VZCZCXRO3421
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #1110/01 2500823
ZNR UUUUU ZZH
P 070823Z SEP 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 9692
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA 9901
RUEHWL/AMEMBASSY WELLINGTON 1020
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGP/AMEMBASSY SINGAPORE 5451
RHMFIUU/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
ZEN/AMCONSUL SURABAYA

UNCLAS SECTION 01 OF 06 JAKARTA 011110 
 
SIPDIS 
 
DEPT FOR EAP/MTS AND EB/ESC/IEC 
DEPT PASS OPIC, EXIM, TDA 
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 
COMMERCE FOR USDOC 4430 
 
FROM AMCONSUL SURABAYA # 2121 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EPET PGOV ID
SUBJECT: East Java: Increasing Mudflow Threatens 
Infrastructure and More Homes 
 
Ref A: JAKARTA 7839, Ref B: JAKARTA 8250 
 
¶1. (SBU) SUMMARY: The flow of mud from the fractured 
well owned by PT. Lapindo Brantas (Lapindo), a Bakrie 
Group controlled entity, in Porong, East Java continues 
to increase, reaching volumes as high as 500,000 cubic 
meters per day in early August, and has flooded more 
than 450 acres, destroying thousands of homes and 
dozens of businesses and displacing 10-12,000 local 
residents. President Yudhoyono visited the site in 
early August to personally assess the situation and 
urge action by Lapindo.  ConGen Surabaya estimates 
economic losses to East Java at USD 1 billion and 
rising.  Bank Indonesia (BI) Surabaya confirms an 
increase in non-performing loans in the province during 
June and July due to a 35-40% business downturn. The 
Central and local governments' response has been 
limited to pressuring Lapindo to solve the problem 
quickly.  Local leaders are at a loss at what to do 
next other than pin the blame squarely on Lapindo 
management and try to avoid financial assistance to the 
victims.  This case is being watched closely not only 
in East Java but throughout Indonesia and in the 
extractive industry community, both in terms of its 
economic impact and in Indonesia's legal response to 
this clearly man-made disaster.  END SUMMARY 
 
Current Situation 
----------------- 
 
¶2. (SBU) The Porong, East Java gas well drilling 
accident caused by PT Lapindo Brantas (Lapindo) in May 
and reported in Refs A and B continues to produce 
increasing amounts of noxious mud, threatening the 
province's major transportation corridors and water 
supply.  The fractured well is located only 40 yards 
from the main north-south toll road carrying much of 
the goods and produce from southern East Java to the 
transportation and manufacturing hub of Surabaya.  The 
well site is enclosed in a triangle by the toll road to 
the north and east, the main rail line from Surabaya to 
Malang and southern East Java one half mile to the 
north and west and the Porong River one mile to the 
south.  The estimated 7 million cubic meters of mud 
already emitted has filled a 450-acre area fortified by 
loose earth walls to a depth varying from 32 feet at 
the mouth of the eruption to 10-12 feet at the low 
point one half mile away.  More than 1,700 homes, 30 
businesses and a school have been destroyed.  10-12,000 
Porong residents are currently displaced, 8-9,000 of 
which are living in stalls in the Pasar Baru 
marketplace near the mud lake.  Thousands more homes 
and businesses are threatened as the mud flow continues 
and the rainy season approaches. 
 
Fractured Well Still Flowing Uncontrollably 
------------------------------------------- 
 
¶3. (SBU) Lapindo's efforts to stop the mudflow have so 
far been unsuccessful.  The mud flowed at rates 
increasing from 5,000 to 100,000 cubic meters per day 
until August 1 when the flow rate suddenly exploded to 
over 500,000 cubic meters per day.  On August 16 the 
flow subsided to its previous flow rate and now 
randomly varies in flow from 40,000 cubic meters per 
day to 600,000 cubic meters per day, defying 
explanation or prediction by the experts on site.  On 
August 26 the well site experienced a series of 
explosions shooting mud over 130 feet in the air, 
showering the area with boiling hot mud and 
hospitalizing two men working at the site, one 
eventually died from his injuries. 
 
