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    Southeast Asia
     Jul 14, 2006
Muckraking in Java's gas fields
By Chris Holm

JAKARTA - On May 27, a natural gas drilling operation in Indonesia's East Java province got exceptionally messy.

Local prospector PT Lapindo Brantas was carrying out routine drilling at the Banjar Panji-1 well located near the town of Sidoarjo, a site that is part of a joint operation known as the Brantas Production Sharing Contract.

Burrowing through hot rock almost three kilometers deep, Lapindo's drill string hit something soft. According to company documents, the resulting drop-off in pressure caused the crew to lose the drill bit in the hole when they tried to raise it up.

The next day, toxic gases and hot mud began rushing out of the well - a danger sign in gas prospecting known as a "well kick". Drillers pumped a mixture of cement and mud back in the hole in



an attempt to seal it, which seemed to work, until huge quantities of effluent began to emerge from large cracks in the ground nearby. For an entire month, Lapindo experts tried to stem a seemingly limitless stream of mud and water gushing from the ground.

Java is the most densely populated island in the world, and it didn't take long for the mucky torrent to affect nearby villagers. In early June, the 60 degrees centigrade sludge, increasing in volume by up to 50,000 cubic meters a day, had blocked a regional highway, flooded rice paddies and polluted groundwater and irrigation canals.

The rotten-egg stench from the mud sickened hundreds of people, who sought treatment for breathing difficulties at the local hospital. Doctors first blamed the villagers' complaints on "stress" and later on the sulfur dioxide emanating from the well site. By the end of June, the pungent flows covered a vast area of more than 120 hectares, turning four villages into seas of sludge and creating an ecological disaster that has displaced at least 5,600 people and shut down roads, rail links and businesses in the affected area.

Indonesia's national environmental watchdog, Wahli, estimates the costs of the clean-up could reach more than US$200 million. Meanwhile, in the town of Sidoarjo, thousands of the displaced villagers hunker down as best they can in a large section of a market converted into a makeshift refugee center. With their crops in ruins and their workplaces shuttered, they have been promised a subsistence income of US$30-$70 a month by Lapindo and are subsisting largely on handouts.

And still the mud continues to flow. Around the drilling site, the land has been transformed from green paddy fields into inhospitable seas of asphalt-colored muck. Near its center, a black geyser roars, like an unearthly scene from a volcanic plateau.

Mired at the center of the muck is the drilling company, Lapindo. To many Indonesians, the lines between the cause and effect of the mud seemed clear: they pointed directly at the prospector - and down into the almost three-kilometer deep hole it had dug.

However, in a country where environmental accidents are depressingly common, and threaten to increase as prospecting activities expand in the emerging era of high global commodity prices, cover-ups are not unheard of. A weak and notoriously corrupt legal system and the web of relationships between local businesses and political elites all too frequently conspire to ensure that companies are not held responsible for the pollution they cause. To environmentalists, the country's rivers, black with industrial waste or orange-brown from the effects of illegal logging, are evidence enough of the nation's patchy regulatory framework.

The scale of the Sidoarjo disaster and the presence of a vigorous media make it more difficult for the authorities to explain the mud away, as they might have done during the tenure of former president Suharto. However, old ways die hard, and the story that is still emerging - like the flows from the Lapindo well site - indicates justice for the Lapindo villagers is certainly not a given. It also highlights the perils multinational companies can potentially face in Indonesia if they partner up with irresponsible local firms.

A natural denial
At the start of the environmental debacle, Lapindo's management blamed the mud on natural causes rather than the company's drilling activities. Speaking at a parliamentary hearing, the company's executives told legislators that the effects of the May 27 earthquake centered in Yogyakarta, rather than its drilling, were responsible for the mudflows.

If vibrations from the 6.7-magnitude shake were powerful enough to kill 5,000 people, they reasoned, it could also have opened up deep faults underground, allowing the mud to flow up thousands of meters. And if Lapindo being in the area was only a coincidence, the government, not the firm, should provide compensation to villagers and the businesses affected by the mud, they said.

