The Chaos on Foreign Mining Contract
Report by: Armidis Fahmi
Jakarta, 16 March 2017. As an oil and gas producing country, Indonesia is not automatically becoming a rich country. Instead of gaining benefit from its mining industry, Indonesia has been many time sued in the international arbitration under the scheme Investor State Dispute Settlement (ISDS). The potential lawsuit is also depicted in the case of PT. Freeport Indonesia. The company has refused to comply with The Mineral and Renewable Energy Act ( Minerba Act) because they considerd that the regulation will be detrimental and will also endanger their existence. Thus, they plan to file the case to International Court. With the Mining Act being applied, the contract of work which have previously been signed should be amended in accordance to Special Mining Permit (IUPK).
Under the Government Regulation No.1 Year 2017, all foreign mining companies should conduct divestment. The regulation require that each foreign investment companies should divest their share as many as 51 percent so that in the future period of times, those companies will be taken over by the government. The foreign investment companies which hold IUPK are obliged to built smelter. If one day the companies are found to bring loss to the country, their mining permits will be revoked. Freeport cannot accept this new regulation and will sue the government of Indonesia in International Arbitration since they argued that Indonesia has violate the agreements by changing the contract of work to IUPK.
Although the regulation is yet to be applied, the cases involving foreign mining companies which will possibly file the case to International Arbitration against Indonesia has been accumulated. The member of Commission VII of People Representative Council (DPR), Joko Purwanto, said that the increasing number of the lawsuit against Indonesia in International Arbitration especially in the field of mining, oil and gas has been our consequences. He argues that bilateral agreements made by two countries enable amendments. It is due to adjustment and technical factors that may take place on the ground. “As a product made by human being, it is natural that any agreements is imperfect and needs revision”, Joko told to gresnews.com, on Wednesday (15/3).
The revisions have usually taken place by publishing the Acts and its derivatives such as government or ministrial regulations in relations with mining industry. Usually, the problem rises when one of the parties proposes rejections. Then, the lawsuit in international arbitration is the most possible way to solve the issue. “The foreign parties think that changes and revisions made by the government is unfair because they argued those revisions violate the old agreements which have been agreed previously by Government and foreign companies” he added.
This fact enable the transnational companies to file the case or to propose the lawsuit to the international arbitration. On the other hand, the country can only file the lawsuit local arbitration once the companies is being considered of bringing disadvantages and loss to the county and local societies. The country is unable to file the case to international arbitration. According to Joko, if then Freeport agrees and accepts the IUPK, it does not mean that the company cannot file the case towards Indonesia.
Freeport and other foreign companies which are under ISDS have the rights to propose lawsuit towards the countries when they feel any threats coming from amendment of regulations stipulated by the governments. The companies and the governments are bound by the contract of work which bind the rights and obligations of both parties. “So it is possible that Freeport will propose the lawsuit despite the IUPK is already applied,” he added.
AVOIDING THE REGULATIONS.
Meanwhile, the Directorate General of Mineral and Coal, Ministry of Energy and Mineral Resources, Bambang Gatot Ariyono expressed his rejection if Oil and Gas and Energy sectors is said as the field which generates significant numbers of suits from International Arbitration. He argues that the government has conducted its tasks accordingly by making the laws and regulation for all mining companies- local and international, domestic and foreign.” Who are proposing lawsuit?” Freeport is not and neither is Newmont. He said even if the suit is made, it does not mean that is government’s mistake. But it is because the foreign investors refused to follow the regulations which have been designed. The regulations is actually the way from the government to revise and improved the contract system so that every parties will be benefited.
He regrets about the foreign companies which are not following the rules. “If they want to propose the suit, go ahead, the most important thing is the government has done its part by making the rules,” he added. According to the data gathered Indonesia for Global Justice (IGJ), Indonesia has received 8 times of lawsuit in International Arbitration. Four of them are filed by Foreign Investment Companies in mining and energy exploration. They are Churcill Minning and Planet Minning which the permits have been revoked. Newmont Nusa Tenggara is due to the restriction of copper concentrate export, and Indian Metals and Ferro Alloys limited (IMFA) which was failed to operate due to the IUP was overlapping with other companies.
As for the Churcil Minning the amount of lawsuit is fantastic which is USD 2 Billion or equivalent to Rp 200 trillion. Churchil was rage because the mining concession (KP) was revoked because the government of Kutai Timur Regency does not acknowledge concession. Churchil feels disadvantage by the action of revoking the contract and it has proposed the lawsuit to State Administrative Court (PTUN) Samarinda, PTUN Jakarta and Supreme Court (MA). However, all the suits were failed. Thus, they went for another route which is International Arbitration.
