U.S. court rules in favor of Pertamina

U.S. court rules in favor of Pertamina

Moch. N. Kurniawan, The Jakarta Post, Jakarta

State-owned oil and gas company Pertamina said on Monday it had won a United States court ruling to release assets frozen by two U.S. banks there in its latest legal battle against independent power producer Karaha Bodas Co. LLC.

Pertamina spokesman Ridwan Nyak Baik said Pertamina, along with the Indonesian government, had proven to the U.S. court that the assets were mainly owned by the government.

"We have succeeded in releasing 95 percent of the frozen assets under the U.S. court order as we could prove the assets were owned by the government.

"We still have to prove that the remaining assets were also owned by the government, not us (Pertamina)." he told The Jakarta Post.

Bank of America and Bank of New York recently froze assets worth US$200 million assumed to belong to Pertamina at Karaha's request.

Karaha is mainly controlled by two U.S firms, Florida Power and Caithness.

Pertamina and Karaha have been involved in a serious legal dispute here and in the U.S. following the government's decision to suspend the Karaha geothermal power project in West Java in 1998.

The 400 Megawatt Karaha geothermal power project was started in 1994 when Pertamina, Karaha and state electricity company PLN entered into a contract.

But the government postponed the Karaha project, along with 26 other IPPs projects, as part of efforts to help PLN weather the economic crisis sparked by sharp depreciation of the rupiah against the U.S. dollar starting in the middle of 1997.

Under the contract, PLN has to pay for power supplied by the IPPs in dollars, while it generates revenue in rupiah.

The government said all power project contracts had to be renegotiated.

However, Karaha, which had invested some $100 million prior to the suspension, rejected the offer and filed for arbitration at the Switzerland-based international arbitration court.

In December 2000, the arbitration panel ruled in favor of Karaha, ordering Pertamina and PLN to pay $261 million in compensation to the company.

After a U.S. court ruled to enforce the arbitration award in December last year, Karaha started a campaign to seize Pertamina's assets around the world.

But Pertamina, refusing to pay the compensation, filed a lawsuit in a Jakarta court to annul the enforcement ruling. During the process, Pertamina tried to persuade Karaha to end its legal battle and restart the power project. But, the company rejected the plea.

Pertamina won the Jakarta court ruling last month.

Ridwan said Pertamina expected the latest U.S. ruling would prompt Karaha to change its mind and finally agree to recommence its power project.

"The project still has good prospects as our country needs more power to avoid power shortages in the future," he said.

The government has issued a decree that allowed the IPPs to continue their power projects including the Karaha project.

Some areas outside Java and Bali have suffered power shortages, while it is projected that Java and Bali will suffer shortages in 2006.