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RI at risk of arbitration by Chevron

US energy giant Chevron Corporation is mulling to take the government to an international arbitration court following a verdict by the Corruption Court on Wednesday that slapped a prison term on one of its employees for fabricating an environment project.

Chevron legal counsel Todung Mulya Lubis said the company “might enter arbitration court” given the country’s poor legal environment that had exacerbated the already pervasive legal uncertainty for businesses.

“Arbitration court is being mulled as there has been a contract violation. The case was supposed to be settled in the administrative court but the authorities took it to criminal prosecution,” he said.

Chevron is Indonesia’s largest crude oil producer with a production average of 300,000 barrels per day (bpd), or around 40 percent of the nation’s total oil output.

The Jakarta Corruption Court handed down a two-year prison term to Kukuh Kertasafari, an executive with Chevron’s local unit, PT Chevron Pacific Indonesia, for failing to uphold prudent principals in determining 28 locations in Riau as oil-polluted areas eligible for undergoing the so-called bioremediation program.

Bioremediation, conducted between 2006 and 2011 by the company, is a method in which metabolic microorganisms are used to remove pollutants for environmental conservation.

“The decision to select the areas violated an Environment Ministry regulation as the areas were not contaminated,” presiding judge Sudharmawati Ningsih said.

Sudharmawati argued that Kukuh had falsely declared the locations without proper examination after an expert team from the Attorney General’s Office (AGO) found that the areas were not in any way contaminated.

The corruption charge was brought upon as the state reimbursed costs claimed by Chevron for the production of its oil and gas under the so-called cost-recovery scheme. Therefore, any irregularities in the claims could lead to prosecution by law enforcement agencies.

Total E&P Indonesie president director Elisabeth Proust said the Chevron case was “a serious problem” that would send jitters to other oil and gas companies.

“Any form of criminalization toward the production-sharing contract (PSC) is a serious problem. The industry will discuss this matter internally before we can take another step,” said Proust.

Total, whose operations include the gas-rich Mahakam block in East Kalimantan, is the largest gas producer and the third-largest oil extractor in Indonesia.

Industry lobby group the Indonesian Petroleum Association (IPA) said the Chevron verdict would
exacerbate the already poor legal environment for oil and gas companies, discouraging much-needed investment in the country’s energy sector, which has seen a decline in oil output of around 20 percent over the last five years.

“The industry is undoubtedly shocked as Chevron has followed every rule of law before executing its projects,” said IPA chairman Lukman Mahfoedz, who is also president director of publicly-listed energy company PT Medco Energi International.

“The government should do something about it as the situation will raise questions from foreign investors,” he said.

Chevron Indonesia spokesman Dony Indrawan said the company was shocked and disappointed with the verdict and would file an appeal.

“No actual evidence of any state losses or any illegal activity by Kukuh has been presented. Representatives from the Environment Ministry testified that the bioremediation project was an environmental issue, not a criminal one,” said Dony.

In the same case, the court sentenced in May executives from Chevron’s contractors to prison. PT Green Planet Indonesia’s Ricksy Prematuri and PT Sumigita Jaya’s Herlan Ompo were sentenced to five and six years in jail, respectively, after they were found guilty of causing state losses.

Chevron’s verdict was issued after the same court sentenced a subsidiary of telecommunication giant PT Indosat — controlled by Qatar Telecom — to pay Rp 1.3 trillion (US$131 million) in liable state losses, and handed down a four-year prison term to its former executive last week.

How the case develops

2003: Chevron initiates the bioremediation project in Riau province.

2006: Chevron appoints PT Sumigita Jaya and PT Green planet to move contaminated soil to the bioremediation facilities.

March 2012: The Attorney General’s Office (AGO) accuses PT Green and Sumigita of lacking certification to undertake the waste treatment work, therefore concluding the project to be a fabrication. The AGO claims state losses amounting to Rp 200 billion (US$20.8 million) in the case.

March 16, 2012: AGO names five Chevron workers and two from the contractors suspects in the case.

Sept 26, 2012: AGO detains six suspects, including four from Chevron.

Nov 27, 2012: South Jakarta District Court orders the AGO to release four Chevron workers due to lack of evidence .

May 8 ,2013: The court sentences PT Green director Ricksy Prematuri and PT Sumigita director Herlan bin Ompo to five and six years in jail, respectively. PT Green is ordered to refund $3.089 million in state losses, PT Sumigita $6.9 million.

May 17, 2013: AGO detains Chevron’s general manager for Sumatera Light South, Bachtiar Abdul Fatah.

July 17, 2013: The Jakarta Corruption Court sentences Kukuh Kertasari, Chevron’s environmental issue settlement team coordinator for Sumatera Light South Minas, to two years in prison and an Rp 100 million fine. Two other Chevron workers are still awaiting verdicts.

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