RI not ready to face arbitration court: Experts

Fitri Wulandari, The Jakarta Post , Jakarta

Legal experts lamented the lack of awareness evident among many government officials and even the corporate community about the international arbitration court, which now plays a greater role in resolving commercial disputes.

The recent loss suffered by state-owned oil and gas company PT Pertamina in a protracted legal battle with American power producer Karaha Bodas Co. came as the government faces another major battle at an international arbitration court, along with other similar cases.

The legal battles will be costly for the cash-strapped government, especially if it loses its cases.

"I am concerned that many people in Indonesia who claim to be aware of arbitration clauses, in fact, do not really understand them," lawyer Todung Mulya Lubis told The Jakarta Post over the weekend by phone.

"They only become aware when they lose the case, even though nowadays, an arbitration court is a common tool to resolve commercial disputes," he added.

He stressed that solid preparations were essential in facing an international arbitration court, because its procedures were more rigid than those of local courts.

"One cannot bribe the arbitration court and must abide by its ruling," said Todung, who is also an international arbiter for the Paris-based International Chamber of Commerce.

Meanwhile, lawyer Luhut Pangaribuan said ignorance of the workings of international arbitration was exemplified in the general belief among businessmen that an international arbitration ruling did not have jurisdiction over Indonesia and thus could not be executed.

"Arbitration court ruling can be executed in any country," Luhut said.

He urged companies to be well prepared when signing business contracts based on arbitration clauses, as their assets could be seized if they lost at the international arbitration court.

Pertamina lost its case against Karaha at the Geneva Arbitration Court in 2001, when the court ruled against Pertamina for a breach of contract and ordered it to pay Karaha US$261 million in compensation for canceling Karaha's local power project following the 1997-1998 financial crisis.

Karaha then filed a motion at a U.S. court to freeze Pertamina's cash assets at U.S. banks, which Pertamina countered by requesting an Indonesian court to nullify the arbitration ruling and by appealing to the U.S. court.

On March 23, Pertamina lost its appeal and finally agreed late last week to compensate Karaha as ruled by the international arbitration court.

Pertamina's loss came as the government faces another arbitration case involving Mexican cement maker Cemex S.A., which was not awarded a controlling stake in state-owned cement giant PT Semen Gresik as agreed in a 1998 privatization deal with the government.

Nine mining companies that have been banned from resuming operations in a protected forest are also planning to file a litigation at an international arbitration court in what could be a multibillion-dollar lawsuit against the government.