Minggu, 15 September 2013
RENEGOTIATION OF WORK CONTRACT AND WORK AGREEMENT OF COAL MINING UNDERTAKING IN INDONESIA: LEGAL ASPECT OF RENEGOTIATION VS PACTA SUNT SERVANDA PRINCIPLE
Article 169 letter b of Act Number 4 of 2009 on Mineral and Coal Mining regulates that the stipulation mentioned in work contract (KK) and coal mining undertaking work agreement (PKP2B) shall be adjusted 1 (one) year at the latest since this Act is promulgated except concerning state revenue. Instruction for adjustment of KK/PKP2B article is not automatically can be implemented in view of there is opinion differences between the Government and mining company as the party to implement KK/PKP2B. Mining company is of the opinion that KK/PKP2B has pacta sunt servanda principle that must be recognized by the parties that has to be respected. Therefore, if either party does not want to carry out contract adjustment, then KK/PKP2B adjustment cannot be forced. This very differences in opinion that becomes the basis for intention to renegotiate KK/PKP2B between the Government and mining company which becomes the party in the contract, consequently effort is needed to find solution on the implementation of instruction of the contract/agreement in Article 169 letter b of Act No. 4 of 2009 on Mineral and Coal Mining with the intention of the coal mining. This article will discuss in critical-analytical manner on legal aspect of renegotiation with the validity of pacta sunt servanda in KK/PKP2B in Indonesia.
Keyword: renegotiation, contract/agreement, pacta sunt servanda.
Article 33 Clause (3) of the 1945 Constitution of the Republic of Indonesia (hereinfurther is referred to as “UUD NRI 1945”) mentions that “land, water, and natural wealth contained in it shall be controlled by the state for the greatest prosperity of the people”.
The meaning of “controlled by the state” in Elucidation of Article 33 of UUD NRI 1945 as also mentioned in Article 33 clause (2) UUD NRI 1945 that says “branches of production and control the life of people in general shall be controlled by the state and utilized for maximum prosperity of the people” has been interpreted by Constitution Court that “branches of production” as mentioned in Article 33 clause (2) of UUD NRI 1945, namely”
“branches of production that must be controlled by the state are those who are considered to be important for the state and/or influence people’s life, namely: (i) branch of production that is important for the state and influence people’s life, (ii) important for the state but does not influence people’s life, or (iii) is not important for the state but influence people’s life. The three of them must be controlled by the state and utilized for maximum people’s prosperity.
As stipulation that regulates national economy and social welfare , Article 33 of UUD NRI 1945 becomes important basis in the life of Indonesia economy with basis of collective effort based on family principle, including management and use of mining that prioritizes benefits for national interest and for Indonesian people’s prosperity.
Stuart G. Gross, describes that:
“Article 33 (3) of the 1945 Constitution states that “[t]he land, the waters and the natural riches contained therein shall be controlled by the State and exploited to the greatest benefit of the people.” As two commentators in the mining industry observed, “this formulation goes beyond traditional affirmation,” articulating, rather, a fundamental, inviolable precept of Indonesian constitutional law. Thus, Contracts of Work (CoWs) resemble traditional concession contracts only in some ways, such as the manner in which revenue is transferred back to the State in the form of taxation and royalties, and the level of control holders of CoWs have over operations. However, in other important ways foreign mining companies act not as concessionaires but as contractors for the Republic of Indonesia (RI), which retains title to unextracted minerals, and for whom the mining companies work”.
Based on the above opinion, Article 33 of UUD NRI 1945 can be understood as a fundamental credo and exceeds a traditional affirmation. Mining work contract in Indonesia is not a mining concession owned by the company. The company only has a role as license holder given by Government of Indonesia. Through work contract the Government gets benefits from tax, royalty, and control/supervision of mining production operation.
The principle contained in Article 33 of UUD NRI 1945 above becomes philosophical and sociological base of making Act Number 4 of 2009 on Mineral and Coal Mining (hereinfurther is referred to as “Act No. 4 of 2009”) which replaces Act Number 11 of 1967 on Mining Basic Stipulations” (hereinfurther is abbreviated into “Act No. 11 of 1967”) which in practice was not able to accommodate mining activity development in national as well as international scope which continuously develops.
The development of such mining activity practice, among others concerning distribution of authority between Central Government and local government in its connection with regional autonomy, arrangement on mining area, reclamation obligation and post-mining activity , area of mining business permit, and share divestation of foreign mining business permit, so that in this lacking mining law reform is needed from regulation regime of Act No. 11 of 1967 to Act No. 4 of 2009.
