Cablegate: East Java Mudflow: Lapindo Defaults,

VZCZCXRO0044
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #3448 3420920
ZNR UUUUU ZZH
P 080920Z DEC 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 2410
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA 0197
RUEHWL/AMEMBASSY WELLINGTON 1198
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGP/AMEMBASSY SINGAPORE 5624
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
ZEN/AMCONSUL SURABAYA

UNCLAS JAKARTA 013448

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 #2689

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EPET PGOV ID
SUBJECT: East Java Mudflow: Lapindo Defaults,
Contractors Walking Out

Ref. A: Jakarta 13358
Ref. B: Jakarta 12733 notal

1. (SBU) ConGen Pol/econoff and Jakarta USAID officers
visited the PT. Lapindo Brantas (Lapindo) mud volcano
site and the relief well operation in Porong, East Java
(Ref. A) on December 8, meeting with several
representatives of contractors working on the relief
well. According to the contractors, Lapindo has
stopped paying everyone supplying and running its
relief well operation. The relief well is the last and
only hope of quickly killing the fractured gas well
(Ref. B) that is spewing over 200,000 cubic meters per
day of hot mud. (Note: The mud volcano is
approximately 12 miles south of ConGen Surabaya. End
Note.) Lapindo is now USD 10 million in arrears to the
drilling rig owner and operators of the well. As a
result, the operators shut down the drilling rig at a
safe point and presented demand letters for payment in
full by December 8 or they would all simultaneously and
permanently walk off the job. There are several
American contracting firms working at the relief well,
including Haliburton and Boots and Coots. At close of
business on December 8, none of the contractors had
been paid and Haliburton left East Java once again.

2. (SBU) Contractors had previously stopped work in
October over non-payment issues but returned after
Purnomo Yusgiantoro, Minister for Energy and Mineral
Resources, guaranteed payment and established a USD 4
million deposit as advance payment. The deposit is now
spent and Lapindo is not offering any signs that it
will meet the contractor's demands, claiming they have
run out of funds. Initially, the new Lapindo Chief
Financial Officer promised payment of all arrears by
the deadline, but later returned to the contractors
asking for extensions and payment plans. The
contractors stated that Minister Purnomo and the head
of the National Mud Disaster Team (Timnas), Basuki
Hadimulyono, were both aware of the lack of payment and
status of the relief well.

3. (SBU) Despite the recent press reports claiming
imminent failure of the relief well, the well operators
remain confident that the relief well project will be
successful with the caveat that they will need a second
well to create sufficient hydrostatic pressure to stop
the flow of water. They claim that with USD 100
million and control of the drilling operation, they can
kill the well by March or April 2007. They remain
highly frustrated with the lack of payment for both the
primary contractors and their suppliers as well as
Lapindo and Timnas's insistence on having final
decision making authority. One contractor summed it up,
"I understand their wanting to be the heroes here.
But, they have no clue what they are doing and they are
making it impossible for us to do our jobs and kill
this off before more people are hurt and homes are
destroyed."

PASCOE

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