In the report, Churchill declared that the government has confiscated their assets and has also treated the company inequal with other investors. Despite Indonesia’s victory at the end of the trial in International Arbitration, that does not make another lawsuits filed to the government stop. In the year of 2014, PT Newmont proposed lawsuit to Indonesian government due to the regulation of export restriction, export duties, and restriction on copper concentrate export. These regulations is viewed as not relevant with the Contract of work and Bilateral Investment Agreement which used the scheme of ISDS between Indonesia and Netherland. Then, PT Newmont Nusa Tenggara (PTNNT) and its majority share holders- Nusa Tenggara Partnership B.V. (NTPBV) which is a registered company in Netherland filed the lawsuit towards Indonesian government. The case was filed because they are being restricted from exporting copper concentrate so that the Batu Hijau mining cannot be operated.
In the lawsuit proposed by PTNNT and NTPBV to International Court for the Settlement of Investment Dispute (ICSID), they demand for interlocutory so PTNNT can do the export of copper concentrate. The application of the export restriction regulation and export duties, according to Newmont does not comply with the contract of work and BIT between Indonesia and Netherland. Eventhough PT Newmont withdrawn its lawsuit, the case is not automatically considered as Indonesia’s victory. Indonesian government was struggling alot in the negotiation and at the end of the discussion, Newmont was given the permit to conduct concentrate export. The government and Newmont agree to revise the contract of work and also the amount of royalties which will be given by the company and the Batu Hijau mining is coming back to operate.
ISDS SCHEME AS THE WEAPON.
Reflecting from various cases above, the foreign investors understand very well that BIT with ISDS scheme is one of the most effective weapon to put pressure towards the government when the latter intends to protect its national interests. ISDS itself was made in 1950 with the aim to protect the asset and property of the companies in newly independent countries or ex-colonial countries. ISDS was born because the investors were worried towards the weakness of law enforcement in those countries. According to Senior Researcher of IGJ, Lutfiyah Hanim, BIT under ISDS scheme have restricted the countries under the interest of investors. The countries loss its sovereignty.
Besides that, ISDS is often misused by the investors to protect its interests. This will discourage the countries to apply regulation for protecting public interest because they are worried of being sued in International Arbitration. “Investment is always coming with risks,” Hanim told in a discussin session pertaining ISDS Scheme in Tebet. Indonesia has 64 BIT investment agreements which contains liberalization of investment, investors protections and dispute settlement mechanism. In the dispute settlement mechanism, the arbitration trial is conducted under United Nations Centre for International Trade Related Arbitration Law (UNCITRAL) or ICSID in World Bank. Hanim told that Arbitration Court is usually not transparent. Besides that, the appointed arbitrators to settle the issue have connections with the investors. The trial will also have some fantastic amount of lawsuits with expensive court costs. “Even if the country wins the case, the fact is the country is still lost because the sovereignty has been threatened and the cost that is spent is high as well,” she added.
CONTRIBUTION OF MINING
Mining sector is an obsolescent economic sector. Mining exploration will never give maximum contribution to the country. This is because the characteristic of mining companies will surely damage the natural resources such as land, energy, and water. In term of land, the exploration will require massive land-opening and will damage the land ecosystem, the forest and local people’s landmass.
Energy which is utilized for the mining exploration is massive. If the energy is coming from the coal and water, the residue will damage the environment, river and the sea. “Apart from damaging the environment, it also ruins the social and cultural aspect of the life of the local society nearby the mining area” as it is told by Merah Johansyah Ismail from Jaringan Advokasi Tambang (Jatam) to gresnews.com, Wednesday (15/3).
He described the example of the case of Freeport which is not giving any benefits. Out of Rp 700 trillion of Indonesian State Budget, Freeport only contributed 0.4 percent. Freeport is also known for not paying the tax on the water. Thus, JATAM firmly demands the closure of Freeport and the hand-over of the asset and all the titles to the Papuan people. “As long as Indonesia still accept investors under the scheme of ISDS, then the chance for our country being sued is very high, and it is not only happening in mining sector,” Merah told. Apart from freezing the Freeport, the government and mining companies should also conduct rehabilitation in the polited and damaged environment.
They should also restore the economic, social, and cultural rights of the Papua people- the rights that have been taken away from them since long time ago. “The violations done by the Freeport is massive and not to mention towards the 9 tribal communities in the area of exploration.” In solving Freeport case, the government should give full sovereignty to Papuan people for the vote. Is Freeport still allowed to operate in Papua? According to Merah, the thing which is necessary to be done is not divestment of the share or divestment of trade between country and company. But, the most important thing to do is Zero Divestment, which is returning back the sovereignty to the people who deserve. “Nothing” he said.***