¶4. (SBU) Lapindo attempted to install a snubbing unit 
in July but that effort failed to stop the mud flow. A 
Western well expert brought in to combat the mud told 
 
JAKARTA 00011110  002 OF 006 
 
 
econ/pol off Williams on August 23 that the well hole 
had been so enlarged and deformed by the high pressure 
mudflow that there was no reason to continue.  Lapindo 
then attempted to stem the mud using a side tracking 
well but in mid-August abandoned that effort as well 
and is now focused on drilling a relief well.  In mid 
August, during the period of highest mudflow rate, the 
relief well site was inundated with an avalanche of 
mud, causing the evacuation of the drillers and 
drilling equipment.  A new relief well site is now 
established and Lapindo has hired the U.S. firm Century 
Drilling (although they are still awaiting the delivery 
of the drilling rig).  The Western expert predicts a 
best case scenario of 10 to 12 weeks of drilling to 
reach the fractured well at a point deep enough to 
divert the flow and cap it.  Lapindo also hired 
Haliburton as a geotechnical consultant in early August 
and received seismic fault mapping information 
indicating that the well can be stopped. (Note: 
Haliburton has also provided civil engineering support 
for the containment dam construction, contributing much 
needed expertise to strengthen and manage the dam 
walls.) 
 
¶5. (SBU) The Western Expert now estimates the total 
cost to kill the well and control the mud will be USD 
200-300 million.  Lapindo carried only USD 25 million 
of insurance on the project and has already spent USD 
50-60 million.  Lapindo is now insolvent and relying on 
capital contributions from its partners to fund ongoing 
well kill and mud control operations.  (Note: The 
Western expert has prudently advised all U.S. 
contractors and consultants to require payment in 
advance for any services rendered.) 
 
Mud, Mud Everywhere 
------------------- 
 
¶6. (SBU) Lapindo's program to control the existing mud 
has met little more success than the program to stop 
the mudflow.  Loose earth walls have been constructed 
to contain the mud by employing 400 dump trucks and 30 
bulldozers to construct dams to contain the mud lake at 
its current size.  There have been numerous collapses 
of the earth walls releasing mud and repeatedly closing 
the toll road, prompting Lapindo to begin a program to 
raise the toll road by 10 feet in affected sections. 
In early August, another collapsed dam flooded another 
village and temporarily closed the main rail line. With 
the rainy season approaching, Lapindo management is 
running out of options to control mud in the 450 acre 
site and has requested permission to "use" (i.e. flood) 
an adjacent 500 acres of village and rice paddy, 
destroying an additional 6-800 homes and displacing 4- 
5,000 more residents.  The expanded containment area 
will bring the mud within 50 yards of the Porong River, 
a major water supply for East Java. 
 
¶7. (SBU) Local residents who have been selected to have 
their homes flooded with mud are complaining bitterly 
about the lack of action by local government, in 
particular the Sidoarjo Regent, at supporting there 
case and protecting their homes.  Faced with a version 
of Solomon's dilemma, the Regent has reluctantly agreed 
to the plan to sacrifice several villages in order to 
contain a wider catastrophe.  Much of the residents' 
frustration stems from Lapindo's inability to move any 
of the mud away from the site. Although Lapindo has 
applied for permission to construct a 19-km pipeline to 
carry water separated from the mud and treated to the 
ocean (Lapindo has completed 4 kilometers of the 
pipeline and plans to test two treatment systems 
imported from Australia), a senior PT. Bumi Resources 
executive admitted to econ/pol off on August 22 that 
the project is a red herring.  At best, the undersized 
pipeline could remove 10-20 percent of the daily flow, 
 
JAKARTA 00011110  003 OF 006 
 
 
barely making a dent in the mud build-up.  He said 
Lapindo wants the public to believe they are trying 
everything imaginable to improve the situation.  The 
residual sludge leftover once the water is removed will 
have higher concentrations of phenols, making it more 
difficult to dispose of in an environmentally 
acceptable manner.  Sidoarjo shrimp farmers and Madura 
Island fishermen are protesting the pipeline project. 
 
SBY Visit Creates a Stir in The Mud 
----------------------------------- 
 
¶8. (SBU) President Yudhoyono visited the well site on 
August 11.   According to the Western expert, once the 
President's planned visit was confirmed, a level of 
urgency set in at Lapindo that had not existed 
previously.  PT. Energi Mega Persada (EMP), the 
managing partner of Lapindo, had been trying to manage 
the well kill and mud control operations on tight 
budgets with a primary focus on cost control, using 
mainly Indonesian contractors and consultants related 
to Bakrie controlled entities.  Once the President 
confirmed his visit, they began spending lavishly, 
hiring large numbers of ex-pat contractors and 
consultants, including Haliburton and Century.  During 
the President's tour of the well site and the mud flow, 
all of the ex-pat consultants were brought forward to 
meet the President and the Western expert gave the 
President an impromptu  briefing on the well and kill 
operation status.  According to the Western Expert, the 
President asked one question, "Can this be stopped?" 
The Western expert answered, "Yes, definitely, but I do 
not know how long it will take." 
 
