The Tangguh gas project: Indonesia's biggest FDI project

Down to Earth No 69  May 2006

Investors:
The British company BP holds the biggest share (37.16%) along with Japanese and Chinese shareholders.

Investments:
Tangguh is expected to cost around US$5.5 billion, with $2bn covered by BP and partners and $3-3.5bn through loans. This will be Indonesia's biggest FDI project since the the economic crash of 1997. In December last year, the ADB voted to contribute $350 million towards the project, despite protests from Indonesian and international NGOs.

Income for Indonesia and Papua:
Over the next 30 years, the Tangguh project could earn up to US$8.7 billion for the central government of Indonesia and US$3.6 billion for the Papuan Government (see DTE 65).

Impacts:
This massive project has seen various impacts, even before construction begins in earnest. These do include some positive measures for certain villages which receive grants from BP. But problems include: disruption of fisheries; loss of livelihood and dependency on handouts for resettled villagers; social tension between communities who receive benefits and those who receive less or none; immigration into the region and economic domination by outsiders; and reported increase in alcohol consumption in the village of Saengga, located near the Tangguh base camp.

Update:
Key concerns over social and environmental impacts, security and human rights and legitimacy in Papua's wider political context continue to dog BP's giant Tangguh gas project under development in Bintuni Bay. The increases in military personnel in Papua, continuing violence by the security forces against demonstrators, protests against Freeport-Rio Tinto and the legal tangle surrounding the creation of 'West Irian Jaya' province within Papua province, do not bode well for this project's success (see DTE 65 and DTE 68 for background).

These concerns may account for why sixteen countries, including the UK, Canada and fourteen European countries, abstained from voting when the ADB considered financing the project in December last year.

Nevertheless, the ADB loan was agreed, and, as of January this year, seven banks had been shortlisted for the US$1bn international commercial loan portion of the US$3.5bn being raised for the project. These include three Japanese banks (BTM-UFJ, Mizuho Corporate Bank and SMBC), plus BNP Paribas (France), Fortis Bank (Belgium/Netherlands), ING Barings (Netherlands) and Standard Chartered (UK/Hong Kong). (ADB minutes of 14/Dec/05 meeting at www.adb.org/Documents/Board/Minutes/2005/M45-05.pdf; Engineers Against Poverty website www.engineersagainstpoverty.org/index.asp?PageID=122; DTE 65; Project Finance International, 11/Jan/06)