INDONESIA’S REVOCATION OF MINING PERMITS: WHAT FOREIGN INVESTORS NEED TO KNOW

On September 26, 2022, the Indonesian Minister of Investment provided an update on the review process being undertaken by the Ministry of Investment in respect of its revocation of over 2,000 mining permits in August 2022. According to the update, Indonesian authorities have decided to reinstate around 90 permits to date, following complaints reportedly lodged by approximately 700 companies.

The Indonesian Government’s review of mining permits began in January 2022 when President Joko Widodo set up a task force to effect the revocation of mining permits that had purportedly been obtained wrongfully. This led to over 2,000 mining permits being revoked in August 2022 as confirmed by news outlets, official Twitter accounts of the Ministry of Investment and the Minister himself, as well as by the Minister at Commission VI of the House.

The Indonesian Government’s justification for the revocation concerns non-compliance or non-use of the permits. The revocation affects permits for mining coal, tin, nickel, bauxite, copper, and gold.

The Indonesian Government has identified two ways in which affected parties can challenge the revocation of their mining permit: by an administrative appeal or by a challenge to the Administrative Court.

However, proceedings in Indonesia may not be the only option available to affected permit-holders. Foreign investors in Indonesia may be able to rely on the protections and dispute resolution options provided for in Indonesia’s investment treaties.

Indonesia has entered into such treaties with more than 30 countries, including the U.K., Australia, Singapore, and South Korea. This means foreign nationals (whether individuals or legal entities) with any kind of investments in Indonesia (such as shares or concessions) in the mining industry might enjoy certain legal protections under the relevant bilateral or multilateral investment treaty, including in circumstances where permits have been improperly revoked. Although several of Indonesia’s investment treaties have been terminated, including those with China and the Netherlands, affected parties might still be able to rely on them owing to the so-called “sunset clauses,” which extend the benefits of these treaties for several years after their termination.

A significant advantage of investment treaties is that they provide protected investors with the right to seek relief from the Indonesia Government directly in a neutral dispute resolution forum, international arbitration, where rights protected under such treaties have been violated.

Indeed, foreign investors have used investor–State arbitration proceedings to resolve mining disputes in Indonesia and elsewhere, including:

• Nusa Tenggara Partnership B.V. and P.T. Newmont Nusa Tenggara v. Indonesia. In June 2014, the Indonesian subsidiaries of Newmont Mining Corp. and Japan’s Sumitomo Corp. initiated arbitration against Indonesia pursuant to the Indonesia–Netherlands bilateral investment treaty. The dispute concerned the introduction by the Indonesian government of various export measures and their effect on the claimants. Two months following the commencement of the arbitration, the claimants withdrew their claims, after having received commitments from the Indonesian government to negotiate a settlement.
• Bear Creek Mining Corp. v. Peru. In August 2014, the Canadian investor Bear Creek Mining Corp. commenced investor–State arbitration against Peru under the Canada–Peru bilateral investment treaty for revocation of its silver mining concessions following local opposition and violent protests. The tribunal held that this constituted expropriation and awarded damages exceeding US$18 million.
• Copper Mesa Mining Corp. v. Ecuador. In January 2011, Copper Mesa Mining Corp. started investor–State arbitration against Ecuador under the Canada–Ecuador investment protection treaty in connection with the revocation of three copper mining concessions. The tribunal held that two of the three revocations constituted expropriation and violated the fair and equitable treatment standard. As a result, the tribunal awarded the investor over US$19 million in damages.

While commencing international arbitration proceedings can be a powerful dispute resolution method, careful planning and strategizing are necessary to navigate potential procedural and other obstacles in order to successfully bring a claim. These include time bars, denial of benefits clauses, and fork-in-the-road provisions requiring coordination (or avoidance) of local proceedings prior to commencing international arbitration.

For further information on specific investment treaties in Indonesia, please contact our international arbitration team.