Compensation can be reduced by 50%, if KBC involved in corruption

The compensation that have to be paid by Pertamina to Karaha Bodas Company (KBC) can be reduced by 50 percent from the current amount of US$299 million if the state oil company is able to prove that Karaha was involved in corruption practices, Deputy of State Minister for Supervision of State Enterprises Roes Ariwijaya said as reported by Bisnis Indonesia on Saturday.

Roes, however, said Pertamina should first pay the total amount of the compensation to KBC, and then ask for a reduction of about 50 percent after the state company could prove that KBC was involved in corruption in the court.

"The arbitration process and the corruption charge are two different things. If the court can prove that KBC was involved in corruption, the compensation demanded by the company could be lowered," he was quoted as saying.

KBC sued Pertamina on behalf of the government through the International Arbitrary for the suspension of its geothermal project in Karaha, West Java in 1997. Pertamina was then asked to pay a compensation of US$261 million but the state-owned oil and gas company refused to settle the payment.

Karaha Bodas Company's claim to state owned oil and gas company Pertamina sharply increased to US$290 million at the end of 2003 from only about US$262 million due to the accumulation of interest payment.

The government's audit agency BPKP found a significant mark-up in the geothermal project developed by KBC and tax eviction of about Rp 5.97 billion. (*)