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Chevron hits back at graft verdict

Indonesia's biggest oil producer mulls taking case to international arbitration

US energy giant Chevron Corporation is considering taking the Indonesian government to an international arbitration court, after the Corruption Court on Wednesday handed a prison term to one of its employees for fabricating an environment project.

Chevron legal counsel Todung Mulya Lubis said the company "might enter arbitration", claiming the country's poor legal environment had exacerbated the already pervasive legal uncertainty for businesses.

Taking this case to the international "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 an average of 300,000 barrels per day (bpd), or around 40 per cent 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 the so-called bioremediation programme.

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

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

The corruption charge was levied because 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 criminalisation of the production-sharing contract 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 per cent 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.

In the same case, the court in May sentenced 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.

The Chevron verdict was issued after the same court ordered a subsidiary of telecommunication giant PT Indosat - controlled by Qatar Telecom - to pay 1.3 trillion rupiah (about Bt4 billion) in liable state losses, and handed down a four-year prison term to its former executive last week.


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