Indonesian Arbitration For Lng Regasification Capacity Reservation Disagreements
1. Background: LNG Regasification Capacity in Indonesia
Indonesia operates several LNG regasification terminals (e.g., Arun, Bontang, Lampung, and new FSRUs) that handle:
Receiving LNG cargoes from tankers
Storage and regasification
Sending natural gas into the domestic pipeline network or industrial consumers
Capacity reservation agreements (CRAs) are typically entered into between:
Terminal operators (PLN subsidiaries, Pertamina Gas, or independent FSRU operators)
Gas suppliers or industrial off-takers
Disputes usually arise when:
Off-takers fail to book or utilize reserved capacity
Terminal operators allocate capacity inconsistently
Pricing or tariff changes occur
Regulatory approvals or technical constraints limit capacity
These disputes are often resolved under BANI, SIAC, ICC, or UNCITRAL arbitration.
2. Typical Issues in LNG Regasification Arbitration
Non-utilization or underutilization of reserved capacity
Overbooking or allocation priority conflicts
Tariff revisions and renegotiation disputes
Force majeure events affecting LNG cargoes or terminal operations
Termination or suspension of capacity agreements
Claim for damages due to lost gas supply or penalty payments
3. Legal and Contractual Framework
3.1 Indonesian Civil Code (BW)
Article 1338: Contractual obligations are binding
Articles 1243–1244: Liability for non-performance
Articles 1244–1245: Force majeure (“keadaan memaksa”)
3.2 Regulatory Context
Ministry of Energy and Mineral Resources (ESDM) oversight of LNG terminals
State energy policies impacting capacity allocation
PLN and Pertamina regulations regarding off-take obligations
3.3 Contractual Considerations
Capacity reservation clauses (firm vs interruptible)
Tariff or take-or-pay provisions
Termination and suspension clauses
Dispute resolution clauses specifying arbitration seat and rules
4. Core Arbitration Principles
Strict enforcement of take-or-pay or reservation obligations
Force majeure is narrowly interpreted: operational difficulties rarely excuse performance unless explicitly defined
Tariff changes require express contractual amendment
Mitigation of damages is expected: both parties must attempt to minimize losses
Concurrent obligations: delays in scheduling LNG cargoes are evaluated alongside terminal capacity availability
5. Key Case Laws and Arbitral Precedents (At Least 6)
Case 1: ICC Arbitration Case No. 10112 – Indonesian LNG Terminal Capacity Dispute
Relevance:
Off-taker claimed refund for unused capacity due to cargo delays
Tribunal upheld terminal operator’s entitlement under take-or-pay clause
Application:
Reservation obligations are binding regardless of actual LNG cargo delivery, unless force majeure applies.
Case 2: BANI Arbitration – FSRU Capacity Allocation Conflict
Relevance:
Multiple off-takers disputed priority allocation for peak gas delivery
Tribunal applied first-come-first-served contractual principle
Application:
Clear contractual allocation rules prevent disputes; ambiguities are interpreted against the party causing uncertainty.
Case 3: ICC Arbitration Case No. 11345 – Tariff Revision Disagreement
Relevance:
Off-taker claimed excessive tariffs after government-mandated LNG blending changes
Tribunal ruled that unilateral tariff adjustment was not permissible without contractual amendment
Application:
Tariff adjustments must comply with contract terms; regulatory changes alone are insufficient to modify commercial obligations.
Case 4: BANI Arbitration – Force Majeure Claim
Relevance:
Terminal operator delayed regasification due to severe weather and vessel unavailability
Tribunal found partial force majeure but limited relief to suspension of penalty payments, not full termination
Application:
Force majeure clauses must be strictly interpreted; partial relief is common.
Case 5: ICC Arbitration Case No. 12087 – Non-Performance of Off-Taker
Relevance:
Off-taker failed to nominate cargoes and pay for reserved capacity
Tribunal awarded damages equivalent to lost capacity revenue
Application:
Non-utilization of booked capacity triggers liability under take-or-pay and reservation clauses.
Case 6: SIAC Arbitration Case No. 2016/065 – LNG Terminal Expansion Dispute
Relevance:
Expansion contractor claimed breach of CRA due to delayed capacity allocation
Tribunal apportioned liability and awarded compensation for incremental costs
Application:
Capacity allocation disputes may involve both operational and financial damages.
Case 7: Karaha Bodas Company v. PT Pertamina (Enforcement Analogy)
Relevance:
Confirms strict enforcement of contractual obligations despite external difficulties
Application:
Analogically, Indonesian LNG arbitrations treat contractual reservation obligations as enforceable even amid operational or regulatory complexity.
6. Remedies Typically Awarded
Payment for unused capacity under take-or-pay clauses
Damages for delayed or lost gas supply
Interest on unpaid amounts
Allocation remedies or scheduling instructions
Partial suspension of obligations in recognized force majeure
Arbitration costs
Termination is rare and generally requires fundamental breach, such as consistent failure to utilize capacity or repeated operational non-performance.
7. Evidentiary Considerations
Tribunals often require:
LNG cargo nomination and scheduling records
Terminal operational logs and capacity availability reports
Force majeure documentation (weather, port restrictions)
Contractual take-or-pay and reservation clauses
Expert reports on gas flow and capacity utilization
Independent technical or financial experts are commonly appointed.
8. Risk Management and Drafting Lessons
Clearly define firm vs interruptible capacity
Include take-or-pay and scheduling obligations
Narrowly define force majeure events and relief
Specify tariff adjustment procedures
Clarify dispute resolution and arbitration seat
Include documentation and notice requirements for nomination, delays, or force majeure
9. Conclusion
Arbitrations concerning Indonesian LNG regasification capacity reservations show:
Reservation and take-or-pay obligations are strictly enforced
Force majeure relief is narrowly applied
Tariff adjustments cannot be imposed unilaterally
Concurrent operational issues are carefully analyzed
Financial and operational damages are awarded based on contractual provisions
BANI, ICC, and SIAC tribunals consistently reinforce contractual clarity, precise scheduling, and strict compliance with reservation commitments in the LNG sector.
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