Court rejects arbitration ruling on Karaha

Court rejects arbitration ruling on Karaha

Johannes Simbolon, The Jakarta Post, Jakarta

The Central Jakarta District Court overruled Thursday an
international arbitration panel's decision ordering state oil and
gas company Pertamina to pay US$261 million compensation to
independent power producer Karaha Bodas Company (KBC)

Reading out the verdict, presiding judge Heri Suwantoro said
the panel of judges found that the Switzerland-based arbitration
panel had overstepped its authority in ordering Pertamina to pay
compensation.

Heri said that based on the UN Convention on the Recognition
and Enforcement of Foreign Arbitral Award, also known as the New
York Convention, which Indonesia had ratified, an Indonesian
court had the right to overrule the arbitration ruling.

Pertamina was ordered by a panel of arbitrators in Geneva in
2000 to pay KBC a total of $261.1 million in compensation
following the suspension of its geothermal power project in the
Telaga Bodas area in West Java in 1998. The amount comprises
$111.1 million in expenses plus interest and $150 million in
losses of potential profit.

KBC is controlled by Florida-based FPL Group Inc. and
Caithness Energy LLC of New York, in a partnership with the local
firm PT Sumara Daya Sakti, which is linked to Tantyo Sudharmono,
the son of former vice president Sudharmono.

The project was suspended by former president Soeharto's
government as part of an agreement with the International
Monetary Fund.

But, KBC filed the arbitration proceedings against Pertamina,
because it signed the contract with the state company as the
holder of authority at the time over the country's geothermal
resources.

Pertamina unsuccessfully filed two appeals in Switzerland
before going to the local court in its efforts to block the
Geneva verdict. The government and the House of Representatives,
who considered the amount of compensation as too high, supported
Pertamina.

KBC, meanwhile, has filed numerous lawsuits in the United
States, Canada, Singapore and Hong Kong to confiscate Pertamina's
assets in those countries.

The company has actually received $75 million compensation
from insurance firm Lloyd's of London, but has vowed to continue
the legal battle.

Pertamina has reportedly tried to solve the dispute out of
court, persuading the firm to resume the project, but KBC is no
longer interested in the project.

Pertamina's lawyer Simson Pandjaitan told reporters after the
court session that Pertamina was satisfied with the verdict and
expected that it would be taken as a reference by all the foreign
courts now examining the case.

In a statement, KBC's lawyer Rambun Tjajo regretted the
verdict, saying it had no legal foundation as only the Swiss
courts had the right to annul the arbitration ruling.