Controversy over forest mining and upholding the rule of law
Controversy over forest mining and upholding the rule of law
Andrew I. Sriro, Jakarta
Fair question has been raised as to whether it was appropriate
for the House of Representatives (DPR) to lift the ban on open-
pit mining in environmental protection forests by passing
"emergency" Government Regulation in lieu of Law No. 1 of 2004.
This regulation, together with Presidential Decree No. 41 of
2004, puts thirteen mining concessions back in business after a
five year hiatus beginning when Law No. 41 of 1999 banned
operations.
Parties are poised to pounce in what could become a major
international legal battle to be waged between the Indonesian
government and mining giants. Environmentalists are screaming
bloody murder.
The various scenarios are almost completely foreseeable as the
government teeters on the fine line between wisdom and disaster.
To avert disaster, the government must construct equitable
policies in defense of legal claims while protecting the
environment from unacceptable mining damage.
The problem should be approached more strategically than
outright legislation of mining license terminations. There are
solutions available under Indonesian law which protect the
environment and sustainable national development while avoiding
unacceptable levels of State liability. Consider the following
rules:
Indonesian law guarantees the quiet enjoyment of property
rights unless a disturbance is necessary for public interests.
Only the state is empowered to terminate property rights if the
state pays reasonable compensation.
Article 499 of the Indonesian Civil Code, Law No. 5 of 1960
concerning agrarian affairs and mining regulations lead to an
important legal conclusion: While mining operators do not have
full rights of ownership over the land on which they mine, mining
operators do own their license rights.
Article 570 of the Indonesian Civil Code and Law No. 5 of 1960
clearly state that ownership rights may be enjoyed to the extent
not in conflict with the law and those rights may only be
terminated for public interests provided the State pays
reasonable compensation.
Law No. 11 of 1967 concerning mining also allows the
government to cancel mining concessions for public interests
provided the government pays reasonable compensation.
Article 2 of the Algemene Bepalingen (old Dutch law still
applicable in Indonesia) absolutely prohibits the legislature
from imposing retroactive regulatory obligations.
The government does have authority to protect the environment.
Article 33(3) of the Constitution of 1945 grants the State
authority to manage all Indonesian land, water and airspace for
the greatest benefit of the community.
Article 41(1)(e) of government Regulation 32 of 1969
concerning mining as amended by Government Regulation No. 75 of
2001 grants authority to the government to cancel mining licenses
if licensees fail to observe environmental issues. Even Article
13 of old forestry Law No. 5 of 1967 required sustainable, safe
and responsible forestry activities management.
Articles 16 through 20, 27, 41 and 42 of Law No. 23 of 1997
concerning environmental management provide license revocation
sanctions and up to fifteen years imprisonment for polluters.
Guidelines to the establishment of equitable public policy
rest in the quantum of compensation payable to licensees.
Unfortunately, the determination is complex requiring independent
expert evaluations which must take into account the high risk
nature of mining exploration investments, the value of
economically extractable ore reserves and associated costs of
extraction. Reasonable compensation should also be a function of
the quantum of bona fide investments actually made in the
exploration phase as a measure of risk to capital expended.
An unfair compensation policy will unnecessarily prolong the
six year decline in Indonesian mining investment despite the
abundance of mineral resources. Limited economic opportunities
available to remote provincial communities could also be
impacted.
Certainly, no mining concessionaire should be permitted to
pollute the air, rivers and earth outside of their concessions.
Thus, the costs of environmental remediation conducted by the
State should also be set-off against compensation with
responsibility for any uncovered costs of clean-up remaining with
concessionaires.
On the basis of the foregoing, investors can be divided into
three basic compensation groups:
The first group would receive zero compensation and may be
subject to environmental clean-up liability. These parties would
include: Holders of licenses proven to have been obtained through
corruption; holders who cannot prove actual investment detriment
in the form of funds reasonably expended; and holders who have
recklessly violated environmental regulations.
The second group would include investors who have undertaken
significant good faith investments. After evaluating budgetary
capacity, compensation according to the above considerations
should be offered as amicable settlement for license
terminations.
The third group would include investors with compensation
rights in excess of State budget constraints. The government
should provide fair warning and a reasonable opportunity to cure
any outstanding environmental violations through immediate and
aggressive environmental clean-up and then, subject to full
regulatory compliance, these investors should be allowed to
continue to operate until the end of their license terms. At the
same time, early termination incentives should be negotiated and
future violations of environmental regulations should lead to
license revocations.
To eliminate surprise, the rules for compensation should be
published in advance with a requirement that investors present
legal opinions and proof of damage claims by license holders to
the government during a statutorily limited submission deadline.
Failure to submit claims should constitute a waiver of the right
to contest application of the rules.
The government should consider claims and opinions prior to
engaging in a final round of settlement negotiations with
licensees. For those cases that don't settle, final disposition
should be left to fairly constituted international arbitrators
who understand Indonesian law prior to license termination.
Regulations should be implemented obligating the losing
litigant to pay the winner's legal fees in order to dissuade bad
faith suits. Provision by plaintiffs of performance bonds to
cover opposing parties' legal fees should be legislated prior to
the commencement of litigation as a mandatory legal trigger to
any tribunal's authority to consider a case.
The government has its work cut out for it in attempting to
find a fair balance between good faith mining investors,
environmentalists, mining communities and overall national
economic development through the strength of the rule of law.
In accomplishing this task, the government should take a strict
view on enforcement of reasonable environmental regulations. New
environmental regulations ensuring compliance with international
environmental standards prevalent among developing nations should
be enacted. Then, if investors fail to comply with the law,
their license should be terminated without a right to
compensation.
The writer, California lawyer with the Jakarta law offices of
Dyah Ersita & Partners, can be reached at asriro@sriro.com