US Court of Appeals upholds freeze of Pertamina assets over Karaha Bodas case

The US Court of Appeals on Thursday upheld a freeze on approximately $275 million of more than $520 million frozen in trust accounts of Pertamina, Indonesia's state-owned oil company, according to Karaha Bodas, a geothermal firm embroiled in a dispute with Pertamina over a suspended project.

In doing so, the court denied a motion by the government of Indonesia, which had argued for the release of 95 percent of the frozen funds. The decision represents another in a series of legal victories for Karaha Bodas Company (KBC) and upholds the rulings of the lower court.

KBC originally restrained the funds in an effort to secure payment on a $261 million arbitral award, which was issued by an international tribunal operating under United Nations rules, to resolve the contractual dispute with Pertamina. To date, Pertamina has refused to pay the award, despite its confirmation by courts in the US, Hong Kong and Singapore. Appeals to determine the final disposition of the contested assets will be heard in August before the Second Circuit.

"By maintaining the freeze, the court has provided KBC with a clear path to secure fair and final payment," Christopher Dugan, chief litigator for KBC said in a press release.

The dispute centers on Karaha, which is principally backed by US companies FPL Energy and Caithness Energy, entering into contracts with Pertamina and another local company in 1994 to develop the Karaha Bodas geothermal project in Indonesia.

Despite the power producer investing some $100 million, the plug was pulled on the project four years down the line, prompting the company to turn to the international arbitrators.

In February 2002, KBC served restraining notices on The Bank of New York and Bank of America, which serve as trustees for Pertamina and a number of its production sharing partners.

The banks initially restrained more than $170 million in accounts containing revenue created from Pertamina's sale of liquefied natural gas.

Pertamina and the government of Indonesia opposed the restraining notices, claiming that the funds belong to the government of Indonesia. In April this year, the US District Court for the Southern District of New York ruled that KBC is entitled to seize what is known as Pertamina's 'Retention Fee', which may represent as much as 20 percent to 30 percent of the frozen funds, while the government of Indonesia has a property interest in the remaining funds.

The court order prevents removal of funds in the accounts but does not impact incoming revenue payments. (robert)