Jakarta – The United States could seize Indonesian assets if Jakarta fails to settle a US$290-million claim by the US government's Overseas Private Investment Corp (OPIC), US Ambassador Robert Gelbard said.

The United States is putting pressure on Indonesia to pay US$290 million in compensation because its state energy company has failed to honour contracts with MidAmerican Energy Holdings Co.

According to Mr Gelbard, Washington was beginning to lose patience with the Indonesian government's reluctance to pay the OPIC claim. "There is always the possibility of declaring expropriation," he said. "If we were to do this, it would result in a dramatic deterioration of the rupiah and would hurt Indonesia very much," he said.

However, he said in a telephone interview with Dow Jones Newswires yesterday that "this is an issue between the government of Indonesia, which owes the debt, and the US". The ambassador declined to elaborate on what steps the US might take if Indonesia fails to pay.

OPIC's claim came after Indonesian state electricity company PT Perusahaan Listrik Negara (PLN) failed to pay independent power producer MidAmerican Energy Holding, formerly known as CalEnergy, US$572 million as ordered by an independent arbitration panel.

The payment was for electricity produced from a MidAmerican geothermal power plant in Java and the suspension of another plant in West Java. MidAmerican filed arbitration proceedings against PLN in September 1998. PLN lost the arbitration proceedings last year and was ordered to pay MidAmerican the US$572 million.

But PLN refused to pay the claim, saying it had no money to do so in the midst of the country's financial crisis, forcing MidAmerican to call in its OPIC insurance. OPIC later paid US$290 million of the claim. "The result unfortunately was that OPIC – an agency of the US government – had to pay out the largest claim in its history to this company," Mr Gelbard said.