East Java: Toxic Mudflow Forces Evacuations;

UNCLAS SECTION 01 OF 04 JAKARTA 007839

SIPDIS

FROM AMCONSUL SURABAYA # 1663

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EPET PGOV ID
SUBJECT: East Java: Toxic Mudflow Forces Evacuations;
Possible Political Ramifications for Minister Bakrie


1. (SBU) SUMMARY: A gas well being drilled 40 yards
from the main north south transportation corridor in
East Java, the Surabaya - Gempol toll road, fractured
and has been spewing hot, potentially toxic mud 12
miles south of Surabaya in Porong, East Java since May

29. The rate of mud flows have increased from the
5,000 to the current 25,000 cubic meters per day
forcing the evacuation of 4,000 residents from four
villages near the well and the closure of businesses
and has disrupted land transportation in East Java by
forcing the closure of a major portion of the toll
road. The mud may be emitting sulphuric acid gas and
hundreds of local residents have reported respiratory
problems, including three deaths. The drilling company
reports repairs to the well may take as long as four
months. Minister for Social Welfare, Aburizal Bakrie,
owns a controlling interest in the well through the
Bakrie Group and has acknowledged responsibility for
damage claims. Most local commentators question whether
he or his company will ever be held legally
responsible. Many residents have been left homeless,
jobless, and the local underground drinking water
supply has been contaminated. There is yet no
coordinated effort by local or national government
leaders to assist local residents affected by the
mudflow. Investigations are on-going as to
circumstances surrounding the authorization of a well
so close to a densely populated area and an important
roadway. Competition spurred by decentralization among
local governments to attract investment and their lack
of expertise in evaluating the impact of such projects
may have played a role. END SUMMARY

A Flood of Hot, "Toxic Mud"
--------------


2. (SBU) A gas well being drilled 40 yards from the
Surabaya - Gempol toll road fractured and began spewing
hot, potentially toxic mud on May 29 in Siring village,
Porong sub-district, Sidoarjo Regency, East Java (about
12 miles south of Surabaya.) The foul smelling mudflow
flooded the toll road disrupting traffic on the main
north-south route between Malang and Surabaya. The
drilling company, PT. Lapindo Brantas (LB),has been
unable to stop the mud gusher which has increased from
the initial 5,000 cubic meters to 25,000 cubic meters
of mudflow per day, according to the Ministry of
Environmental Affairs. More than 200,000 cubic meters
of mud and white smoke have already discharged from the
breached well enveloping over 1,200 acres of land area,
hundreds of homes and dozens of businesses in the
Porong area. The mud has forced the evacuation of
approximately 4,000 local residents from four nearby
villages filling traditional markets, schools and
government buildings in neighboring villages with
internally displaced persons (IDPs). Many nearby
businesses have been forced to close and transportation
of goods from important manufacturing areas get to
Tanjung Perak port in Surabaya has been disrupted.

How Toxic is Toxic?
--------------


3. (SBU) There are conflicting reports as to the level
of toxicity of the mud. Dr. Mukono, a professor at
Surabaya Airlannga University, tested the mud and gas
emitting from the well and reportedly found sulphuric
acid (H2S),Hydrocarbon gas (HC) and Nitrous Oxide
(NO2). He told local newspapers to warn the public to
stay far away from the well site. Government reports
of mud tests found toxicity levels below regulatory
maximums. Oil and Gas Regulatory Body (BP Migas)
claimed that results from their Bogor laboratory tests
show that the mud is not categorized as a dangerous
substance (B3) and it has been "animal tested" (no
further details). The head of the local environmental
impact agency (Bapedal),Hartoyo, reported that local
laboratory tests show the mud is not dangerous to
people or the environment. At the same time, he warned
people to avoid the mud because there could be a
possible fluctuation in the sulphuric acid content in
the mud to dangerous levels. Hasan Basri, head of the
Sidoarjo Regency Environmental Department said that the
amount of sulphuric acid content in the mud was

JAKARTA 00007839 002 OF 004


decreasing to "tolerable levels". Dr. Eddy Kustanto,
head of the Sidoarjo Regency Health Department told
ConGen he could not "officially confirm" the existence
of sulphuric acid in the mud, but that it smelt "very,
very strong."


