Water firm may lose pounds 225m contract in nepotism row

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A LUCRATIVE deal to supply water to Indonesia's capital has been put on hold amid allegations that a company controlled by Thames Water won the contract thanks to favours granted by the disgraced former president Suharto, it emerged yesterday.

Today, Jakarta city employees will hold a demonstration and unveil a petition denouncing "corruption, collusion and nepotism" in the awarding of the contract to a joint venture controlled by Thames Water Plc.

In interviews with The Independent, city executives claimed that the British-Indonesian joint venture was given the contract because of the participation of Sigit Hardjojudanto, the eldest son of Mr Suharto, who yielded power last week after 32 years as Indonesian dictator. Last Saturday, after a virtual mutiny by municipal employees, the city demanded a review of the agreement, claiming the project was being run inefficiently. The 25-year contract would be worth $750m (pounds 450m), of which Thames's venture would earn half.

The controversy began in 1995, when the city of Jakarta began a project to improve the supply of water to Indonesia's 10 million citizens. According to officials from PAM Jaya, the city-owned management company, the World Bank provided a grant for the preparation of a tender document. But before it could be completed, the government made it known that contracts would be awarded to two consortiums: PT Garuda Dipta Semesta (GDS), and PT Kekar- Thames Airindo, known by its acronym Kati.

The former company is a joint venture between the French utility Lyonnaise des Eaux and Liem Sioe Liong, a close friend of Mr Suharto and Indonesia's richest conglomerate owner. The latter is a joint venture between Sigit Hardjojudanto, Mr Suharto's eldest son, and Thames Water, which owns 80 per cent of the company. Both contracts are to be reviewed.

During his three decades as president, Mr Suharto became notorious for the lucrative favours which he bestowed both upon his children and a close circle of businessmen.

News that the authorities are investigating allegations of corruption will worry other Western companies with interests in Indonesia, many of whom formed links with Mr Suharto's friends and family to gain access to the Indonesian market.

A spokeswoman for Thames Water confirmed the Indonesian authorities had put the contract on hold, but denied any wrongdoing. "We have met our contractual obligations to date and hope to continue to do so," she said.