF explanation was necessary to convince the U.S. judges that the suspension of the Karaha geothermal power project in Karaha Bodas, West Java, was a matter of force majeure.
"With its refusal, the IMF has indicated that its involvement in the project suspension was irrelevant," he said. "They insisted that the suspension was the government's decision."
The government suspended the Karaha Bodas project, along with dozens of other power plant and infrastructure projects, on Sept. 20, 1997, as part of retrenchment to cope with the monetary crisis that had hit the country a month before. The government allowed the resumption of several projects, including the Karaha Bodas project, in November that year but it suspended the project again on Jan. 10, 1998.
Many believed the suspension was due to pressure from the IMF, which had first signed the LoI with the government on Oct. 31, 1997.
The government has called on state electricity company PLN and the IPPs to renegotiate their contracts.
Many IPPs reached agreement upon renegotiation. But several IPPs, including Karaha Bodas, rejected the offer and took the termination of their contracts to international arbitration.
In Karaha Bodas case, the company won a ruling from a Switzerland-based arbitration in late 2000, ordering Pertamina and PLN to pay Karaha US$261 million in compensation.
The three parties had signed a joint contract in 1994.
Karaha is mainly controlled by American firms Florida Power and Caithness, with local partner Sumarah Daya Bakti. Sumarah is owned by Muhammad Bawazier and Lodito Purwasih.
Karaha then sought confirmation of the arbitration award at the U.S court because Pertamina had assets there. It won a ruling from a Houston Court in December 2001 to uphold the arbitration ruling.
Afterwards, the company started a campaign to seize Pertamina assets around the world, as Pertamina had refused to pay compensation.
Pertamina also filed request to the Jakarta court to stop Karaha's campaign to seize its assets and won an injunction in late March.
But the legal dispute has not yet ended as Karaha won a U.S court order to freeze Pertamina's Bank of America and Bank of New York accounts unless Pertamina paid the compensation.
Some $200 million has been frozen at those banks, but Pertamina has appealed, saying the funds belonged to the government from the sale of liquefied natural gas.
Pertamina won a U.S. court order to release 95 percent of the funds, but Karaha also appealed against the release order.
Neither the government nor Karaha can withdraw the disputed funds at present.
Aside from the legal fight, Pertamina has offered Karaha the opportunity to recommence the project, but Karaha has refused it.
The government has revoked the decree that suspended the Karaha project, allowing it to proceed.
Baihaki went on to say that in contrast with the IMF, the U.S. Secretary of State welcomed Pertamina's request for it to offer an explanation to the U.S. court.
For eyebox
"On the expenditure side, following the government's announcement in September of its intentions to cut spending, specific plans have been formulated to postpone or reschedule major state enterprises infrastructure projects and development expenditures. These expenditure measures, which are concentrated in roads, transmigration, irrigation and energy projects, will improve the central government budget by around 1/2 percent of GDP. In addition, savings in materials and other routines expenditures will amount to about 1/4 percent of GDP"
LoI of Oct.31, 1997