Indra Harsaputra, Sidoarjo – Sidoarjo Regent Win Hendrarso demanded Monday that Lapindo Brantas Inc., which owns the gas exploration well that has spewed out a torrent of hot mud since May 29, stop disposing of the mud into Porong River.
The regent said the company did not have the necessary permission from the regional administration and State Minister for the Environment Rachmat Witoelar.
Last week an official from Lapindo denied the mud was being disposed of in the river, although the company had earlier suggested it might do so, citing an emergency.
The foul-smelling mud has submerged 400 hectares of rice fields, homes, schools and the turnpike linking East Java's capital, Surabaya, with surrounding cities. Some 9,000 people from at least seven villages have been forced to evacuate and a number of embankments built to check the flow of the hot toxic mud have collapsed.
"I have ordered the regional environment office to stop the disposal (of the mud)," Regent Win said.
The mud was still being channeled into the river as of Monday afternoon.
Pressure on the company and the administration to get rid of the mud has been mounting, despite protests by the owners of thousands of shrimp hatcheries, for which the coastal town is famous.
An official from the Public Works Ministry said the government and Lapindo had agreed the mud could be disposed of before being treated, given the seriousness of the situation.
"The government and Lapindo agreed to this after a number of meetings," said Aris Setyadi, the head of the public works team assigned to overcome the mudflow problem. He said Lapindo had ordered four mobile pumps to channel the mud into the river, with a capacity to carry 300 liters of water per second.
As of Monday the mud continued to flow at an estimated 45,0000 cubic meters a day.
Also on Monday Bloomberg news agency reported that PT Medco Energi Internasional, the country's largest oil company by market value, would set aside money to pay for damage caused by the flow of mud at the gas exploration well, which it partly owns. Medco may have to pay as much as US$23.2 million based on its 32 percent share in the field.
Lapindo estimates the cost of damages at $100 million, Medco's president Hilmi Panigoro said. Insurance payouts are capped at $27.5 million, he said. At current estimates, the payments may account for 31 percent of the Jakarta-based company's 2005 profit and may cut its earnings and debt rating.
"To be prudent, we will make a provision... (and) we will do our best to protect the interests of our shareholders," Panigoro said in an interview, Bloomberg reported. The company will set aside money in the last quarter of this year and the first quarter of 2007, he said, without disclosing the amount.
Costs to put an end to the mudflow disaster will total at least $100 million, Rawindra, general manager of Lapindo's East Java unit, said in a phone interview Monday.
"The spending to drill three relief wells, to search for and seal the mud source alone will be $78 million," he said. "There are plenty of other damage claims" from residents in five villages and 17 factories inundated by the mudflow, Rawindra said.
Australia's Santos Ltd., which owns an 18 percent share in the area, said on Aug. 23 it took a one-time charge of A$19 million ($14.4 million) to pay for the damage. Lapindo, owned by PT Energi Mega Persada, has 50 percent of the Brantas block, where the mudflow started.
Under normal circumstances, the government would pay for 70 percent of exploration and development costs in the block and get the same share of production revenue, according to an agreement with contractors, who will pay the remaining costs and get 30 percent of revenue.
That will not apply to the costs resulting from the Lapindo incident, Luluk Sumiarso, the Energy Ministry's director general of oil and gas, said in a phone interview.
"We will cover the costs of drilling the exploration well, but not those caused by the mudflow incident," Sumiarso said. If the government agrees to pay 70 percent of the uninsured damages, Medco's share will be $7 million, Panigoro said.