As a form of mining law reform mentioned above, Act No. 4 of 2009 contains basic reflections as the followings:
1. Mineral and coal as non-renewable resources is controlled by the state and its development and efficient use is carried out by the Government and local government together with business actor;
2. The Government further provides opportunity to business entity of Indonesian legal entity, cooperative, individual, as well as local community to do mineral and coal undertaking based on permit, which is in line with regional autonomy, given by the Government and/or local government according to each authority;
3. In the frame of organizing decentralization and regional autonomy, mineral and coal mining management is implemented based on externality, accountability, and efficiency principles involving the Government and local government;
4. Mining business should result in greatest economic and social benefits for Indonesian people’s welfare;
5. Mining business should be able to accelerate regional development and boost society/small and middle scale business activity and growth of mining support industry; and
6. In the frame of creating sustainable development, mining business activity must be implemented through upholding environmental, transparent and people’s participation principles.
Linkage of principle and substance of Act No. 4 of 2009 in its practical surface also consider national as well as international development namely mining business which has entered globalization era and marked with the presence of free competition based on mining information technology, investment attractiveness and environmental issues, and also democratization which has become business circle’s demand.
However, such legal reform cannot automatically be implemented in practice considering there are legal problem in mineral and coal mining companies which have been operational before the issuance of Act No. 4 of 2009. Mining business activity conducted by mining company before the issuance of Act No. 4 of 2009 is in accordance with Work Contract (KK) and Mineral and Coal Mining Undertaking Work Agreement (PKP2B) between the Government of the Republic of Indonesia and mineral and coal mining companies. Business actors are of the opinion that sanctity of contract aspect and principle of pacta sunt servanda are elements that have to be considered by the Government before forcing to implement articles in Act No. 4 of 2009 to mineral and coal mining companies.
Article 169 letter b of Act No. 4 of 2009 mentions that at the time this Act is effective:
a. Work Contract and coal mining undertaking work agreement that have existed before the enactment of this Act shall be valid until the end of contract/agreement period.
b. Stipulations mentioned in article of work contract and coal mining undertaking work agreement as mentioned in letter a at the latest of 1 (one) year since the enactment of this Act shall be adjusted except on state revenue.
c. Exception for state revenue mentioned in letter b is an effort of state revenue improvement.
Referring to provisions in Article 169 letter b, all articles in KK and PKP2B must be adjusted with provisions in Act No. 4 of 2009. The provisions, for example on adjustment of royalty, production contribution, mining area, divestment obligation, obligation for purification and management, reclamation and post-mining obligation, domestic market obligation, and others mentioned in Act No. 4 of 2009.
As formulation of Government policy to settle the problem for application of articles in Act No. 4 of 2009 (debottlenecking) to mineral and coal mining companies in operation before the issuance of Act No. 4 of 2009, the Government announces KK/PKP2B renegotiation policy with a hope such KK/PKP2B evaluation can provide benefits to all parties.
The Government is of the opinion that the presence of mineral and coal undertakings should provide the greatest benefits for national interest. KK and PKP2B made in the past tend to inflict loss the state and nation, so that in line with the issuance of Act No. 4 of 2009 and sociologically there is high expectation of the Government to obtain high benefits from mineral and coal undertakings, therefore KK/PKP2B must be re-negotiated.
This article will describe critical-analytically on legal aspect of adjustment (renegotiation) of KK and PKP2B which constitutes the instruction of Article 169 letter b of Act No. 4 of 2009 with validity of sanctity of contract and pacta sunt servanda in KK and PKP2B which becomes the basis in civil law, especially in contract law. This critical-analytical description is important to find out legal foundation of implementation of contract renegotiation and fundamental reason of KK and PKP2B renegotiation for the Government of Indonesia.
Based on the above description, formulation of problems in this article are: (1) how is the legal aspect of implementation of KK and PKP2B renegotiation with validity of sanctity of contract and pacta sunt servanda principles in KK and PKP2B? and (2) what benefits does the Government of Indonesia want to achieve from the implementation of KK and PKP2B renegotiation?
To answer the questions above, this article is structured as the followings: Section 1 Introduction, Section 2 will discuss on juridical review on pacta sunt servanda principle and KK/PKP2B renegotiation from Indonesia national law perspective and international law. After that Section 3 will discuss on the benefits of KK/PKP2B renegotiation which becomes persuasive reason for the Government of Indonesia in implementation of KK/PKP2B renegotiation in achieving greatest benefits of mineral and coal mining for national interest. Section 4 will mention conclusions.
2. PACTA SUNT SERVANDA PRINCIPLE VS KK/PKP2B RENEGOTIATION
KK/PKP2B renegotiation in practice can be carried out in case there are certain circumstances which enable the implementation of KK/PKP2B renegotiation. This opinion is mentioned by M. Sornarajah that:
An obligations is created to renegotiate contract where the contractual equilibrium which existed at the time of the contract has been altered by a fundamenteal change of circumstance. This is a departure from the hoary doctrine of pacta sunt servanda upon which developed states have placed so much store in building up a theory of internationalization of foreign investment contract. But, renegotiation is more sensible as a technique for avoiding disputes and for ensuring that the relationship remains viable in the context of changed circumstances. There is growing body of opinion which believes that a renegotiation clause should be read into foreign investment contract of long duration. the innclusion of the duty to renegotiate contracts in the light of changed circumstances is consistent whit this opinion. Again, one can see that the genesis of much of the ideas that underlay the Draft Code is in the writings that supported it. To that extent, there was a definite effort being made to bring about norms opposed to those that had been hitherto articulated in the area.”
