JAKARTA Recent bribery allegations involving an Indonesian power company controlled by Standard Chartered highlights an inherited problem President Joko Widodo must face in implementing his infrastructure push: corruption.
The Wall Street Journal reported on Sept. 27 that the U.S. Justice Department is investigating Maxpower Group, which is controlled by the London-based bank, on suspicion of bribing Indonesian officials and others to secure contracts and prompt payment.
An internal audit at Maxpower last year showed over $750,000 in cash advances from 2014 and early 2015 that might have been bribes. Lawyers from Sidley Austin who reviewed the audit also found signs of doubtful payments between 2012 and 2015.
The contracts concerned may relate to Widodo's program to procure an additional 35,000 megawatts for the national grid by 2019, which is vital to the ambitious infrastructure push he promised on taking office in October 2014.
More than two-thirds of the projects are tenders from independent power producers to supply Perusahaan Listrik Negara, the state power utility. For the other contracts, PLN can appoint suppliers directly using an engineering, procurement and construction (EPC) scheme.
Maxpower's specialty is gas-fired power stations, and it has footprints in Indonesia and Myanmar. Maxpower Indonesia said in March 2015 it had won two tenders to supply 40MW to PLN.
PLN President Sofyan Basir has flatly denied the allegations and said the problematic Maxpower contracts are "not with PLN."
However, an Indonesian energy ministry official involved with the power expansion program confirmed that Maxpower is an EPC contractor dealing directly with PLN.
Indonesia's official Corruption Eradication Commission (KPK) has confirmed it is investigating the case.
Standard Chartered said it takes allegations of impropriety "very seriously" in any of its private equity investments. "We proactively referred this matter to the appropriate authorities and have conducted our own review," the bank said in a statement.
Erry Riyana Hardjapamekas, Maxpower Indonesia's commissioner and a former deputy head of KPK, said the company fired three senior executives last year before his appointment along with Endriartono Sutarto, an ex-army general.
"Endriartono Sutarto and I were appointed as Maxpower Indonesia commissioners by Standard Chartered in December 2015 to increase investigations into allegations of misappropriations and to improve the company's internal governance," Hardjapamekas told Kompas, a local daily.
The scale of the 35,000MW program, along with other large infrastructure projects, makes them vulnerable to abuse. The electricity procurement program is worth over 1,100 trillion rupiah ($84.2 billion).
EVERYONE WANTS A SLICE Marwan Batubara, director of Indonesian Resources Studies, believes vested interests are behind a string of delays and bid cancellations for power plant projects.
"Everyone has their own interest," Batubara said, noting disputes earlier this year between PLN, the energy ministry and the state enterprise ministry over individual projects that have been blamed for the slow progress.
"People compete with each other to grab a slice of the cake," he said. "Corruption is rampant."
Major state-owned enterprises in the energy sector have long been treated as cash cows by whoever is in power. It will be a test of Widodo's administration to break with this tradition.
Nikkei staff writer Wataru Suzuki contributed to this story.