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.