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INDONESIA: Mud Volcano Sullies Top Investment Firms

Emad Mekay

WASHINGTON, Jun 21 2007 (IPS) - Environmental campaigners are urging several heavyweight investment firms, including Credit Suisse, Barclays, Fortis Group and Merrill Lynch, to shoulder some responsibility for a catastrophic mud volcano on the Indonesian island of Java that resulted from a gas project the firms helped fund.

Submerged houses following mudflow at Sidoarjo. Credit: Arif Hidayat

Submerged houses following mudflow at Sidoarjo. Credit: Arif Hidayat

Friends of the Earth International said Thursday that the lenders were still pumping hundreds of millions of dollars into Lapindo Brantas Inc., whose drilling of a gas well prompted a gush of toxic mud in the area of Sidoarjo that has flowed continuously since May 2006.

The spillage was labeled “Indonesia’s worst industrial disaster” by Greenpeace International. Local experts have warned that the mud may carry toxic gases such as methane and hydrogen sulphide. Others believe that without aggressive intervention, the mudflow – about a million barrels each day – could continue for decades, or even centuries.

“Funding from international banks like Credit Suisse and Fortis enabled Lapindo to start their gas exploration,” said Paul de Clerck, corporate campaigner at Friends of the Earth International. “Now the banks must accept their role in the disastrous mudflow created by the drilling.”

Campaigners say the company has done little to restore the damaged area or compensate the vast majority of the 3,500 families who were forced out of their homes.

A local environmental watchdog group, Wahli, estimates that the clean-up could cost more than 200 million dollars.

Since the start of the disaster, there have been numerous calls to hold the company’s shareholders fully accountable. Lapindo Brantas Inc. is owned by the Indonesian Energi Mega Persada (50 percent) and PT Medco E&P Brantas (32 percent), and the Australian Santos (18 percent).

Lapindo is also politically well-connected, belonging to the family of the Indonesian Minister for People’s Welfare, Aburizal Bakrie.

But this is the first time that the role of Lapindo’s external financial backers has come under public scrutiny.

“The private banks whose investments made the exploration of the gas field in Sidoarjo possible bear a responsibility to ensure that the disaster and its consequences are adequately addressed,” said Friends of the Earth in a report released Thursday.

At least 33 banks and financial institutions have been involved in financing the three Brantas PSC companies, among them several major international banks.

Credit Suisse (Switzerland), Barclays (Britain), Merrill Lynch & Co. (United States), Natixis (France) and the Fortis Group (Netherlands/Belgium) have arranged credit facilities, managed bond or share issuances, entered into interest and currency swap contracts, or own shares themselves or on behalf of customers.

Despite appeals from the campaigners to intervene and use their financial muscle, only Credit Suisse and Fortis replied to complaints from activists.

In its response, seen by IPS, Credit Suisse acknowledges the gravity of the disaster but says that the local company, Brantas, has given them verbal assurance that they are contributing to the relief efforts.

Credit Suisse did not commit to any further action apart from saying it will “communicate” concerns to those using their loans.

Watchdog groups report that since May 2006, Credit Suisse has in fact provided a new loan of 126 million dollars to Energi Mega Persada, without any tighter safeguards.

Fortis has refused to take any responsibility or to take up the issue any further.

Meanwhile, the environmental and human casualties from the disaster continue to prompt calls for accountability.

Eight people were killed in a large gas pipeline explosion related to the mud flow. Altogether, the disaster has affected more than 15,000 people and 600 hectares of land. Eleven villages have been submerged and farmland, roads and rail tracks destroyed.

With no clean-up in sight, and the lake of mud growing daily, tens of thousands of livelihoods are at risk, the groups say.

The campaigners are now requesting that these financiers withhold any further funding from Lapindo or its parent corporations.

“Any new loan from the banks should be conditional on Lapindo Brantas paying compensation for all its damage,” the Friends of the Earth report said. “So far the banks have failed to take adequate measures to guarantee that Lapindo Brantas is actually repairing and compensating for the damage they have caused.”

The Indonesian government has ordered Lapindo to pay 435 million dollars to victims and for so-called “mud mitigation”, but the firm is arguing that the compensation is too high and that what happened was not its fault but rather was a “natural disaster”.

Minister Bakrie has blamed the initial eruption of gas and mud on an earthquake near Yogyakarta, more than 200 kilometres away. But PT Medco, which owns about a third of Lapindo, reportedly conceded that drillers were negligent in not inserting a casing around the gas bore, which would have allowed the flow to be plugged after the drill hit a huge mud bubble.

“Lapindo Brantas tries to claim that the mudflow in Sidoarjo, Indonesia is a natural disaster, but this is not true,” said Fara Sofa from Friends of the Earth Indonesia. “Numerous experts have judged that the incident is a direct consequence of Lapindo Brantas’ irresponsible actions.”

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