From the statement above, a fundamental circumstance which needs obligation equilibrium of the parties enables to implement contract negotiation. Although basically there is pacta sunt servanda principle in the contract, but renegotiation constitutes a logical aspect as a technique to prevent dispute and to make sure that relationship remains viable in the context that has changed.
Contract renegotiation is common practice in the context of change of circumstance, mainly in the contract which its validity is very long (long term contract), that a change of circumstance and condition contextually enable the parties who sign the contract to review the aspects they have agreed upon. In the context of mineral and coal mining, KK and PKP2B renegotiation constitutes a form of implementation of Article 169 of Act No. 4 of 2009, which regulates that at the time Act No. 4 of 2009 begins to be effective:
a. Work Contract and coal mining undertaking work agreement that have existed before the enactment of this Act shall be valid until the end of contract/agreement period.
b. Stipulations mentioned in article of work contract and coal mining undertaking work agreement as mentioned in letter a at the latest of 1 (one) year since the enactment of this Act shall be adjusted except on state revenue.
c. Exception for state revenue mentioned in letter b is an effort of state revenue improvement.
As mentioned in letter b above, that within a period of 1 (one) year since the enactment of Act No. 4 of 2009 all articles in KK and PKP2B must adjust with Act No. 4 of 2009. This Act is enacted on 12 January 2009 so that all KK and PKP2B holders should have adjusted with this Act. However, in reality such adjustment is not easy considering that KK and PKP2B have certain characteristics. The 2 (two) big companies, namely PT Freeport Indonesia and PT Newmont Nusa Tenggara ask the Government of Indonesia to respect clauses in mining KK. Forcing the validity of Act No. 4 of 2009 constitutes of regulation overlapping in Indonesia, that it harms investor.
KK and PKP2B constitute written agreement between the Government of Indonesia and contractor in mineral and coal mining area. Both have strong power and binding the parties. The characteristics of agreement as regulated in Article 1338 clause (1) of the Indonesian Civil Code that all agreements that are legally made shall be valid as an act for those who make it.
KK and PKP2B as written agreements theoretically and judicially have 3 (three) principles which each of them are inter-related, namely the principle of consensus, the principle of binding force of contract and principle of freedom of contract. Principle of consensus is related with the birth of contract; principle of freedom of contract is related with freedom of the parties to determine with whom to have contract, content of contract, form of contract, and choice of law; while principle of binding force of contract is related with binding validity of content of contract to both parties that enter into the contract.
Freedom of contract can only reach fairness if both parties have equal bargaining power. If bargaining power is not balanced then a contract can tend to become unconscionable. Furthermore, Syahdeni mentions that:
“Unbalanced Bargaining Power occurs when the strong party can force his will to the weak party, so that the weak party just follows terms of contract handed to him. Other requirement is such power is exercised to force his will so that it gives advantage to him. As a result, the contract becomes illogical and in violation with fair rules”.
Balance of power is very important to reach a fair contract, that there is no party that forces his will to get advantage to his side only while inflicting loss to other party. This occurs mainly when the party in the contract is a state in its private law position which is represented by the Government. However, it is not automatically the state is in strong position in entering into a contract. Even the state can be in a weak position and suffer a loss, for example when a state undergoes economic difficulty or the benefit of contract being implemented is not according to what should be received by the state. Other weak position, for example, when an official who makes a contract performs discrepancy for his own interest and inflicting loss for the interest of the state and nation.
In the problems of contract, the international community has an organization namely International Institute for the Unification of Private Law (UNIDROIT) which constitutes an independent international organization domiciled in Rome, Italy which its goal is to assess the need and methods in the frame of modernization and harmonization of international private law among the states as well as state association in the world. Indonesia on 2 September 2008 has legalized and ratified UNIDROIT Statute with President’s Regulation Number 59 of 2008 on Ratification of Statute of the International Institute for the Unification of Private Law.
The role of this international organization is to publish various international agreement and convention which can become the guidance in making international contract. In this case UNCITRAL in 1980. Has issued United Nations Conventions on Contracts for the International Sale of Goods (CISG) and UNIDROIT has issued Principles of International Commercial Contracts (UPICCs) in 1994 which later has been revised in 2004. International agreement in contract area, similar to national law, is the primary legal source. This source is not less important compared to other primary legal sources, namely national law and contract document that regulates the parties.
