Pertamina refuses to pay damages to KBC, alleging corruption
Pertamina refuses to pay damages to KBC, alleging corruption
Fitri Wulandari, The Jakarta Post, Jakarta
The newly appointed state oil and gas firm PT Pertamina president Widya Purnama said on Wednesday the company would not pay damages to U.S.-based energy firm Karaha Bodas Company (KBC) as ruled by an international court, because of alleged corruption in KBC's local power project.
"Pertamina will not pay ... because the project has inflicted losses to the state and to the company," Widya briefed the press.
The International Arbitration Court in Geneva ruled that Pertamina must pay damages of US$299 million, including accrued interest, to KBC after the government suspended the company's power project in the wake of the late 1990s financial crisis.
However, Widya said there was evidence of corruption in KBC's power project, as indicated in a 1999 report from the Development Finance Comptroller, which showed a mark-up of $19.16 million in the project's investment cost.
An independent appraisal also showed the project was worth only $50 million, while the KBC claimed it had invested $110 million, Widya said.
Pertamina has been mired in a lengthy dispute with KBC, one of 27 independent power producers (IPPs) whose projects were terminated by the government as recommended by the International Monetary Fund.
The KBC, which held a contract for a joint geothermal energy project with Pertamina, filed a lawsuit at the arbitration court.
The court ruled in 2000 that Pertamina must pay damages to KBC for the termination of the project.
Pertamina challenged the ruling at U.S., Canadian, Hong Kong and Singaporean courts in a fruitless litigation bid.
Early this year, a U.S. court rejected Pertamina's appeal against the arbitration court's ruling.
Widya said the company expected the police to speed up investigations into the alleged graft in the project.
The police have questioned several officials from Pertamina and the KBC with respect to the awarding of the contract, and have charged three suspects thus far for fictitious transactions and mark-ups.
"If the investigation uncovers corruption in the project, it will serve as new evidence in the appeal to the U.S. Supreme Court to annul the (arbitration court's) ruling," Widya said.
Meanwhile, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said Pertamina should not pay damages while the graft investigation was ongoing.
Widya said Pertamina had hired international auditor Ernst and Young to carry out an investigative audit on all its ventures, including the KBC project.
KBC is owned by Caithness Energy of Florida and Power & Light Co., both U.S. firms, and local firm PT Sumirah Daya Sakti.