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Corruption

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

Reformasi in the Power Sector

In the fall of 1997, the economic crisis broke out in Thailand, South Korea and Indonesia. Even without the crisis, PLN would have been left with expensive contracts for purchasing unneeded private power. The economic crisis led to the deterioration of the situation in two ways: The col­lapse of the Indonesian economy resulted in a drop in the demand for electricity. At the same time, the exchange rate of the dollar – on the basis of which private power had to be bought – went through the roof: Between 1997 and July 1998, the rate rose from 4600 to 15,000 rupiah.

PLN was quite obviously no longer able to meet its obligations as stipulated by the lopsided contracts. From January 1998 on, the authorities continued to pay 2450 rupiah for private power, a price which was based on the Dollar exchange rate of 1996. Up to March 1998, the Ministry of Finance paid the IPPs the difference to the real exchange rate, but then ran out of funds. Thus, up to the end of 1999, Indonesia accumulated a debt of USD 64.7 million with the operator of the Sengkang plant alone.

PLN proposed to the IPPs a new purchasing price of 3 – 3.5 US cents/kWh (at an exchange rate of 7000 – 8000 rupiah/Dollar). Even though the IPPs refused, PLN continued to pay a mere 30 percent of the amount due to most IPPs. For at least two projects, the electricity board re­fused to pay altogether. With most operators, however, PLN entered into negotiations on future tariffs. On September 29th, 1999, the electricity board and the operators of Sengkang concluded an interim agreement. It was the first of its kind. A temporarily negotiated tariff should allow Sengkang to pay at least for gas and operation, and to make interest payments. (The figures were not disclosed.) The agreement was set to expire by the end of April 2000 and allow both parties to negotiate a definitive tariff agreement. In the beginning of June 2000, the interim agreement was prolonged through to July 31st, 2000. In early March 2000, PLN had concluded a similar interim agreement with the operator of Paiton I. Again, the temporarily negotiated tariff was not disclosed. In the beginning of June 2000, PLN paid the Sengkang operators outstanding bills amounting to USD 33.5 million. Only a few days later, however, PLN announced that, during the current year, it was not able to buy any more power from the IPPs. Parliament had author­ised only 24.5 trillion rupiah of the proposed PLN budget of 35 trillion rupiah.

On May 21, 1998, due to heavy protests by the population that had taken to the streets, General Suharto was forced to resign his presidency. Thus, the patron of numerous corrupt contracts imposed on PLN was no longer at the helm. Only a few weeks later, the government announced its intention to check the IPP contracts for corruption and nepotism. "If such things could be proven," explained Markus Permadi, a top official of the Ministry for State Enterprises (which PLN comes under), "it stands to reason that by law those contracts will be declared null." Since then, PLN has been focussing its legal efforts on five independent power plants which are con­sidered very corrupt – among them Paiton I, Sengkang and the geothermal power plant Patuha.

An investigation by the national audit commission uncovered numerous irregularities at the Pai­ton plant (see above). In October 1999, in a move to void the power purchasing contracts, PLN filed an action against the consortium of US, Japanese and Indonesian companies that operate Paiton I. Obviously under pressure himself, President Abdurrahman Wahid advised PLN in De­cember 1999 to discontinue these legal proceedings and charged his cabinet with the negotia­tions with the plant operators (see also the following chapter). The President further instructed the government to dismiss PLN head Adhi Satriya and the head of its negotiating team, Hardiv Situmeang. To Inge Altemeier, free-lance researcher for the Berne Declaration, Indonesia’s attorney-general Marzuki Darusman explained on May 9th, 2000: "We are in possession of un­ambiguous evidence for corruption. So far, however, we have been forced by political pressure to suspend our investigations until an interim agreement has been concluded. Once we are able to proceed with the investigations, it will become clear which companies have been paying bribes.“

Despite the discontinuation of proceedings and the conclusion of the interim agreement, the issue of corrupt contracts has not yet been settled. In the case of the geothermal IPP Patuha, then Finance Minister Bambang Soedibyo assured as late as in March 2000 that Indonesia was not going to meet its contractual obligation due to evidence of corruption. The Indonesian par­liament is furthermore planning to establish a special committee to look into the matter of inde­pendent plant operators. Non-governmental organisations such as Corruption Watch or the PLN trade union maintain their pressure on the government to challenge the corrupt legacy of the Suharto dictatorship in court.

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