Police probe Karaha project

Police probe Karaha project

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The National Police said on Tuesday they had started an
investigation into an alleged mark-up in the stalled multi-
million dollar Karaha Bodas power project.

"We have started (on Monday) questioning a Pertamina official
to collect evidence," Sr. Comr. P. Hutabarat told The Jakarta
Post, referring to state-owned oil and gas company Pertamina.

He refused to name the Pertamina official.

"We'll summon more (people)... possibly including the former
Pertamina president," he added.

Faisal Abda'oe was Pertamina president when the company,
together with state-owned electricity company PLN, signed the
power project contract in 1994 with Karaha Bodas Co., an
independent power producer (IPP) owned by U.S. firms.

Under the contract, PLN was supposed to purchase power from
the IPP. But the government suspended the project, together with
26 other power projects in the late 1990s to help the country
survive the economic crisis.

The cancellation of the project prompted Karaha to file a
complaint with the Switzerland-based arbitration panel, which
then ruled Pertamina must pay some US$261 million in compensation
to Karaha. The latter claims it has invested around $100 million
in the project.

But there has been accusations at home that the cost of the
power project had been inflated. Critics said that the Karaha
Bodas geothermal power project, with eight exploration wells each
costing around $4 million based on international standards,
should only cost around $32 million, not $100 million as claimed
by the developer.

The Development and Financial Audit Board (BPKP) reportedly
plans to audit the Karaha financial statement.

Karaha Bodas Co., which is owned by Florida Power and
Caithness Energy, won the arbitration ruling in 2000.

A U.S. court then confirmed the ruling. But Pertamina has
refused to pay the compensation arguing that the suspension of
the project was force majeure and the dispute should be settled
in a local court.

The U.S. court, at the request of Karaha, then asked the New
York Bank and Bank of America to suspend the proceeds from the
sale of liquefied natural gas (LNG). The move is part of the
Karaha campaign to freeze Pertamina's assets worldwide.

Some $200 million has been frozen. Pertamina has said that the
funds actually belong to the government. It added that more than
$500 million could be put on hold by the two banks as more
revenue from LNG sale would enter the accounts.

In a related development, Roes Ariawijaya, deputy minister at
the Office of the State Enterprises Minister, said that Pertamina
should pay the compensation to Karaha if it is unable to persuade
the company to resume the project or seek a new investor.

The government has revoked the decree which suspended the IPP
power projects.

Roes said that Pertamina must honor the contract and the
ruling of an international arbitration panel.

He said that if Pertamina did not have the necessary funds to
pay the compensation, the government has to takeover the
responsibility.

Karaha has so far refused to continue the project.