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.