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Challenging the Sacred Block

The court hearing of a suit by Amien Rais and 100 others demanding that the Cepu Block management agreement be annulled has begun. ExxonMobil asked that the agreement be respected.
JAKARTA Regional Representatives Council (DPD) member Marwan Batubara is busy collecting signatures. Last week three of his subordinates were sent out to visit more than 100 people to get their signatures for a power of attorney that he had prepared. “I’m optimistic, it will end in less than three weeks,” he told Tempo.

The power of attorney was for a suit presented by 111 people against nine institutions and mining operators. This includes the Minister of Energy & Mineral Resources, the state-owned oil company Pertamina, the Upstream Oil & Gas Regulatory Agency, ExxonMobil, the Department for State-Owned Enterprises (SOEs), and PT Humpus Patragas. They are challenging an agreement over the management of the Cepu Block in the boarder region between Central and East Java that has fallen in the hands of ExxonMobil.

Aside from the large number, the plaintiffs come from a number of circles. They include former People’s Consultative Assembly speaker Amien Rais, House of Representatives (DPR) members Drajat Wibowo, Alvin Lie and Rama Pratama, Kwik Kian Gie, Fuad Bawazier, constitutional legal expert from the Gadjah Mada University Denny Indrayana, as well as nine DPD members, including Batubara. “We are presenting the suit because the cooperation agreement between the government and ExxonMobil will damage the national interest,” said Batubara.

On Thursday, January 18, the first hearing of the suit was held at the Central Jakarta District Court. During the session however, presiding Judge Koesriyanto requested that the plaintiffs make corrections to the power of attorney. According to Koesriyanto the power of attorney was invalid because of the inclusion of two new attorneys backing the plaintiffs. This is what has now become Batubara’s tasks, to ask his 110 colleagues to immediately get the document re-signed before the next hearing in mid February.

According to Wirawan Adnan, one of the 13 attorneys for the plaintiffs, the case began with the management of the Cepu Block in 1990. At the time Pertamina had given the management rights to Humpus Patragas in the form of a technical assistance contract (TAC). But in May 1996, Humpus sold 49 percent of its shares to Ampolex Pty Ltd, an oil company from Australia.

Later on, Ampolex was acquired by Mobil Oil, and in 1999 Mobil Oil merged with Exxon, an oil company from the United States, and gave birth to the company ExxonMobil. After an interval of six months Humpus then sold the remainder of its shares to ExxonMobil. “But the transfer of shares occurred before the TAC was altered,” said Adnan. Whereas according to Adnan, Article V in the contract prohibits the transfer of management rights to a foreign company.

The plaintiffs believe that the US government applied pressure so that ExxonMobil would be the operator of the Cepu Block. This pressure was applied for example when US President George Bush met President Susilo Bambang Yudhoyono in Santiago, Chile, in November 2004. At the time it was reported that there had been a request from the US government for a renegotiation of the management of the Cepu Block.

In March 2005 the government did indeed form a negotiating team to resolve problems between Pertamina and ExxonMobil. According to Adnan the formation of this team was odd. “Without negotiations, the Cepu Block should have been returned to the government when its TAC contract ended in 2010,” he said. Following the negotiations, the government finally awarded a 30-year joint contract to manage the Cepu Block to Mobil Cepu and Ampolex (a subsidiary company of ExxonMobil) and PT Pertamina Cepu.

This decision was reinforced by a Joint Operation Agreement on March 15, 2006, which reaffirmed ExxonMobil’s position as the operator. According to Adnan, this choice clearly damaged the state financially. Oil reserves at the block are estimated at 600 million barrels, but according to Adnan, there are estimates for as much as 2.5 billion barrels. “This is a really large amount, because, current national oil reserves are only around 5 billion barrels,” he said.

Adnan rejected remarks that the state will benefit from the joint agreement. On paper he stated, the percentage going into the state treasury is around 93.25 percent, ExxonMobil will only get 6.75 percent. “But the reality is that it could be much smaller than this amount,” said Adnan. This is because the division will be made after operational costs are counted as recovery costs. “If the recovery cost is high, the government’s earnings will also be small,” he said. The plaintiffs, who have named themselves the People’s Movement to Salvage the Cepu Block (GRPBC) are asking that the agreement be annulled and the management of the Cepu Block be handed over to Pertamina.

ExxonMobil’s attorney, Todung Mulya Lubis, disagreed that the government will suffer financial damage as consequence of the agreement. “The government had already calculated the profits from the deal,” he said while asserting that there is no way that ExxonMobil will inflate the recovery costs for the sake of getting more profits. He also denied that the US government pressured the Indonesian government so that the management of the Cepu Block would fall into ExxonMobil’s hands. Todung hoped that the government and the courts will respect the agreement that in business is valued as “sacred.” “If the government and the courts don’t respect it, it will become a bad precedent for the economy,” said Todung.

Johan Tanak, the legal attorney for the government, asserted that all of the government’s decisions regarding the Cepu Block were considered carefully. “Before acting, it has been researched,” said the Head of the Sub-Directorate for Civil & State Administration at the Attorney General’s Office. Tanak stated that they will continue to study the suit by the 111 plaintiffs.

According to Rama Pratama, one of the plaintiffs, the suit was launched after political efforts failed. Earlier, a number of DPR members had even proposed an interpolation motion to annul the agreement. But during a DPR plenary session in May last year, only 83 out of 342 assembly members present supported the proposal. “So, the courts were used after political endeavors encountered a dead end,” said the Justice and Prosperity Party Fraction member.

Mining industry observer Dirgo D. Purbo said that the policy to hand over the management of the Cepu Block to ExxonMobil was wrong. “The Cepu Block should be managed by Pertamina,” he said. According to Dirgo, drilling operations in the Cepu Block are land based. “So, it doesn’t require very sophisticated technology and could be handled by a domestic oil company,” he said.

The Director of the Center for National Strategic Interest Studies (Paskal) said that if Pertamina managed it, the Cepu Block would have the potential to bring in huge amounts of foreign exchange. With potential oil reserves of around 2.5 billion barrels he said, the amounts would be very significant even though it would not make up for Indonesia’s crude oil consumption of as much as 1.8 million barrels a day. “With production at 150,000 to 200,000 barrels a day, at least it could reduce imports,” said Purbo.

The “war” in the courts with plaintiffs comprising important figures will indeed be a lively and vigorous one. The plaintiffs however are aware that their “fight” to win the suit will not be easy. Moreover there is the precedent of the “Indosat divestment case” to consider. Two weeks ago the Supreme Court rejected a suit by a number of politicians and public interest groups that claimed the government’s policy of releasing Indosat shares to Singapore Technologies Telemedia was against the law. Amien Rais is nevertheless optimistic that the court will uphold their suit. “I think, if we are still sovereign, our suit will be upheld by the judges,” he told Tempo.

Abdul Manan
Tempo Magazine, No. 22/VII/Jan 30 - Feb 05, 2007


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