Total faces bankruptcy petition by contractors

Total faces bankruptcy petition by contractors

Fabiola Desy Unidjaja, The Jakarta Post, Jakarta

Total E&P Indonesie, a local affiliate of the world's second
largest liquefied natural gas producer, Total SA, is refusing to
recognize a US$7.2 million claim against it brought by former
contractors despite there attempt to have the company declared
bankrupt.

With bankruptcy proceedings against Total entering their
second day on Wednesday, Total lawyer Todung Mulya Lubis argued
that the Commercial Court had no legal basis to hear the case,
citing a lack of evidence that Total had failed to pay the
contractors what was due to them.

"The dispute concerns the question of whether liability
extends to my client or not. Total has fulfilled all of its
obligations to the contractors," Todung told reporters.

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 to
build platforms and gas processing plants in the Tunu field in
East Kalimantan.

The $19 million 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.

During the construction, Total and Sanggar agreed on and
signed several addenda revising the contract price as technical
difficulties in the field often required changes to the original
budget.

By 2003, Todung said, Total had paid the contractors a total
of $25 million, or $6 million more than the originally agreed
amount.

However, the contractors continued to asked for more money,
claiming that further price adjustments were necessary, Todung
said.

"At that point, we refused to pay any more," he said.

In an attempt to resolve the dispute, the two sides invited
the Oil and Gas Upstream Regulatory Agency (BP Migas) to mediate
-- which later appointed the Development Finance Comptroller
(BPKP) to conduct the audit on the project.

Total agreed to the audit, but set a number of conditions,
including a refusal to acknowledge any contractual relations
with Istana Karang Laut as the later had been contracted by
Sanggar, not Total. Total stressed also the importance of
acknowledging that it had covered all the costs initially agreed
to.

The BPKP concluded its audit and declared that Total had to
pay some $7.2 million to the contractors -- the amount on which
the current bankruptcy proceedings are based.

The plaintiffs are asking the court to confiscate the project
and two Total office buildings in Jakarta and Balikpapan, East
Kalimantan.

Todung said that the court's decision would have a crucial
impact on how international investors viewed the country's
investment climate.

In the middle of last year, the Supreme Court overturned a
lower court ruling that suspended the business of Prudential
Plc.'s Indonesian insurance unit, Prudential Life Assurance,
following a prolonged financial dispute.

The case was the second time in as many years that an insurer
had been temporarily shut down in a financial dispute that gave
rise to bankruptcy proceedings despite the company's solid
financial performance.

In 2002, Manulife Financial Corp.'s Indonesian unit was
declared bankrupt by the court, although this decision was also
later overturned on appeal.