Jakarta Globe

Friday, April 3,2009

After 12 years in mothballs, a subsidiary of state oil and gas firm PT Pertamina plans to revive the Karaha Bodas geothermal project in Garut district, West Java Province , at an estimated investment of as much as $60 million, atop company official said on Thursday.
The project was halted in 1997, the height of the Asian financial crisis, by President Habibie, following allegations of corruption and inflated estimates of potential reserves by PT Karaha Sodas Co., or KBC.KBC was a joint venture between the US-based energy companies Caithness Energy and Florida Power and Light Group Inc., and Japanese power developer Japan Tomen Power Holdings Corp., together with local partner PT Sumarah Dayasakti.

At the time, Pertamina said that Karaha Bodas^‘s proven re-serves were only 30 megawatts, but KBC claimed they amounted to some 400 MW. The dispute eventually went to arbitration, with the panel finding against Pertamina in 1999, and ordering the state firm to pay $261 million in damages to KBC for the money it had already spent and loss of future profits.“Pertamina will start the construction of the geothermal project nextyear and expects to bring online all of the 30 MW in proven reserves,” Abadi Poernomo, president director of Pertamina Geothermal Energy, or PGE, told the Jakarta Globe by telephone. “The price for geothermal electricity is higher now than it was previously, thus clearing the way for us to reusrrect the project.” He said that the investment would be financed by a Pertamina loan to PGE. “it would be a corporate loan to us. Pertamina can come up with some $50 million to $60 million,” he added. Abadi also expressed the hope that the seemingly intractable legal dispute between Pertamina and KBC would be resolved soon. Although Pertamina finally paid the arbitration panel’s award to KBC, it still refuses to accept liability, and has since tried to recover the money in the United States, Singapore, Hongkong and Canadian courts, arguing that KBC was guilty of corruption and of inflating reserves. Abadi declined to elaborate further on the legal issues.
 According to lawyer Todung Mulya Lubis, the chairman of Transparancy International Indonesia, Pertamina had little chance of reversing the arbitration award as overseas courts were very reluctant to do so for fear of damaging the arbitration system. “I m not optimistic that Pertamina will be able to over turn the arbitration award against KBC, unless Pertamina has very strong reasons that would persuade the court to do so. Pertamina however, doesn’t have such reasons. KBC won because it argued its case very well before the arbitration panel.” Regarding the pricing of the Karaha Bodas power, Abadi said that Pertamina was currently in talks with state power utility PT Perusahaan Listrik Negara, or PLN.The revived Karaha Bodas project forms part of phase teo of PLN’s “fast-tract” generating capacity expansion program, and is expected to be finished by 2013, Abadi said.

Todung Mulya Lubis

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