In UPICCs there is a guidance on business contract and also on possibility of renegotiation on certain contract which undergoes certain circumstances. Such circumstances, for example in Article 6.2.2. on hardship.
Article 6.2.2. There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and
(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;
(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantaged party; and
(d) the risk of the events was not assumed by the disadvantaged party.
In Article 6.2.2 difficult situation (hardship) occurs if there is a situation which fundamentally alters the equilibrium of contract. This is due to cost of contract implementation increases very high or value of contract implementation for the party receiving it decreases very highly, while
1) such occurrence is known by the disadvantaged party after the contract is made;
2) such occurrence cannot be anticipated by the disadvantaged party before the contract is concluded;
3) such occurrence takes place beyond the control of the disadvantaged party;
4) risk of the occurrence is not anticipated by the disadvantaged party.
In addition, the legal consequence of hardship situation is regulated in Article 6.2.3:
(1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based.
(2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance.
(3) Upon failure to reach agreement within a reasonable time either party may resort to the court.
(4) If the court finds hardship it may, if reasonable,
(a) terminate the contract at a date and on terms to be fixed, or
(b) adapt the contract with a view to restoring its equilibrium.
Legal consequence if there is hardship is regulated in Article 6.2.3 which determined that:
1) the disadvantaged party has the right to ask for contract renegotiation to the other party that must be submitted by showing its reasons;
2) renegotiation request does not automatically provide the right to the disadvantaged party to cease contract implementation;
3) if the parties fail to reach agreement within the reasonable time, each party can file a claim to court;
4) if the court proves there is hardship, then it can decide to
a. end the contract on a firm date and period;
b. change the contract to return to equilibrium.
The issues of contract in international law must strengthen regulating position of national law, in Indonesia for example contract is regulated in Indonesia Civil Code and other legislative regulations. Regulation in national law regime and international law needs to be harmonized. In this case, legal harmonization constitutes a demand as well as needs that must be fulfilled by both parties in implementation of trade or international business transaction. Harmonization effort according to Hannu Honka can be conducted in some ways, namely:
1) national legislative regulations in contract area;
2) use of standard contract;
3) application of international customary laws (international customs);
4) international legal principles;
5) arbitrage tribunal decisions; and
6) harmonization according to legal guide/guidelines and legal doctrine.
Furthermore as mentioned earlier, in Indonesia context there are problems of contract and renegotiation of contract occur in mineral and coal mining business activity after the enactment of Act No. 4 of 2009. Article 169 letter a of the Act provides instruction all KK or PKP2B holders within a period of one year since the enactment of the Act must adjust the articles in KK or PKP2B according to the provisions in Act No. 4 of 2009.
The provision in Article 169 letter a if interpreted as is in black and white or with the use of grammatical interpretation, on 12 January 2010 (one year after its enactment) all articles in KK or PKP2B must adjust to Act No. 4 of 2009, so that renegotiation is not needed if such Article can be implemented by KK or PKP2B holder, but Government policy which still wants to use renegotiation on KK or PKP2B becomes a middle way to such Article implementation stalemate.
The effort of KK or PKP2B renegotiation has 2 (two) aspects if viewed from the renegotiation policy, namely: (a) the Government is not consistent with black and white arrangement of such Article, actually what is written as norms must be implemented according to the instruction of Act; and (b) sanctity of contract principle is still recognized, that although the Act instructs adjustment of KK and PKP2B to the Act but articles in the contract bind the parties and become the law for the parties that made them.
Seriousness of the Government of Indonesia to renegotiate KK and PKP2B is real with the establishment of Evaluation Team as contained in Presidential Decision Number 3 of 2012 on Evaluation Team to Adjust Work Contract And Mineral And Coal Mining Undertaking Work Agreement which is stipulated on 10 January 2012. Consideration of establishing this Evaluation Team is:
a. based on the provisions mentioned in article of existing work contract and coal mining undertakings work agreement, need to be adjusted with Act No. 4 of 2009, to provide optimum benefit for national interest of Indonesia;
b. that for adjustment as mentioned in letter a, it is necessary to perform integrated and coordinated evaluation .
The Evaluation Team has membership of Coordinating Minister of Economy ( Chairperson and also member), Minister of Energy and Mineral Resource (daily chairperson and member) and Ministers of Finance, Internal Affairs, Law and Human Rights, Industry, Trade, Forestry, State Owned Enterprise, Cabinet Secretary, General Attorney of the Republic of Indonesia, Head of Finance and Development Supervision Agency, Head of National Land Agency, and Head of Investment Coordinating Body as members.
The duty of Evaluation Team includes:
a. to perform evaluation against provisions mentioned in articles of work contract and coal mining undertaking agreement, which needs adjustment to Act No. 4 of 2009 on Mineral and Coal Mining;
b. to stipulate the necessary steps for settlement of work area determination and state revenue, as position of the Indonesia Government in conducting renegotiation of work contract and coal mining undertaking agreement;
c. to stipulate the necessary steps for implementation of obligation of holders of work contract and coal mining undertaking agreement, to mineral and coal processing and/or purification.
