Court annuls int'l ruling on Kahara project

Much N. Kurniawan, The Jakarta Post, Jakarta

State oil and gas company Pertamina said on Wednesday it had won its battle against independent power producer Karaha Bodas Co. LLC at a local court over a dispute concerning a suspended power project.

Pertamina president Baihaki Hakim said that Central Jakarta District Court had annulled an international arbitration ruling requiring the company to pay US$261 million in compensation to Karaha.

"The (Jakarta) court has issued a ruling in favor of us," he told reporters.

He said that, based on the court's ruling, issued on April 1, Pertamina had the legal grounds to refuse to pay compensation.

Karaha is controlled by American firms Florida Power and Caithness.

The power company signed a contract in 1994 with the state electricity company PLN and Pertamina to develop a 400 Megawatt geothermal power project in West Java.

But the government suspended the project, along with several other power projects, in 1998 after the country was hit by the regional financial crisis. The government ordered PLN to renegotiate the contract of the power projects.

Karaha, which claims it invested $100 million in the project, then filed a complaint with the international arbitration panel in Switzerland, and won the case in 2000, requiring Pertamina to pay the $261 million compensation.

In December last year, Karaha won a confirmation from a U.S. court in Houston.

But instead of paying the compensation, Pertamina made an appeal at the Jakarta court in a bid to annul the arbitration ruling.

Karaha then moved to freeze Pertamina assets overseas. Last week, the Bank of America, under a court order, suspended some $130 million worth of funds assumed to be owned by Pertamina.

But Pertamina insisted that the money, coming from the sale of crude oil and liquefied natural gas (LNG), belongs to the government.

Pertamina also stressed that the international arbitration ruling was not yet final because it had yet to obtain confirmation from the local court, which is deemed necessary because the power project contract was made based on Indonesian law.

Karaha's lawyer was not available to comment on the Jakarta ruling.

However, several lawyers earlier expressed concern that the move by Pertamina to disregard the arbitration ruling could further damage Indonesia's image in the eyes of international investors.

Legal expert Amir Syamsudin said that Pertamina had no legal basis to seek an appeal at the Jakarta court.

The development of the power projects is crucial to help avoid an imminent power crisis in Java and Bali.

Regarding the restart of the Karaha Bodas power project, Baihaki said Pertamina would continue to persuade Karaha to recommence the project.

Karaha has refused the offer, saying that the project was no longer prospective and it wouldn't compensate the damages incurred by Karaha.

The Karaha Bodas project can be resumed now as Presidential Decree No. 39/1997, which suspended power projects, has now been lifted by the government.

The continuation of the power projects is crucial to help avoid an imminent power crisis at home.

Separately, a senior executive of the Indonesian Geothermal Association (API), Riki F Ibrahim, said in statement that the Karaha Bodas project was not professionally carried out as its budget had exceeded the internationally recognized standard limit for the development of power plants.