T

he Indonesian government may have to pay compensation of up to US$1.05 billion to the London-listed Churchill Mining Plc after the International Center for Settlement of Investment Disputes (ICSID) rejected its jurisdictional challenge against the arbitration body.

The ICSID said Tuesday it had rejected the government'€™s challenge and that it did have the jurisdiction to sit in judgment over an arbitration filed by Churchill in 2012 over the government'€™s revocation of its mining permits in East Kalimantan. The decision would enable the mining company to pursue its damages claims against the Indonesian government.

 The government of Indonesia had previously challenged the ICSID'€™s authority to adjudicate the case.

Law and Human Rights Minister Amir Syamsuddin, however, said Wednesday that the continuation of the case before the ICSID was positive for the country, as the tribunal would hear the government'€™s arguments and evidence regarding its efforts to protect foreign investors acting in good faith.

'€œWe are optimistic and confident that the government of Indonesia has a chance to succeed in the next trials regarding the merit of the case. The government has strong evidence that it has not violated the bilateral investment treaties, national law or international law,'€ Amir said on Wednesday.

'€œOur optimism is supported by facts that investment claims made by Churchill and Planet Mining Pty Ltd [Churchill'€™s subsidiary] do not comply with and even violate the Indonesian laws,'€ he continued.

ICSID, an affiliate of the World Bank and well-known for rigidity and integrity, has not set the schedule for the next hearings. The rejection of the jurisdictional challenge, which is the first blow to the government of Indonesia, is a victory for Churchill.

'€œThe tribunal decisions now allow Churchill and Planet to pursue their claims for damages against the Republic of Indonesia under the respective bilateral investment treaties Indonesia entered into with the United Kingdom and Australia,'€ Churchill'€™s chairman David Quinlivan said in a statement released on late Tuesday.

University of Indonesia international law expert Hikmahanto Juwana said the government had an opportunity to request an annulment of the ICSID ruling.

'€œThe annulment process is carried out within the ICSID. However, the request for the annulment should be conducted through another arbiter. Should the annulment be granted, the ICSID has no authority to continue the case,'€ Hikmahanto said.

Churchill dragged Indonesia to the ICSID in 2012 after the regional administration in the East Kalimantan district of East Kutai revoked its coal mining permits without proper compensation.

The London-based company began its business in Indonesia in 2008 by acquiring a 75 percent stake in its local partner, the Ridlatama Group. Two years later, the East Kutai administration revoked Ridlatama'€™s mining permits for allegedly engaging in illegal logging and operations. The company was also accused of forging its permits.

Churchill'€™s partner Ridlatama had secured mining permits for about 35,000 hectares of land, which was formerly controlled by six local firms affiliated with the PT Nusantara Group, which is reportedly connected to presidential candidate Prabowo Subianto.

Though Nusantara reportedly lost its mining rights in 2006 and 2007 due to a lack of mining activity, the East Kutai administration said the company still held legitimate permits, and that Ridlatama was the one working under falsified permits.

Churchill has estimated that the damages resulting from the actions taken by Indonesia were worth not less than $1.05 billion, excluding interest.

In early May 2011, Rachmat Gobel, the president director of Gobel International, and Fara Luwia acquired part of Churchill'€™s shares, a move widely cheered by the market as investors believed that the two Indonesians would be able to help settle the dispute.

Meanwhile, Coordinating Economic Minister Hatta Rajasa regretted the ICSID tribunal decision, and Industry Minister MS Hidayat called on local administrations to be more cautious.