4. (SBU) Many residents living in villages near the
drilling site village are complaining of respiratory
difficulties after inhaling foul-smelling gas from the
mudflow. They are also suffering from headaches and
stomach pain. Bhayangkara Hospital in Porong has
treated 782 residents for respiratory problems related
to the mudflow, of which 72 were hospitalized.
Kustanto said that at least 14 other nearby residents
were evacuated for medical treatment due to respiratory
problems, three of whom reportedly died from
complications. The mud has also contaminated ground
water and local irrigation well systems leaving local
residents with no potable water. The mud flows are
near the Porong River which, if reached, could
contaminate drinking water for more densely populated
areas in South Metro Surabaya.

High Level Attention, Limited Action on Ground
-------------- -


5. (SBU) There have been many statements of outrage and
support by local and national politicians but little
has materialized in the form of support for displaced
residents. The President has ordered a "full, fast and
serious" investigation into the operations of LB. East
Java Police Criminal Investigation Division (CID) has
questioned 27 people, including expert witnesses. The
investigation process is being monitored by the
Indonesian National Police (Polri),and in particular,
they are looking at possible criminal violations of
environmental regulations in both the licensing of the
well by local officials and/or its operation by LB.


6. (SBU) East Java Governor Imam Utomo and his
technical advisors met June 19 with Purnomo
Yusgiantoro, Minister of Energy and Mineral Resources
to urge a rapid solution to this growing environmental
and commercial disaster. Separately, Minister for
Environmental Affairs, Rachmat Witoelar, threatened to
terminate the operation of LB in East Java but later
backed off this statement saying his ministry has no
authority to order Lapindo to halt its operations,
asides from giving a recommendation to do so to the
Energy and Mineral Resources Ministry and the Oil and
Gas Regulatory Body (BP Migas),which issued the
exploration license. Governor Utomo issued a strong
warning that he expected LB to cover all financial
losses to local residents and noted that the provincial
government would not be picking up the bill. The
Sidoarjo Regency government has already spent
approximately USD 2,000 from local emergency funds to
assist its residents.

Minister of Social Welfare Putting Locals on Welfare
-------------- --------------


7. (SBU) One possible reason Environment Minister
Witoelar tempered his initial aggressive position
against the drilling company may be that LB is a
subsidiary of PT Energi Mega Persada Tbk (EMP),which
is controlled by Coordinating Minister for Social
Welfare, Aburizal Bakrie. EMP is the designated
operator of LB and owns a 50% participating interest.
Other LB shareholders are Medco (32%),a publicly
traded Indonesian oil exploration company and
Australian based Santos (18%). EMP purchased its
participating interest in LB in the mid-1990's, and by
2004, built LB to be the single largest supplier of gas
to the East Java PGN's (State Gas Company) distribution
network. According to EMP's 2005 annual report, last
year LB produced almost half of EMP's total gas
production. LB is one of EMP's most important sources
of revenue. Closing down the LB's operations could
create other problems, such as a gas shortage for
national electricity generating company PLN. In June
19 public statements, Bakrie took responsibility for
the mudflows caused by the well and referred
compensation claims to his brother Nirwan at the Bakrie

JAKARTA 00007839 003 OF 004


Group. In a June 20 visit to IDPs in Porong, Vice
President Yusuf Kalla asked LB to pay compensation to
the victims of mudflow in Porong and also asked Bakrie
Group to be responsible for all social impacts of the
mudflow. Nirwan Bakrie accompanied Vice President
Kalla on his visit and distributed USD 532,000 (IDR 5
billion) to Saiful Illah, Deputy Regent of Sidoarjo.

