February 27, 2008 / 12:08 PM / 10 years ago

Indonesia pledges new cash as mud engulfs more land

JAKARTA, Feb 27 (Reuters) - Indonesia plans to set aside an additional 700 billion rupiah ($77 million) to compensate thousands more people whose homes are threatened by a mud volcano in East Java province, a minister said on Wednesday.

Thousands of homes and factories have already been submerged by the hot mud since it first started to erupt in May 2006, forcing about 15,000 people to abandon their homes.

"There are about three other villages near the mudflow that have to be relocated, because those areas are in danger," Public Works Minister Djoko Kirmanto told reporters after a cabinet meeting chaired by President Susilo Bambang Yudhoyono.

"We also want to accelerate the channeling of mud to the Porong river which passes those areas," he said.

Kirmanto said the government would pay the same amount of compensation received by other victims of the mud. Many mud victims have previously demonstrated over what they regard as insufficient compensations payments.

The three villages — Kedungcangkring, Pejarakan, and Besuki — are home to around 10,000 people.

Some scientists say the mudflow in Sidoarjo regency, near the country’s second biggest city, Surabaya, was caused by a gas drilling operation by PT Lapindo Brantas.

Lapindo and PT Energi Mega Persada Tbk (ENRG.JK), which has a stake in Lapindo, dispute that the disaster, which started two days after a massive earthquake in Central Java, was caused by drilling.

The government ordered energy group Lapindo, which many people blame for the disaster, to pay 3.8 trillion rupiah ($418.4 million) in compensation to the victims and to cover the damage.

The government has tried several schemes to halt the flow, including dropping giant concrete balls into the crater, but the mud continues to spurt at a rate of 148,000 cubic metres a day.

The government has also said that it will fund the rerouting of a gas pipeline, railways, electricity networks and roads, affected by the mud.

Lapindo and PT Energi Mega Persada Tbk dispute whether Lapindo alone should shoulder the cost.

The situation has also become a bigger embarrassment for the government since Energi is owned by the Bakrie Group, controlled by the family of chief social welfare minister, Aburizal Bakrie. The Bakrie family last year topped the Forbes’ list for the wealthy in Indonesia. ($1 = 9,082 rupiah) (Additional reporting by Heri Retnowati in Surabaya) (Reporting by Muklis Ali, Editing by Ed Davies and Sugita Katyal)

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