Police investigate KBC case

Police said on Friday that they will launch an investigation next week into charges that PT Pertamina, the state-owned oil and gas company, and its U.S. partner, Karaha Bodas Co., marked up the value of a geothermal power project which was closed during the 1997-98 financial crisis, Kompas, Koran Tempo and Dow Jones reported on Saturday.

The investigation could complicate efforts by Karaha, which is principally controlled by Florida-based FPL Group Inc. and Caithness Energy LLC of New York, to retrieve $260 million in damages related to the project's collapse.

Government has asked the police to question two former Pertamina employees who were involved in the deal for Karaha to build a geothermal power plant in West Java, said Paiman, a national police spokesman. He said police may later need to talk to Karaha executives.

"We were asked to look at whether there was any marking up of the value of the project," Paiman told Dow Jones Newswires.

Attempts to reach the government weren't successful late Friday.

Last year, a U.S. Court of Appeals upheld an international arbitration ruling from 2000 which ordered Pertamina to pay damages to the U.S. company. Karaha said Pertamina failed to honor its contracts, and that it lost more than $100 million it had spent on the project, as well as future profits.

After years of legal skirmishes, Pertamina's new management said in March this year they would abide by the arbitration ruling.

But Paiman said the government wanted the police to investigate the project before Pertamina pays the compensation. He gave no further details.

Indonesia suspended a number of independent power projects during the Asian crisis, amid claims that some had overstated costs, and were charging the government above market prices for electricity. Some large projects such as Paiton in East Java were later renegotiated. (*)