BoA freezes Pertamina assets

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Independent power producer Karaha Bodas Co. LLC said Bank of America (BoA) had frozen more than US$130 million in funds belonging to the state-owned oil and gas firm Pertamina under a U.S. court order.

Karaha legal counsel Christopher Dugan said the move was by the power company's efforts to collect $261 million in unpaid compensation from Pertamina.

"As Pertamina continues to defy the courts, we (Karaha) announced that BoA has frozen more than $130 million of Pertamina's funds," Dugan said in statement available to The Jakarta Post on Wednesday.

Karaha entered into a contract in 1994 with Pertamina and state electricity company PLN to develop a $1 billion power project in Karaha, West Java.

But the 400-megawatt power project was suspended by the government, along with several other power projects, following the 1997 financial crisis.

Unable to proceed, Karaha, which has invested $100 million prior to the suspension, filed a lawsuit against the government, Pertamina and PLN with a Switzerland-based arbitration.

Karaha won the arbitration ruling in December 2000, which order Pertamina and state electricity company PLN to pay $261 million to Karaha, plus 4 percent interest per year, starting January 2001.

Last December, Karaha won a confirmation from U.S. Federal Court in Houston, which issued the verdict to uphold the ruling of the arbitration tribunal.

But instead of paying the compensation, Pertamina filed a law suit at the Central Jakarta District Court to annul the international arbitration ruling.

This has prompted Karaha to launch a campaign to freeze Pertamina's assets worldwide to satisfy the compensation award.

However, Dugan said Karaha would only target Pertamina's assets, not the assets that belong to Pertamina's production sharing partners.

Dugan then said, at present, courts in Singapore and Hongkong, like the U.S. court in Texas, had also entered judgment against Pertamina, ordering Pertamina to pay the $261 million compensation.

He added that Karaha would also vigorously oppose Pertamina's legal action at the local court, saying the Pertamina move would only harm Indonesia's image in the eyes of international investors.

With the move, Pertamina was sending a message to foreign investors that Indonesian state-owned enterprises could breach or terminate their contracts at will and with impunity, and that it didn't care what foreign courts rule, he said.

"This attitude will seriously damage the investment climate in Indonesia," Dugan said.

Pertamina officials and its legal counsel were not available to comment.

But according to a source close to Pertamina, the funds Karaha had restrained at BoA in New York belong to the government of Indonesia, not Pertamina.

"The restraint is temporary, pending further review and analysis by a judge. It is wrong for these funds to be held up," the source told the Post.

Pertamina and the government had made extensive submissions in court to show that the funds should be released, the source added.

The source said Pertamina would also continue its Jakarta court appeal to annul the arbitration ruling, arguing the ruling could be canceled by local court as stipulated in the contract.

Meanwhile, the government has allowed Karaha to resume the power project and several others to avoid power crisis in the future.

Last week, President Megawati Soekarnoputri issued decree No 15/2002 on the revocation of decree No. 39/1997 which suspended many mega projects.

Minister of energy and mineral resources followed it up by issuing decree No 216/2002, allowing the Karaha Bodas project development to be restarted.

Karaha has reportedly refused the offer.

Karaha is controlled by American giant Florida Power and New York-based Caithness.