How did It Start and What Can Be Done?
--------------


8. (SBU) The cause of the incident is still disputed.
The drilling company LB claims that the mudflow was
triggered by the Yogyakarta earthquake (Note: That May
27 earthquake was felt in Surabaya but we have heard no
reports of any other damage.) Others claim the mudflow
was caused by gas pressure from the well; the drilling
equipment failed, fracturing the well thereby allowing
strong gas pressure to the surface. Minister of Energy
and Mineral Resources, Purnomo Yusgiantoro, told Jawa
Pos that a team from his office has conducted an
investigation at the site. The team is also
investigating LB compliance with all environmental
regulatory requirements with the initial proposal and
design submitted to the Oil and Gas Regulatory Body (BP
Migas). LB claims it followed all regulatory
procedures and their environmental impact report was
approved by appropriate government authorities and that
it followed standard drilling procedures at the well.
Local LB site manager Budi Santosa admitted that LB is
having difficulties handling the mudflow. Santosa
estimated LB will need at least 30 days to repair the
problem. More recently LB revised the estimate to
upwards of 4 months.


8. (SBU) Expert teams from Canada and from Alert
Disaster Control and Abel Engineering Well Control of
Texas have arrived in East Java and are working to
determine the cause and a solution to the uncontrolled
mudflow. LB and the Sidoarjo Regency government have
taken some actions to manage the mudflow, such as
excavating a large retaining pond and installing pipe
and flexible barriers to divert the mud away from
villages and rivers. LB also has installed 2 kilometers
of sand dikes to protect the toll road. Meanwhile, the
Oil and Regulatory Body (BP Migas) is scheduled to
bring in a "snubbing unit" by June 23 to detect the
source of the mudflow. BP Migas estimates it will take
three to four weeks to install the snubbing unit and
identify the source of the problem.

Local Citizen Protests
--------------


9. (SBU) Complaints and protests from local residents
and mass organizations have begun. Workers from
neighboring factories held a demonstration in front of
LB's office (which were also closed by the mudflow),
asking for compensation since the mudflow has forced
their employers to close operations. Local residents
and social observers are criticizing both the local and
central governments for being slow to handle the
mudflow crisis. The Sidoarjo branch of the PKB
political party announced plans to launch a class
action law suit on behalf of local residents. Former
President Abdurrahman Wahid met with affected residents
at an IDP camp on June 18 and urged them to remain calm
and promised to support them in suing the drilling
company. Wahid called on LB to take responsibility for
the incident and provide compensation to local
residents and businesses while working to stop the
mudflow. Rido Syaiful Ashadi, Director of East Java
Walhi, a local environmental group, reported that the
mudflow has become a trigger of social tensions among
people in the surrounding areas. Residents from one
village dammed the mud, forcing it in to a neighboring
village. Those villagers destroyed the dam causing a
conflict. Police are now guarding local villages to
prevent further clashes.

Does Decentralization Play a Role?
--------------


10. (SBU) Competition among local governments for

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investment projects (and personal gain) may have played
a role as increased decentralization of authority has
not been matched by an increase in human resources,
local government capacity or sense of community
responsibility. ConGen contacts question how a new gas
well can be drilled in unstable conditions adjacent to
a densely populated area and immediately adjacent to
the most important north-south thoroughfare in East
Java. Local governments have increasingly been given
responsibility to approve and control projects in areas
where they have little to no expertise. The Porong
incident and PT Lapindo Brantas, and by extension,
Minister Bakrie, have come under political fire from
East Java officials and politicians. While certainly
some will use the "toxic mudflows" to personal
advantage, others have raised the incident as an
example of a larger systemic problem with the on-the-
ground implementation of Indonesia's decentralization
policy. In a recent discussion with ConGen
pol/econoff, a National DPR member from East Java
strongly criticized what he termed the wrong
interpretation of the "essence" of decentralization.
In their drive to raise funds, local leaders are
focused on attracting investment but often either
ignore or do not have the skills to evaluate the impact
on the environment, health, education and the local
residents, especially the most vulnerable. For now,
local residents wait for a full investigation,
compensation, and most of all, for the mud to stop
flowing.

AMSELEM