U.S. govt agency warns RI on power plant review
U.S. govt agency warns RI on power plant review
HONG KONG (Dow Jones): A U.S. government agency has warned Indonesia that it may seek to recover as much as US$100 million in lost investment if Indonesia goes ahead with plans to cancel U.S.-backed projects as part of its austerity drive.
Some U.S. companies say they're ready to invoke political risk guarantees issued by the U.S. government if Indonesia cancels their investments. If the U.S. agency pays the claims, it could seek compensation from Indonesia under the provisions of a 1967 mutual investment protection treaty, officials say.
On Jan. 10, Indonesia's President Soeharto, bowing to pressure from the International Monetary Fund, said it would 'review' or 'postpone,' some 15 infrastructure projects, including several involving U.S. investment.
Days after Soeharto's announcement, the U.S. government's private-sector financing and insurance arm, the Overseas Private Investment Corp., informed Indonesian officials that one of the projects 'to be reviewed' is a 240-megawatt project partly owned by CalEnergy Co. Ltd. of the U.S. The project is covered by OPIC insurance, an OPIC spokesman told Dow Jones Newswires late Thursday.
In a Jan. 14 letter to Indonesian government officials, OPIC warned that if the CalEnergy project is canceled and a claim is filed with OPIC, OPIC would begin steps to recover the investment from the Indonesian government.
The purpose of such a letter would be to inform Indonesian officials of the fact that we do have coverage of these projects,' said the spokesman. 'We let them know that in the event a claim was made to OPIC, then this is what the process would be.'
Under a 1967 mutual investment treaty with the U.S., the Indonesian government is committed to recognize any payments made by the U.S. government to U.S. companies holding U.S.-government issued insurance. If Indonesia doesn't compensate the U.S. for the payment, the U.S. could seek to recover the money by going through binding arbitration.
The OPIC spokesman added that the recovery process, if ever begun, would be lengthy and would require that numerous conditions in the OPIC insurance contract be met first.
OPIC's letter puts it in the awkward position of appearing to be in conflict with the U.S. Treasury, which has supported Indonesia's agreement with the IMF and its decision to scale back some of its infrastructure spending plans.
Robert Silberman, CalEnergy's senior vice president, said that with the letter, OPIC 'has let the Indonesian government know they (OPIC) have a real interest in making sure these projects go forward.'
Silberman added that subsequent contacts by OPIC and the U.S. embassy in Jakarta have continued to press the issue home with Indonesian authorities.
CalEnergy, which has nearly 2,000 megawatts of power projects in the Philippines and Indonesia, purchased political risk insurance from OPIC in 1996 for 75 percent of its US$265 million equity investment in two geothermal plants, Dieng and Patuha.
Once operating, the plants would sell electricity to Indonesia's state-owned utility PT Perusahaan Listrik Negara under supply contracts guaranteed by Indonesia's Ministry of Finance. OPIC's political risk insurance for CalEnergy covers expropriation and breach of contract by the host government.
While the 176-megawatt Dieng project has been allowed to go forward, the 240-MW Patuha plant was put on Indonesia's review list. The two projects have equal coverage under the OPIC insurance. The Indonesian government and the World Bank are now evaluating the infrastructure projects to decide whether to cancel the projects or allow them to go forward.
OPIC's position on the CalEnergy project may mark only the first in a possible series of breach of contract claims in Indonesia, where OPIC is financing and insuring $475 million in 10 projects.
In its January letter, OPIC made it clear that besides the CalEnergy project, others with OPIC insurance in Indonesia were also being carefully monitored.