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.