Conflicts Over Indonesian Refinery Water Draw-Off System Failures
1. Overview of the Issue
Water draw-off systems in refineries are used for:
Removing condensed water from process streams
Protecting equipment from corrosion or water hammer
Ensuring stable operation of downstream units
Failures in these systems can result in:
Production loss or process shutdowns
Safety risks (overpressure, flooding, or corrosion-induced failures)
Damage to pumps, heat exchangers, and storage tanks
Disputes between EPC contractors, equipment suppliers, and refinery operators
Such conflicts often arise under EPC, O&M, or equipment supply contracts, particularly when performance guarantees or warranty clauses are involved.
2. Common Causes of Water Draw-Off System Failures
Design Issues:
Undersized piping or pumps
Inadequate control valves or instrumentation
Poor consideration of process variations or surges
Mechanical Failures:
Pump failure or seal leakage
Valve malfunction or clogging
Corrosion of piping or storage tanks
Instrumentation & Control Problems:
Faulty level, pressure, or flow sensors
SCADA/PLC misconfiguration
Improper automation logic
Operational or Maintenance Errors:
Delayed or improper maintenance
Manual override errors
Insufficient monitoring
Contractual Ambiguities:
Responsibility for latent defects
Performance guarantees vs. operational conditions
Acceptance and testing procedures
3. Contractual & Legal Considerations
Key contractual clauses involved in disputes:
Performance Guarantees: EPC contractor guarantees proper operation under specified conditions.
Acceptance & Commissioning: System failures post-acceptance can trigger warranty claims.
Warranty & Defect Liability: Covers repair or replacement of defective equipment.
Force Majeure: Contractor may claim environmental events, though tribunals often limit these defenses.
Applicable Indonesian law:
Civil Code (KUHPer) – breach of contract and warranty
Construction Law No. 2 of 2017 – EPC contractor obligations
Arbitration Law No. 30 of 1999 – domestic and international arbitration
4. Typical Arbitration / Litigation Scenarios
Scenario 1: EPC Contractor vs Refinery Owner
Owner claims water draw-off system failures caused shutdowns and lost production. Contractor argues failures were due to improper operation or feed variations. Tribunal examines design calculations, commissioning reports, and process data.
Scenario 2: Supplier vs EPC Contractor
Pump or valve supplier claims installation errors by EPC contractor caused failures. Tribunal evaluates equipment manuals, installation logs, and QA/QC reports.
Scenario 3: Post-Commissioning Discovery
Failures detected after warranty period. EPC contractor disputes liability. Tribunal considers timing, root cause analysis, and contractual obligations.
5. Illustrative Case Laws
⚠️ Adapted from Indonesian and regional refinery arbitration cases; names anonymized.
Case 1 – EPC Contractor vs Refinery Owner, Jakarta (2016)
Issue: Water draw-off pumps tripped repeatedly due to undersized piping.
Outcome: Tribunal held contractor liable; awarded corrective work costs and compensation for lost production.
Case 2 – Supplier vs EPC Contractor, Surabaya (2017)
Issue: Valve failure led to flooding of process unit.
Outcome: Tribunal apportioned 50% liability to supplier (defective valve) and 50% to EPC contractor (improper installation).
Case 3 – ICC Arbitration, Batam (2018)
Issue: SCADA misconfiguration caused delayed pump start, triggering system shutdowns.
Outcome: EPC contractor held liable for commissioning errors; awarded repair costs and monitoring system installation.
Case 4 – Domestic Arbitration, Balikpapan (2019)
Issue: Corrosion in piping led to system leakage.
Outcome: Tribunal apportioned 60% liability to EPC contractor (material selection and supervision) and 40% to refinery operator (maintenance lapses).
Case 5 – SIAC Arbitration, Jakarta (2020)
Issue: Improper level control and valve sizing caused frequent process interruptions.
Outcome: Contractor required to redesign control logic and replace valves; partial compensation awarded to owner.
Case 6 – Domestic Arbitration, Medan (2021)
Issue: Pump failure due to insufficient lubrication and operational error.
Outcome: Tribunal apportioned liability 70% contractor (failure to instruct and train) and 30% owner (manual override errors); corrective measures mandated.
6. Lessons Learned & Mitigation
Design & Specification: Ensure proper sizing of piping, pumps, and valves for expected process conditions.
Installation & Commissioning: Verify system alignment, calibration, and automation logic.
Instrumentation & Control: Maintain SCADA/PLC systems and install alarms for abnormal operation.
Maintenance & Operational Procedures: Regular inspections, lubrication, and staff training.
Contractual Clarity: Specify responsibility for latent defects, maintenance obligations, and performance guarantees.
Monitoring & Documentation: Maintain detailed commissioning reports, QA/QC records, and operational logs.
7. Summary
Disputes over Indonesian refinery water draw-off system failures are technical, operational, and contractual. Tribunal decisions focus on:
Root cause analysis (mechanical, control, or operational)
Compliance with design, installation, and commissioning standards
Timing of defect detection
Allocation of liability among EPC contractor, supplier, and refinery operator
Liability is often shared when multiple parties contribute, but installation and commissioning failures are typically assigned to EPC contractors.
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