Pertamina loses U.S. appeal against Karaha Bodas

Pertamina loses U.S. appeal against Karaha Bodas

The Jakarta Post, Jakarta

State oil and gas company Pertamina has lost an appeal in a
U.S. court, clearing the way for Karaha Bodas Co. (KBC) to get
US$290 million in damages for a canceled power project.

In a judgment filed March 23, the U.S. Court of Appeals for
the Fifth Circuit threw out Pertamina's bid to nullify the 2000
arbitration award made to KBC, which is owned by
FPL, Caithness Energy LLC and other U.S. investors.

In 2001, the Geneva Arbitration Court ordered Pertamina to pay
$261 million in compensation to KBC for canceling KBC's
geothermal power project in Garut, West Java. The government
halted the project in 1998 as part of belt-tightening measures to
cope with the economic crisis.

KBC subsequently asked several district courts in the U.S.,
Hong Kong and Singapore to confirm the arbitration ruling. It
raised its claim to $290 million after taking interest into
account. All the district courts upheld the arbitration ruling.

While confirming the arbitration ruling, the New York District
Court also ordered U.S. banks to freeze funds worth $650 million
owned by Pertamina and the Indonesian government.

Pertamina appealed the court decision. In addition, the firm
launched a lawsuit in the Central Jakarta District Court to
nullify the arbitration ruling.

The Central Jakarta District Court ruled in favor of Pertamina
in 2002, saying that the arbitration award was not valid under
Indonesian law.

However, Bloomberg reported on Thursday that the U.S. Court of
Appeals rejected the argument that the Indonesian court had the
power to nullify the award, saying that Pertamina had agreed to
be bound by Swiss arbitration and had lost an appeal in the Swiss
courts.

"We reject Pertamina's efforts to delay or avoid enforcement
of the award as evidencing a disregard for the international
commercial arbitration procedure it agreed to follow," the U.S.
Court of Appeals said.

Pertamina's spokesman was not available on Thursday for
comment.

The verdict came several weeks after Pertamina won a U.S.
court ruling ordering U.S. banks to release $360 million of the
$650 funds frozen at the request of KBC on the grounds that the
funds belonged to the Indonesian government rather than
Pertamina.

KBC is one of the 27 independent power producers (IPP) that
signed power purchase agreements (PPA) with state electricity
company PT PLN prior to the economic crisis. As far as KBC is
concerned, it signed a PPA with PLN and a contract with Pertamina
for the exploration of geothermal resources. Pertamina then held
the authority over geothermal resources, as well as oil and gas
resources.

Most of the projects were suspended after the economic crisis,
causing protracted disputes between the independent power
producers and PLN. In order to put an end the disputes, last year
the government revived all the projects, but KBC refused to
revive its project, and instead opted for legal recourse.

The Indonesian government has also asked the U.S. government
to help mediate an out-of-court settlement in the dispute between
Pertamina and KBC, but to date with no results.