Karaha Bodas Company

cancelled

The Karaha Bodas Company (KBC) was a joint venture among Caithness Energy of Switzerland (40%), Florida Power and Light of the U.S. (40%), Tomen Corporation of Japan and PT Sumarah Daya Sakti of Indonesia for a geothermal project in West Java. The company entered into contract with Pertamina, the state-owned energy company, for the 400 MW Karaha Bodas project in 1994. Total cost of the project was estimated at $400m. The project had a 30 year power purchase agreement, which should have run from 1998 to 2028. The power purchase agreement was with PT Perusahann Listrik Negara (PERSERO). The project was postponed in September 1997 following the Asian financial crises. In 1998, KBC filed for arbitration in Switzerland under International Trade Law rules claiming that the Indonesian government had breached the contract when it postponed the project. Construction of the expected 400 MW plant itself had yet to begin, but KBC claimed to have invested US$100 million on site preparation. In December 2000, KBC was awarded US$261 million against Pertamina by Swiss arbiters working under the U.S. Commission on International Trade Law rules. The arbitration award was later confirmed by a U.S. federal court in Houston, Texas. The Indonesian government; however, still refused to pay and later appealed to the Houston court to prevent enforcement of the award. KBC later filed suit in Houston to seize Pertamina's assets worldwide due to Pertamina's continued refusal to pay. In December 2001, the Houston court agreed with KBC and upheld the original $261 million ruling against Pertamina. In response, Pertamina filed a lawsuit in Jakarta in mid-March 2002 in an effort to stop KBC from collecting payment. In late March, the Houston court agreed that Pertamina's actions were improper and ordered it to withdraw its request to the Indonesian court. Pertamina refused, and the Indonesian court subsequently imposed a fine of $500,000 a day on KBC payable to Pertamina. KBC later asked the Houston court to hold Pertamina in contempt for its failure to withdraw the request from the Indonesian court. In April 2002, the U.S. District Court in Houston issued a contempt order against Pertamina for violating a U.S. court order. A New York District Court also ordered U.S. banks to freeze funds worth US$650 million owned by Pertamina and the Indonesian government. Pertamina appealed the court decision. In addition, the firm launched a lawsuit in the Central Jakarta District Court to nullify the arbitration ruling. In May 2004, Pertamina lost an appeal in a U.S. court, clearing the way for Karaha Bodas Co. (KBC) to get US$290 million in damages for the canceled power project. In July 2004 Pertamina appealed a Hong Kong court decision to freeze assets of foreign subsidiaries of Pertamina located in Hong Kong. The US Supreme Court ruled against Pertamina in October 2004. In November 2004 the Indonesian tax office accused KBC of failing to pay taxes and penalties of US$180 million and arrested KBC executives. The Indonesian Supreme Court ruled against Pertamina in November 2004, overturning the ruling by the lower Indonesian court, finding that the lower court had no “authority to examine and adjudicate” the dispute. By August 2005, the debt and penalties had swelled to US$307 million, at which point Pertamina offered to settle the case for US$50 million. In August 2005 a Singapore appeals court upheld a lower court ruling for KBC to pay Pertamina US$36 million for losses entailed in the seizure of assets. None None