Revised Mining (Mineral & Coal) Law:
“There Needs To Be a Strategy to Avoid an ISDS Lawsuit”
In the list of National Legislation Programs (Prolegnas), Mineral and Coal Regulation (UU Minerba) No. 4/2009 entered the list of the Regulation which will be revised by the House of Representatives (DPR). There are indications that the discussion completed in this 2016 and could soon be enacted.
Regarding the plan discussion against changes to the Mineral and Coal Regulation from Government’s version of the material, Indonesia for Global Justice (IGJ) criticize, together with other civil society groups who are members of “Civil Society Coalition Advocating Minerba Regulation“, among others; JATAM, ICEL, PWYP, ICW, WALHI, KIARA, AMAN, PATTIRO, HuMA, IGJ, Article 33, Woman Solidarity, Epistema Institute, FWI and AURIGA. These Coalitions rejected the Government’s version of the draft bill that was made through the Ministry of Energy and Mineral Resources.
Reason for Revision
Based on the academic manuscript documents compiled by the Government, there are at least a few things that are relied upon to do the revision of Act No. 4 of 2009 about mineral and coal: First, how ineffectively Act No. 4 of 2009 in its implementation. It is visible from how often judicial review that has been done above the Regulation No. 4. In 2009 in the Regulational Court which resulted in a substantial change in the Regulation; Secondly, the occurrence of disharmony with some other Regulation in another sector that drastically and fundamentally changed the enforcement on Mineral and Coal , in particular harmonization with Regulation No. 23/2014 regarding Local Governance;
Third, the existence of some provisions in the Regulation No. 4 of 2009 are not implementable, so there’s a stagnation in the implementation process particularly associated with the renegotiate efforts on Work of Contract (Kontrak Karya) both in terms of downstream industrial development or liability of shares divestment ; Fourth, the existence of legal requirements in the field of coals needs to be accommodate in the Regulation of Minerals and Coal that will change/replace Act No. 4 of 2009.
Interestingly, this revision raises a pretty strong impression related to corporate interests of large mines insistence for delaying the implementation of downstream industrial development or the liability of shares divestment. This is perform because in the middle of massive demands of Freeport and Newmont are asking for relaxation from Government of Indonesia related to implementation of the purification obligations and downstream construction industry in this sector. This obligation had sued by Newmont, though it was ultimately revoked.
ISDS Lawsuit Weakens the Bargaining State Position
The Government of Indonesia should make Newmont Lawsuits in the ICSID (International Center for the Settlement of Investment Disputes) as experience which may encourage the reinforcement strategy of Indonesia in protecting national interests over control of Indonesia’s natural resources by multinational corporations. The existence of the Lawsuit mechanism between investors and the state or Investor-State Dispute Settlement (ISDS) will only continue to weaken the bargaining position of the State in protecting national interests, particularly in the sector of extractive industries.
As a real example, Newmont’s Lawsuit against the Government of Indonesia in ICSID in 2014 only weaken the bargaining position of the Government of Indonesia in implementing the downstream obligations and banning the export of concentrates that are set in Mineral and Coal Regulation No. 4/2009. The result of the Newmont actions ended with Newmont’s succeeded of getting permission from the Government of Indonesia to do the concentrate export without need to realization the construction of purification industrial beforehand.
From the experience of Newmont Lawsuit, it’s increasingly clear that Revision of Minerba Regulation isn’t the way out that should be selected by the Government of Indonesia associated by the difficulty of obligations implementation of increased added value through processing and refining industry obligations by the mining company. This is because the state would only legalize the liability avoidance efforts which so far have been reluctant to do.
However, what needs to be done by the Government is to set up mechanisms of strict sanctions for companies that violate the provisions of the Minerba Regulation, particularly in performing the obligation in downstream industrial development and shares divestment. For example, in article 105 of the Minerba Draft BILL, the Government Version is not set administrative sanctions for the IUP holder or IUPK who does not immediately establish industrial processing and refining as well as carry out the shares divestment. In the absence of strict sanctions, then certainly this revised Minerba Regulation would only be futile, and the back will not be implementable.
Of course, this step should be followed by the Government’s strategy to avoid the application mechanism of ISDS. The existence of this mechanism, ISDS will also complicate the Government’s manifest in national interest related to the obligations of shares divestment. In the practice of International Investment Protection Agreements, the obligations of the shares divestment is a form of indirectly nationalization act (Indirect Expropriation), which may violate the provisions of the principles of non-discrimination through the application of National Treatment and the Fair and Equitable Treatment.
Examples of the application of ISDS Lawsuit related to shares divestment can be seen from the mining company’s Lawsuit from Italy against the Government of South Africa (Piero Foresti and others vs. South Africa (2007)). Italian investor and Luxembourg suing the Government of South Africa for US$ 350 Million because of the mining Regulation contain provisions of anti-discrimination, which oblige companies to transfer their shares portion to a few of black investors (black investors) in Africa in order to recover the injustice at a time when the regime of apartheid. The verdict over the case issued in 2010 and Italian and Luxembourg investors managed to get a new permit that allows them to divest shares at a very low level, far from the provisions of the Regulation of Black Economic Empowerment.
Opportunity to Avoid ISDS Lawsuits in the Sector of Extractive Industries.
The highlights of Minerba draft BILL of the Government version, mentioned that one of the reasons to revise Minerba Regulations due to authority changes on granting permission of the Mineral and Coal fields in Act No. 23/2014 regarding Local Governance. In the new local government Act, mentioned that the governance of the District/City is no longer given the authority to issue a permit in the field of Mineral and Coal. Indeed during this overlap licensing has become a thorny issue in the mining sector.
It looks like the Government of Indonesia does not want to repeat the mistakes of the Churcill Mining Lawsuit against the Government of Indonesia in 2012 in ICSID. In this case the Central Government should be responsible for the actions of the East Kutai Regent withdrew authorization in the field of coal in the middle of a conflict of interest exists. In an attempt to avoid responsibility of the adverse decision of the Governors, the Central Government then issued Presidential Decree No. 31/2012 which is not input an administrative decision issued by the County Government as disputes can be brought into an investment dispute. But the efforts to avoid a Lawsuit from ISDS are not enough to just stop here.
In an attempt to avoid an ISDS Lawsuit, Government of Indonesia has done some strategic steps, such as stopping the Bilateral Investment Protection Agreements (Bilateral Investment Treaty/BIT) with some countries and do a review as well as rearranges the draft of Enhancement Treaty and Investment Protection (P4M). Only, this draft has not been effectively implemented. Whereas if viewed P4M draft (2015 version), there are some provisions that if applied consistently would be able to reinforce the strategy for the protection of national importance in the sector of extractive industries.
For example, the rules concerning the exclusion from the application of the Act of National Treatment for specific conditions, such as: First, the Laws or Regulations to facilitate small and medium scale business; Second, any action that affects the natural resources sector; and third, for the sake of national security or development needs of certain sectors set out along with the parties in an investment agreement.
If only this provision can be applied, then certainly can be a powerful strategy in protecting national interests in the sectors of the extractive industries from the bad effects of an ISDS mechanism. So, the revised Regulation of Minerals and Coal cannot effectively protect national interests without any attempts to avoid the application of this mechanism. Therefore, the Government of Indonesia should be back seriously and consistently in implementing the P4M draft , and stop the negotiations entire chapter of investment protection which set up ISDS mechanisms, such as TPP Treaty and the free trade agreements between the EU with Indonesia **
Monitoring Officer (Intern)
Indonesia for Global Justice
The Executive Director
Indonesia for Global Justice