Wed, 29 Mar 2000

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)