EAST JAVA MUDFLOW UPDATE: AS LAPINDO'S POCKETS EMPTY,

UNCLAS SECTION 01 OF 02 SURABAYA 000132

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP, EAP/MTS, INR/EAP, EB/ESC/IEC

E.O. 12958: N/A
TAGS: ECON ID EINV EPET ELAB ENRG PGOV ASEC
SUBJECT: EAST JAVA MUDFLOW UPDATE: AS LAPINDO'S POCKETS EMPTY,
PRESIDENT WARNED OF LOOMING CRISIS

REF: JAKARTA 2096 (FINANCIAL CRISIS IMPACT ON BAKRIE'S BUMI RESOURCES)

SURABAYA 00000132 001.4 OF 002


This message is sensitive but unclassified. Please protect
accordingly.




1. (SBU) Summary: In a November 11 meeting with the Minister
of Energy and Mineral Resources, (ESDM),the Sidoarjo Mud
Management Agency (BPLS) reported that the global financial
crisis has caused a near stoppage of mudflow mitigation efforts.
BPLS Operational Vice Head Hardi Prasetyo told the Minister and
assembled Department and Bureau Heads that the rainy season flow
rates in the Porong River offer a vanishing window of
opportunity. Every day that BPLS fails to dispose of mud in the
river due to lack of funds, pressure increases on rain-weakened
dikes. There has been a 75% reduction in funding from Lapindo
Brantas, which is responsible for funding BPLS's mitigation at
the mudflow's epicenter. Giving the dikes a one-month failure
horizon, Prasetyo conveyed Lapindo's suggestion that the
national budget now be used to avoid a disaster. Press reports
based on leaks of this and other meetings continue to emerge.
Despite pleas from Lapindo, President Yudhoyono reportedly
remains unwilling to spend public money to hold up Bakrie's end.
End Summary




2. (SBU) ESDM officials invited visiting U.S. Geological
Survey (USGS) Scientist Emeritus Dr. Thomas Casadevall, U.S.
Army Corps of Engineers Scientist, Dr. Michael Sharp, and Congen
Surabaya Pol-Econ Officer to the Ministry to discuss a USGS
report on mudflow chemistry and the role of a U.S. mudflow
advisor to work with BPLS (visit reported septel). During the
November 11 meeting in Jakarta, BPLS Vice Head Hardi Prasetyo
provided the assembled officials with update on operations at
the site and reported that Lapindo is currently unable to pay
its obligations as defined in Presidential Decree 14/2007 as
amended in July 2008. . Lapindo is still owned by Coordinating
Minister for Social Welfare Aburizal Bakrie's PT Energi Mega
Persada, which is part of the Bakrie Group.



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Could the Global Financial Collapse Bring Down Local Dikes?

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3. (SBU) Prasetyo explained that this financial impasse
created additional risks at the site. Prasetyo told Minister
Yusgiantoro that BPLS operational funds have been cut by 75%
since early October 2008. BPLS's current operational strategy
is to pump as much mud as possible into the Porong river year
round, but to also store some of the 100,000 cubic meters of
average daily mudflow during the 7-8 month dry season in holding
ponds adjacent to the epicenter. This strategy does not remove
all extruded mud and there is a net gain in the ponds every
year. This added weight exacerbates subsidence caused by the
weakened subsurface. According to Prasetyo, this method will
fail at some point, precisely when has yet to be calculated.
Prasetyo and the Deputy of Operations at the site Mr. Soffian
Hadi informed the Minister that the dikes could fail in one
month under current conditions.




4. (SBU) The ground near the mudflow epicenter is subsiding to
the northeast, while the Porong river is due south. Subsidence
near the epicenter averages 10 centimeters daily. The sinking
ground -- in the shape of a widening inverted cone -- means that
mud must be moved up a steepening slope to relieve pressure on
earthen dikes protecting nearby villages and infrastructure.
Between 200-300 dump trucks of fill must be added to the dikes
each day. The lack of funds has cut the number of trucks in
half. Of an original 200 employees on site, BPLS has let go 81
and put on hold the planned purchase of seven pumps vital to
keeping up with rainy season mudflow operations. Without
additional pumps, mud will build up in holding ponds without
means of relieving the pressure.

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5. (SBU) After the meeting, Minister Yusgiantoro instructed
Prasetyo to draft a letter to President Yudhoyono advising him
of the looming crisis at the mudflow site and conveying
Lapindo's request that public funds be used for mitigation at
the epicenter. November 17 press reports said a similar letter
was drafted for the Minister of Public Works, but was withdrawn
on November 3 and never delivered.



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Bakrie Must Pay-- At Least For Now

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6. (SBU) With no legal judgment against the company, the
Presidential Decree is still the only legal document that
attempts to define responsibility at the site. While
compensation for victims is to be paid by a holding company
established for the purpose, PT Minarak Lapindo, funds for
mitigation at the epicenter must be paid by "PT Lapindo
Brantas." There is no mention of specific sanctions for failure
to comply with the decree. Nor is there provision for personal
liability on the part of owners or legal officers of the
company. For now at least, according to November 17 press
reports, President Yudhoyono and Minister of Public Works Djoko
Kirmanto have rejected the notion that public funds should be
used. If the central dikes are breached however, any escaped
mud will become the responsibility of the Ministry of Public
Works (MPU) according to the Decree. (The MPU is responsible
for all earthworks outside the core dike enclosing the
epicenter.)




7. (SBU) Prasetyo closed his presentation by suggesting that the
Indonesian public could get stuck paying later and might rather
pay sooner to avoid near-term disaster. Minister Yusgiantoro is
on record as a critic of Lapindo Brantas in addition to serving
on the board of directors for BPLS. The Minister closed the
meeting by saying that there was much that was "still concealed"
about the financial arrangements for mud mitigation under the
presidential decree, and "a great deal people don't know." The
Minister added that "this is actually not a technical problem,
it is a legal problem."MCCLELLAND