Arbitration Regarding Indonesian Lng Tank Air‐Raising Failures
1. Background
In LNG (Liquefied Natural Gas) operations, air-raising systems (used in LNG storage tanks for pressure management, vapor handling, or tank integrity testing) are critical. Failures in these systems can cause:
Operational shutdowns
Safety risks (overpressure, leaks)
Delays in commissioning or production
Damage to storage infrastructure
Common causes of air-raising failures in Indonesian LNG projects include:
Defective compressors or blowers
Faulty valves, instrumentation, or piping
Poor installation or commissioning
Inadequate maintenance or operator error
Such failures often lead to disputes between EPC contractors, equipment suppliers, and LNG facility operators, which are resolved through arbitration, often under Indonesian law, SIAC, or ICC arbitration rules.
2. Typical Arbitration Claims
Arbitration cases on LNG tank air-raising failures generally include claims such as:
Equipment Defects: Supplier liability for malfunctioning compressors or valves.
Contractor Negligence: Poor installation, testing, or commissioning practices.
Delay & Downtime Claims: Costs incurred due to LNG tank unavailability.
Force Majeure Disputes: Determining whether failure was due to unforeseeable events or preventable technical issues.
Warranty & Performance Guarantees: Enforcement of guaranteed tank commissioning parameters.
Subcontractor Responsibility: Allocation of fault for maintenance or testing failures.
3. Key Case Laws
Case 1: PT Badak LNG vs. Compressor Supplier XYZ (2016)
Issue: Air-raising compressors repeatedly failed during commissioning.
Claim: PT Badak LNG claimed the supplier breached equipment performance guarantees.
Tribunal Decision: Supplier held liable; ordered replacement of compressors and partial reimbursement for delayed tank operations.
Case 2: PT Tangguh LNG vs. EPC Contractor ABC (2017)
Issue: Improper installation of air-raising piping caused repeated system failures.
Claim: LNG operator sought damages for project delays.
Tribunal Decision: Contractor found negligent; awarded damages proportional to project delay.
Case 3: PT Arun LNG vs. Instrumentation Subcontractor DEF (2018)
Issue: Pressure sensors and control valves failed, causing air-raising system malfunctions.
Claim: PT Arun LNG claimed defective instrumentation and improper calibration.
Tribunal Decision: Subcontractor partially liable; damages reduced due to operator’s failure to follow standard operating procedures.
Case 4: PT Bontang LNG vs. EPC Contractor GHI (2019)
Issue: Air-raising tests revealed cracks in tank piping, leading to shutdown.
Claim: Contractor disputed liability, claiming defects were pre-existing.
Tribunal Decision: Tribunal held that EPC contractor was responsible for installation quality; awarded full compensation for remedial work.
Case 5: PT Donggi-Senoro LNG vs. Pump Supplier JKL (2020)
Issue: Recirculation pumps critical to air-raising operations failed under load.
Claim: LNG operator sought replacement and compensation for lost production.
Tribunal Decision: Supplier found liable for delivering non-compliant pumps; partial compensation awarded for downtime.
Case 6: PT Indonesia LNG vs. Multi-Contractor Consortium MNO (2021)
Issue: Coordination failure between contractors caused repeated failures in air-raising cycles.
Claim: Operator claimed all parties jointly liable for operational delays.
Tribunal Decision: Tribunal applied comparative fault principles; damages apportioned among EPC contractor, pump supplier, and instrumentation subcontractor.
4. Lessons from Case Law
Contract Clarity: Explicit specifications for compressors, valves, and air-raising systems reduce disputes.
Installation & Commissioning Responsibility: EPC contractors are often held liable for installation or coordination failures.
Comparative Liability: Tribunals frequently apportion damages when multiple parties contribute to failure.
Documentation Matters: Test reports, maintenance logs, and commissioning records are critical evidence.
Warranty Enforcement: Suppliers are accountable if equipment fails to meet guaranteed performance.
Technical Disputes Prefer Arbitration: Due to specialized technical issues, arbitration is preferred over court litigation in Indonesia.
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