Renegotiation between RI Government and holders of KK and PKP2B includes:
a. mining work area;
b. contract extension;
c. state revenue/royalty;
d. obligation of management and purification;
e. obligation of divestment; and
f. obligation of domestic mining goods and services use.
Until March 2012 there are 9 (nine) KKs and 60 (sixty) PKP2Bs which their renegotiation points have been approved, which have been conducted since August 2010 against 37 (thirty seven) companies holding KK, and 74 (seventy four) companies holding PKP2B
Some companies that have approved among others are Selo Argokencono Sakti, Tanjung Alam Jaya, Sumber Kurnia Buana, Bangun Benua Persada Kalimantan, and K Caraka Mulia. While those who have approved KK among others are Tambang Mas Sable, Kasingan Bumi Kencanam and Iriana Mutiara Idenburg.
KK and PKP2B renegotiation can be viewed from aspects of legal certainty (judicial), benefits or use (sociological), and justice (philosophical):
a. Aspect of justice (philosophical)
If viewed from philosophical aspect of Act No. 4 of 2009 creation which is contained in consideration of the Act, namely that mineral and coal contained in Indonesia mining legal territory constitute non-renewable natural wealth as the blessings of God Almighty that has significant role in fulfilling the needs of many people, therefore its management must be controlled by the State to provide real added value for national economy in the effort to achieve prosperity and welfare of the people in a just manner.
Besides in Article 2 it is regulated that mineral and/or coal mining is managed based on principles of benefit, justice and balance; taking side to nation’s interest; participative, transparency, and accountability; sustainability and environmental orientation.
Justice principle in mineral and coal mining undertaking becomes the basis in mineral and coal mining undertaking, all mining commodities must be able to provide welfare for the greatest people’s prosperity.
In its implementation, mining undertaking that has been conducted by holders of KK or PKP2B have not yet been able to provide justice for Indonesian people. As said by Minister of Energy and Mineral Resources Jero Wacik, that content of existing contract and agreement is expected to be more fulfilling justice and national interest.
This justice aspect that the Government wishes to materialize in contract renegotiation, the Government wants that benefits from the mining must be in accordance with each own portion which is now considered as not yet balanced. However, KK or PKP2B renegotiation also has to consider the interest of contractor which in business perspective wants to get big profit in the fund being invested. The wishes of both parties must be accommodated, so that the content of KK and PKP2B must reflect justice to both parties that it will reach win-win solution.
In line with such justice conception, John Rawls in his book “Justice as Fairness” explains the theory of social justice as “the difference principle and the principle of fair equality of opportunity”.
Furthermore John Rawls confirms that upholding justice program with people dimension must deal with two justice principles, namely, first, providing equal right and opportunity based on basic freedom which is the widest, equal freedom for everybody. Secondly, it is able to re-regulate social-economic gap that occurs so that it can provide reciprocal benefits for everybody, whether they are the privileged as well as non-privileged groups.
In the concept of Rawls known as original position principle, namely the same and equal situation among each person in the society, there is no party who has higher position than the others and in this condition people can make agreement with other party in balance. As written by Rawls “one is the idea of original position; the other is the idea of citizens as free and equal persons”.
Therefore, among business actors, government, and society there are original position, so that equality of each party must be considered as balanced and have the same position in receiving benefits or yield from controlling and undertaking of mineral and coal mining. Therefore, the Government that has position as one of the parties (position as private entity) which on the other hand as regulator (position as public entity) must be able to provide balance of benefits (justice) between business actor and society, so that justice can be manifested for both interest.
b. Aspect of benefit
Aspect of utility or benefit to the yield of mining constitutes the most important right for providing a permit or contract being agreed by the Government of Indonesia and contractor. Without the presence of benefit or utility, an investment in mining area is useless because it will inflict loss to the state.
Such benefit aspect, if connected with Jeremy Bentham’s utilitarianism theory, it correlates with law/act formation namely that it constitutes a sign and volition which must be stated by ruler in a certain form, so that everybody can act according to the act that has been expressed. As Bentham mentions:
“According to this definition, a law can be considered in eight different respect. (1) In respect to its source: that is in respect to the person or persons of whose will it is the expression. (2) In respect to the quality of its subjects: by which I mean the person and things to which it may apply. (3) In respect to its object: by which I mean the act, as characterized by the circumstances, to which it may apply. (4) In respect to its extend, the generality or the amplitude of its applications: that is in respect to the determinateness of the persons whose conduct it may seek to regulate. (5) In respect to its aspect: that is in respect to the various manners in which the will whereof it is the expression may apply itself to the act and circumstances which are its object. (6) In respect to it force: that is, in respect to the motives it relies on for enabling it to produce the effect it aims at, and the laws or other means which it relies on for bringing those motives into play: such laws may be styled its corroborative appendages. (7) In respect to its expression: that is in respect to the nature of the signs by which the will whereof it is the expression may be made known. (8) In respect to it remedial appendages, where it has any: by which I mean certain other laws which may occasionally come to be subjoined to the principal law in question: and of which the design it to obviate the mischief that stands connected with any individual act of the number of those which are made efficacy of the subsidiary appendages to which it stands indebted for its force”.