Independent experts, however, were quick to reject the earthquake explanation. The epicenter of the Yogyakarta quake, at more than 300 kilometers away, was far too distant to affect the ground in Sidoarjo, where the aftershocks would have manifested themselves as a dissipated force, which they likened to a heavy truck passing over the area. It was far more likely that a mishap involving the drilling operation was to blame, they said. Despite that reality check, the company's earthquake theory was initially given credence by officials from the government's upstream oil and gas regulator, BP Migas.

A team of the regulator's experts sent to investigate the disaster said it could not rule out the possibility that the earthquake had caused the mudflows. In a statement seemingly designed to take the heat off Lapindo, the government geologists noted it was difficult for prospecting firms to "predict and plan" for mishaps in drilling ventures because of the "complex nature of the country's geology".

To observers, the situation seemed to be heading in a depressingly familiar, if not farcical, direction. The disaster, with its major human and ecological consequences, was going to be attributed to natural causes, with the dirt-poor villagers left to suffer and no one held accountable.

Those suspicions were fueled by the fact that PT Lapindo Brantas is owned by members of the politically-connected Bakrie family, one of Indonesia's richest business dynasties. The Bakrie's favorite son, former tycoon Aburizal Bakrie, is currently the government's chief welfare minister.

Aburizal, who divested his many business interests upon taking public office, has been unwilling to be linked to the mud morass. His refusal to visit the disaster site and his rather petulant comment when asked what should be done to stop the mud - "Don't ask me, I'm the Coordinating Minister for the People's Welfare" - were widely reported in the Indonesian media.

The muck sticks
By the middle of June, however, a letter from Lapindo's partner company emerged that seemed to pin the disaster squarely on the driller. In the correspondence, dated June 5, PT MedcoEnergi Oil & Gas accused Lapindo of "gross negligence" in the drilling because of a serious safety violation.

Lapindo, the partner contended, ignored its reminder to put a nine-inch thick protective casing in the well to a depth of 8,500 feet. This, it says, was "agreed to in the joint operating agreement" to "anticipate potential hole problems" in the well, as industry standards require.

The inference was clear. If Lapindo's drilling encountered difficulties, without the protective casing, it wouldn't be able to seal the well off properly. No casing would allow the surfacing mud and gas to escape out of the unprotected sides of the well hole and surface from cracks in the ground - exactly what apparently happened.

Soon thereafter, Indonesia's vice president, Jusuf Kalla, announced that Lapindo and the Bakrie family would begin to compensate the thousands of people affected by the mud flows. At the same time, the East Java police began a criminal investigation into the disaster and have since detained and questioned Lapindo staff, including management, as potential suspects.

If the allegations raised in MedcoEnergi's letter are true, then at least two other companies are at risk of being held accountable for the disaster. Lapindo has a 50% operating interest in the Banjar Panji-1 well, with a 32% stake owned by MedcoEnergi, and the remainder held by Australia's largest oil and gas prospector, Santos.

Santos has already reported the Sidoarjo incident to the Australian Stock Exchange and have assured the bourse that the project was insured. Yet the public disclosure of MedcoEnergi's damning letter is likely to make insurance companies less willing to pay out. This could mean MedcoEnergy and Santos could also be held liable for the substantial cleanup costs.

This, of course, depends on how much MedcoEnergi and Santos knew about Lapindo's drilling operation and whether they were legally required to know under the terms of their joint operating agreement. If Lapindo failed to install the casing and then deliberately withheld this information from its drilling partners, as MedcoEnergi's letter suggests, this scenario would presumably leave Lapindo, a limited liability company, solely responsible.

An independent oil and gas exploration expert told Asia Times Online that Lapindo most likely received bulk funding for the drilling operation as part of a turnkey project. This financial arrangement could have encouraged the firm to cut costs by not installing the safety casing, which the expert believes could have saved Lapindo "up to a million [US] dollars".

