VZCZCXRO4185
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2733/01 2921045
ZNR UUUUU ZZH
P 191045Z OCT 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 1468
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA 0030
RUEHWL/AMEMBASSY WELLINGTON 1088
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGP/AMEMBASSY SINGAPORE 5513
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
ZEN/AMCONSUL SURABAYA

UNCLAS SECTION 01 OF 03 JAKARTA 012733 
 
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 # 2613 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EPET PGOV ID
SUBJECT: East Java Mudflow: Lapindo Financial Woes 
Frustrate Relief Well Effort 
 
Ref A: Jakarta 7839 
Ref B: Jakarta 8250 
Ref C: Jakarta 11110 
 
¶1. (SBU) SUMMARY: PT. Lapindo Brantas (Lapindo) 
recently informed its relief well contractors that it 
no longer has funds to pay for relief well operations. 
Haliburton and other contractors, including local 
contractors, temporarily left the site, halting 
drilling operations, due to lack of payment and 
mismanagement by Lapindo.  We informed the Presidential 
Palace of this development on Saturday, October 14, and 
they promised to follow up.  The contractors began 
returning October 18 after Minister for Energy and 
Mineral Resources Purnomo Yusgiantoro guaranteed 
payment to all contractors.  Minister for Social 
Welfare Bakrie and family sold their interest in 
Lapindo to an offshore Bakrie controlled shell company. 
Expat well contractors informed President Yudhoyono on 
October 8 of Lapindo's financial problems and resulting 
relief well delays.  The mudflow has increased to over 
one million barrels per day (185,000 cubic meters) and 
underground erosion threatens East Java's main methane 
supply line.  No level of government is providing 
humanitarian assistance to the 13-16,000 displaced 
residents now facing the rainy season's imminent 
arrival, and all levels of government are blaming each 
other for the increasingly serious humanitarian 
disaster.  This problem has not hit the press, but U.S. 
contractors are concerned they will be blamed in the 
press if they end up leaving the job unfinished due to 
lack of payment.  END SUMMARY. 
 
Insolvent Lapindo Stiffs Relief Well Contractors 
--------------------------------------------- --- 
 
¶2. (SBU) On October 13, several expat well experts 
working on the Lapindo well blowout and mudflow 
eruption in Porong, East Java (see Refs A-C) described 
gross mismanagement and severe financial problems at 
the company.  (Note: Lapindo is a company controlled by 
Minister of Social Welfare Aburizal Bakrie and his 
family.)  Earlier that day the president-director of 
Lapindo met with all expat contractors explaining that 
Lapindo was nearly out of cash and that they would need 
to wait for payments.  The contractors were already 
unhappy with Lapindo's failure to pay invoices or for 
equipment and services needed to run the relief well. 
The relief well drilling operation has suffered from 
three evacuations caused by flooding and five work 
stoppages due to lack of payment to contractors by 
Lapindo.  Local fuel and dump truck contractors are 
also not being paid, hampering drilling and dam wall 
construction efforts. 
 
Haliburton Leaves 
----------------- 
 
¶3. (SBU) On October 13, Haliburton announced to the 
other contractors it was tired of fighting with Lapindo 
over money and was leaving Surabaya immediately. 
Haliburton is providing the concrete pumping services 
and directional drilling expertise needed to connect 
the relief well to the blown out well.  According to 
the expat well experts, Haliburton is the only company 
with sufficient directional drilling expertise needed 
to run such a complex drilling operation that is 
currently operating in Indonesia.  The lack of 
directional drillers and fuel at the site prompted 
Century Drilling to stop all drilling activities at the 
relief well on October 13.  Haliburton demanded USD 5 
million in advance from Lapindo to drill the next 
section of the relief well.  We informed the 
Presidential Palace of this development and they 
promised to follow up.  On October 16, Lapindo 
reportedly told Haliburton they did not have the money 
 
JAKARTA 00012733  002 OF 003 
 
 
to continue.  Energy Minister Yusgiantoro then 
reportedly guaranteed payment to Haliburton assuring 
them that an escrow account with sufficient funds for a 
continuous drilling operation will be established. 
Yusgiantoro's guarantee was apparently sufficient to 
coax Haliburton to return and give comfort to other 
expat contractors that the GOI is now taking over 
financial responsibility for the relief well. 
 
