Court ruling on Karaha case gives bad image to RI: Expert
Court ruling on Karaha case gives bad image to RI: Expert
Moch. N. Kurniawan, The Jakarta Post, Jakarta
The decision by the Central Jakarta District Court to annul an
international arbitration ruling on the Karaha case is against
the New York convention on the general principle of arbitration,
according to prominent legal expert Todung Mulya Lubis.
He said on Thursday that the local court ruling would further
undermine the confidence of foreign investors in the country.
"This will create a negative impact on foreign direct
investment because an international arbitration ruling has been
annulled by a local court," Todung told The Jakarta Post.
He added that the International Monetary Fund and other
international institutions would likely question the local court
ruling.
President of state oil-and-gas firm Pertamina Baihaki Hakim
said on Wednesday that the local court had annulled the
international arbitration ruling, which orders Pertamina to pay
some US$261 million in compensation to independent power producer
Karaha Bodas Co. LLC.
Karaha, which is controlled by U.S. energy firms Florida Power
and Caithness, has been seeking compensation because the
government suspended its geothermal power project in West Java in
1998 in the wake of the country's economic crisis.
The power project was signed in 1994 with state electricity
company PLN and Pertamina.
Karaha claims that it had invested some $100 million.
The arbitration ruling was issued by a Swiss-based arbitration
panel in 2000, and was confirmed by a Houston court in the U.S.
late last year.
But instead of paying the compensation, Pertamina filed an
appeal last month with the Central Jakarta District Court to
annul the arbitration rule, arguing that since the contract with
Karaha was made based on Indonesian law, any arbitration ruling
must be first confirmed by a local court before it becomes
effective.
The Bank of America (BoA) last month, under a U.S. court
order, froze around $130 million worth of funds believed to
belong to Pertamina. This is part of Karaha's campaign to collect
compensation from Pertamina.
But Hikmahanto Juwana, an expert on international law at the
University of Indonesia, said that while the Jakarta court ruling
is valid at home, it could not become effective overseas.
This means that efforts by Karaha to seize Pertamina assets
overseas cannot be stopped by a local court. But it could block
efforts to seize Pertamina's local assets.
Pertamina is estimated to have assets of more than $10
billion.
Baihaki said earlier that the Jakarta court ruling gave
Pertamina the legal grounds to refuse paying compensation to
Karaha.