In for messy litigation

Jakarta Post, Indonesia

Editorial: In for messy litigation

3 March 2014

Several local newspapers misread the recent decision by the Washington-based International Center for Settlement of Investment Disputes (ICSID) as a verdict forcing the Indonesian government to pay over US$1 billion in compensation to the plaintiff, London-listed Churchill Mining Plc, in regard to its coal mining concessions in East Kalimantan.

The ICSID ruling was that Churchill’s claims over coal mining concessions in East Kalimantan is a case that merits a hearing and is entirely within the jurisdiction of the arbitration body, thereby throwing out the Indonesian government’s challenge. It is only the first step within the arbitration proceeding at the tribunal, which could run from one to three years.

But the ruling by the World Bank affiliate, of which Indonesia is a contracting state and is bound by its rules, will nonetheless bring the government into messy and costly litigation with the risk of suffering both financial and reputational losses.

Both parties — the government and Churchill — are required to propose their respective arbitrators within the next 30 days and ICSID will appoint an independent arbitrator to form up the tribunal.

The whole arbitration process could run between one to three years but once the arbitral tribunal has reached a decision the verdict will be final and neither party can make an appeal.

However, Churchill could still withdraw its lawsuit and settle the dispute out of the tribunal, as Mexico’s Cemex cement group did in 2004 with its lawsuit over its dispute with the Indonesian government over its shareholding in PT Semen Gresik (now PT Semen Indonesia).

At the center of the dispute is the legality of the right of Churchill to mine coal concessions in East Kalimantan.

The company is protesting against the local government’s (East Kutai regency) decision to revoke the concession rights held by a local company.

The 2009 Mining Law, which changed the licensing system in general mining and coal mining (outside oil, natural gas and geothermal) from contract of work (CoW) to mining business permits, devolved the licensing authority to provincial, regency and municipal administrations.

Since 2010, Churchill Mining had fought through all legal avenues in Indonesia’s judicial system for its right to what
it claims to be a $2 billion coal project. All the company’s attempts had been rejected.

The combination of corruption and political patronage seemed to have led many firms into imbroglio as regional government leaders and local legislators colluded to issue as many mining permits as possible in a bid to raise as many funds as possible for election campaigns.

The Energy and Mineral Resources Ministry itself has admitted it was verifying thousands of irregular mining permits issued by regency or provincial governments allegedly in violation of the mining law or forestry and environmental laws.