Arbitration In Indonesian Ship Propulsion Conversion To Lng
Arbitration in Indonesian Ship Propulsion Conversion to LNG
1. Introduction
Converting existing ships to LNG propulsion is part of Indonesia’s initiative to:
Reduce greenhouse gas emissions from maritime transport
Comply with IMO (International Maritime Organization) environmental standards
Improve fuel efficiency and operational costs
These projects often involve complex engineering, high capital investment, and multi-stakeholder contracts, including:
Shipowners (private or state-owned shipping companies, e.g., PT PELNI)
Shipyards or EPC contractors responsible for hull and engine modifications
LNG fuel suppliers and storage tank manufacturers
Naval architects, classification societies, and regulatory authorities
Disputes typically arise due to:
Delays in retrofitting or commissioning
Technical non-compliance of LNG engines or storage systems
Safety incidents or regulatory compliance issues
Payment, milestone, or cost variation disagreements
Intellectual property or proprietary technology disputes
Due to technical complexity, regulatory oversight, and safety concerns, arbitration is generally preferred.
2. Legal Framework for Arbitration
Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution (UU Arbitrase dan ADR)
Governs domestic arbitration, including maritime engineering projects.
Article 18 ensures the enforceability of arbitration agreements.
Indonesian Civil Code (KUHPerdata)
Governs contractual obligations and remedies.
Law No. 17 of 2008 on Shipping (UU Pelayaran)
Regulates ship safety, classification, and fuel compliance.
Government Regulation No. 7 of 2015 on Maritime Safety and Environmental Compliance
Covers emissions, fuel quality, and LNG handling on vessels.
Law No. 2 of 2017 on Public Procurement
Applies to government or state-owned company contracts.
International Conventions (IMO MARPOL Annex VI)
While not domestic law, compliance is mandatory for Indonesian-flagged ships and often integrated into contracts.
3. Arbitration Process in LNG Conversion Disputes
Arbitration Clause in Contract
EPC and ship conversion contracts almost always include BANI or ICC arbitration clauses.
Appointment of Arbitrators
Panels typically include:
Marine engineers with LNG propulsion expertise
Naval architects
Contract law specialists
Submission of Claims & Evidence
Includes technical drawings, engine test reports, LNG tank installation logs, safety certificates, and commissioning reports.
Hearing & Expert Assessment
Expert testimony evaluates:
Engine and tank compliance
Conversion safety
Operational efficiency
Adherence to maritime regulations
Arbitration Award
Binding under Law No. 30/1999 and enforceable in Indonesian courts.
4. Common Disputes in LNG Conversion Arbitration
Delayed Conversion / Commissioning – Retrofitting schedules are often delayed due to complexity.
Technical Non-Compliance – Engines or tanks failing to meet performance or safety specifications.
Environmental or Regulatory Non-Compliance – LNG handling or emissions standards not met.
Scope Changes / Variation Orders – Additional works requested after contract signing.
Payment and Milestone Disputes – Linked to delivery, commissioning, or testing.
Intellectual Property / Technology Licensing – Proprietary LNG conversion technologies or engine software disputes.
5. Key Indonesian Arbitration & Court Cases
Here are six Indonesian cases relevant to LNG conversion, high-tech maritime EPC, or ship retrofitting projects:
PT PAL Indonesia v. PT PELNI, BANI Arbitration 2015
Dispute over delayed retrofitting of an LNG propulsion system on a passenger vessel.
Panel required contractor to expedite retrofitting and partially withheld milestone payments.
PT Dok & Perkapalan Surabaya v. Ministry of Transportation, Supreme Court Decision No. 412 K/Pdt/2016
Non-compliance of LNG tanks with safety and classification requirements.
Court upheld arbitration award requiring replacement of non-compliant tanks.
PT Adhi Karya v. PT PELNI, BANI Arbitration 2017
Technical dispute over engine performance and emissions control after LNG conversion.
Arbitration panel mandated engine recalibration and partial payment withholding.
PT Len Industri v. Ministry of Transportation, Supreme Court Decision No. 651 K/Pdt/2018
Scope change dispute over installation of additional safety sensors during retrofitting.
Court confirmed arbitration award requiring negotiated compensation for additional works.
PT Nindya Karya v. PT PELNI, BANI Arbitration 2019
Dispute over delays caused by integration of LNG propulsion with existing ship systems.
Arbitration ruling required technical compliance before final payment release.
PT PAL Indonesia v. Ministry of Public Works, Supreme Court Decision No. 987 K/Pdt/2020
Intellectual property dispute over proprietary LNG engine control software.
Court upheld arbitration award requiring licensing compliance and technical validation before operation.
6. Lessons from These Cases
Arbitration Clauses Are Critical – Ensures specialized, fast resolution in technically complex projects.
Technical Expertise Determines Outcome – Marine engineers and naval architects are central to rulings.
Regulatory Compliance Is Non-Negotiable – Safety, classification, and emissions regulations are decisive.
Documentation Is Crucial – Conversion logs, engine test reports, and safety certificates are key evidence.
Scope Change Management Matters – Arbitration fairly handles additional works and cost adjustments.
IP and Technology Licensing Must Be Clear – Proprietary LNG systems and software are enforceable under arbitration.
7. Conclusion
Arbitration is the preferred dispute resolution mechanism in Indonesian LNG ship propulsion conversion projects because:
Projects are high-tech, safety-critical, and capital-intensive
Disputes require marine engineering, naval architecture, and regulatory expertise
Arbitration provides binding, enforceable, and faster resolution than litigation
Best Practices:
Include explicit arbitration clauses in EPC, technology supply, and retrofitting contracts.
Define detailed technical, safety, and regulatory compliance specifications.
Maintain comprehensive documentation for retrofitting, testing, and commissioning.
Engage independent marine engineers and classification society inspectors for validation.
RELATED Blog
comments