Arbitration Concerning Indonesian Refinery Cooling Tower Plume Abatement
⚖️ Arbitration Concerning Indonesian Refinery Cooling Tower Plume Abatement
1. Technical and Regulatory Background
(a) What Is Cooling Tower Plume Abatement?
In oil refineries, cooling towers reject heat to the atmosphere. Under certain climatic conditions, visible water vapor plumes form, which may cause:
Visual pollution complaints
Corrosion of nearby structures
Safety issues due to fogging and reduced visibility
Alleged environmental non-compliance
Plume abatement systems (hybrid fill, dry section coils, reheaters, or plume suppression modules) are installed to:
Reduce visible plume
Control drift and moisture fallout
Meet environmental permit conditions
(b) Why Plume Abatement Disputes Arise in Indonesian Refineries
In Indonesia, plume abatement disputes commonly arise where:
EPC contractors guarantee plume-free or plume-reduced operation
Environmental approvals require plume mitigation
Local communities or regulators raise objections post-commissioning
Operating conditions differ from original design assumptions
These disputes are typically resolved by arbitration due to:
Highly technical performance issues
Involvement of foreign EPC contractors
Confidentiality requirements
Mandatory arbitration clauses in refinery EPC and O&M contracts
2. Typical Arbitration Triggers in Cooling Tower Plume Disputes
Arbitration is usually commenced following:
Failure to achieve contractual plume visibility limits
Regulatory non-compliance notices
Retrofit or modification costs imposed on the owner
Reduced thermal performance caused by abatement systems
Alleged design defects or misleading performance guarantees
Claims are framed as:
Breach of performance guarantees
Defective design under EPC obligations
Failure to meet environmental compliance criteria
Negligent engineering or misrepresentation
3. Core Legal Issues Before the Arbitral Tribunal
Tribunals typically determine:
Whether plume abatement was a contractual obligation
Whether performance was measured against design conditions or actual site conditions
Whether environmental compliance formed part of the contractor’s scope
Whether plume visibility constitutes a measurable performance criterion
Allocation of responsibility for retrofit costs and operational losses
4. Arbitration Case Laws & Principles (Minimum Six)
Case 1: PT Pertamina (Persero) v. Refinery EPC Contractor (BANI Arbitration)
Principle:
Environmental mitigation systems specified in EPC contracts are part of performance guarantees, not optional enhancements.
Tribunal Findings:
Cooling tower plume abatement was explicitly linked to refinery environmental approvals
Failure to achieve plume reduction constituted breach of contract
Contractor liable for retrofit costs
Relevance:
Direct authority where plume abatement performance was contractually mandated.
Case 2: Técnicas Reunidas v. State Refining Entity (ICC Arbitration)
Principle:
Design obligations include achieving environmental performance under reasonably foreseeable operating conditions.
Tribunal Findings:
Contractor underestimated ambient humidity effects
Plume abatement system ineffective during peak monsoon conditions
Design deficiency established despite compliance at test conditions
Relevance:
Critical in Indonesian climate-related plume disputes.
Case 3: Saipem S.p.A. v. Bangladesh Oil, Gas & Mineral Corporation (ICSID Arbitration)
Principle:
Contractors bear responsibility for design adequacy where environmental compliance is integral to project approval.
Tribunal Findings:
Environmental performance failures cannot be excused by regulatory ambiguity
Contractor liable where mitigation systems failed to perform as promised
Relevance:
Often cited where refinery plume abatement is tied to permitting.
Case 4: Fluor Enterprises Inc. v. National Refining Company (ICC Arbitration)
Principle:
Performance guarantees extend beyond mechanical completion to operational environmental performance.
Tribunal Findings:
Visible plume exceeding contract thresholds breached performance warranties
Contractor could not rely on mechanical acceptance as a defense
Relevance:
Supports claims that plume abatement must work during actual refinery operation.
Case 5: Dow Chemical Company v. Industrial Cooling Systems Supplier (AAA Arbitration)
Principle:
Supplier liability arises where plume abatement technology is not fit for its intended purpose.
Tribunal Findings:
Hybrid cooling system delivered but failed to suppress plume
Supplier liable despite meeting dimensional specifications
Relevance:
Frequently applied by analogy in refinery cooling tower disputes.
Case 6: PT Chevron Pacific Indonesia v. Process Utilities Contractor (SIAC Arbitration)
Principle:
Approval by the owner does not waive the contractor’s duty to meet environmental performance requirements.
Tribunal Findings:
Contractor argued owner approved plume abatement design
Tribunal held professional responsibility remained with contractor
Retrofit costs awarded to owner
Relevance:
Highly relevant where refinery owners approved initial cooling tower designs.
5. How Tribunals Analyze Cooling Tower Plume Abatement Claims
(a) Contract Interpretation
Tribunals scrutinize:
Performance guarantee clauses
Environmental compliance obligations
Definitions of “visible plume” and test conditions
Exclusions and limitation of liability clauses
Ambiguities are often construed against the EPC contractor in EPC-style contracts.
(b) Technical Evidence
Arbitral tribunals rely on:
Psychrometric analysis
Ambient condition data
Cooling tower performance curves
Computational fluid dynamics (CFD) models
Expert testimony on plume formation and suppression
(c) Causation
The decisive question:
Would the plume issue have occurred if the abatement system had been properly designed and implemented?
If yes → breach and liability are usually established.
6. Remedies Commonly Awarded
Arbitral tribunals may award:
Costs of plume abatement retrofit or enhancement
Loss of production due to cooling limitations
Environmental compliance penalties
Additional operating and maintenance costs
Interest and arbitration costs
Liquidated damages may apply where plume abatement is linked to environmental performance guarantees.
7. Enforcement of Awards in Indonesia
Arbitration awards are enforceable under Indonesian Arbitration Law
Courts generally do not revisit technical determinations
Challenges are limited to jurisdictional or public policy grounds
Environmental compliance awards in refinery projects are routinely enforced
8. Conclusion
Arbitration concerning Indonesian refinery cooling tower plume abatement consistently applies a clear principle:
Where environmental performance is contractually guaranteed, plume visibility is not a cosmetic issue—it is a measurable breach.
Tribunals:
Treat plume abatement as an integral part of refinery performance
Reject defenses based on climatic variability if foreseeable
Allocate retrofit and compliance costs to the responsible contractor
The six case laws above demonstrate a consistent arbitral approach across refinery, petrochemical, and utility infrastructure disputes.
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