¶9. (SBU) According to the high-level official in PT. 
Bumi Resources, another Bakrie-related company, the 
President noted that the government's own study on the 
situation concluded that if both the rail line and the 
toll road were closed for six consecutive weeks, the 
East Java economy would collapse, thousands of 
businesses would close (at least temporarily), and 
possibly hundreds of thousands of East Javanese laid 
off their jobs.  During this meeting, the President set 
Lapindo's priorities for mud containment efforts as 
defending: 1) human life; 2) the Surabaya-Malang rail 
line; 3) the toll road; 4) the environment (read Porong 
River); and 5) homes, businesses and personal property. 
The strategy of expanding the containment area much 
closer to the Porong River to relieve pressure on the 
dam walls near the railroad and toll road directly 
reflects the President's priorities. 
 
But will they be prosecuted? 
--------------------------- 
 
¶10. (SBU) Another apparent result of the President's 
visit is the slowing of the criminal cases against 
several executives from Lapindo, EMP and the Bakrie 
related drilling company that botched the well.  At an 
August 16 gathering of top East Java provincial 
political, police and military officials at the East 
Java Parliament offices to listen to the State of the 
Union address, the "Lapindo disaster" was the sole 
topic of discussion.  The East Java police chief noted 
that they had sufficient evidence to make arrests of 
corporate executives involved with the well due to 
gross negligence and willful misconduct directly 
leading to the accident.  (Note: No one asked the 
obvious question if any investigations were being done 
higher up the chain of command in the Bakrie 
organization.)  Another  long-time ConGen contact told 
us that the East Java police were ordered to hold off 
on any arrests related to Lapindo for the time being by 
the "highest levels of the central government."  He was 
frustrated that arrests had not been made and noted 
that the need to identify publicly the culpability of 
 
JAKARTA 00011110  004 OF 006 
 
 
Lapindo's management in this debacle, fearing that 
Lapindo executives would be able to wiggle out of their 
financial responsibilities to the East Javanese who 
lost their homes, land and businesses.  He echoed local 
officials fear that the public will lay this disaster 
at the government's feet and fault them for lack of 
financial recompense.  (Note:  The provincial 
government has expended large amounts this year for 
several natural disasters, including the massive 
mudslides in Jember, which also received USAID funds.) 
 
Government's Anemic Response 
---------------------------- 
 
¶11. (SBU) Provincial and local government officials 
claim they are financially unable to provide any kind 
of meaningful assistance to their displaced residents, 
other than police and military security to keep out 
looters and outside provocateurs from organizing 
dissent among those displaced.  Their position is the 
disaster is Lapindo's fault and the company needs to 
step up and take care of the affected people.  In late 
July, Lapindo offered immediate one time compensation 
to the displaced residents of approximately US $350 for 
housing, moving expenses, and food.  Many of the 
residents refused the compensation offer as woefully 
inadequate; several short-lived protests followed. 
Although there are frequent high-level delegations sent 
from Jakarta to inspect the site and admonish Lapindo 
for the lack of progress, there has been no financial 
or other assistance to the displaced residents or local 
authorities. The message to Lapindo from Jakarta has 
been it's the company's problem and they had better fix 
it and fast, "or else."  Several contacts have told us 
that "or else" would be arrests and prosecution of 
Lapindo executives. 
 
NGO's Kept Away From Displaced Residents 
---------------------------------------- 
 
¶12. (SBU) Local NGOs are struggling to deliver 
emergency services and supplies to displaced residents 
due to tight security in the inundated villages and the 
Pasar Baru IDP camp in Porong.  The coordinator of 
Damar Alit, an NGO managed by Nadhalatul Ulama (NU), 
the largest Muslim social organization in Indonesia, 
reported that soldiers guarding Pasar Baru prevented NU 
workers from delivering needed supplies of food and 
water.  Local officials affirm that the tight security 
is to maintain order, prevent looting and outside 
provocateurs from creating disturbances.  NU involved 
itself in a controversy surrounding the mud when it 
initially offered to organize a class action lawsuit 
for residents against Lapindo and its partners.  NU has 
since backed away from that offer and local residents 
have accused them of accepting US $110,000 from 
Aburizal Bakrie, Minister of Social Welfare and another 
US $110,000 from the President during his visit to 
Porong.  Bakrie claimed the funds were donated to NU to 
help pay for a conference for Muslim Scholars and the 
President said his money was a personal donation for 
use to aid displaced residents.  Living conditions for 
local residents in the Pasar Baru market are very basic 
with only 110 toilets for the 8-9,000 residents. 
People complain of a lack of privacy and are very 
worried living conditions will deteriorate quickly once 
the rainy season begins in the next month or so. 
 
