INDONESIA'S 2008 SUBMISSION FOR 527 REPORT ON INVESTMENT

UNCLAS JAKARTA 001145

SIPDIS
SENSITIVE

DEPT FOR EAP/MTS, EB/TPP, EB/TPP/BTA
COMMERCE FOR NSHALIZEH
USTR FOR KELHERS
TREASURY FOR IA-BAUKOL

E.O. 12598: N/A
TAGS: CASC EINV KIDE ECON OPIC PGOV ID
SUBJECT: INDONESIA'S 2008 SUBMISSION FOR 527 REPORT ON INVESTMENT
DISPUTES AND EXPROPRIATION CLAIMS


1. (SBU) Below please find Post's 2008 submission pursuant to the
requirements of Section 527 of the FY 94-95 Foreign Relations
Authorization Act (FRAA).


2. (SBU) 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.

(A) Claimants: A, B and C

(B) September 1997 and January 1998

(C) Case History:
(i) Claimants A, B and C are joint investors in a project
company (Claimant A). Claimant A entered into contracts with
Government of Indonesia-owned (GOI) companies Claimant B and
Claimant C, to construct, and provide electricity from, a geothermal
power plant. After the GOI cancelled the power plant project,
Claimant A filed for international arbitration against Claimant B.
In December 2000, an international arbitration panel in Geneva,
Switzerland awarded Claimant A $261 million plus interest for the
lost investment and potential future profits. Between December 2000
and June 2003, Claimant A succeeded in freezing approximately $600
million of liquefied natural gas (LNG) revenues deposited in
Claimant B and GOI trust accounts in New York. Claimant B
appealed.

(ii) In January 2004, the US District Court for the Southern
District of New York defined which funds Claimant A was entitled to
receive out of Claimant B's frozen bank accounts. The Court also
denied the release of other frozen funds belonging to the GOI. In
March 2004, the Fifth Circuit denied Claimant B's request to nullify
the original arbitration award, which had grown to approximately
$294 million including interest. Claimant B indicated publicly in
April 2004 that it would pay the award, but began talks with the GOI
to share in that payment.

(iii) In May 2004, the Indonesian police began to summon and
question former Claimant A employees and ex- Claimant B officials
involved with the project. Investigators from the anti-corruption
squad of the national police suggested corruption was suspected in
the business dealings between Claimant B and Claimant A. Two former
Claimant A employees (one US citizen and one Indonesian national)
complained to Post of police intimidation. The US citizen and
family departed Indonesia as a result of a police summons. The
police have not made any arrests in connection with the
investigation.

(iv) In March, 2006, the U.S. Court of Appeals for the Second
Circuit issued an order affirming the District Court's November 19,
2004 judgment against Claimant B. The Court of Appeals said that
because the presumption that Claimant B owns the refinery funds
situated in Bank of America is unrebutted, the District Court
correctly held that those funds belonged to Claimant B, rather than
to the GOI, and ordered the Bank of America to turn over the balance
of the underlying money judgment to Claimant A.

(v) On March 16, 2007, Claimant B abandoned its attempt to
have a Cayman Islands court intervene in the dispute. Claimant B's
Managing Director told reporters after the verdict that the company
will respect the court's decision. With accrued interest, Claimant
B currently owes Claimant A $319 million.

(vi) In June 2008, the GOI announced that it found new
evidence of a markup of Garut Power Plant project capacity in West
Java. Minister of State Owned Enterprises Alexander Rusli submitted
the evidence to the U.S. Supreme Court and expects the case to be
re-opened. GOI officials described the markup as "significant" but
declined to make details publicly available.


3. (SBU) Claimant A: Karaha Bodas Company (KBC); Claimant B:
Pertamina; Claimant C: PLN Persero.

HUME