Malaysia’s KLK unit faces $39m arbitration claim over gas supply dispute

By Romel S. Gurky

A subsidiary of Malaysia's Kuala Lumpur Kepong Bhd (KLK) is facing arbitration proceedings in Indonesia after gas trading company PT Pertagas Niaga  sought about US$39 million in compensation over the termination of a gas supply agreement.

KLK said its wholly owned Indonesian subsidiary, PT Perindustrian Sawit Synergi (PSS), received notice on July 3 that a panel of arbitrators had been formed by Indonesia's Badan Arbitrase Nasional Indonesia (BANI), with arbitral hearings scheduled to begin on July 10.

The dispute relates to the termination of a Gas Supply Agreement between Pertagas Niaga and PSS.

Pertagas Niaga is seeking approximately $39 million in compensation for take or pay obligations covering the remaining term of the agreement, after deducting a bank guarantee, and a declaration that its drawdown of a $2.78 million bank guarantee was valid.

KLK said PSS will file a counterclaim alleging Pertagas Niaga breached the agreement by failing to provide a continuous gas supply. The subsidiary will seek about RM55 million (US$13.5 million) in damages and ask the arbitration tribunal to declare the bank guarantee drawdown invalid and order the refund of the amount withdrawn.

The company said Pertagas Niaga claims lack merit and that PT PSS will vigorously defend its position. It has appointed Dentons Hanafiah Ponggawa and Partners as legal counsel in Indonesia to represent the subsidiary in the proceedings.

PSS operates an integrated palm oil refinery and oleochemicals complex in East Kalimantan. The facility includes refining and oleochemical processing plants, its own power generation facilities and a dedicated jetty, enabling the production and export of value added palm oil products.

Editing by Alexander Ginting