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.