Pertamina to abide by U.S. verdict in contract dispute
Dewi Santoso, The Jakarta Post, Jakarta
State oil and gas firm PT Pertamina said on Friday it would abide by a U.S. court's ruling and pay Karaha Bodas Co. (KBC) US$294 million in compensation for the cancellation of the latter's power project.
Pertamina finance director Alfred Rohimone said the company would not appeal the ruling.
Pertamina and the government were continuing to discuss who would pay the compensation and how the payments would be made, Alfred said.
However, "we will certainly follow the (court's) order," said Alfred.
Pertamina lost its appeal to nullify the 2000 arbitration award made to KBC in the U.S. Court of Appeals for the Fifth Circuit on March 23 and was ordered to pay $294 million in damages for the cancellation of KBC's geothermal power project in Garut, West Java.
The U.S. court ruling confirmed the arbitration ruling made earlier in 2001 by the Geneva Arbitration Court, which then ordered Pertamina to pay $261 million to KBC in compensation for the project cancellation.
KBC is owned by FPL, Caithness Energy LLC and other U.S. investors.
The project was halted by the government in 1998 as part of belt-tightening measures to cope with the economic crisis.
KBC sued Pertamina rather than the Indonesian government, which halted the project, or state electricity company PT PLN with whom it signed the power purchase agreement (PPA), because Pertamina had assets in the U.S. that could be confiscated. It had also signed a geothermal steam exploration contract with the state company.
At the request of KBC, two years ago the New York District Court ordered U.S. banks to freeze $650 worth of funds allegedly owned by Pertamina.
But, early this month, Pertamina won a U.S. court ruling ordering U.S. banks to release $360 million of the funds on the ground that the funds belonged to the Indonesian government, and not Pertamina.
KBC is one of 27 independent power producers (IPPs) that signed a power purchase agreement with PLN prior to the economic crisis. Most of the projects were suspended by the government in 1998 at the advice of the International Monetary Fund (IMF), which provided bailout funds to help Indonesia recover from the crisis.
Most of the IPPs have local partners who are politically connected to the former administration of President Soeharto. PLN's leaders have said they were "coerced" by the Soeharto administration to sign the contracts.
The suspension of the projects caused protracted disputes between the IPPs and PLN. In order to put an end to the disputes, last year, the government refused to revive 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.