RI wins arbitration hearing in power contract dispute

RI wins arbitration hearing in power contract dispute

JAKARTA (JP): International arbitrators in Paris have ruled in
favor of the Indonesian government in a power contract dispute
with American power company Florida Power and Lights, the lawyer
representing Indonesia in the dispute said on Tuesday.

However, Adnan Buyung Nasution said the panel of arbitrators
had yet to decide on the litigation filed by the company against
state electricity company PT PLN and state oil and gas company
Pertamina.

"The arbitration lawsuit filed by the company against the
Indonesian government was rejected by the arbitrators because it
was considered flawed in terms of procedures," Buyung said after
attending a seminar on the contract dispute between PLN and
independent power producers (IPPs).

Florida Power began arbitration proceedings against the
government of Indonesia for postponing a US$380 million power
project in West Java, which its subsidiary, Karaha Bodas Company
LLC., would have developed.

Karaha Bodas is one of 16 IPPs whose contracts were postponed
by the government in 1997 to cope with the economic crisis.

The company has a contract to build a 440-Megawatt (MW)
geothermal power plant in Telaga Bodas and Karaha villages in
Tasikmalaya and Garut regencies.

PLN had signed contracts with 27 IPPs, of which only 10 were
allowed to continue that year when the monetary crisis started
severely hitting the country.

Buyung said Florida Power had filed one arbitration proceeding
against the Indonesian government, PLN and Pertamina.

"Florida Power was considered to have violated the existing
procedure because it combined three different cases in one
lawsuit.

He indicated the company should have filed three different
arbitration lawsuits against the Indonesian government, PLN and
Pertamina respectively.

He said the arbitration panel further imposed a $150,000 fine
on Florida Power for having misaddressed the arbitration
proceeding to the Indonesian government.

"The decision meant that the Indonesian government has been
dropped from the case, leaving only PLN and Pertamina," Buyung
said.

He further said people at Florida Power even admitted to him
that the company had no problems with Pertamina.

He said Florida Power could hardly accuse PLN of violating its
power purchase contract with Karaha Bodas, because the
construction of its geothermal power project had not even begun
yet.

He said the next arbitrational hearing would be held in July
in Paris.

Buyung expressed optimism that PLN would win the arbitration
dispute, adding he was preparing a defense for the next hearing.

"What they (Florida Power) basically want is compensation from
PLN and Pertamina, since they couldn't get this project up and
running," Buyung said.

According to Florida Power, the company had invested $100
million of equity capital when the government postponed the
project in September 1997.

Karaha Bodas signed its energy sales contract with PLN and
Pertamina, as the law required the latter's involvement in
geothermal projects.

Karaha Bodas is 37.5 percent owned by the New York-based
Caithness, 37.5 percent by Florida Power, 5 percent by Japan's
Tomen and 10 percent by local company PT Sumarah Daya Sakti.
Sumarah is owned by independent businessmen Muhammad Bawazier and
Lodito Purwasih.

Based on their energy sales contract, a kind of purchase
agreement for geothermal power projects, PLN is required to buy
power from Karaha Bodas at between 5.6 U.S. cents and 8.4 U.S.
cents per kilowatt hour (kWh) for 30 years.

Last year, PLN lost a similar arbitration suit filed by IPP
Calenergy of the United States, which required PLN to pay damages
of $572.3 million to the company.

PLN, which was in financial difficulties due to the economic
crisis, refused to pay.

The U.S. government-owned insurance firm Overseas Private
Investment Corporation (OPIC), which insured the project, then
paid Calenergy $290 million in compensation.

OPIC is now attempting to reclaim the funds from the
Indonesian government.

Paiton last year also filed an arbitration suit against PLN,
however, both companies later agreed to seek an out of court
solution. (bkm)