Jakarta in Face-Off With London Miner


Jakarta in Face-Off With London Miner
Wahyudi Soeriaatmadja & Zubaidah Nazeer – Straits Times | September 18, 2012

Jakarta. The Indonesian government is gearing up for the first hearing of a $2 billion lawsuit filed against it by a London-listed mining company before an international arbitration center.

Law Minister Amir Syamsuddin, Home Minister Gamawan Fauzi and Investment Board chief Chatib Basri will represent Jakarta at the hearings, expected to begin in the coming weeks.

At the center of the dispute is the legality of the right of the firm, Churchill, to mine in Busang, East Kutai regency in East Kalimantan.

Foreign investors in mining are watching the case closely, in the light of a raft of new mining regulations that are seen as investor-unfriendly.

The case is also reflective of a sector fraught with corruption and business uncertainty arising from a complex set of rules that call for multiple licenses. The company is protesting against the local government’s decision to revoke the concession rights held by a local company, which it had obtained legally after investing in the local firm to mine coal there.

It claims that expired licenses held by the area’s former miners, Nusantara Group owned by presidential candidate Prabowo Subianto, were reinstated.

Churchill has pursued all legal avenues in Indonesia to overturn the decision to take away its mining rights, including an appeal to the Supreme Court – all have been rejected.

In June, it filed for arbitration by the Washington-based International Center for Settlement of Investment Disputes, managed by the World Bank.

Chatib Basri told The Straits Times the government is prepared, adding, “This is a matter of law. What’s important is that we have a strong team, including good lawyers.”

Churchill’s preparations have seen it putting a number of influential establishment figures on its board.

They include Rachmat Gobel, a member of President Susilo Bambang Yudhoyono’s National Innovation Committee.

The government has dismissed Churchill’s allegation that it broke its own investment laws, claiming that Churchill did not have the correct type of mining licenses.

But Churchill’s executive chairman, David Quinlivan, told The Straits Times, “We had the right license to operate what we needed to as a coal miner in Indonesia.”

He said the company had complied with the requirements to get the various necessary licenses and “confirmed at the time that there were no other competing or overlapping licenses,” before entering into an agreement with the local company, Ridlatama, for further exploration-related activities.

Analysts note that changes to the law on mining and coal in 2009 made the process of securing mining rights opaque, even causing companies to lose their guaranteed tenure.

Quinlivan said the new East Kutai regent, Isran Noor, had approved Churchill’s request for the new licenses to comply with these changes.

Isran Noor, however, said he never received any requests from Churchill, but that he had revoked licenses held by Ridlatama after the Supreme Audit Agency found irregularities in four of the company’s mining permits.

“They should be directing this lawsuit at Ridlatama, not us,” said Isran Noor. “We have solid evidence to prove we are not in the wrong.”

Law Minister Syamsuddin said Churchill’s acquisition of a local company broke the law as they did not report nor get approval from the regency government and Jakarta.

The government also contends that the concession area is in a natural forest, and that the law requires anyone wanting to work on such land to get a permit from the forestry ministry before it starts work. Churchill failed to comply with that condition, according to a document obtained by The Straits Times.

But Churchill maintains that it was revoked on murky grounds, including a claim that indigenous Dayak tribes had complained about illegal activities in the forest, which were later denied by the Dayaks themselves.

Jefrey Mulyono, former chairman of the Indonesian Coal Mining Association, is skeptical that Churchill was unaware that coal mining concessions cannot be transferred to them from the local company originally granted the concessions, without approval from the regent.

“Churchill is trying to ride on the criticisms that have occasionally been voiced on the Indonesian investment climate,” he said. “The truth is foreign investors are not always right.”

For now, both sides are competing to provide evidence for the international arbiter to decide who is right.

Reprinted courtesy of The Straits Times