BP requires government to provide political risk insurance for Tuban project

A consortium of BP and ANZ Bank has asked the government to provide political risk insurance as the condition for the disbursement of the US$400 million fund to finance for the continuation of the Tuban petrochemical project, an industrial source told Bisnis Indonesia on Monday.

The source said the government as the majority owner of the project might face difficulties to provide the political risk insurance requirement. "BP wants political risk insurance coverage from Multilateral Investment Guarantees (a company under World Bank). This why the government might turn to a consortium of Japan Bank for International Cooperation (JBIC) and Nippon Export Insurance (Nexi) to finance the project," he said.

BP-ANZ and JBIC-Nexi are competing to finance the East Java-based petrochemical project which was halted during the peak of the country?s worst ever economic crisis in 1999.

The project was previously controlled by Tirtamas Group but the business group lost most of its interest in the project following the rescheduling of its massive debts. At present the Indonesian Bank Restructuring Agency (IBRA) and Pertamina are the majority shareholders of the project which is also partly owned by Siam Cement of Thailand and Nissho Iwai Corp.

The source said that although the condition required by JBIC-Nexi was less strict than that of BP-ANZ, the government had yet to decide which of the consortiums would be selected because Pertamina as one of the majority shareholder had not made any response.

He said both consortiums had submitted their plenary offering but all demand the government to provide a force majeure clause in the contract to ensure that their money would be repaid. According to an initial plan, the two consortiums will provide US$200 million each for the resumption of the project. The fund will be disbursed through Mitsui-Sumitomo Bank. (*)