By M.Yakub Akadir

Recently on July 15,  2014  Nusa Tenggara Partnership B.V. and PT Newmont Nusa Tenggara the PT Newmont Nusa Tenggara (PTNNT) has filed a claim over Indonesia in the international center for the settlement of investment disputes (ICSID). The issue was substantially grounded on the allegation of the breach of both the Bilateral Investment Treaty between Indonesia and the Netherland (BIT) and of the Contract of Work (CoW), after the failure of national based negotiation over six months.   The issue was begun when Indonesia impose the new statute act on mineral and coal mining number 4/2009 that indicated to the need of an adjustment of the existing CoW to be in line with that legislation,  including   imposing a new export condition, a new export duty, and  a new January 2017 ban on the export of copper concentrate. Such new law brought to impose PTNNT to build a smelter in Indonesian territory, as being an ongoing contentious issue in the negotiation.

The case may illustrate that there is a negotiation gap identified, that on one side the government impose an obligation to build smelter in Indonesian territory was used as a part of bargaining position for the certainty of the extension of CoW. While PTNNT reluctant to ensure the establishment of smelter before the government ensures the extension of the CoW. The government however insists that the extension of  CoW is subject to the agreement of assertion of all new obligations as required by the new act. In other words PTNNT was initiated to bargain some of setout obligation of the new act which the government fully insists on them.  And it finally seems that PTNNT was reluctant to totally obey these new rules, and filed the claim to the ICSID instead.

It is expected that the ICSID system can give more benefit to the PTNNT as it just needs to pay a registration fee US$ 25,000, and later will convincingly get a profitable award, as a violation of the stabilization clause under the BIT and the CoW. While government of Indonesia may insists that the right to regulate is part of a national sovereignty which need predominately to be respected or to be exempted from the whole meaning of protection over foreign investors under the BIT system.  However, it should be noted that the ICSID is a treaty based arbitration, that commonly would refers to the provision within the BIT and contract, instead of  to the national law of host states.

The ICSID as stated in its convention has a distinctive nature of its decision to be equated with national court decision that is binding and final. So there is no chance for appeal or review within national court system as commercial arbitration cases. In this case when Indonesia signed and ratified the ICSID convention it has bound with this convention and its provision. The other character is the ICSID does not have a permanent arbitrator, so in each case the arbitrator may change, subject to the election of each concerned party. Hence the fragmentation of reasoning from their different interest would be inevitable.

Following the provision of the BIT between Indonesia and the Netherlands which explicitly states that the host state shall protect foreign investors from any means both considered direct and indirect expropriation. The term indirect expropriation would be understood as any measures having effect equivalent to nationalization or expropriation from the host states that negatively affect to decrease value of the investors and its legitimate expectation. And even so Indonesia’s policy regarded as public policy purposes, the compensation of full, prompt and effective should be come along. It has not clear how much  PTNNT has been beaten their profit as a consequence of the imposition of this new act, comparing  to consider how much benefit they already got, and on the other side how much Indonesian would achieved from this new arrangement. Of course the tribunal needs to asses it in a more proportional way.

Interestingly this case may remind us to the historical link with the Netherlands, on which during Sukarno regime it had nationalised Dutch company in 1958 with a hard negotiation for compensation. From this bitter experience the Dutch has well designed its BIT 1994 that completely and obviously stated the prohibition both for direct and indirect expropriation, if so the compensation should be paid prompt, adequate and efficient. Learning from this, the PTNTT case would be considered as an old game in a new stage.

It would be not much different from what has been done so far, it is just elevated from national diplomatic negotiation into international legal negotiation under the ICSID system in which Indonesia has bound itself to its rules. We have to admit that it was our fault to share part of our sovereignty to the BIT system and of courses it would never to be late to reconsider to take back that Sovereignty to be a more feasible and rational from our human sense.  So we have to be confidence that it is a legal game for Indonesia to play with, by which our dignity relies on.

M.Yakub Akadir,  Lecture in international law, Unsyiah, Indonesia, email: m.yakub.akadir@unsyiah.ac.id