State budget under threat as BoA blocks funds

Moch. N. Kurniawan, The Jakarta Post, Jakarta

The state budget is once again under serious threat after the Bank of America (BoA) froze more than US$130 million worth of funds assumed to belong to state-owned oil and gas firm Pertamina.

Pertamina's finance director Ainun Naim said the funds, coming from the sale of liquefied natural gas (LNG), crude oil and other oil-based fuel products, actually belonged to the government as a source for financing the state budget.

"Now, Pertamina is continuing efforts to appeal to the U.S. court to release the funds."

"The court must release the funds as they don't belong to us, but to the government," he told The Jakarta Post., adding that the next trial would be held in April.

Oil and gas revenue is one of Indonesia's main income earners.

Under a U.S court order, the BoA has frozen the funds on the request of Pertamina's former partner, independent power producer (IPP) Karaha Bodas Co. LLC., as part of efforts to collect some $261 million in compensation from Pertamina.

The Switzerland-based arbitration court ruled in December 2000 that Pertamina and the state-owned power firm PLN pay compensation following the suspension of Karaha's power project in West Java in 1998 amid the country's economic crisis. But the arbitration opined in favor of the government, saying it was not a party which signed the power contract.

The U.S. federal court in Texas confirmed the ruling.

But instead of paying the compensation, Pertamina made an appeal at the local court to annul the arbitration ruling.

The government also issued a new decree allowing Karaha to resume the project. But Karaha has turned down the offer.

Ainun criticized Karaha's stance, saying that Karaha should emulate other foreign investors who agreed to renegotiate the contract of their power projects.

"If many of the IPPs agreed to renegotiate, why is Karaha not?", he asked.

So far, seven of 27 IPPs have completed the renegotiation with PLN.

Karaha is mainly controlled by American firms Florida Power and Caithness.