The collapse of East Kalimantan-Java gas pipeline

The US$1.25 billion East Kalimantan-Java gas pipeline project handled by PT Bakrie Brothers Tbk is apparently on the verge of collapse after energy minister Purnomo Yusgiantoro declared the project is not feasible, Kompas reported. The very same minister initially endorsed the project. What's up?

Purnomo said before parliament members that the project was initiated by Infrastructure Development Acceleration Committee (KPPI) for Infrastructure Summit I. The project, he said, is too costly. "The best way to transport gas to Java is with tankers," Purnomo stated.

Well, it was Aburizal Bakrie, the coordinating minister for people's affairs and also the controlling family of PT Bakrie & Brothers Tbk, who launched the project when he was the coordinating minister for the economy. He got support from Vice President Jusuf Kalla and downstream oil and gas regulatory body (BPH Migas) Chairman Tubagus Haryono. All the three men are Golkar cadres.

But right from the beginning, there are groups opposing the project such as upstream oil and gas regulatory body (BP Migas), gas contractors, LNG producer/exporter/buyer, and other gas-related industries in East Kalimantan (such as fertilizers, ammonia, and methanol). Those who have interests to build LNG terminals and LNG carriers are also silently opposed the gas pipeline. Plus an Indonesian investor (he is one of the richest men in recent Forbes rich list) who had secured to build another LNG train in Bontang, East Kalimantan.

These groups waged protest and urge president Susilo Bambang Yudhoyono to cancel the project.

Last month, in his visit to Samarinda, the capital city of East Kalimantan, the president promised to review the plan 'for the sake of everybody'.

Since then, Purnomo, under pressure to secure gas supply for customers in Java, immediately announced government's plan to accelerate the gas development in Cepu block. He argued if government could accelerate the Cepu gas development then there is no need to build the gas pipeline from East Kalimantan. About 30% of the Cepu gas actually in the area co-controlled by Pertamina and ExxonMobil and the remaining 70% is solely controlled by Pertamina.

"This is all about competition to 2009 election," a local investor said.

And it's another major blow to Bakrie Family's business after the collapsed US$3.25 billion deal of Bumi Resources-Renaissance Capital, the cancelled Bumi Resources-Energi Mega Persada merger, and huge mess at Lapindo Brantas Inc (a subsidiary of Energi Mega).
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