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Jakarta Post

Indonesia should learn from Churchill case: Analysts

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Fri, February 28, 2014   /  10:45 am

The dispute with London-based Churchill Mining plc is a result of the central government'€™s lack of control over mineral resources, says a mining and oil and gas research agency.

 The Indonesian Resources Studies (IRESS) said on Thursday that the government'€™s decision to give local administrations the power to issue mining permits to both local and foreign investors as part of the decentralization policy several years had brought more harm than good to the country.

Regional autonomy only benefitted local governments'€™ high-ranking officials who had often issued permits to certain companies for personal gain, the agency'€™s director, Marwan Batubara said.

 According to him, local administrations should be stripped of their authority to issue permits to put the mining sector back on the right track.

 He said that the government should learn from the Churchill case.

 Under the 2009 Mining Law, local administrations are allowed to issue mining permits. The new law has led to the issuance of thousands of mining permits, as local governments are trying to improve the economy of their regions. As many permits were not issued through proper procedures, overlapping had often occurred. A mining area can be owned by more than one company with different permits, a situation that has triggered disputes.

In 2012, Churchill filed a request for arbitration against the Indonesian government, alleging that Indonesia had breached its obligations under the UK-Indonesia Bilateral Investment Treaty when its licenses on a coal site in East Kalimantan were revoked.

The tribunal ruled earlier this week that it rejected the Indonesian government'€™s attempt to challenge the International Center for Settlement of Investment Disputes'€™ (ICSID) authority to adjudicate the Churchill lawsuit. This will enable the company to pursue its claims worth up to US$1.05 billion for compensation of the revoked permits.

The London company started its business in Indonesia in 2008 by acquiring a 75 percent stake in its local partner, Ridlatama Group, which held permits for about 35,000 hectares of land previously owned by Nusantara Group. In 2010, East Kutai administration regent Ridlatama falsified documents for its mining operation and therefore its license was revoked. Nusantara was then said to have the legitimate permits.

Sharing a similar view with that of Marwan'€™s, Komaidi Notonegoro, the vice director of ReforMiner Institute, said that the decentralization of authority was only good for matured systems.

'€œOur oil and gas sector remains centralized. We need to review the authority in mining sector to local administrations. The central government needs to centralize it so that we can have a more orderly management in investment and governance,'€ Komaidi said.

 The central government has stepped in to resolve problems in the mining sector by asking mining companies to obtain a status of '€œclean and clear'€ from the government. The clean and clear status indicates that companies'€™ activities are in line with the government'€™s environmental policies, free from overlapping land rights and in conformity with tax and non-tax obligations.

The Energy and Mineral Resources Ministry'€™s director general for mineral and coal, R. Sukhyar, said that there were 10,918 registered mining permits (IUPs) issued since 2011.

Out of the total number, 4,877 IUPs had yet to obtain the clean and clear status

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