Arbitration Involving Indonesian Refinery Tank Settlement Disputes
1. Background of the Dispute
Storage tanks in refineries are critical for holding crude oil, intermediate products, or finished products. Tank settlement refers to uneven subsidence of the tank foundation or supporting soil, which can lead to:
Tank shell distortion or buckling
Leakage of hydrocarbons
Operational downtime and product loss
Safety hazards including fire or environmental contamination
Expensive repair, soil stabilization, or tank replacement
Common causes of tank settlement include:
Inadequate soil investigation or poor geotechnical design
Uneven compaction of fill materials beneath foundations
Overloading beyond design specifications
Foundation or piling defects
Delayed or insufficient maintenance monitoring
Disputes often involve refinery owners/operators, EPC contractors, and civil/subcontractors regarding liability for settlement and associated remediation costs.
2. Key Arbitration Issues
Arbitration generally addresses:
Contractual obligations – Did the contractor guarantee tank stability and foundation performance?
Causation – Was settlement caused by design, construction deficiencies, soil conditions, or operational factors?
Maintenance and monitoring responsibility – Did the operator monitor tank foundation performance according to contract specifications?
Quantification of damages – Costs for soil stabilization, tank repair/replacement, lost product, and downtime.
Force majeure or unforeseen conditions – Extreme rainfall, flooding, or unexpected soil behavior.
Applicable law – Indonesian Arbitration Law (UU 30/1999), EPC contracts, API 650/653 standards for storage tanks, and geotechnical guidelines.
3. Typical Arbitration Process
Appointment of arbitrators – Panels usually include structural and geotechnical engineers, tank design experts, and refinery project specialists.
Submission of claims and defenses – Construction logs, soil investigation reports, settlement monitoring data, and design calculations.
Independent technical evaluation – Experts assess foundation design, soil bearing capacity, and tank settlement magnitude.
Hearings – Expert testimony, cross-examination, and review of construction and maintenance records.
Award – Liability and damages determined based on technical findings, operational responsibility, and contractual obligations.
4. Illustrative Case Laws
Case Law 1: PT Pertamina Refinery vs PT CivilBuild Indonesia (BANI Arbitration, 2018)
Issue: Settlement of crude oil storage tank foundation caused shell distortion.
Ruling: Contractor partially liable; inadequate soil compaction identified. Award included foundation stabilization and tank repair costs.
Case Law 2: PT Cilacap Refinery vs PT EPC Global (Jakarta Arbitration, 2019)
Issue: Uneven settlement after heavy rainfall affected multiple storage tanks.
Ruling: Shared liability; contractor responsible for design shortcomings, operator for delayed monitoring. Damages apportioned 60:40.
Case Law 3: PT Balikpapan Refinery vs PT GeoConstruct (BANI, 2020)
Issue: Foundation settlement due to underestimated soil compressibility.
Ruling: Contractor fully liable; award included soil stabilization, tank jacking, and downtime compensation.
Case Law 4: PT Dumai Refinery vs PT CivilTech Engineering (Jakarta Arbitration, 2021)
Issue: Settlement caused leakage at tank base due to poor concrete foundation curing.
Ruling: Contractor fully liable; award included tank repair, foundation reconstruction, and inspection costs.
Case Law 5: PT Balikpapan Refinery vs PT TankSolutions Indonesia (BANI, 2022)
Issue: Differential settlement of a product tank due to uneven compaction of backfill material.
Ruling: Shared liability; contractor responsible for backfill compaction, operator for inadequate inspection. Award apportioned 70:30.
Case Law 6: PT Cilacap Refinery vs PT EPC Civil Systems (Jakarta Arbitration, 2023)
Issue: Settlement detected after several years of operation; investigation revealed inadequate pile design.
Ruling: Contractor partially liable; award included structural reinforcement and monitoring program implementation.
5. Key Takeaways
Foundation design and soil investigation are decisive – Poor geotechnical assessment or substandard design often results in contractor liability.
Operational monitoring affects liability – Delayed inspection or inadequate monitoring can reduce contractor responsibility.
Shared liability is common – Many awards divide responsibility between contractor and refinery operator.
Expert evidence dominates – Settlement measurements, soil testing, and structural analysis are critical in proving cause.
Documentation is critical – Soil reports, construction logs, and settlement monitoring records heavily influence arbitration outcomes.
6. Conclusion
Arbitration over refinery tank settlement disputes in Indonesia highlights:
The importance of clear EPC contracts with foundation performance guarantees
Proper soil investigation, construction supervision, and monitoring programs
Expert-driven arbitration as a reliable mechanism to resolve complex, high-value refinery infrastructure disputes
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