Editorial: Churchill mired in imbroglio

Paper Edition | Page: 6

The London-listed Churchill Mining company should have been so desperate as to resort to litigation and file for arbitration at the Washington-based International Centre for Settlement of Investment Disputes (ICSID), an affiliate of the World Bank, as the tribunal could take up to three years to reach a decision.

But the ICSID’s acceptance on June 22 to register the lawsuit, one month after Churchill Mining filed it, should worry the Indonesian government. Because that means the case merits a hearing and the lawsuit is entirely within its arbitration jurisdiction.

Churchill Mining has demanded US$2 billion in damages from the central government, claiming the regional administration in the East Kalimantan district of East Kutai seized its coal mining assets without paying proper compensation.

Since 2010, Churchill Mining had been fighting for its right to what it claimed to be a $1.8 billion coal project within Indonesia’s judicial system.

The essence of the case, according to Churchill Mining, is as follows: The British firm started exploring for coal in East Kalimantan in 2008, after acquiring a 75 percent stake of four licenses awarded to local company Ridlatama Group, an Indonesian company. The licenses themselves were formerly owned by six local firms affiliated with the Nusantara Group, which lost their mining rights in 2006 and 2007 due to a lack of activity.

In mid-2008, Churchill disclosed the discovery of a huge coal resource estimated at 2.70 billion tons with potential annual revenues of $700 million to $1 billion for more than 20 years of operation. But soon after this discovery, the same district administration head who had awarded Churchill’s local partner its licenses, extended the expired ones held by Nusantara, which is reportedly affiliated with a political party in Jakarta.

But the East Kutai administration chief claimed that when he revoked the Churchill-Ridlatama licenses in May 2010, the company had conducted illegal logging activities in a conservation forest area. He also accused Churchill of forging its mining licenses and holding licenses that overlapped with those previously issued to Nusantara.

Whatever the final decision, the litigation process at the ICSID will certainly be costly and messy, inflicting further damage on Indonesia’s already notorious reputation of being weak with regards to legal certainty and capricious in policy making.

It was not for nothing that President Susilo Bambang Yudhoyono brought up the issue at a Cabinet meeting last week because the case highlights the messy system of mining licensing by regional administrations ever since the 2009 Mining Law came into effect.

Moreover, it is not the East Kutai administration but the central government that is cited as the defendant in the lawsuit.

The Energy and Mineral Resources Ministry admitted earlier this year that it was verifying thousands of defective mining permits issued by regency or provincial governments, allegedly in violation of the Mining Law as well as forestry and environmental laws.

The 2009 Mining Law, which changes the licensing system in general mining and coal (outside oil, natural gas and geothermal) from a contract of work (CoW) concept to issuing mining business permits, devolves the licensing authority to provincial and district administrations.

Despite regional autonomy, it is imperative that the central government act firmly to annul or amend the mining permits awarded in contravention of the Mining Law.