Resource dispute resolution

Resource dispute resolution

By Ryad Areshman Chairil

MELBOURNE (JP): Disputes over the development of mineral
resources appear to be inevitable given the high financial
stakes, the complexity of financial and development issues, and
the changing environment both in host nations and that of
developers.

Now the government plans to set up a new system of minerals
and petroleum contracts which best suits the interests of
empowering the regions.

However, prevailing contracts of work, production sharing
contract or coal contracts will still be valid until the
expiration date.

The 1999 law no. 22 on regional autonomy, which will be
implemented along with the law no. 25/1999 on fiscal balance,
states that regions will manage national resources which exist in
their territory.

Those laws have introduced Indonesia to a new world of
regional governance. It raises the need for a provincial mining
or petroleum act to accommodate the development of resources in
the region. Each provincial act does not have to be the same,
given the social, economic, cultural and religious diversity
which exist between one region and another. The laws could
accommodate long-ignored customary rights.

Such acts would include the rights of regencies to issue
mining permits for investment, exploration and production,
covering both technical and administrative matters.

The acts would provide the regencies, or kabupaten, with the
rights to plan and control the use of mining and energy natural
resources, including the implementation of environmental audits.
The regencies would be entitled to carry out geological, mineral
and energy research.

The regencies would become a signatory of mining concessions
or licenses together with the investors.

These arrangements will change the current licensing system. A
new system should be established to reflect the requirements of
an effective and productive administration for the development of
resources.

This system should create confidence for investors seeking an
exploration or mining agreement. A new system only allowing two
main licenses, exploration and exploitation, would be preferred.
Chile, Argentina, and Australia have endorsed a similar system.

But such a licensing system would not be applicable for large-
scale resources projects. An exclusive agreement similar to state
agreements in Australia may be better.

The agreements could assign provincial and regency governments
the role of signatory party under tight central government
supervision. The aim of establishing such agreements is to allow
parties to create a unique legal regime for each project.

It is hoped that deficiencies in the ordinary law may be
overcome and specific requirements in relation to the project can
also be met.

However those above are technical and administrative matters.
A further issue is legal certainties relating to the project in
the case of disputes. Previous minerals and petroleum contracts
have referred to international arbitration.

Today, how will disputes be settled under the autonomy law
which now gives a greater role to community rights (hak ulayat)?

One can be cautiously optimistic here. Problems with community
rights can be minimized if -- and only if -- the process of
granting a license or a provincial agreement follows a
transparent and accountable public hearing procedure.

Conflicts of interest between communities and other parties
should be resolved at this stage. Mediation therefore takes on a
very important role. So far settlement by mediation has been
successful to solve most mining and petroleum cases, with no need
for international arbitration.

This is where provincial and regency governments are
recommended to fulfil the role they are best at.

Complaints have been lodged regarding the appointment of local
representatives as mediators. Governments have been found to
intervene in deciding who should be representatives -- such
people are therefore considered to be representing only the
government's interests rather than the locals'.

Candidates for local representative positions should be
appointed by their respective communities without any outside
intervention.

These appointments must be drawn up in regulations at the
regional level. To maintain the objectivity in mediation, non
government organizations (NGOs) should not be included as the
signatory parties.

NGO people should only supervise and monitor the
implementation of a mediation agreement. But free access should
be provided to them to evaluate the implementation of mediation.

In some circumstances they would have the right to act in case
of violations of the agreement.

Moreover, provincial and regional governments might also learn
from Australia's experiences in this area. The set-up of private
organizations, providing alternative dispute resolution services
and facilities for both international and domestic disputes, has
become established in Australia.

If mediation is not satisfactory cases could then be brought
to the Indonesian National Arbitration Board (BANI).
Unfortunately the board is yet to be effective in settling
disputes between local and foreign investors.

The judiciary, meanwhile, is well-known for not being
independent. The experience of foreign creditors in the
Indonesian courts can only underpin the perception that those
institutions are not yet able to provide an international
standard for dispute resolution that foreign lenders require.

Most cases have been settled through mediation without
involving the Indonesian court system. Both the government and
developers have consciously avoided it, given the additional
"administration risks" to the project feasibility.

Empowering BANI to be more professional, accountable and
trusted by the international world will obviously involve
complicated regulatory reforms requiring credible and qualified
human resources.

Should BANI still prove incapable, cases would then proceed to
international arbitration. Until now, there has been no need for
cases to be settled by this means, and it is hoped it will
continue this way.

The writer is a Ph.D. candidate at the Center for Energy and
Resources Law at the Faculty of Law, the University of Melbourne
in Australia.