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Corruption

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

Corruption in ABB and ERG Projects in Indonesia

The confidential World Bank survey of August 1998 provided a picture of the Indonesian econ­omy according to which the allocation of any large project required the systematic and consistent payment of bribes. Unambiguous signs of corruption are the allocation of orders without previous public tendering procedure, granting excessive prices and fees, payment of so called commis­sions and project development cost, as well as the involvement of relatives and friends of Gen­eral Suharto in the companies and the projects. These characteristics emerge in several ABB projects in Indonesia, some of which were guaranteed by ERG:

(1) "In the good old days, there was little of that nonsense about competitive bidding", the Asian Wall Street Journal sardonically remarked on July 28th, 1999. "You simply hooked up with a Suharto relative or friend and, in a typical arrangement, offered to 'lend' them 15 percent equity, repayable only when the electricity started to flow." 26 out of 27 orders for private power plants were allocated without a previous invitation to tender. ABB won orders for at least six Indonesian power plant projects without a bidding procedure having taken place. Among these projects are the ERG projects Muara Tawar and Sengkang.

In a letter to the Indonesian organisation Corruption Watch, former PLN head Djiteng Marsudi complained on March 23rd, 2000, that he had been forced by political pressure to sign the Seng­kang contract, even though the contract had been established without a competitive bidding pro­cess. The terms of the contract for Muara Tawar gave rise to a fierce debate within the Indone­sian expert community. The World Bank was also concerned because the deal was rushed through without due diligence or competitive bidding. In negotiations with PLN the contract was revised and ABB reduced the price by 18.5 percent in February 1994. Indonesian engineering companies still maintained that the price was excessive. The French company GEC Alsthom offered the government to build three power plants – among them Muara Tawar – for 20 percent less. Nevertheless, the order remained with ABB.

(2) Suharto’s eldest daughter Siti Hardiyanta Rukmana (Tutut) holds a stake of 5 percent in the private company that operates the Sengkang power plant. Within the next two decades, her share is to be increased to 20 percent. Among Suharto’s children, Tutut is known to be particu­larly corrupt. Equity shares in private projects have repeatedly been offered for free to members of the Suharto clan. The suppliers, in turn, enjoyed particularly favourable conditions. "Cronyism is not the number one problem in Indonesia now", the director of the Australian operator of Sengkang downplayed Tutut’s stake; "it would be at number six or number seven." ABB’s inter­ests were often represented by B. J. Habibie. In 1995, ABB founded a large joint venture with the Coordinating Body of Strategic Industries of the former Technology Minister and later interim president Habibie, under the name of ABB Energy Systems Indonesia. The purpose was to as­semble power plant components in Indonesia.

(3) The gigantic Paiton I power plant is particularly controversial. In this project, members and friends of the Suharto clan – among them the businessman Hashim Djodjohadikusomo, a rela­tive of Suharto, as well as Agus Kartasasmita, a brother of the Energy Minister and later Minister for Economic Affairs have been attributed a 15 percent stake without payment. An official inves­tigation conducted by the new government discovered the item „Project development cost“ in the project accounting, which amounted to USD 22.2 million and was not further documented. In the budget, the item had amounted to USD 50 million. Conspicuously, Djodjohadikusomo had re­fused to sign an anti-corruption declaration for his participation in the project. A company owned by Djodjohadikusomo and Kartasasmita won the order for the supply of coal to the thermal power plant without having competed in a public tendering procedure. The company had not previously been active in the coal business. Ironically, the Paiton consortium later explained that Suharto’s brother-in-law had been recommended as a business partner by the US embassy. Under government pressure, the order for the supply of the boiler was allocated to ABB Com­bustion, which ran a joint venture with the Technology Minister B. J. Habibie. The price of the boiler supplied by ABB exceeded a competitive offer by USD 20 million.

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