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Audit accuses companies of bribery

Posted By Charles Smith On 01/08/2000 @ 1:00 am In Front Page | Comments Disabled

An Indonesian government audit report accuses former President Suharto of
accepting bribes from a consortium of companies that are linked to President
Clinton’s campaign finance scandals.

A report obtained by Dow Jones Newswires on Jan. 5 alleges that PT Paiton
Energy, a consortium led by Edison Mission Energy of the United States and
Mitsui & Co of Japan, inflated its costs by up to $937 million in order to
sell expensive electricity to Indonesia.

“We allege that there were inappropriate payments by the consortium,
which related to the finalization of the negotiation process, to certain
people who had the authority to make decisions,” the Indonesian audit agency
stated in a report on the $2.5 billion Paiton I power plant in East Java.

Edison Mission owns 40 percent of Paiton; Mitsui holds a 32.5 percent
share and General Electric Co.’s GE Capital unit holds 12.5 percent of the
company.

Federal Election Commission records show that Mission Energy CEO John
Bryson donated money to the Clinton/Gore campaign and contributed money to
Clinton’s legal defense fund. Mission Energy is also a partner of
Indonesia’s Lippo group, a consortium partly owned by Indonesian billionaire
Moctar Riady and the Chinese Army CITIC (China International Trust and
Investment Corporation) bank. The Lippo Group and the Riady family are also
accused of providing illegal contributions to the 1996 Clinton/Gore
campaign.

Documents provided by the U.S Commerce Department indicate that Lippo
business partner Edison Mission Energy received strong Clinton
administration support for the multi-billion dollar Paiton project. One 1994
document notes that “with its state-of-the-art emissions-control technology
and by using low-sulfur Indonesian coal, the project will be one of the
cleanest, most efficient coal-fired facilities in the world.”

The Lippo conglomerate is currently the only global supplier of
low-sulfur coal. In 1996, President Clinton created the 1.7 million-acre
Grand Staircase-Escalante National Monument in Utah, placing off-limits the
world’s largest deposit of low-sulfur coal, giving the Lippo group a
monopoly in the only other clean-burning coal deposits — located inside
Indonesia.

Paiton I and other projects built by foreign independent power producers
have been dogged by accusations of corruption. Hashim Djojohadikusumo, the
brother-in-law of former President Suharto’s daughter Siti Hediati Prabowo,
controls PT Batu Hitam which owns a 15 percent stake in the Paiton power
project.

According to documents obtained from the U.S. Commerce Department, “.75
percent” of the Paiton project was reserved for Suharto’s daughter Prabowo.
Documents provided by the Offshore Private Investment Corporation show that
Prabowo and her brother-in-law Hashim Djojohadikusumo were given a personal
“2.5 percent” ownership in the Paiton power project through their local
company, BHP.

In addition, the Asian Development Bank was “skittish” about providing
the $50 million share to the Suharto family from the U.S. taxpayers,
according to the 1994 Commerce documents.

“Although the ADB financing is only $50 million, GE views the ADB
component to be important because it has a long-term interest in having a
multinational bank support the project. Furthermore, if ADB rejected
financing, EXIM and the commercial banks involved in the deal would ask
questions.”

According to a May 1999 letter written by Edison Mission Energy Senior
Vice President Robert E. Driscoll, “BHP holds a 15 percent interest in the
project. To date, BHP has made capital contributions of approximately $50
million. To facilitate these contributions EME, Mitsui, and GE Capital
extended loans to BHP to be repaid out of BHP’s project dividends. The loans
carry a market rate of interest and other commercial terms. Until the loans
are repaid in full, BHP is permitted to receive only 35 percent of the
dividends to which it is otherwise entitled.”

In 1999, Indonesia’s state-owned electric utility, PT Perusahaan Listrik
Negara, or PLN, sued Paiton I to void the power supply contract it signed
with them in 1994, charging that the contract was based on elements of
“corruption, collusion and nepotism.”

The Indonesian auditor said its bribery allegation was based on the
finding of $22.23 million of funds listed as “Project Development Costs” in
Paiton Energy’s 1994 financial report. The auditor said it couldn’t find any
explanation of the item, although the amount was more than 50 percent of the
company’s total assets.

“We believe that the consortium or Paiton Energy Corp. covered
information on expenditures related to speedy-money or bribery,” the agency
said.

A spokeswoman for Edison International, the parent company of Edison
Mission, said that “during the negotiation process we were advised by
internationally recognized advisers. If there was any wrongdoing, it should
have been caught during the negotiation process.”

“PT Paiton Energy categorically denies that either the company or its
shareholders engaged in any improper or corrupt activity in connection with
Paiton Swasta I,” said Frans Winarta, the attorney for Paiton Energy.

“The contract with PLN for Paiton Swasta I was the product of
transparent, good-faith negotiations that resulted in fair and reasonable
contract terms,” Winarta added.

Indonesia was advised during negotiations by financial and technical
teams that included Lazard Freres, S.G. Warburg, Lehman Brothers, and legal
counsel White & Case.

According to a 1998 article published in the Wall Street Journal, “Wasted
Energy” by Peter Waldman and Jay Solomon, the international team of advisors
was “shut out” by senior Indonesian officials who ordered the consultants to
“stop reviewing fuel costs.”

“We were slapped back so fast our heads were spinning,” stated a Lazard
Freres advisor.

The Indonesian government auditor’s report was the first to review the
accusations against Paiton I and the other 25 power projects. The audit
recommends that the Indonesian attorney general investigate everyone
involved in negotiating the contract.


Charles Smith is a national security
and defense reporter for WorldNetDaily.


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