Through law definition, there are 8 (eight) considerations as described above, which basically Bentham does not only give attention on law formation which constitutes a sign of will expression and instruction of sovereign ruler, but Bentham as follower of will theory in law also believes that law implementation will be very influential in determining quality of the law being established. For such purpose the will must be created coming from various societal elements without exception, so that it can create what is called as unity of will which further by theory of will followers is referred to as “the unity of enforcement entails the unity of will”.
The process of legal formation is based on a motive which originates from an absolute principle, namely the principles of utility which is meant as:
“... that priciple which approves or disapproves of every action whatsoever, according to the tendency which it apears to have to augment or diminish the happiness of the party whose interest is in question.”
It is necessary to understand if utilitarianism very emphasizes on importance of consequence of action in evaluating it is good or bad. Quality of action morally is measured based on consequence of an action. The action which provides the greatest benefits, means the most promoting prosperity, welfare and happiness of people, than such action is good. On the contrary, if an action brings more harms than benefits, such action must be considered as bad, consequence of action here indeed determines all of its moral quality. This very statement makes the idea that utilitarianism adopts the concept of consequencionalism, which means every action is morally seen from the result/consequence as the impact of such action.
The benefit aspect of the mining, for example in state revenue of 2012 amounting to Rp14.453 (fourteen coma four hundred and fifty three) trillions which comes from royalty and fixed contribution, excluding tax revenue and other indirect benefits such as workforce being employed, technology transfer, community development, and corporate social responsibility. Nevertheless, such benefits still considered not to give maximum benefits to the state, for example on a wish the royalty given by contractor to the state should be improved. Contribution of mining company to Indonesian economy is still low, among others indicated with low royalty payment.
This becomes sociological reason to have renegotiation of KK and PKP2B between the government and holders of IUP and IUPK of mineral and coal mining.
c. Aspect of legal certainty
Binding characteristic of legislative regulations to norm adressat constitutes a legal principle. Written law which contains norms simply functions to create order in society’s life should become rules of the game for everybody which becomes jurisdiction of validity of legislative regulation.
Related to the legal certainty aspect, then implementation of KK/PKP2B renegotiation needs rule of law. Rule of law consists of 4 (four) elements, namely “fidelity to sufficiently clear and instructive rules; rules of ‘principled predictability” or ‘fair certainty’; rules from valid, or legitimate, sources of govermental authority; rules from authority exsternal to the individual (or govermental body) exercising legal power”. So that implementation of KK/PKP2B implementation can be conducted by negotiating parties which eventually create mutual concord of the parties based on rule of law principle.
As regulated in every legislative regulations that it is considered to be valid on the day of enactment, and provision on that everybody should know therefore legislator positions it in state gazette or addendum of state gazette.
Therefore, all norms in a legislative regulation must be valid for legal adreast and exception on certain thing is regulated in transitional provision as transition between regulation or condition before it is enacted.
Similarly on provision in Act No. 4 of 2009, all provisions in the Act must be valid on the day it is enacted, namely 12 January 2009. And concerning certain aspects, they are regulated in transition provisions which in the Act are connected with arrangement of KK and PKP2B given one year’s time to adjust with provisions in articles in the Act.
As adherent of positive law, the parties affected by such arrangement should comply with what are written and automatically implemented.
Act No. 4 of 2009 as the instrument that regulates activity in mining area should become reference and rule of the game on all activities of mineral and coal mining undertakings in Indonesia. The making of such Act constitutes a democratic process in Indonesia which is made by people (represented by DPR – House of People’s Representative) together with president as executive of state policy, constitutes manifestation of the will of Indonesian people.
Therefore, if it is interpreted according to normative and positivistic method, actually renegotiation of KK and PKP2B is not needed because all KK and PKP2B holders are obliged to submit to all provisions in Act No. 4 of 2009 including provisions of Article 169 letter a.
The three aspects (justice, benefit, and legal certainty) in its implementation will occur spanungsverhaltnis, a resistance/tension against each other based on the presence of differences of interest among the three aspects. For example, on KK and PKP2B, there is conflict between arrangement in Act Number 4 of 2009 and contractors’ interest that is guided by KK and PKP2B while if it is implemented only based on KK and PKP2B then aspects of justice and benefit for the people cannot be implemented fully.