Bakrie Slips Lapindo In To Offshore Shell Company 
--------------------------------------------- ---- 
 
¶4. (SBU) According to newspaper reports, Minister 
Bakrie and his family's 50 percent ownership in Lapindo 
was recently sold by PT. Energi Mega Persada (EMP) for 
USD 2 to an off-shore company, of unknown financial 
capacity, owned by Bakrie family members.  Some 
observers believe the sale of Lapindo could be a 
prelude to an eventual bankruptcy filing by the company 
in an effort to shed liability and insulate the Bakrie 
family.  PT. Medco Energy International (Medco), a 32 
percent minority partner in Lapindo, admitted to the 
National Mudflow Disaster Management Team that they had 
not funded any of their USD 50 million of cash calls 
presented by Lapindo as the general partner.  They 
explained that Lapindo had not provided any budgets, 
plans or evidence of how funds were spent to 
necessitate the cash call, as is required in their 
joint operating agreement.  Santos, an 18 percent 
minority partner, apparently has funded all of its cash 
calls.  Neither limited partner wants to take over the 
management of the blown well unless forced to by the 
government because they do not want to assume EMP's 
liability as the well operator and general partner. 
 
Mudflow Increasing, Erosion Threatens Gas Line 
--------------------------------------------- - 
 
¶5. (SBU) The mud volcano continues to increase its flow 
rate.  A Dutch dyke and land reclamation expert now 
calculates the flow at greater than 1 million barrels 
of mud per day (180,000 cubic meters, equivalent to 
Indonesia's daily national oil production).  Lapindo 
has been trying unsuccessfully to pump the mud in to 
the Porong River since September and is now building a 
channel to allow the mud to flow directly from the mud 
detention lake to the Porong River.  Experts estimate 
the imminent advent of the rainy season will add 
450,000 barrels per day to the mud detention lake and 
make repair or construction of the loose earth dam 
walls impossible.  GOI geologists are now finding that 
the land around the well site is sinking due to 
underground erosion from the high pressure hot water 
dissolving the shale under the mud lake and dam walls. 
The land under the mud lake has sunk over one foot and 
is sinking at an increasing rate.  The underground 
erosion caused two dam wall collapses, as its weight 
caused sections of the wall to suddenly sink 4-5 feet, 
releasing large flows of hot mud.  The geologists are 
concerned that the weight of toll road repairs, piling 
dirt on top of East Java's main methane line, could 
cause a sudden collapse and rupture the line.  The toll 
road operator reopened one lane October 11 to try to 
alleviate the massive traffic jams as Surabaya 
residents head home for the Idul Fitri holiday. 
 
SBY Informed of Lapindo Problems 
-------------------------------- 
 
¶6. (SBU) Neither the central nor local governments with 
jurisdiction in Porong have provided any significant 
humanitarian assistance to the 13-16,000 displaced 
residents, relying solely on insolvent Lapindo to 
provide funds for food and temporary shelter. 
President Yudhoyono made his second visit to the 
disaster site on October 8 and received a briefing by 
 
JAKARTA 00012733  003 OF 003 
 
 
several expat well and mud experts.  According to a 
person present at the briefing, the President was told 
that the well can be stopped but Lapindo's 
unwillingness to commit adequate resources to the 
project is making this nearly impossible.   Apparently, 
participants expressed directly to the President high 
levels of frustration with a number of poor management 
practices at Lapindo.  Well experts advised the 
president that mid January is now the best case 
timeframe to stop the mudflow and Lapindo needs an 
immediate USD 100 million "war chest" to kill the well 
and combat the mud. A ConGen political contact 
complained at a recent meeting that high level central 
government officials are pressuring local politicians 
to not oppose GOI strategies in dealing with the mud, 
such as dumping the hot, thick mud in to the Porong 
River.  The central government officials threatened to 
publicize that Lapindo was drilling on an expired 
permit and that local officials should have been 
inspecting the well for use of casings while drilling 
was on-going, blaming local officials for the massive 
disaster.  Our contact fears that if East Java 
residents believe that local government negligence or 
corruption caused the blowout, there will be large 
protest demonstrations. 
 
American Companies Fear Blame For Lapindo Mistakes 
--------------------------------------------- ----- 
 
¶7. (SBU) Haliburton and other expat contractors were 
forced to actually leave the relief well operation and 
risk being seen as leaving "poor" Lapindo/Indonesia in 
the lurch to finally prompt central government action 
and secure payment.  The expat contractors expressed 
great frustration that Lapindo mismanagement has added 
months to the "kill operation" and caused the 
destruction of thousands more homes by wasting time 
looking for cheaper ways to operate rather than push 
forward with the best technology available.  American 
contractors are concerned that they may be made the 
scapegoats if the relief well is eventually 
unsuccessful or they leave the operation because of 
lack of payment. 
 
PASCOE