Court Takes Another Dig at Mining Law

the view from the Gillard suite

Written by Florence Gracia Santoso

The courts have continued to pick apart Indonesia’s 2009 Mining Law, as the Constitutional Court (the “Court”) found several articles unconstitutional only a month after the Supreme Court struck down a number of articles in one of the law’s supporting regulations.

As with the earlier decision, the Court took issue with the central government’s claim of powers in the Mining Law. And again the beneficiaries are regional governments, which have been handed greater authority over the mining industry in their territories, complicating efforts by the central government to tighten mining regulations.

Decision No. 10/PUU-X/2012, issued by the Court on November 22, 2012, was in response to a petition brought by the head of Kutai Timur regency in East Kalimantan. It follows two decisions issued by the Supreme Court on September 12, 2012, that dismantled several provisions of the controversial Minister of Energy and Mineral Resources Regulation No. 7 of 2012, a supporting rule for the Mining Law. The consequences of this recent decision, as well as the earlier ruling, are still being determined, but this latest court action highlights the uncertain regulatory environment for the Indonesian mining industry.

Authority to Designate Mining Areas

In its decision, the Court handed greater power to regional authorities to designate mining areas. The petitioner had asked the Court to hold Articles 6(1)e, 9(2), 14(1), 14(2) and 17 of the Mining Law unconstitutional. He argued that the articles took away the power of regional governments to designate mining areas, putting them at odds with the principles of regional autonomy spelled out in Articles 18(1) and 18(2) of the Constitution.

The Mining Law articles in dispute gave the central government the power to designate mining areas after coordinating with regional governments. This, according to the Court, was overreach. It found that designating mining areas is not a matter of state sovereignty and should therefore not fall under the sole purview of the central government in Jakarta. The judges ruled that the management and exploitation of mineral resources relates directly to the area in which the mining activities take place, and the Mining Law’s requirement for the central government to coordinate with regional governments was insufficient to protect the rights of local administrations in deciding policy for their natural resources. They considered that regional governments have the right to designate mining areas and such right shall not be limited to coordination with the central government.

However, regional authorities did not get everything their own way. The Court recognized that the designation of mining areas should be in accordance with the national spatial plan and the long-term national development plan, and take into account environmental protections. In this regard, the Court ruled, the central government shall continue to wield authority over the decision-making process.

In the end, the Court held Articles 6(1)e, 9(2), 14(1), 14(2) and 17 unconstitutional as long as “after coordination with Regional Governments” was not interpreted as “after being determined by the Regional Governments.” With the issuance of this Court decision, mining areas shall be designated by the central government only after they have been determined by regional governments.

National Development and Mining Areas

Article 1, point 29 of the Mining Law stipulates that mining areas are not bound by administrative borders. The petitioner argued that the article was vague and could result in legal uncertainty in the management and control of mining activities. The Court, however, held that the designation of mining areas must be based on the national spatial plan, which does not necessarily follow administrative borders since it must also take into account environmental concerns and overlapping claims by regions. In this regard, the central government must take the lead in synchronizing mining areas. The Court held that mining areas should not be bound by regional governments’ administrative borders and rejected the petitioner’s request that this article be found unconstitutional.

The petitioner also asked the Court to find Article 171(1) of the Mining Law and its requirement that holders of Contracts of Work (“COW”) and Coal Contracts of Work (“CCOW”) submit their activity plans to the central government unconstitutional. This request was rejected by the Court, which considered this reporting obligation necessary to avoid overlapping mining areas that could result in legal uncertainty for mining companies and local communities.

Outlook

With its decision, the Court has devolved more power to regulate the mining industry to regional authorities. The full consequences of this decision are unknown, but there are concerns that it could negatively affect mining companies by adding another layer of bureaucracy and conflict of authority between the central government and regional governments.

But what is certain is that this latest Court decision underlines the shifting regulatory environment for the mining industry, which is no doubt a concern for investors.

For more on the Mining Law, see:

Review of the Mining Industry

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