Economic Impact 
--------------- 
 
¶13. (SBU) The economic impacts of the mud disaster are 
mounting; we conservatively estimate USD 1 billion of 
damages to date, not including social costs or 
opportunity costs.  Ground water contamination has 
started forcing residents from homes not inundated with 
 
JAKARTA 00011110  005 OF 006 
 
 
mud but served by local wells that are now filling with 
the hot, brackish ground water which is entering local 
aquifers.  There are reports of large numbers fish 
dying as far as 3 miles from the well site in the 
25,000 acres of fish farms in Sidoarjo Regency due to 
contaminated water.  Water tests for contaminates at 
the fish farms have been inconclusive.  There are 
reports the European Union (EU) has pulled Sidoarjo- 
farmed shrimp's "organic" designation, Indonesia's only 
such designation for exported shrimp, and is 
threatening to decertify all shrimp exports from the 
regency due to contamination.  Bank Indonesia Surabaya 
announced they observed a 1% increase in non-performing 
loans in June and July to 7.5% in East Java province 
due to a 35-40% downturn in business and rapidly 
declining real estate values in Sidoarjo regency and 
areas south of the well site.  Two golf resorts south 
of the well site report a 60-70% decline in business. 
One course laid-off half of its 650 employees and the 
other laid off 300 of its 550 employees.  Local 
governments protested the lay offs until they were told 
the other option was to close completely until the toll 
road is more consistently open.  Other business 
contacts south of the well site also report losses due 
to transportation issues and unavailability of raw 
materials and are contemplating lay offs in the near 
future if the mud situation does not improve.  Most 
businesses hold no hope of recovering anything from 
Lapindo given its political connection to the Bakrie 
family. 
 
Residents Remain Patient, Looking For Big Payout? 
--------------------------------------------- ---- 
 
¶14. (SBU) There has been surprisingly little local 
unrest, with only a few small protests by the displaced 
local residents.  Believing Minister of Social Welfare 
Aburizal Bakrie's statements that Lapindo will make 
good on losses, displaced residents remain convinced 
that there will be a big payoff by Lapindo for their 
homes, land and businesses once the mud is stopped. 
Given the paltry offer for shelter and food by the 
company made in July, we see no history of corporate 
generosity on which to base their hopes. 
 
What Does the Future Hold? 
-------------------------- 
 
¶15. (SBU) Much of the outcome of the "mud monster" 
still depends on when the flow can be stopped and how 
fast it flows until then (and no one involved with the 
effort would give us odds.) Lapindo seems to have 
finally put a competent team together to kill the well 
and control the mud but is still depending on luck to 
keep from doing major damage to one or more of East 
Java's major infrastructure pieces.  Lengthy closures 
of the rail line and toll road would be devastating to 
local businesses, cutting supply lines, delaying orders 
and slowing transportation of agricultural products. 
Massive lay-offs would certainly increase tensions and 
anger in the area of the disaster, making large scale 
demonstrations and political fallout more likely. 
 
¶16. (SBU) One of the consultants hired by Lapindo 
created computer models of the effects of flow rates 
and time before the well is killed.  In the best case 
scenario, the flow subsides to an average 25,000 cubic 
meters per day, the mud flow is stopped in 3 months, 
the new containment area holds, and a total of 22,000 
residents are displaced.  In the worst case scenario, 
the flow rate averages 250,000 cubic meters per day, 
the well is killed in six months, the mud forces its 
way in and over the Porong River, inundating villages 
between the containment area and the river and more 
rice paddy land south of the river, causing 
uncontrolled flooding of the Porong river during the 
 
JAKARTA 00011110  006 OF 006 
 
 
rainy season due to the thickness of the mud and 55,000 
residents are displaced. The Western expert remains 
convinced they can hold off the mud, maintain the 
relief well site and stop the mud flow, with a caveat, 
"If we have to move the relief well again, the delays 
would make matters much worse."  He added, "If the 
relief well fails, my crew and I will be on the next 
plane out of Indonesia." 
 
PASCOE