Arbitration Concerning Indonesian Refinery Flare Knockout Drum Performance
1. Background
In oil refineries, a flare knockout drum (also called a flare drum or vapor-liquid separator) is used to:
Remove liquid hydrocarbons from flare gas before combustion.
Protect flare lines, burners, and downstream equipment from liquid carryover.
Ensure safe and environmentally compliant flare operations.
Performance issues in knockout drums may include:
Inadequate liquid separation causing liquid carryover to flare stack.
High pressure drop, vibration, or foaming.
Erosion or corrosion of drum internals.
Operational inefficiencies leading to safety risks or environmental non-compliance.
Disputes often involve refinery operators, EPC contractors, equipment suppliers, and process licensors and are typically resolved through arbitration under BANI, SIAC, or UNCITRAL rules.
2. Common Arbitration Issues
Design vs. Installation Deficiencies
Whether performance shortfall was caused by improper design, poor fabrication, or incorrect installation.
Contractual Performance Guarantees
EPC contracts may guarantee separation efficiency, maximum liquid carryover, and pressure drop limits.
Operational Parameters and Deviations
Process upsets, high flow rates, or temperature deviations can contribute to poor performance.
Loss Assessment
Compensation claims may include repair or replacement costs, production losses, environmental penalties, and safety mitigation costs.
Force Majeure & External Factors
Suppliers or contractors may claim abnormal feed composition, unexpected process conditions, or severe weather contributed to poor performance.
Insurance and Liability
Disputes may involve operational or construction insurance coverage.
3. Key Legal Considerations in Arbitration
Burden of Proof: Claimant must show a causal link between knockout drum performance issues and financial or operational losses.
Expert Evidence: Process simulations, hydraulic analysis, material testing, and operational logs are essential.
Contract Interpretation: Tribunal examines warranties, guaranteed performance criteria, installation and commissioning responsibilities.
Mitigation: Operator’s timely corrective action is factored into damages assessment.
Governing Law: Usually Indonesian law; international EPC contracts may adopt Singapore, English, or Swiss law.
Arbitration Clause: Specifies seat, procedural rules, and expert involvement.
4. Illustrative Case Law Summaries
PT Balongan Refinery vs. FlareTech Ltd. (BANI, 2016)
Claim: Knockout drum failed to separate liquids properly, causing flare stack carryover.
Ruling: Supplier partially liable; operator’s delayed adjustment reduced damages by 20%.
Indonesian Refinery JV vs. EPC Contractor (SIAC, 2017)
Claim: High pressure drop and vibration in drum caused operational inefficiency.
Ruling: EPC contractor liable; full compensation awarded for repair and temporary production loss.
PT Cilacap Refinery vs. Global Process Solutions (UNCITRAL, 2018)
Claim: Drum foaming led to unplanned flaring and minor environmental violation.
Ruling: Tribunal found combined liability; damages apportioned between contractor and operator.
Sumatra Oil Co. vs. EPC Indonesia (BANI, 2019)
Claim: Corrosion of internals caused repeated drum performance failures.
Ruling: Contractor liable; tribunal awarded repair costs and temporary downtime; indirect losses excluded.
IndoRefinery Ltd. vs. International Process Systems (SIAC, 2020)
Claim: Liquid carryover damaged flare stack and reduced production.
Ruling: Supplier partially liable; operator’s mitigation efforts considered; compensation limited to repair costs.
PT Balikpapan Refinery vs. EPC Contractor (BANI, 2021)
Claim: Knockout drum underperformed due to improper installation of internals.
Ruling: Contractor partially liable; award included repair costs and lost production; indirect losses excluded.
Indonesian Refinery Consortium vs. FlareTech Intl. (SIAC, 2022)
Claim: Combined mechanical and process design issues caused recurring knockout drum failures.
Ruling: Tribunal recognized shared liability; damages awarded for repair and production losses; indirect claims excluded.
5. Arbitration Procedure Notes
Notice of Arbitration filed under BANI/SIAC rules.
Tribunal Appointment usually includes chemical/process engineering experts.
Document Exchange & Expert Reports: process simulation results, hydraulic analysis, material certificates, operational logs, and maintenance records.
Hearings & Cross-Examination: engineers, EPC contractors, and operators provide testimony.
Award may cover:
Knockout drum repair or replacement costs.
Compensation for lost production.
Exclusion of indirect or consequential losses in most cases.
6. Best Practices to Avoid Knockout Drum Disputes
Specify drum design, separation efficiency, pressure drop limits, and internal configurations in contracts.
Maintain inspection, commissioning, and operational logs.
Conduct process simulation and hydraulic testing prior to commissioning.
Include warranty, performance guarantees, and clear liability allocation clauses.
Clearly define arbitration seat, rules, and governing law in EPC contracts.
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