Information und Analyse

Unnecessary Electricity – Siemens Deal Causes Political Tensions

06 June 2000

SiemensAs the No. 1 German news magazine, ‘Der Spiegel’, in its issue of last week reports, the German government is to face trouble over a deal signed in 1995 between Siemens and the Indonesian power supply company PLN, to build the 1200 Megawatt ‘Paiton II’ power plant in East Java.

The $ 1,6 billion deal, which was brokered between the governments of ex-Chancellor Helmut Kohl and ex-President and dictator Suharto of Indonesia, might now prove to be yet another problematic legacy of the Kohl era. The close political ties between the two countries and the involvement of a Suharto son, Bambang Trihatmodjo, meant that the German government backed the deal with an exceptionally generous ‘Hermes’ (export credit) guarantee to safeguard Siemens against financial risks.

Siemens meanwhile struck a deal with Suharto’s son Bambang forcing PLN to buy electricity for the next thirty years from the joint Siemens/Bambang company, PT Jawa Power, for an allegedly disproportionately high price.

The former PLN director Djiteng, who signed the deal in 1995, today says that he had been bypassed in the decision-making process and was finally forced to accept the unreasonable conditions. Businesses involving Suharto clan members were pushed through. Not to sign would have been suicide, he claims.

All major actors benefited from the project either politically or economically, so that any doubts about aggravating the nepotism of the highly corrupt and undemocratic Indonesian regime or the already existing power over-capacities in Java were put aside. The German government secured German presence in the region as demanded by Helmut Kohl in his festive speech during Suharto’ s state visit in 1995. At the same time Siemens, backed by Germany’s tax billions, could look forward to the fixed returns established in the contract, as could Bambang Trihatmodjo.

Five years later the situation has changed considerably. Apart from technical difficulties, PLN’s insolvency due to the economic crisis in the country, has made Siemens calculations of electricity demand impossible to meet. The PLN-owned power plants are already not working to full capacity. For these reasons the post-Suharto Indonesian governments have terminated 13 of 26 deals with foreign electricity companies and it is not expected that they will be revived in the near future. As a consequence the new red-green government is to stand in for the $380 PLN owes to PT Jawa Power at the end of this year alone.

Knowing this, the German Minister of Economics, Werner Mueller, joined forces with his colleagues in the US and Japan in a letter to the Indonesian Minister of Finance to underscore the importance of investors’ rights and to point out that anything but safeguarding those rights would jeopardise any future co-operation. Siemens meanwhile has asserted that the contract does not contain overpriced conditions and that the negotiations were not tainted by corruption.

However such bullying has its limits. According to Attorney General Marzuki Darusman, there is evidence of irregularities, which will have legal consequences if proven true. Western governments wanted to make deals with a corrupt regime. Calls on the new Indonesian government to root out Suharto-style clan corruption are ‘mere hypocrisy’, if at the same time those countries demand the fulfilment of such Suharto-style contracts, says Hok An, speaker of the Indonesian human rights organisation Imbas.

Apart from that, it seems more than unlikely that the deeply indebted, economically and politically weak Indonesian government will be capable to raise money to bail out foreign investors.

If anyone, “the German government will have to pay for its share of the responsibility”, Hok An says in a summary of the situation. “The truth is that they wanted to press money out of a poor country for unnecessary and overpriced electricity, which was contracted under dubious circumstances.” <>

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