The Following is a Statement by Karaha Bodas Company: U.S. District Court Orders Discovery of...

Business Editors & Legal Writers

Court moves one step closer to second order of contempt

against Pertamina

The U.S. District Court for the Southern District of Texas, in an order entered on July 15, called for a period of discovery to determine if Pertamina, Indonesia's

In April 2002, the same Court issued a preliminary injunction ordering Pertamina to take no further action in Indonesia to prosecute its action seeking to annul the arbitral award and in an earlier order found the company in contempt of its temporary restraining order.

KBC filed the motion for contempt in response to Pertamina's continued prosecution of the action in Indonesia and its refusal to obey the U.S. court's orders. In addition to presenting evidence of Pertamina's actions, KBC also presented evidence that Pertamina has conspired with PLN to impede the April 2002 Preliminary Injunction.

The July 15 ruling ordered that KBC is entitled to obtain information regarding the relationship between PLN and Pertamina and the extent to which PLN has involved itself in the actions of Pertamina in the Indonesian lawsuit. The Court also ordered Pertamina to present a witness with personal knowledge of the matter to appear in the U.S. within 20 days of the July 12 Order. The Court expects to make a prompt ruling on the matter after completion of the deposition by Pertamina's witness.

"As Pertamina faces another Order involving contempt, we are pleased that Judge Atlas is taking Pertamina's actions very seriously and we are confident that the discovery process will allow for a full hearing on what is actually happening in Jakarta," stated Christopher Dugan, partner, Jones, Day, Reavis & Pogue, and chief litigator for KBC "This dispute is a cautionary tale for other companies considering investments in Indonesia. Pertamina's defiance of multiple court orders and its refusal to adjourn the illegitimate proceedings in Jakarta adds yet another chapter to what is already a long story."

About Karaha Bodas Company

Karaha Bodas Company, L.L.C. (KBC) was formed in 1994 to develop and operate two geothermal power plants on the Indonesian island of Java. KBC entered into a Joint Operating Contract with Pertamina, Indonesia's state-owned oil and gas corporation, and an Energy Sales Contract with Pertamina and PLN, Indonesia's state-owned electric utility on November 28, 1994. The goal of the project was to provide a much-needed, sustainable source of clean energy to the people of Indonesia. Prior to its suspension by order of the Government of Indonesia, KBC invested more than US$100 million dollars to identify over 400MW of geothermal energy reserves and develop infrastructure and community resources in the area surrounding the project.

Caithness Energy, L.L.C. and FPL Energy, L.L.C., a subsidiary of FPL Group, Inc., are majority owners of KBC. Caithness and FPL Energy are leading developers and operators of renewable power generation technology. The companies operate geothermal, wind and solar power generation facilities throughout the United States.

Overview of Dispute

In January 1998, former Indonesian President Suharto issued a Presidential Decree that suspended the development of numerous geothermal projects in Indonesia. Prior to the decree, KBC had spent more than US $100 million dollars to explore and develop geothermal resources in Indonesia and to construct related infrastructure including roads, housing, and electrical generation equipment.

Following the decree, PLN and Pertamina breached their contractual obligations to KBC. In the parties' contractual agreements, KBC, PLN and Pertamina agreed to settle all disputes before an international arbitral tribunal in Geneva, Switzerland, operating under United Nations rules. All parties presented their cases to the Arbitral Tribunal, which ultimately awarded KBC US$261 million in December 2000 for proven and uncontested expenditures, lost profits, and the costs and expenses of arbitration. Pertamina failed in two attempts to appeal the ruling in Switzerland. The Award was confirmed in the U.S. District Court for the Southern District of Texas in December 2001.

The international arbitration process has run its course and the appeals process has been exhausted. Despite this fact, Pertamina has refused to honor its legal obligations. In an effort to recover payment of the Award, KBC is pursuing all legal means available. Steps include legal filings in the United States, Canada, Hong Kong and Singapore to obtain and redirect Pertamina's assets to KBC until the Award is paid in full. KBC has won favorable rulings from courts in several jurisdictions; Pertamina is appealing those decisions.

On March 14, 2002 Pertamina initiated a lawsuit in the Central District Court of Jakarta, Indonesia, in an attempt to nullify the Arbitral Award and prevent other legal proceedings to enforce the Award from moving forward. The Jakarta proceedings violate both the spirit and the letter of Pertamina's contractual agreements with KBC, as well as the Arbitral Rules of the United Nations Commission on International Trade Law (UNICTRAL Rules), the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which Indonesia signed in 1981, and two U.S. court orders.

In May, courts in Hong Kong and Singapore affirmed the Swiss arbitral tribunal's award to KBC and later extended Interim Orders that freeze Pertamina assets and receivables there. The courts have postponed finalizing the Orders due to appeals by Pertamina based on technical matters that will not impact the legal merits of the case. The courts have set dates for additional hearings this summer.

In June, the U.S. Court of Appeals for the Second Circuit also upheld a freeze on approximately $275 million of over $520 million frozen in trust accounts in the name of Pertamina. 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. Appeals to determine the final disposition of the contested assets will be heard in August before the Second Circuit.

In July, The U.S. District Court for the District of Delaware upheld a motion by KBC requiring Pertamina to post a US$261 million bond satisfying the Award in full, pending the removal of a stay order in the Delaware Court. The Order provides a legal avenue whereby KBC can secure payment from Pertamina, once legal proceedings in New York and Texas are concluded. Pertamina announced that it intends to refuse to comply with the Order.

The U.S. District Court for the Southern District of Texas warned Pertamina on July 8, 2002 that pursuing efforts in the Indonesian courts to annul an international arbitral award granted to KBC could result in further sanctions to the company, including a second ruling of contempt. In an April 26, 2002 preliminary injunction, the Court ordered Pertamina to take no further steps in the illegitimate lawsuit. It found Pertamina in contempt during the same month.

Further rulings are expected in July and August.