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.