VZCZCXYZ0001
PP RUEHWEB

DE RUEHJA #1038/01 1020854
ZNR UUUUU ZZH
P 120854Z APR 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 4307
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA 0648
RUEHWL/AMEMBASSY WELLINGTON 1458
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGP/AMEMBASSY SINGAPORE 5928
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
ZEN/AMCONSUL SURABAYA

UNCLAS JAKARTA 001038 
 
SIPDIS 
 
DEPT FOR EAP/MTS AND EB/ESC/IEC 
DEPT FOR DS/IP/EAP 
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42 
COMMERCE FOR USDOC 4430 
 
FROM AMCONSUL SURABAYA #0045 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EINV EPET ELAB PGOV ASEC ID
SUBJECT: EAST JAVA: Lapindo Mud Volcano Floods Roads and Rail While 
President Replaces Mud Managers 
 
Ref. A: Jakarta 00508, Ref. B: Jakarta 00013, Ref. C: 06 Jakarta 
13358 notal 
 
¶1. (SBU) SUMMARY:  A March 30 dam wall collapse at the source of the 
PT. Lapindo Brantas (Lapindo) mud volcano flooded East Java's 
remaining north-south road and railways, causing major 
transportation disruptions.  Local mudflow victims delayed damage 
control response by preventing heavy equipment moving to the breach. 
 President Yudhoyono (SBY) replaced the National Mud Disaster 
Management Team (Timnas) with a new permanent body (BPLS) headed by 
retired Maj. Gen. Sunarso.  Local contacts are concerned that 
Sunarso's close political ties to Bakrie and lack of technical 
expertise will limit BPLS's effectiveness.  Timnas contacts tell us 
the management of the flooding is in disarray.  Business contacts 
are planning for repeated and extended road and rail closures and 
are weighing factory closure and relocation options to remove 
transportation difficulties.  Lapindo remains delinquent paying 
compensation to the 45-50,000 mudflow victims who continue to 
demonstrate locally in response.  A company controlled by Aburizal 
Bakrie, Coordinating Minister of Social Welfare and controlling 
owner of Lapindo's managing partner, agreed to buyout PT. Medco 
Energi's (Medco) minority interest in Lapindo and assumes Medco's 
mud liabilities, avoiding a potential gross negligence judgment in a 
New York court.  Business contacts hope the BPLS will take strong 
action to quickly restore transportation corridors.  Political and 
social contacts fear that strong action will cause an emotional 
response and trigger larger or violent demonstrations.  END SUMMARY 
 
Dam Wall Collapse Floods Infrastructure 
--------------------------------------- 
 
¶2. (SBU) One of the earthen walls at the mudflow site collapsed 
March 30, changing the direction of the mudflow from south and east 
to north and west.   The flow change overwhelmed the dam structure 
abutting the Porong Road and national Surabaya-Malang rail line 
causing flooding of this critical infrastructure.  Five hundred 
(500) meters of the Porong Road and rail are now flooded to about 
1.5 feet.  Train service has stopped from Surabaya to southern East 
Java and rail services in southern East Java remain severely 
disrupted.  Travel to the south by road is beset with long delays. 
The National Mud Disaster Management Team (Timnas) initially 
estimated one week to effect dam wall repairs and reopen the road 
and rail line.  After 13 days, the rail remains closed, only one 
lane of the road is open to limited traffic and the primary dam wall 
remains breached. 
 
¶3. (SBU) Thousands of displaced residents initially prevented 
equipment and dump trucks filled with earth from arriving to repair 
the dam wall breaches. They hoped to pressure the GOI to accelerate 
compensation payments by lengthening the time to reopen the road and 
rail services.  The Sidoarjo Regent Win Hendrarso committed to their 
compensation demands based on his receiving "instructions from 
Jakarta" to expand the number of families receiving "cash and carry" 
compensation from 4,000 to over 13,000.  According to a local 
parliament member, Lapindo is now late on its first compensation 
payment of approximately $56 million, which was due March 31 (Ref. 
B). 
 
