Graft could jeopardize Indonesia's climate deals

(Reuters) - Billions of dollars Indonesia stands to earn every year in climate change deals could be at risk if it fails to stamp out corruption in its forestry sector, long notorious for graft and focus of an ongoing investigation.

Norway is preparing to pay the first $30 million of $1 billion it agreed to give Indonesia in return for a commitment to preserve valuable forests, part of a UN scheme in which rich nations will pay developing countries not to chop down trees.

"Our emission reduction potential from forestry and peatland is about 1.5 gigatonnes by 2030. So if the price of emissions reductions is around $10 per ton in 2030, then our potential revenue is $15 billion per annum by 2030," Agus Purnomo, head of Indonesia's National Council on Climate Change, told Reuters.

But considerable obstacles stand in the way. Indonesia's lucrative palm oil, plantations and mining sectors say the moratorium on land conversion will hinder expansion and profits. And the forestry sector has a legacy of mismanagement and graft.

"It's a source of unlimited corruption," said Chandra M. Hamzah, deputy chairman at the KPK anti-graft agency set up by President Susilo Bambang Yudhoyono to combat corruption.

An Ernst and Young audit found that in just 4 years between 1993/94 and 1997/98, Indonesia's reforestation fund lost $5.25 billion through systematic financial mismanagement and fraud. Anti-graft officials are concerned that the vast sums on offer under the UN scheme could lead to further corruption and theft.

Adding to concerns, a forestry official who helped negotiate the Norway deal and represented Indonesia at global climate talks in 2009 is a suspect in a multi-million dollar corruption case.

Adnan Topan Husodo, deputy coordinator of the NGO Indonesia Corruption Watch, said that while all corruption suspects are innocent until proven guilty, a graft suspect should not have been part of the team that negotiated the deal with Norway.

"The credibility of the team involved in the agreement is at stake," he said. "This is huge money we are talking about."

That's one reason top reformers in the government say they are putting in safeguards to ensure that Norway's funding isn't misused. Kuntoro Mangkusubroto, who heads of the president's delivery unit and oversees implementation of the deal, said the money would be kept separate from the government budget.

FINDING $10,000 ON A TABLE

The KPK has spent two years investigating allegations that forestry officials, lawmakers, and businessmen at a firm called PT Masaro Radiokom conspired to ensure the firm won a lucrative

radio procurement project. The KPK estimated this led to state losses of at least 70 billion rupiah ($7.75 million).

Wandojo Siswanto, one of Indonesia's top negotiators at last year's climate talks in Copenhagen and a member of the team that negotiated with Norway, was named a suspect in September 2009, but has continued to work as a senior Forestry Department official. He an architect of Indonesia's laws on the UN scheme, Reduced Emissions from Deforestation and Degradation (REDD).

The KPK allege that Siswanto, who was in charge of the radio procurement project, received a bribe of about $10,000 from Anggoro Widjojo, a director of PT Masaro Radiokom, to ensure that the project was included in the department's budget that year.

It says Siswanto awarded the contract directly to Masaro, instead of putting it to public tender as required by law. A traval ban was imposed on him last year after Copenhagen.

Siswanto told Reuters he was innocent. He said that he found the $10,000 in question on his table, and then called Widjojo to ask who the money was for, and what it was for.

"It was just put on my table. I was not brave enough to make a report to the KPK at that time," he said, adding that he held onto the money for about four months, then gave it to the

KPK.

"I never asked for that kind of money," Siswanto said, adding that he didn't think it was a bribe because it was given after the budget had already been arranged.

"The money didn't make me do something."

Siswanto said his staff advised him to award the contract to Masaro without putting it to public tender. "I was advised by my committee that it was conducted every year this way," he said. "I need to prove I was just a victim of the situation."

THE CHALLENGE OF CORRUPTION

As part of the same investigation, the KPK last year raided the office of the department's secretary general, Boen Purnama, where they found $20,000 in cash, allegedly also from Widjojo.

Purnama told Reuters he did not want to comment on the allegations. He has not so far been named a suspect by the KPK.

The KPK told Reuters there was no evidence to suggest forestry officials would try to steal any of the Norwegian money, but added Norwegian government officials had asked the KPK to play an oversight role to ensure the funds were used properly.

In a statement emailed to Reuters, the Norwegian International Climate and Forest Initiative, part of the Norwegian environment ministry, said the $1 billion climate deal was designed in such as way as to reduce the risk of corruption:

"It is an unfortunate fact that there are significant governance challenges, including issues of fiduciary management, in most tropical forest countries," the statement said. "Clearly, dealing with these challenges is a priority."

(Additional reporting by Alister Doyle; Editing by Sara Webb and Andrew Marshall)