Total case will spook investors: IPA
Fabiola Desy Unidjaja, The Jakarta Post/Jakarta
While the legal battle involving Total E&P Indonesie -- a local affiliate of French oil giant Total SA -- and its contractors is only in its early stages, it is already sending a bad signal about Indonesia's investment climate.
President of the Indonesian Petroleum Association (IPA) Chris B. Newton said the bankruptcy case against Total was not helping the investment climate at all, and feared it would scare away badly-needed foreign investment.
"This is not helping with the overall investment climate. Total is a large company and I am sure they have their reasons (on the case)," Newton told The Jakarta Post on Friday.
IPA groups together oil and gas contractors and service firms in Indonesia.
On Jan. 14, PT Istana Karang Laut and PT Sanggar Kaltim Jaya filed a bankruptcy petition in the Jakarta Commercial Court against Total, accusing the company of breaching a contract over a project in the Tunu field in East Kalimantan, by failing to pay US$7.2 million in claims.
A contract was signed in 2001 between Total and contractor Sanggar Kaltim, but Sanggar later subcontracted the work to Istana Karang. The block's Tunu and Peciko fields supply PT Badak NGL, one of the world's biggest LNG plants.
The contractors argued that Total was $7.2 million short in fulfilling the contract. Total is denying the claim, saying there is no substantial evidence of such debt and insisting that they have fulfilled all of their obligations to the contractors.
Newton added that investors would get confused over the fact that in Indonesia a company as large and financially-sound as Total could be declared "bankrupt" over relatively small amounts of funds.
Total SA is currently the world's second largest liquefied natural gas (LNG) producer.
"The law on bankruptcy is an issue, because it can actually declare a multi-billion dollar company bankrupt over a very small amount of money," Newton, who is also a top executive at Santos, remarked.
Oil and gas analyst Kurtubi also acknowledged the magnitude of the case, and the impact it could have on the industry as a whole. He therefore urged that the court be prudent in deciding the case, and that the country should not be prejudiced from the ongoing trial process.
"Should the court grant the (bankruptcy) petition, it should be made in such a way that it will not burden the country. It is up to the court but they have to keep in mind that this case concerns the state," he told the Post.
However, the contractors' lawyer O.C. Kaligis argued that the case should not be seen as a threat to foreign investors as all companies operating in Indonesia must abide by the law.
"This is a simple case, they owe some money that they have to pay. It is impossible for Total to stay here for so many years without benefiting from their projects," Kaligis said.