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IN RE ARBITRATION BETWEEN KARAHA BODAS COMPANY v. PERTAMINA

January 29, 2004.

In the Matter of an Arbitration Between Karaha Bodas Company, L.L.C., Petitioner, -against- Perusahaan Pertambangan Minyak Dan Gas Bumi Negara ("Pertamina"), Respondent


The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge

OPINION

On February 14, 2003 petitioner Karaha Bodas Company L.L.C. ("KBC") filed a motion seeking an order (1) directing Bank of America to transfer to KBC approximately $266 million, which was being held in certain accounts pursuant to a restraining notice; and 2) directing Bank of America to transfer to KBC certain additional funds on a monthly basis. Respondent Pertamina opposes the motion. The Ministry of Finance of the Republic of Indonesia ("the Republic") has been permitted to participate in this proceeding as a "Non-Party with Interest." The Republic also opposes the motion.

Almost simultaneously with the above motion, Pertamina filed a motion to stay execution, contending that the court should hold the proceedings brought by KBC in abeyance pending the outcome of the Page 2 underlying litigation then pending in the Fifth Circuit and the outcome of a certiorari petition to the Supreme Court from a Second Circuit decision dealing with the funds held at Bank of America.*fn1

  On April 28, 2003 the Republic filed a motion seeking the release of approximately $262 million from Bank of America accounts, claiming that those funds belonged to the Republic of Indonesia and could no longer be restrained.

  At a hearing held on May 23, 2003 the court decided certain issues raised by KBC's February motion and the Republic's April motion, but left certain issues for further consideration. No funds were actually turned over or released.

  On June 27, 2003 KBC filed a new motion, which in effect replaced KBC's February 2003 motion. The new motion refined the issues dealing with KBC's rights in funds held by Bank of America and funds passing through Bank of America, and requested an order requiring Bank of America to turn funds over to KBC. Page 3

  Facts

  KBC is a corporation located in the Cayman Islands with its center of operations in the United States. Pertamina is an Indonesian state-owned oil and gas company. KBC and Pertamina entered into contracts in 1994 for a joint venture involving the development of facilities in the Karaha area of West Java. In 1997 the projects were suspended as a result of Indonesian government decrees. This termination of operations led KBC to seek arbitration in Switzerland for breach of contract by Pertamina.

  On December 18, 2000 the arbitral panel made an award of $261.1 million to KBC against Pertamina. On December 4, 2001 the award was confirmed by the U.S. District Court for the Southern District of Texas, and judgment was entered in that court for $261.1 million. Pertamina has appealed that judgment to the Fifth Circuit, and that appeal is still pending. Pertamina declined to file a supersedeas bond under Fed.R.Civ.P. 62(d), and therefore there is no stay of execution.

  Wholly apart from the contracts with KBC, Pertamina's business activities involved the marketing of oil and gas products. It had at times carried this out through joint ventures with private contractors, pursuant to agreements known as Production Sharing Contracts. The sales proceeds of Page 4 some of these ventures were channeled through trust accounts held in Pertamina's name at Bank of America and the Bank of New York. A total of twenty-four such accounts are at issue in this proceeding.

  The court has heard extensive evidence regarding fifteen of these accounts, all at Bank of America, now referred to as the "adjudicated accounts." These bear the names of the joint venture projects in Indonesia.

  • Arun III

  • Bes MCGC

  • Bontang V

  • Bontang VI

  • Arun II

  • Bes AQP

  • Bontang II

  • BLPG PKG V

  • BLPG PKG VII

  • BES Korea II

  • BES KCO

  • Bontang III

  • Bontang IV

  • East ...


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