SBY Replaces Timnas 
------------------- 
 
¶4. (SBU) On April 8, Timnas' Presidential authority to deal with the 
mud expired.  President Yudhoyono (SBY), through decree letter 31 
2007, created the Sidoarjo Mud Management Agency (BPLS) to replace 
Timnas and appointed retired Army Maj. General Sunarso, former 
Military Commander of Central Java, as its chairman and Hadi 
Prasetyo, a Jakarta-based politician, as its deputy chairman. 
Presidential Spokesperson Andi Malarangeng announced that BPLS is 
responsible for managing the mudflow and its containment, relocating 
affected infrastructure and dealing with the social impact.  A 14 
member Steering Committee will oversee BPLS operations.  Members 
include: Minister of Public Works (as Chairman), Minister of Social 
Affairs (as his deputy), Minister of Finance, Minister of Energy and 
Mineral Resources, Minister of Home Affairs, Minister of Oceans and 
Fisheries, Minister of Transportation, Chairman of the National 
Development Planning Board, Chairman of the National Land office, 
 
East Java Governor, East Java Military Commander, East Java Police 
Chief and the Sidoarjo Regent.  Andi Malarangeng also announced that 
funds for infrastructure relocation and social services would be 
paid out of GOI 2007 budget, while Lapindo would continue to fund 
only mudflow control and dam wall construction until a permanent mud 
management scheme is completed. 
 
¶5. (SBU) East Java leaders complained about the appointment of 
Sunarso to head the new body.  Upon his retirement in 2006, Sunarso 
went to work for Aburizal Bakrie, Coordinating Minister of People's 
Welfare and controlling owner Lapindo's managing partner, as a 
member of his expert staff.  Lapindo was responsible for the 
drilling operation which caused the well blowout and the subsequent 
mud volcano.  Embassy sources were able to provide little 
information about Sunarso as he was not considered a significant 
player in the Indonesian military.  Muhammad Mirdasy, secretary of 
the East Java parliament "Mud Commission" and Porong resident, told 
reporters he doubted that Sunarso will be an impartial manager of 
the situation or has the technical expertise to avoid making the 
same mistakes as Timnas.  He also expressed concern that a former 
military man as leader of BPLS may use authoritarian techniques to 
implement policy or quell social unrest. 
 
¶6. (SBU) Contacts within the former Timnas tell us that the 
transition to the BPLS is not going smoothly.  Little progress is 
being made to repair the main dam wall breach.  Local contractors 
had been performing with limited and delayed payments by Lapindo on 
the promise by Timnas leaders of future business from the Ministry 
of Public Works.  Those contractors are not convinced the new BPLS 
will deliver on promises of timely payments and are now beginning to 
abandon the dam repair project. 
 
Economic Damages Mounting 
------------------------- 
 
¶7. (SBU) Export factories south of the mud are reporting three day 
travel times and increasing transportation costs for containers to 
and from the Surabaya port.  The recent flooding also closed the 
recently reopened 28' methane gas line which was rebuilt above 
ground in the same location adjacent to the source of the mud.  Mud 
levels have risen sufficiently to submerge the new gas line since 
the dam wall breach.  Gas supplies were forced back to a 10" line, 
reducing electricity generation capacity and closing fertilizer 
production once again (Ref. C).  Local expert's initial estimates of 
economic damages caused by the closed road, rail and gas lines are 
$50 million per day.  If the road and rail closure becomes longer 
term (3-4 months), local economists predict hundreds of factories 
will start closing, potentially displacing over 100,000 workers. 
Timnas estimates it will cost approximately $360 million and take 
one year to relocate the infrastructure now impacted by the mud. 
 
¶8. (SBU) A local business contact who owns three factories producing 
goods for domestic consumption and employing 5,000 people south of 
the mud is considering his options.  His transportation times and 
costs have tripled again since the recent flooding, taking a 
significant bite out of his profit margins.  If transportation costs 
and delays continue to increase they will soon be in a loss 
situation and will consider shutting down until the situation 
stabilizes.  Other domestic producer contacts have mentioned they 
are making plans to move factories from south of the mud to other 
areas of East Java because the transportation problems are likely to 
be long term.  Export manufacturing contacts tell us that their 
choices are to keep going or close permanently due to the 
inflexibility of Indonesian labor laws making it difficult and 
expensive for them to temporarily lay off workers. 
 
