A TOXIC mudflow in Indonesia, emanating from a gas project minority-owned by Australian-based Santos, is threatening to become an environmental, public health and public relations disaster.
A leak from the well, which began on May 27, continues to spew poisonous mud across East Java. The flow now covers about 130 hectares to a depth of four metres.
Indonesian police are indicating they will recommend criminal charges against the gas-drilling operators of the well, in which Santos holds an 18 per cent share. So far the mudflow has displaced 5000 villagers, hospitalised nearly 1000 people, caused two deaths and cut the major highway and railway from the regional capital of Surabaya. The estimated compensation bill is already close to $A300 million.
At first operators blamed the Yogyakarta earthquake for the mishap, but a police investigation has found negligence caused the leak. A metal casing required to prevent any gas leaks was not properly in place, police believe. Six employees of the operator, which runs the well independently of Santos, were named as suspects this week. "Their negligent act caused damage or devastation that led to material and non-material losses," said East Java police detective chief Amhar Azeth.
With the investigation continuing, more senior executives could be charged, he said.
A spokesman for Santos yesterday said the company was awaiting the report of an official inquiry. Asked if there were concerns Santos could be liable for some costs, he said: "We maintain appropriate insurance coverage for these types of incidents.
"We are working on this to the extent we can as an 18 per cent minority shareholder."
On whether the incident could affect its mining program in Indonesia, the spokesman said: "We have an excellent relationship with Indonesian authorities and we are confident that will be maintained."
Santos was aware of media reports of likely charges against the operator of the well, but had not been informed officially, he said. No Santos staff are likely to face charges.
Although efforts were under way to plug the leak, it could potentially continue for months and cause more extensive damage, sources said.
Indonesian President Susilo Bambang Yudhoyono has called for those responsible to be brought to account.
The disaster has political ramifications, with family companies of powerful cabinet minister Aburizal Bakrie holding a controlling interest in both the well and the operating company.
The well is owned by the Brantas PSC joint venture and operated by Lapindo Brantas, which is controlled by the Bakrie family. Lapindo put up half the capital to exploit the Brantas block, with partner Medco Energi Oil and Gas and Santos contributing 32 per cent and 18 per cent respectively under a working interest agreement.
Lapindo at first blamed the earthquake, but a leaked letter from Medco later accused management of negligence for failing to install adequate casing.
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