Indonesian Insights

Written by Dewi Savitri Reni

Over the last decade Indonesia has experienced significant economic growth. As much of this growth is the result of natural resource development, Indonesia has also become more aware and willing to tackle accompanying environmental problems with mixed results.

Current Issues

Two years ago, the Indonesian Parliament passed Law No. 32 of 2009 dated October 3, 2009 regarding Environmental Protection and Management (the “Environmental Law”).  The Environmental Law, although good in its objectives, raises a number of questions regarding its interpretation and implementation as none of the implementing regulations to the Law have been issued through the end of 2011.

Beyond a lack of legal clarity, President Susilo Bambang Yudhoyono announced a 2-year moratorium on new forest concessions in May 2011. The moratorium is part of a bilateral agreement with Norway to reduce carbon emissions and was originally scheduled to be effective as of January 201. However, forest conservation efforts also received a setback in August 2011 as a carbon trading pilot project in Kalimantan collapsed following inconsistent policy and unclear laws.

Overview of 2009 Environmental Law

Similar with the previous law, the Environmental Law requires companies to issue an Environmental Management Statement (Surat Pernyataan Pengelolaan Lingkungan or “SPPL”), an Environmental Management Efforts-Environmental Monitoring Efforts Reports (Upaya Pengelolaan Lingkungan-Upaya Pemantauan Lingkungan or “UKL-UPL”) or an Environmental Impact Assessment (Analisis mengenai Dampak Lingkungan or “AMDAL”) depending on their industry and exposure to the environment.

In addition to this obligation, the Law provides a new requirement for companies to carry out an Environmental Risk Analysis (Analisis Risiko Lingkungan) or obtain an Environmental Permit (Izin Lingkungan).

According to the Law, the Environmental Permit is a precondition to obtain other business permits. The Ministry of Environment (“MOE”) produced a draft Government Regulation on Environmental Permits, which indicates that there will be an Environmental Feasibility Permit as well as an Environmental Protection and Management Permit.  The Feasibility Permit covers activities that may have significant environmental impact, but are not yet covered in AMDAL or UKL-UPL.

Regarding the Environmental Permit, there are questions as to whether all existing licenses shall be integrated and will be replaced by the Environmental Permit or whether the process or the procedures to obtain a license in Indonesia will, in effect, be annulled due to this additional requirement.  The latest draft from the MOE suggests that the Permit will be issued automatically following AMDAL approval without any additional requirements.  The draft also suggests that once the Environmental Permit is revoked, the business permit of the company shall automatically be revoked as well.

Reclamation

In conjunction with the above, the Law requires the owner of an Environmental Permit to provide a guarantee fund that will be used to rehabilitate their work site in the event of environmental damage or restoration.  However, clarification is required on the amount of funds to be earmarked, the security of the funds while placed under government management, and on whether the fund will be tax deductible.

For the mining sector, it should also be clarified as to whether the fund overlaps with the provisions regarding the reclamation and post-mining guarantees under the mining laws. For the oil and gas sector, it should be clarified as well as to whether the fund overlaps with the platform decommissioning fund or the asset retirement obligation.

Environmental Audits

The Law now also requires that companies perform environmental audits in 2011.  Under Article 121 paragraph 1 of the Environmental Law, existing companies with no AMDAL will have to complete environmental audits within two years after the enactment of the Law, i.e., by October 3, 2011. According to the current Ministry of Environment draft Government Regulation on Environmental Audits, this obligation shall also apply to companies with no UKL-UPL.  In addition, those companies without UKL-UPL must also formulate an environmental management document within the two years time frame.

Enforcement

The 2009 Environmental Law has stronger administrative and criminal penalties than previous legislation.  It provides more rights to government institutions, local governments, and civil society and environmental non-government organizations concerning environmental pollution or damage. The law still imposes strict liability on companies which use dangerous and hazardous material (“B3”), result and/or manage B3 waste and/or cause serious threat to the environment.   It also imposes penalties on government officials who grant Environmental Permits without following the proper procedures. However, implementation and enforcement of these measures continues to be a significant problem in the near future for Indonesian authorities.

Conclusion

Overall, the enactment of the Environmental Law is a step forward to provide better protection for the environment.  Hopefully, future implementing regulations to the Environmental Law, which have not been issued, can provide clear clarification on how to efficiently implement the new requirements of the 2009 Law and strike a balance between environmental management and economic growth.

This article is part of our 2011 Indonesian Law Review series, in which our attorneys discuss recent legal developments  over the past year and track the main trends in each industry. We’ve also published reviews of Mining, Geothermal Power Production and Investment.