No Solutions in Sight 
--------------------- 
 
¶9. (SBU) Prior to April 8, Timnas completed inserting 374 concrete 
balls into the mudflow source.  The original plan called for 16,000 
balls to be inserted using a steel structure built over the mud to 
precisely insert the balls at a cost in excess of $50 million.  The 
few concrete balls that were inserted used a cable and pulley system 
at a cost of $300,000 and have done nothing to reduce the flow rate. 
 The mudflow rate fluctuates but continues to average slightly less 
 
 
than 1 million barrels per day.  The vertical and horizontal 
subsidence rates are increasing, according to Surabaya Institute of 
Technology (ITS) scientists monitoring the mud and advising Timnas. 
The ITS scientists also noted that the composition of the mud is 
rapidly changing.  Instead of 95% fine particles, the mud now 
contains 70% gravel and sand.  There are several plans being tested 
to divert the mud flow in to the Porong River or build canals to let 
the mud flow to the sea.  The ITS scientists claim that none of 
these plans are workable now because the mud is too heavy to flow. 
Their analysis compares the mud to the consistency and properties of 
wet concrete, hardening as it cools. They admitted that Timnas 
efforts to control the mud are failing and they have few ideas how 
to efficiently move the mud away from economically sensitive and 
densely populated areas. 
 
Limited Political Impacts 
------------------------- 
 
¶10. (SBU) There have been limited political impacts.  The plight of 
the mud victims has not moved other East Javanese to join victim 
protests of their poor treatment or Lapindo's slow payment of 
compensation.  Residents feel the victims are being greedy by 
demanding "cash and carry" compensation in excess of the values of 
their homes.  Local politicians and religious leaders are becoming 
much braver in speaking out against the central government's 
handling of the mud.  There have been recent public statements 
noting the discrepancies in treatment of the recent Jakarta flooding 
victims and the Sidoarjo mud victims based on the GOI's rapid $440 
million response to fund recent flood damages in Jakarta and 
labeling it as discrimination. 
 
Social Impact Localized 
------------------------ 
 
¶11. (SBU) The official number of displaced families is currently 
just over 13,000 and the total number of people affected is 
approximately 45-50,000.  When the number of affected families 
officially displaced by the mud was increased from 4,000 to 13,000, 
the total compensation requirements for Lapindo remained the same. 
Lapindo is still responsible for paying $278 million in damages to 
homeowners who lost homes to the mud.  The Porong Market has 
refilled with refugees, now housing 10-12,000 people.  Recent 
demonstrations have concentrated on forcing the GOI to commit to 
expanding the number of families to be covered under the Lapindo 
compensation scheme (Ref. A).  Contacts expect future demonstrations 
will intensify in an attempt to force actual payment of compensation 
funds by Lapindo. 
 
Lapindo Partner Getting Out 
--------------------------- 
 
¶12. (SBU) PT. Medco Energi (Medco), a 32% partner in Lapindo, 
recently agreed to sell its interest in Lapindo to Bakrie-owned 
Group Prakarsa (Prakarsa) for $100.  As a part of the transaction, 
Prakarsa will assume all Medco liabilities associated with Lapindo 
and the mud and Medco will drop its arbitration cased filed in New 
York claiming gross negligence by PT. Energi Mega Persada (EMP), the 
managing partner of Lapindo and also controlled by Bakrie, caused 
the mudflow.  Prakarsa's new liabilities will be guaranteed by 
Minarak Labuan, another company owned by Bakrie reportedly with 
enough assets to convince the Capital Market Supervisory Agency that 
this is not another attempt at a shell transaction to limit Lapindo 
liability for the mud and allow the transaction to close.  According 
to Timnas sources, Medco never contributed to the costs of combating 
the mud claiming EMP should bare complete responsibility because 
they did not follow the designed and approved drilling plan for the 
well, among other mistakes.  Hilmi Panigoro, President/Director of 
Medco and a political adversary of Bakrie, stated, "The deal would 
provide certainty for the mudflow victims as regards who would take 
responsibility for the disaster (Note: implying Bakrie and EMP)." 
 
Comment 
------- 
 
¶13. (SBU) Our contacts were uniformly disappointed but not surprised 
that SBY appointed a Bakrie political crony as the leader of the new 
 
mud authority.  They fear that his motivation will be to save Bakrie 
money and further embarrassment rather than moving strongly to deal 
with this dangerous and growing problem. The appointment of a 
retired general split our contacts into two camps.  Economic and 
business leaders are hopeful that Sunarso will bring an army 
construction brigade and a wad of cash to purchase (i.e. commandeer) 
land to quickly get roads and rail lines moved to a safer location. 
Social leaders are concerned the BPLS will strong arm locals to sell 
and ignore the sensitive issue of local land rights.  Both political 
and religious leaders are fearful that any forceful actions by the 
BPLS to stave off economic disaster will cause mass demonstrations 
by people protesting the loss of their land  and question the former 
military commander's ability to handle this difficult but delicate 
situation. 
 
PIERANGELO/HEFFERN