Pertamina wins right to battle U.S. investors in RI
Pertamina wins right to battle U.S. investors in RI
Tom Wright, Dow Jones, Jakarta
A U.S. court has ruled it has no authority to stop state oil and gas company Pertamina from using Indonesian courts in a dispute with a group of American investors over a failed geothermal energy project.
The ruling is unlikely to impede efforts in the U.S. courts by Karaha Bodas Co., a partnership controlled by Florida-based FPL Group Inc. (FPL) and Caithness Energy LLC of New York, to collect US$261.1 million in compensation from Pertamina.
Still, the decision illustrates how foreign courts are powerless to force Indonesia's legal system to uphold international arbitration awards, lawyers said.
These awards - such as the one awarded to Karaha Bodas in 2000 by a Swiss panel of experts - attempt to adjudicate contractual disputes.
In the ruling, publicized by Pertamina Friday, the 5th U.S. Circuit Court of Appeals in New Orleans annulled an earlier decision by a U.S. District Court in Texas that blocked Pertamina from using the Indonesian court system in its dispute with Karaha Bodas.
The Court of Appeals "properly held that there was no need or legal basis to interfere in the proceedings in Indonesia," said Matthew Slater, a lawyer with Cleary, Gottlieb, Steen & Hamilton in Washington D.C., Pertamina's attorneys.
Karaha Bodas has been trying to force Pertamina to drop legal proceedings in Indonesia, arguing its contract with the oil and gas company to build a geothermal project in West Java stated that any dispute go to international arbitration in Switzerland.
The project fell apart in the wake of the 1997-98 Asian financial crisis, and in December 2000, the Swiss arbitration panel ordered Pertamina to pay Karaha Bodas $261.1 million for money invested and lost revenue.
Pertamina refused to pay the amount, claiming the arbitration process was flawed, and began fighting the ruling in the Indonesian court system. The Jakarta Central District Court in August last year annulled the Swiss award.
Failure by Indonesian companies to keep to agreements to go to arbitration since the regional crisis is a major deterrent to potential foreign investors, lawyers say. Investors have little faith in the local court system, and has failed to uphold international arbitration awards against local companies.
Karaha Bodas, whose legal home is in the Cayman Islands, is also fighting in the U.S. courts to force Pertamina to pay the arbitration award. These efforts were not affected by the Court of Appeals ruling, lawyers said.
So far, U.S. courts have ruled mainly in favor of Karaha Bodas, blocking just under $400 million of Pertamina's funds held in bank accounts in New York. A district court in New York is set to rule later this year on Karaha Bodas' claim that these funds should be used to pay the award. Pertamina claims that the funds are the property of the Indonesian government.