Controversy over forest mining and upholding the rule of law<\/p>\n
Andrew I. Sriro, Jakarta<\/p>\n
Fair question has been raised as to whether it was appropriate
\nfor the House of Representatives (DPR) to lift the ban on open-
\npit mining in environmental protection forests by passing
\n\"emergency\" Government Regulation in lieu of Law No. 1 of 2004.
\nThis regulation, together with Presidential Decree No. 41 of
\n2004, puts thirteen mining concessions back in business after a
\nfive year hiatus beginning when Law No. 41 of 1999 banned
\noperations.<\/p>\n
Parties are poised to pounce in what could become a major
\ninternational legal battle to be waged between the Indonesian
\ngovernment and mining giants. Environmentalists are screaming
\nbloody murder.<\/p>\n
The various scenarios are almost completely foreseeable as the
\ngovernment teeters on the fine line between wisdom and disaster.<\/p>\n
To avert disaster, the government must construct equitable
\npolicies in defense of legal claims while protecting the
\nenvironment from unacceptable mining damage.<\/p>\n
The problem should be approached more strategically than
\noutright legislation of mining license terminations. There are
\nsolutions available under Indonesian law which protect the
\nenvironment and sustainable national development while avoiding
\nunacceptable levels of State liability. Consider the following
\nrules:<\/p>\n
Indonesian law guarantees the quiet enjoyment of property
\nrights unless a disturbance is necessary for public interests.
\nOnly the state is empowered to terminate property rights if the
\nstate pays reasonable compensation.<\/p>\n
Article 499 of the Indonesian Civil Code, Law No. 5 of 1960
\nconcerning agrarian affairs and mining regulations lead to an
\nimportant legal conclusion: While mining operators do not have
\nfull rights of ownership over the land on which they mine, mining
\noperators do own their license rights.<\/p>\n
Article 570 of the Indonesian Civil Code and Law No. 5 of 1960
\nclearly state that ownership rights may be enjoyed to the extent
\nnot in conflict with the law and those rights may only be
\nterminated for public interests provided the State pays
\nreasonable compensation.<\/p>\n
Law No. 11 of 1967 concerning mining also allows the
\ngovernment to cancel mining concessions for public interests
\nprovided the government pays reasonable compensation.<\/p>\n
Article 2 of the Algemene Bepalingen (old Dutch law still
\napplicable in Indonesia) absolutely prohibits the legislature
\nfrom imposing retroactive regulatory obligations.<\/p>\n
The government does have authority to protect the environment.
\nArticle 33(3) of the Constitution of 1945 grants the State
\nauthority to manage all Indonesian land, water and airspace for
\nthe greatest benefit of the community.<\/p>\n
Article 41(1)(e) of government Regulation 32 of 1969
\nconcerning mining as amended by Government Regulation No. 75 of
\n2001 grants authority to the government to cancel mining licenses
\nif licensees fail to observe environmental issues. Even Article
\n13 of old forestry Law No. 5 of 1967 required sustainable, safe
\nand responsible forestry activities management.<\/p>\n
Articles 16 through 20, 27, 41 and 42 of Law No. 23 of 1997
\nconcerning environmental management provide license revocation
\nsanctions and up to fifteen years imprisonment for polluters.<\/p>\n
Guidelines to the establishment of equitable public policy
\nrest in the quantum of compensation payable to licensees.
\nUnfortunately, the determination is complex requiring independent
\nexpert evaluations which must take into account the high risk
\nnature of mining exploration investments, the value of
\neconomically extractable ore reserves and associated costs of
\nextraction. Reasonable compensation should also be a function of
\nthe quantum of bona fide investments actually made in the
\nexploration phase as a measure of risk to capital expended.<\/p>\n
An unfair compensation policy will unnecessarily prolong the
\nsix year decline in Indonesian mining investment despite the
\nabundance of mineral resources. Limited economic opportunities
\navailable to remote provincial communities could also be
\nimpacted.<\/p>\n
Certainly, no mining concessionaire should be permitted to
\npollute the air, rivers and earth outside of their concessions.
\nThus, the costs of environmental remediation conducted by the
\nState should also be set-off against compensation with
\nresponsibility for any uncovered costs of clean-up remaining with
\nconcessionaires.<\/p>\n
On the basis of the foregoing, investors can be divided into
\nthree basic compensation groups:<\/p>\n
The first group would receive zero compensation and may be
\nsubject to environmental clean-up liability. These parties would
\ninclude: Holders of licenses proven to have been obtained through
\ncorruption; holders who cannot prove actual investment detriment
\nin the form of funds reasonably expended; and holders who have
\nrecklessly violated environmental regulations.<\/p>\n
The second group would include investors who have undertaken
\nsignificant good faith investments. After evaluating budgetary
\ncapacity, compensation according to the above considerations
\nshould be offered as amicable settlement for license
\nterminations.<\/p>\n
The third group would include investors with compensation
\nrights in excess of State budget constraints. The government
\nshould provide fair warning and a reasonable opportunity to cure
\nany outstanding environmental violations through immediate and
\naggressive environmental clean-up and then, subject to full
\nregulatory compliance, these investors should be allowed to
\ncontinue to operate until the end of their license terms. At the
\nsame time, early termination incentives should be negotiated and
\nfuture violations of environmental regulations should lead to
\nlicense revocations.<\/p>\n
To eliminate surprise, the rules for compensation should be
\npublished in advance with a requirement that investors present
\nlegal opinions and proof of damage claims by license holders to
\nthe government during a statutorily limited submission deadline.
\nFailure to submit claims should constitute a waiver of the right
\nto contest application of the rules.<\/p>\n
The government should consider claims and opinions prior to
\nengaging in a final round of settlement negotiations with
\nlicensees. For those cases that don't settle, final disposition
\nshould be left to fairly constituted international arbitrators
\nwho understand Indonesian law prior to license termination.<\/p>\n
Regulations should be implemented obligating the losing
\nlitigant to pay the winner's legal fees in order to dissuade bad
\nfaith suits. Provision by plaintiffs of performance bonds to
\ncover opposing parties' legal fees should be legislated prior to
\nthe commencement of litigation as a mandatory legal trigger to
\nany tribunal's authority to consider a case.<\/p>\n
The government has its work cut out for it in attempting to
\nfind a fair balance between good faith mining investors,
\nenvironmentalists, mining communities and overall national
\neconomic development through the strength of the rule of law.
\n In accomplishing this task, the government should take a strict
\nview on enforcement of reasonable environmental regulations. New
\nenvironmental regulations ensuring compliance with international
\nenvironmental standards prevalent among developing nations should
\nbe enacted. Then, if investors fail to comply with the law,
\ntheir license should be terminated without a right to
\ncompensation.<\/p>\n
The writer, California lawyer with the Jakarta law offices of
\nDyah Ersita & Partners, can be reached at asriro@sriro.com<\/p>",
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