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