He notes that while Lapindo has extensive experience drilling natural gas platforms at sea "down to four or five thousand feet", the company had never drilled lower than that - including to depths that would have required the deeper casing. The expert also says that the absence of the casing would be a "very good explanation" for why the drilling team was unable to block off the mudflows.

While this corner-cutting would have reduced costs, he says the move would have posed an "extreme risk" to safety and would be something "virtually unheard of" in the industry. Geologists monitoring the drilling work would have been well aware of the need to install casing in the hole, he says, and it would have been "highly irregular" if they did not report this to company management.

Exploring the regulator
Determining whether this actually occurred depends on the outcome of an investigation now underway by several agencies - the police, the government-BP Migas team and the group of international experts.

BP Migas' role is also in the spotlight. As the state watchdog of upstream drilling activities, many observers are asking what the body did and did not do to monitor the drill site and prevent the disaster from occurring.

They also wonder why geologists from BP Migas initially accepted Lapindo's claims that the earthquake was responsible for the mudflows and still seemed willing to countenance this possibility even after the MedcoEnergi letter surfaced.

Sonny Keraf, a lawmaker on a parliamentary special committee convened to look into the problem, says the contract-tendering process for the project should have come under greater scrutiny. Speaking to Indonesia's Tempo magazine, he speculated that BP Migas officials may not have followed proper procedures when monitoring the tendering for the project, thereby allowing an inexperienced contractor to win the job. Because of this fact, do not expect much from any investigation involving BP Migas officials, he said.

Indonesian environmental law expert, Mas Achmad Santosa, meanwhile, faults the government for not getting tougher on the regulator and Lapindo when the disaster began. He says the government did not take advantage of its powers to take strong "administrative sanctions" against the bodies, including raiding their offices to seize important documents that could help further investigations.

"There shouldn't have been negotiations [between the government and Lapindo] - all meetings and talking. Coercive enforcement should have gone hand-in-hand with the criminal proceedings," Santosa contends. Still, Santosa believes the Sidoarjo disaster could become an important test case concerning the enforcement of relatively new green legislation. It helps, he says, that this seems to be a clear example of corporate negligence, and that the government has become directly involved.

The East Java Police, Santosa says, are also being supervised by their national-level counterparts to ensure that the criminal investigation is not compromised.

Mired in charm
But while the criminal investigation against Lapindo seems likely to reach the courts, environmentalists believe that the villagers of Sidoarjo will face an uphill battle to receive fair compensation in any civil action filed against the company.

Torry Kuswardono, Wahli's mining and energy spokesman, says the group is currently working with regional government and affected villagers to explore the possibility of filing a class action against the company. However, Kuswardono says that the group's experience has been that poor, rural communities rarely win legal battles against big companies in Indonesia, where prosecutors' indictments and judges' verdicts can often be bought.

It doesn't help that Lapindo, after initially denying culpability in the disaster, has now turned on a charm offensive in the refugee camps, Kuswardono says. The company's staff has bought the villagers television sets and their children toys; the local legislature has been inexplicably quiet about the affair, he contends.

"You should see the local market (in Sidoarjo) at the moment, it looks like a fairground. The villagers are in danger of falling into some kind of Stockholm syndrome," he said. Kuwardono believes Wahli will have more success working with the community in the next few months - when the focus on the disaster moves from emergency relief to clean up and recovery. "When Lapindo goes away and the villagers realize they have nothing left, then they will get angry," he says.

Back at the disaster site, the team of international experts has made some progress in choking the mud flows at the drill site, with reports in early July that at least one of the fissures has been blocked off with the help of a special machine. Despite this, the mud continues to flow into the Sidoarjo region and Kuwardono believes it may continue to do so for months to come.

It seems only the company at the center of the disaster, Lapindo, can find a positive spin on the whole mess. The mud, it contends, has been tested by a local university and will be perfect for making house bricks - something the homeless villagers sheltering in the Sidoarjo market will no doubt be pleased to hear.
Chris Holm is a Jakarta-based journalist and editor.

(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .)


Energizing Indonesia (Jul 14, '05)

Indonesia's natural gas dilemma (Jul 22, '03)

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