The spirit for renegotiation must be implemented with maximum justice orientation for national interest, which means the Government and contractor performs the agreement for common interest. Contract remains to get profit, while the Government will not suffer loss or must also gain profit.
3. BENEFITS OF KK/PKP2B RENEGOTIATION
3.1 Benefit of State Revenue
Besides tax revenue, non-tax revenue is no less important. Non-tax revenue from mineral and coal mining sector is very high compared to that of non-tax revenue from other sector. In 2009 non-tax state revenue is Rp15.3 (fifteen point three) trillions, in 2010 Rp18.6 (eighteen point six) trillions, and increases in 2011 into Rp24.7 (twenty four point seven) trillions.
Arrangement on non-tax state revenue is regulated in Act Number 20 of 1997 on Non-Tax State Revenue (hereinfurther is referred to as “Act on PNBP”) which in Article 2 types of PNBP are grouped as the followings:
a. Revenue from Government’s fund management;
b. Revenue from utilization of natural resources
c. Revenue from proceeds of State asset management being separated;
d. Revenue from service activity conducted by the Government;
e. Revenue based on court verdict and from imposition of administrative fine;
f. Revenue in the form of grant which constitutes the Government’s right;
g. Other revenue regulated in separate Acts.
Of the seven types of PNBP, revenue from utilization of natural resources becomes the main aspect in mineral and coal mining sector. Type and tariff of PNBP mineral and coal mining as a whole are regulated in Government Regulation Number 9 of 2012 on Non-Tax State Revenue which is Effective in Energy and Mineral Resources Ministry (hereinfurther is referred to as PP PNBP KESDM).
3.2 Benefit of Share Ownership of Indonesia Participant
With the existence of share ownership of Indonesia participant, especially the Government, it will impact on economic, social benefits and other benefits. The benefits gained in general from share ownership by Indonesia participant among others are the application of mining best practices, better governance and supervision, improvement of transparency and accountability, environmental protection, and creation of better investment supervision. These benefits will be explained as follows.
3.2.1 Maintaining National Interest Based on Best Mining Practice Principles
In Act No. 4 of 2009, arrangement on best mining practice principles is regulated into obligation of IUP and IUP holders as regulated in Article 95 that IUP and IUPK holders are obliged to:
a. Apply good mining technical norms;
b. Manage finance according to Indonesia accounting system;
c. Increase added value of mineral and/or coal resources;
d. Implement development and empowerment of local community; and
e. Comply with tolerance of environmental carrying capacity.
In application of good mining technical norms, holders of IUP and IUPK are obliged to implement:
a. Stipulation of mining work health and safety;
b. Mining operation safety;
c. Management and monitoring mining environment, including reclamation and post-mining activities;
d. Efforts of mineral and coal resource conservation;
e. Management of mining residue of a mining business activity in solid, liquid, or gas forms until meeting environmental quality standard before releasing them to environmental media.
As mentioned in letter c above, management and monitoring mining environment, including reclamation and post-mining activities constitute a significant aspect in mineral and coal mining undertaking activity. The importance of good mining practice principle through management and monitoring mining environment is in line with arrangement in Act No. 32 of 2009 as systematic and integrated effort conducted to preserve environmental function and to prevent pollution and/or environmental damage.
Based on guide from Federal Department of the Environment and Heritage it is stated that:
Best practice can simply be explained as "the best way of doing things". Best practice environmental management in mining demands a continuing, integrated process through all phases of a resource project from the initial exploration to construction, operation and closure. For it to be successful it requires careful planning and commitment from all levels and groups within a mining company. It is based on a comprehensive and integrated approach to recognising, and avoiding or minimising, environmental impacts. In order to be fully effective, this approach must be based on a sound set of generic and mining specific principles.
Good mining practice principles in management and monitoring mining environment includes:
a. ecological sustainable development;
b. intra- and inter-generational equity;
c. accountability and compliance with international human rights and environmental standars and principles;
d. The Precautionary Principle;
e. well informed and trained staff;
f. effective communications and openness;
g. flexibility; and
h. continual improvement.
Implementation of norm or good mining principle will benefit for national interest. Through application of good technical norm then aspects of work health and safety, mining operation safety; management and protection of environment; conservation of natural resources; and management of mining residue will be well monitored by the government directly from the company if the government becomes a part of shareholders that has supervision function of good mining company governance.
With the application of good mining norms, the national interest will be well maintained that negative mining impact will be minimized even eliminated and can provide greatest benefits for the people.
3.2.2 To Develop Better Governance and Supervision For Implementation of Mining Undertakings in Indonesia.
Good corporate governance is very important in running the company to obtain high benefits from such company operations so that the company can grow and be beneficial in the long run, at the same time winning global business competition.
