Tactics to delay settlement of dispute will eventually backfire

Tactics to delay settlement of dispute will eventually backfire

Todung Mulya Lubis, Jakarta

When Susilo Bambang Yudhoyono's administration took over the
government, one of the items in its first-100-day agenda, as put
forward by Coordinating Minister for the Economy Aburizal Bakri,
was to settle the Karaha Bodas and Cemex cases. One of the
Cabinet members told me privately that aside from these two
cases, the Newmont case was also included in this first-100-day
working agenda of the United Indonesia Cabinet. The first 100
days have long passed, but none of these cases have been settled.
What is really going on here?

I'm afraid there is something wrong in the way the government
views the cases involving Karaha Bodas, Cemex and Newmont. The
government has shown no sense of urgency and, unfortunately, this
absence of a sense of urgency is also found in our judicial and
semi-judicial institutions.

Just take a look at what has happened to the case involving
the sale of two Pertamina's supertankers, which the Business
Competition Supervisory Commission (KPPU) has found to be in
violation of Law No. 5/1999 on the ban on practices of monopoly
and unhealthy business competition. In this context, we fail to
see the KPPU realize that there was really an urgent need to sell
the two supertankers because if Pertamina had been a little late
in selling these supertankers, Karaha Bodas would have seized
them.

Indeed, the supremacy of the law must be enforced. However, in
business cases, a good understanding of business realities is a
necessity as this will make the law actual and relevant. If you
approach business cases only in the spirit of the law, you are
bound to be misled because this will only complicate the
settlement of these cases.

Ideally, we all should have an economic legal paradigm that
is responsive not only to the supremacy of the law but also to
economic realities. It is in this context that I have repeatedly
called for the government to seek a win-win settlement. I'm
convinced that all businessmen who are in pursuit of business
opportunities will keep their doors wide open for a win-win
business settlement.

The only thing that matters here is that time is very
important. People always say that "time is of the essence", which
implies that once we are too late, it is highly likely that a
win-win settlement will be out of reach. I'm afraid the
government has begun to lose this time.

Pertamina's defeat is also the government's. The world knows
that Pertamina has always been a government-owned enterprise.
Therefore, the government is indeed required to take swift action
to settle this case. The arbitration ruling that decided that
Karaha Bodas won the case is final and binding. No legal attempt
can revoke this ruling even if Law No. 30/1999 on arbitration
gives room for this.

In the context of international arbitration, it is very
difficult for a state that loses a case to suddenly revoke the
arbitration ruling even if this is done through a court of law.
The only way to contest it is to fight in the arbitration
proceedings, something that Pertamina, alas, failed to do. My
conclusion is that Pertamina's defeat was not attributable to the
company's weak legal position but, rather, because Pertamina had
not gone out of its way to fight.

It was strange, indeed. Pertamina should have made the
cancellation of a geothermal power plant caused by the regional
economic crisis a justification that would strengthen its legal
position. In addition, alleged practices of corruption, collusion
and nepotism in this project should have been exposed as a very
effective means of defense.

The negligence during this arbitration had to be paid for
dearly with a defeat with a very devastating implication,
particularly because Pertamina, as a result, cannot freely do
business overseas. The fact that several of Pertamina's accounts
in overseas banks have been blocked shows huge losses and these
losses will be bigger taking into account the legal fees for the
foreign attorneys hired by Pertamina. That is why there is no
other option but to thoroughly settle this Karaha Bodas case.
Unfortunately, even today this case is still not settled.

It is very difficult to understand the policy of the
government, which, reportedly, will probe into the graft and tax
manipulation in Karaha Bodas. I am not saying that Karaha Bodas
is corruption free and does not have any tax arrears. All this
may be correct. The question is why didn't this probe start much
earlier? If the probe into the graft and tax manipulation had
been conducted prior to or during the arbitration process, the
finding could have been used to show to the arbitration court
that Karaha Bodas was indeed a problem-embroiled company. Karaha
Bodas could also have been held responsible for violating the
Foreign Corrupt Practices Act.

Reportedly, Karaha Bodas has manipulated its taxes in huge
amounts and if this amount is compared with the damages that
Pertamina has to pay, the government's financial burden can
surely be significantly alleviated. Here the government wishes to
resort to a set-off.

I cannot imagine where this shallow idea has come from. Does
the government not realize that Karaha Bodas and the arbitrators
will see all this as something "post factum" in nature and very
likely to be caused by Pertamina's defeat in the arbitration
court?

With all due respect for the efforts that government has made,
I must state again that the government will again fail in its
attempt to bring Karaha Bodas to any settlement if the
perspective of the settlement remains what we witness now. It is
almost certain that Karaha Bodas will never respond to the
government's attempt. I'm afraid that all the government's
efforts now will be pointless.

I have said earlier that time is of the essence. It is now
time for the government to think in terms of practical business
solutions. Rather than having to sustain bigger losses, the
government has to resort to the only business solution left, one
that gives compensation to Karaha Bodas to enter this country and
get a bite of the business project cake here.

The government's liabilities to Karaha Bodas can be reduced
only by allowing a little concession to Karaha Bodas. The other
fact is that the Karaha Bodas case is a very dear lesson for
anybody wishing to face an arbitration process either at home or
abroad.

The writer is an international business legal consultant.