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Corruption

Publicly Guaranteed Corruption
Corrupt Power Projects and the Responsibility of Export Credit Agencies in Indonesia

Export Credits and Indonesia

During the Suharto era (1965-1998), Indonesia was one of the major recipient countries of offi­cial export credits and export guarantees. At 29 billion USD in the end of 1995, Indonesia ranked third internationally, preceded only by Russia and China. At that time, government export credits corresponded to 27 percent of Indonesian debt. As remains to be shown, Indonesia’s attractive­ness for publicly guaranteed export orders was directly related to the corrupt nature of the Suharto regime.

Indonesia is also one of the major recipient countries of the Swiss Export Risk Guarantee (ERG). By the end of 1997, towards the end of the Suharto era, the ERG exposure in Indonesia amounted to CHF 1.098 billion. At 17.1 percent of the total exposure, Indonesia took the leading position among all of ERG’s recipient countries. By the end of 1999, an exposure of CHF 953 million put Indonesia on the second position, just behind Turkey. Up to 1995, Indonesia was considered a low-income country as defined by the OECD. When granting guarantees in such countries, ERG is to take into account by law whether the corresponding projects are compatible with the principles of Swiss development policy.

The ERG exposure in Indonesia is mostly accounted for by three thermal power plants listed in the following:

* In 1992, ERG granted ABB a guarantee for the Tanjung Priok project, a combined-cycle plant with a capacity of 1180 megawatt, located near the port of Jakarta.

* In 1994, ERG granted a guarantee for the Muara Tawar project, another thermal power plant of ABB in the Jakarta area with a capacity of 1090 megawatt. Out of the order volume of CHF 1.1 billion, CHF 580 million were accounted for by ABB.

* In 1996, ERG granted ABB a guarantee for the Sengkang project, a combined-cycle power plant project with a capacity of 135 megawatt in southern Sulawesi. As opposed to Tanjung Priok and Muara Tawar, Sengkang is not operated by Indonesia’s state electricity board PLN, but by a private company. The order volume amounted to USD 185 million. UBS and Bank BZW Asian extended a loan, and ERG insured an order of ABB Switzerland of a total of USD 115 million. Sengkang went on-line in September 1997. ABB will be in charge of the opera­tion during the first six years.

As remains to be seen, the role of the Independent Power Producers (IPP) in Indonesia is highly controversial. The project giving rise to the greatest controversy is the coal-fired Paiton power plant with a total of eight blocks. Paiton is based on a feasibility study conducted by Elektrowatt. ABB holds a large order in the project. Mission Energy, Mitsui and General Electric are the main investors in the Paiton I project, and Siemens and PowerGen, in Paiton II. After the Asian De­velopment Bank (ADB) had refused to fund Paiton I on the grounds of obvious nepotism, Exim Bank and OPIC from the US plugged the gap in April 1995. JEXIM and MITI from Japan ex­tended further coverage for Paiton I. The US Exim Bank, Hermes and KfW from Germany pro­vided funds for Paiton II. ERG is not involved in Paiton.

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