VZCZCXYZ0001
PP RUEHWEB

DE RUEHJA #6335/01 1390123
ZNR UUUUU ZZH
P 190123Z MAY 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 4475
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS JAKARTA 006335 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA JROSELI, L/CID EDAUGHTRY 
 
E.O. 12958: N/A 
TAGS: EINV CASC KIDE OPIC PGOV ID
SUBJECT: INDONESIA 2006 SECTION 527 INVESTMENT DISPUTES 
REPORT 
 
REF: SECSTATE 60294 
 
¶1.  As requested in reftel, the following is post,s 
submission for the Department,s annual Section 527 report to 
Congress on U.S. citizen expropriation claims and other 
investment disputes involving foreign governments/economies. 
This cable updates post,s 2005 submission. 
 
¶2.  The United States Government is aware of one (1) claim of 
United States citizens against the Government of Indonesia 
(GOI).  This case occurred in the power industry and was the 
direct result of the 1997-1998 Asian financial crisis. 
 
---------- 
Power Case 
---------- 
 
¶3.  a. Claimants A - B 
 
b.  September 1997 and January 1998 
 
c.  Status of case: Claimants A and B are joint investors in 
a project company called the Karaha Bodas Company (KBC).  KBC 
entered into contracts with Pertamina and PLN Persero, 
companies wholly owned by the GOI, to construct, and provide 
electricity from, a geothermal power plant.  After the GOI 
cancelled the power plant project, KBC filed for 
international arbitration against Pertamina.  In December 
2000, an international arbitration panel in Geneva, 
Switzerland awarded KBC $261 million plus interest for the 
lost investment and potential future profits.  Between 
December 2000 and June 2003, KBC succeeded in freezing 
approximately $600 million of liquefied natural gas (LNG) 
revenues in GOI and Pertamina trust accounts in New York.  A 
lengthy appeal process by Pertamina ensued. 
 
In February 2003, the GOI asked the US Government to file a 
Statement of Interest in its appeals before the US Courts of 
Appeal for the Second and Fifth Circuits.  The Department of 
State replied that the US Government had found no compelling 
interest in this private legal dispute between Pertamina and 
KBC.  The State Department recommended that Pertamina and KBC 
enter into negotiations to resolve the dispute and offered to 
facilitate a meeting between the parties. 
 
In January 2004, the US District Court for the Southern 
District of New York defined which funds KBC was entitled to 
receive out of Pertamina,s frozen bank accounts.  The Court 
also denied, for the time being, the release of other frozen 
funds belonging to the GOI.  At the same time, the Indonesian 
Energy Minister requested that the Department of State 
facilitate a KBC-Pertamina meeting to discuss an out-of-court 
settlement.  The State Department arranged for both parties 
to meet in February 2004; those discussions did not lead to a 
settlement of the dispute.  In March 2004, the Fifth Circuit 
denied Pertamina,s request to nullify the original 
arbitration award, which had grown to approximately $294 
million including interest.  Pertamina indicated publicly in 
April 2004 that it would pay the award, but began talks with 
the GOI to share in that payment. 
 
In May 2004, the Indonesian police began to summon and 
question former KBC employees and ex- Pertamina officials 
involved with the project.  Investigators from the national 
police,s anti-corruption squad indicated that corruption 
long had been suspected in the business dealings between 
Pertamina and KBC.  Two former KBC employees (one US citizen 
and one Indonesian national) have contacted post to voice 
their concerns over police intimidation as it attempts to 
develop a corruption case against the two companies.  The US 
citizen departed Indonesia as a result of the police summons. 
 When his family also received a summons, he arranged for his 
family to depart Indonesia.  The police have yet to make an 
arrest in connection with the investigation.  Separately, a 
senior GOI official told us on May 28 that Pertamina lacks 
the funds needed to pay the arbitration award.  The official 
indicated that Pertamina would likely seek to have the US 
Supreme Court hear the case. 
 
In March, 2006, the U.S. Court of Appeals for the Second 
Circuit issued a &Minute Order8 affirming the district 
court,s November 19, 2004 judgment against Pertamina.  The 
Court of Appeals said that because the presumption that 
Pertamina owns the refinery funds situated in Bank of America 
is unrebutted, the district court correctly held that those 
funds belonged to Pertamina, rather than to the GOI, and 
ordered the Bank of America to turn over the balance of the 
underlying money judgment to KBC.  Because the appellants may 
seek review of the 2d Circuit,s ruling in the Supreme Court, 
 
the Second Circuit denied KBC,s motion of July 5, 2005, to 
vacate the district court,s stay of execution and turnover. 
 
¶4.  List of Claimants: 
 
¶A.  Florida Power and Light 
¶B.  Caithness Energy 
 
(Note: none of the above claimants has signed a privacy act 
waiver.) 
PASCOE