JAKARTA – Fifteen years since a flood of toxic mud and gas spewing out of a breached natural gas well cut road links and forced the mass evacuation of East Java villagers, firms controlled by coal tycoon Aburizal Bakrie have still to pay at least US$100 million in compensation for causing the disaster.
Although the flow from the world’s largest mud volcano has been contained by levees since late 2008 – and is now expelling only a fraction of the 120,000 cubic meters a day it was at its height – experts expect the after-effects will continue to be a problem for the next 30 years.
They warn that because the levees are only made of compacted earth, there is still a real danger of heavy monsoonal rain or increased seismic activity triggering a catastrophic collapse, unleashing an avalanche of mud across an even wider area.
“It is mind-boggling to me that the mud is still flowing,” says one source who was involved in the project at the time of the eruption. “There was a lot of evidence in the seismic of a sub-surface feature, but we thought we were drilling a reef, not a volcano.”
Mud volcanoes are not volcanoes in the accepted sense because they don’t produce magma. They are normally formed when hot water from deep beneath the surface mixes with subterranean mineral deposits and is forced upwards through a geological fault.
Officials said last December they were still considering ways to collect on the $54.8 million loan taken out by the Bakrie-owned PT Lapindo Bratas and subsidiary PT Minarak Lapindo Jaya to recompense the government for providing the bridging finance to compensate many of the victims.
Lapindo claims to have already paid as much as 8 trillion rupiah ($560 million) as part of the emergency response and victim resettlement, but the State Audit Agency (BKS) says it now remains liable for 1.5 trillion rupiah ($105 million), covering the principal, interest payments and accumulated penalties built up over the past decade.
Kompas daily recently published an anniversary story on the long-running saga, reporting that Lapindo also owed a further $53 million to some of the 40,000 displaced villagers and private businesses who were not included in the government’s original compensation scheme.
According to Kompas, 54.3 billion rupiah ($3.8 million) of the 3.82 trillion rupiah ($268 million) awarded to local residents remains outstanding, along with 701 billion rupiah ($49.1 million) in compensation allegedly owed to about 30 companies whose factories were destroyed over an area of 4.4 square kilometers.
It is unclear, however, how much of that may be contested. Sources familiar with the case say that as with many public projects, profiteers typically bought up parcels of land from the original owners after the eruption, then elevated the price beyond the market value.
Once listed as one of Indonesia’s wealthiest men, Bakrie now doesn’t appear on the latest Forbes Top 50 rich list, headed by Robert and Michael Hartono, owners of Bank Central Asia (BCA), the country’s largest private bank, and the Djaram cigarette empire.
“He (Bakrie) has been hiding,” says one financial analyst, pointing to a steep plunge in the 74-year-old tycoon’s fortunes since the collapse of coal prices last year. “I think his liabilities are so large they now overshadow his assets. The banks don’t want to deal with them at all.”
The coal market has picked up in recent weeks, thanks to renewed demand from China and India, but the long-term outlook is grim as the world’s largest financial institutions balk at funding power projects that contribute to climate change.
In recent weeks, Bakrie has been campaigning for his son, Anindya Bakrie, who is battling fellow businessman Arsjad Rasjid for the chairmanship of the Indonesian Chamber of Commerce and Industry (KADIN), which will be decided at its annual congress on June 30.
Golkar party sources claim President Joko Widodo pushed for the delayed congress to be moved from Jakarta to the far-off South-East Sulawesi province capital of Kendiri in an effort to lessen the elder Bakrie’s influence over the election outcome.
The May 29, 2006, blowout occurred without warning at a well being drilled in a heavily-populated area near the district capital of Sidoarjo, 40 kilometers south of the port city of Surabaya, inundating villages and nearby factories in a sea of steaming mud.
It soon transpired that only 1,100 meters of the 3,000-meter-deep well had been protected with casing, a normal procedure which many experts say may have forestalled the mud bursting out of fissures around the well.
But sources familiar with the operation say it had been approved by regulator BP Migas and was no different from drilling programs carried out by other operators across East Java and even offshore.
Lapindo initially sought to put the blame on a 6.4 earthquake that hit Central Java two days earlier, which claimed more than 5,700 lives. But then it had to back-track after a letter was leaked from partner Medco Energi Tbk accusing the management of negligence.
Bakrie’s parent oil and gas company PT Energi Mega Persada put up half the capital to exploit the Brantas block, with Medco and Australian firm Santos contributing 32% and 18% respectively under a working interest agreement.
Over the next year, with its role as operator under a cloud, Lapindo appears to have had little choice than to allow the two partners to negotiate their way out of the joint venture for what one insider described as “modest numbers.”
In a ruling handed down in 2009, Indonesia’s Supreme Court absolved Lapindo of responsibility for the disaster, but public pressure had reached such a height that while it may have won the legal battle, it was always going to lose the public relations battle.
Unlike their foreign counterparts, Indonesian firms had long been slipping under the radar on environmental issues because they knew how to work the system. But the size of this particular mishap and its impact on the local population made it impossible to ignore.
The foul smell from Sidoarjo predictably spread to President Susilo Bambang Yudhoyono’s cabinet room. Only months before, Bakrie had been downgraded from economic coordinating minister to chief welfare minister after his private business dealings were perceived to represent a conflict of interest.
Although there was no talk of a split between the two political allies, then-vice president and Golkar party chairman Jusuf Kalla traveled to Sidoarjo and publicly called on the Bakrie family to take full responsibility for the disaster.
Mines and Energy Minister Purnomo Yusgiantoro declared the blowout “a drilling error,” contradicting an initial statement from BP Migas that the leakage from the Banjarpanji-1 well had been caused by the Jogjakarta earthquake.
The subsequent Supreme Court decision led police to end their investigation into the blowout, but experts questioned the level of control that had been exercised in drilling in an environmentally sensitive area and said it would have required safeguards to be built into the $24 million contract.