Temasek the latest foreign firm to face legal woes in Indonesia

The Straits Times, November 16, 2007



TEMASEK Holdings is not the only foreign investor to become entangled in a complex web of legal uncertainties after being invited to do business in Indonesia.

Among those that have also run into trouble with Indonesia's legal institutions are Mexican cement company Cemex, US-owned power-generation company Karaha Bodas, financial services firm Goldman Sachs, and the world's largest oil firm, ExxonMobil.

Cemex's troubles began in 1998 when it bought shares in state-owned cement company PT Semen Gresik. The company later sued the Indonesian government for failing to execute the deal, under which it was entitled to eventually become a majority shareholder.

The deal could not be executed because of enormous opposition from legislators, non-governmental organisations, local cement companies, residents, religious groups and unions.

Cemex went to international arbitration but later settled with the Indonesian government and, in July last year, sold all its shares and withdrew from Indonesia.

Karaha Bodas had a contract with state oil and gas company Pertamina to explore geothermal resources.

But in 1998, Jakarta cancelled the construction of the Karaha Bodas geothermal power plant in West Java.

The company then sued Pertamina and took the matter to international arbitration with appeals filed in the United States, Hong Kong and Singapore.

All the international courts upheld the arbitration ruling awarding Karaha Bodas US$291 million (S$422 million) in compensation.

But the Central Jakarta District Court ruled in 2002 that the award was invalid under Indonesian law.

Goldman Sachs' problems began when the anti-monopoly watchdog KPPU began investigating Pertamina over the sale of two large crude carriers.

The state oil company had signed a US$130 million contract to acquire two new tankers in 2003 but, following a management reshuffle that October, decided to sell them.

Pertamina asked Goldman Sachs to help ensure the sale complied with international standards, but the KPPU later said the tender may have violated anti-monopoly laws.

It criticised Goldman Sachs for not holding an open auction, and accused it of influencing the results of the tender and charging an unusually high fee. The Indonesian Supreme Court agreed, imposing a fine of 79.71 billion rupiah (S$12.5 million) against Goldman Sachs.

ExxonMobil's dealings with Pertamina also got it into trouble. In 2000, the company bought rights to Cepu oilfield and promptly discovered large reserves that Pertamina had failed to locate in 30 years of exploration.

Indonesia then insisted ExxonMobil share its find with Pertamina in exchange for a 20-year extension of its contract over the area.

Last year, the two companies signed a joint operating deal for the field.

SALIM OSMAN