Safeguarding the constitutional economic system

A. Irmanputra Sidin Jakarta

The Constitutional Court has, in the last two weeks, issued two historic decisions in the economic sector, namely constitutional reviews of Law No.20/2002 on Electricity and Law No.22/2001 on Oil and Gas.

The main basis of the reviews is that "branches of production that are essential to the state and dominate the livelihood of the masses shall be controlled by the state. Land, water and the natural resources contained therein shall be controlled by the state and utilized to the maximum benefit of public welfare" (Article 33 paragraphs (2) and (3) of the 1945 Constitution).

Article 33 of the 1945 Constitution specifies the constitutional economic system founded on state control to the maximum benefit of public welfare. The constitutional economic system in the concept of essential production is relative. An extreme example is chili, which is now seen as unessential, but when some day this spice becomes indispensable to the majority of Indonesians, and the chili market gradually turns unfriendly, chili production will be vital and controlled by the state for optimal public welfare.

The same is true of the control concept, in which the authorities as an entrepreneur or mere regulator, or as a pro- market government, are not imperative. If the state can make the market in favor of the people, pro-market management is not a taboo, but if the market is against the masses then the state will have to account for it.

The state-control concept guarantees availability, national resilience, equity, accessibility and justice so that a commodity can be optimally consumed or produced for the greatest extent of public welfare (i.e. pro-people). This is in line with the concept of Jeremy Bentham that "the fundamental object of the legal system is the promotion of happiness into four subsidiary ends: Subsistence, abundance, security and equality".

In the Constitutional Court decisions on the reviews of the laws, the court interprets state control as originating in and being derived from the concept of people's sovereignty. The people, through the 1945 Constitution, give their mandate to the state, covering not only the authority over regulation, but also over policy, direction, management and supervision for the achievement of maximum public welfare.

Therefore, none of the business organizations or entities in the republic can claim to be the sole inheritor of the state's authority over the management of this constitutional economic system, except the state itself under the principle of people's sovereignty in this constitution-based country.

Factually and normatively, electricity and oil/gas are at present categorized as essential branches of production. This is apparent in the considerations of both laws, which reflect their paradigm. The next question is: After establishing the paradigm of essential products in the laws, does the judicial concept of these laws, in linear terms, contain the gist of the constitutional economic system?

The consideration and main articles of the Electricity Law stipulate that the supply of electricity is realized through competition and transparent methods under a sound business climate, according to rules that give equal treatment and opportunity to all players interested in the electricity business.

The power-supply business divisions comprising generation, transmission, distribution, sale, sale agency, market management and power-system management are to be handled by different business units, which can be private companies (i.e. unbundling system). Transmission and distribution are not for competition because their priority goes to state-owned enterprises (BUMN), while the rest are contested by all business enterprises. The state under this law, namely the government/regions and the Electricity Market Supervisory Board, only has the dominant role of planning, regulation and supervision.

By the paradigm of this law, it can be noticed that state control is at a minimum amid the domination of competition and the unbundling system. The consideration of the Constitutional Court decision on the Electricity Law cites an example that in Britain, whose system is far more developed, private companies tend to reintegrate after the British government's previous unbundling through a restructuring program. Recently, four countries -- Thailand, South Korea, Brazil and Mexico -- postponed or canceled their restructuring of the electricity sector.

Imaginably, by the unbundling system and the market (supply and demand) dogma that consumers have the right to obtain electricity at a "proper price" (Article 34 of the law) amid minimum state control, people's sovereignty over prosperity will lose its guarantee. The (market based) "proper price" is not automatically an affordable (pro-people) price. The market regime will turn into a "Dracula" after sucking the blood of the state in its minimized position. In this normative condition, state control has no capacity to create maximum public welfare so that the Electricity Law must be declared totally ineffective by the Constitutional Court.

The case is different from the Oil/Gas Law, where the normative paradigm of state control reflected in its consideration and main articles specifies that strategic non- renewable natural resources in the mining jurisdiction of Indonesia constitute national assets. These assets are controlled by the state as a mining concessionaire, by setting up an executing body to control the upstream business (exploration and exploitation) through cooperation contracts, which at least contain the terms that the government retains resources ownership until the moment of relinquishment. Operational management control is conducted by the executing body; and capital and risk are entirely borne by business enterprises (BU) or permanent establishments (BUT).

It is also affirmed that upstream business and downstream business (processing, shipment, storage and trade) activities can be handled by state-owned enterprises/regional enterprises, cooperatives, small-scale enterprises and private business companies, whereas permanent establishments set up and domiciled outside Indonesia can only handle the upstream sector.

However, does this state-control paradigm perfectly cover loopholes in the Oil/Gas Law so that the pro-people principle is guaranteed? It seems that some rats are yet to be eliminated without burning the granary infested. The Oil/Gas Law stipulates that "the minister shall determine the business enterprise or permanent establishment that is authorized to carry out exploration and exploitation business activities..." (Article 12 paragraph (3) of this law). The phrase "is authorized" in the legal sense is the delegation of authority that can render state authority impotent.

Also, business enterprises or permanent establishments shall give up, at most, 25 percent of their production to domestic supply (Article 22 paragraph (1) of the law). The phrase "at most" may legally allow a private/foreign business enterprise to deliver only 0.000001 percent of its output to the people. Doesn't this provision provide no pro-people guarantee? So, both stipulations can frustrate the constitutional economic system, unless the two phrases are declared invalid.

The same applies to the provisions that oil/gas shall be under a sound and proper market mechanism, and that the social responsibility of the government shall be limited to certain groups (Article 28 paragraphs (2) and (3) of the law). Pro-market arrangement is not tabooed as long as the market is accessible, because a proper level is not automatically affordable (pro- people).

Moreover, the state should be responsible to the entire population rather than certain groups only, which reduces accountability. When oil/gas on the market is not pro-people, the state must be held responsible. Unless the above two provisions are abolished, the government may evade its responsibility while the oil/gas market is against the masses today.

In conclusion, we are aware that the collusion between the authorities and entrepreneurs so far has tended to undermine the constitutional economic system. This is not always due to the legal instrument but has more resulted from the personal and collective behavior or the culture of graft, which brings inefficiency and losses to state enterprises.

However, the problem involves the regime of criminal and other relevant codes rather than the Constitutional Court regime, so that severe punishments for such offenses should be promoted, while avoiding any misdirected blame.

The writer is an assistant constitutional judge and lecturer of constitutional law at Indonusa Esa Unggul University, Jakarta. This article expresses his personal view