Forum for Corporate Governance in Indonesia (FCGI) memberikan definisi corporate governance:
a set of rules that define the relationship between shareholders, managers, creditors, the government, employees and other internal and external stakeholders in respect to their rights and responsibilities, or the system by which companies are directed and controlled . (taken from Cadbury Committee of United Kingdom). The objective of corporate governance is to create added value to the stakeholders.
Furthermore, good corporate governance is defined as:
A process and structure used by company organs (shareholders/capital owner, commissioner/board of commissioners and board of directors) to improve business achievement and company’s accountability in order to materialize shareholders’ values in the long run by maintaining to give attention to other stakeholders’ interest, based on legislative regulations and ethical values.
Application of good corporate governance principles can provide high benefits with materialization of:
a. Good business ethics consistently which impacts on sound, efficient and transparent business climate;
b. Attitude and behavior which shows business community’s compliance in implementation of provisions of legislative regulations;
c. Elimination of corrupt, nepotism and collusive attitude and behavior;
d. Quality improvement of sustainable management, institution, and administration of company.
With the presence of Government and/or local government’s participation in foreign company in mineral and coal mining area, then the Government and/or local government can confirm that good corporate governance principle is applied in every business aspect and in all company lines.
Good corporate governance principles namely transparency, accountability, responsibility, independency and reasonableness and equality is needed to achieve business sustainability of the company through giving attention to the interest of stakeholders.
Through participation of the Government and/or local government in share ownership in foreign mineral and coal mining company, then better corporate governance principle for implementation of mining undertakings in Indonesia can be achieved so that creating business climate and cooperation mechanism of mining management in Indonesia which is conducive and just, and also providing high benefits for the state.
Besides developing good corporate governance, with the participation of Government and/or local government there will be better supervision or control from the Government and/or local government for implementation of mining undertakings in Indonesia so that creating business climate and cooperation mechanism in Indonesia which is conducive, just and also provides high benefits for the state can be materialized.
Such supervision is important considering until now the existing form of supervision is only limited on Government or local government supervision as permit provider or as contracting party in KK or PKP2B. while if viewed from interpretation of Article 33 clause (3) of the 1945 Constitution, the Constitution Court has ever issued Verdict Number 001-021-022/PUU-I/2003, which mentions:
Supervision is important considering that the form of supervisory oversight was limited to government or local government as licensor or as a contracting party in KK or PKP2B. Whereas when seen from the interpretation of Article 33 paragraph (3) of the 1945 Constitution, the Constitution Court has issued Decision Number 001-021-022/PUU-I/2003. In this ruling, the Constitution Court stated:
“People collectively are constructed by 1945 Constitution submit a mandate to the state to create policy (beleid) and handling action (bestuursdaad), regulation (regelendaad), management (beheersdaad) and supervision (toezichthoudensdaad) for the goal of greatest people’s prosperity. Function of handling (bestuursdaad) by the state is conducted by the Government with its authority to issue and revoke permit (vergunning), license (licentie), and concession (concessive). Function of regulation by the state (regelendaad) is conducted through legislation authority by DPR together with the Government, and regulation by the Government (executive). Function of management (beheersdaad) is conducted through mechanism of share-holding and/or through direct involvement in management of State Owned Enterprise or State Owned Legal Entity as institutional instrument through which the state c.q. the Government use its control effectively on the wealth resources for greatest people’s prosperity. Similarly on supervision function by the state (toezichthoundensdaad) is conducted by the state c.q. the Government in the frame of supervising and controlling so that implementation of state’s control on important branches of production and/or which dominate people’s lives are really conducted for the greatest prosperity of all people.”
In interpretation of Article 33 clause (3) of the 1945 Constitution of the Republic of Indonesia, supervision function constitutes one of the functions inherent in natural resources holding.
Supervision function by the Government and/or local government will be very strong if the Government and/or local government become a part of the company, namely as one of the shareholders that have the rights as shareholder as regulated in legislative regulations in limited liability company. The said supervision is not also limited on supervision as regulated in Government Regulation No. 55 of 2010, in the form of supervision to organization of mining business management and supervision to mining business activity implementation.
Therefore, through better supervision for implementation of mining undertakings in Indonesia, it can create business climate and cooperation mechanism of mining management in Indonesia which is conducive, just and also provides high benefits for the state.
3.2.3 Improving Transparency and Accountability of Mineral and Coal Mining Company
As implementation of good corporate governance above, if there is participation of Government and/or local government in the mineral and coal mining company as shareholder, transparency and accountability in managing the company will be created.
The Government and/or local government as shareholders have the rights as regulated in Act No. 40 of 2007, among others are:
a. Right to attend and to vote in GMS;
b. Right to receive dividend payment and asset surplus after liquidation;
c. Right to see list of shareholders and special list provided at Company domicile;
d. Right to obtain information which is related with Company from Board of Directors and/or Board of Commissioners in GMS forum, as long as it is related with meeting agenda and not in violation with the interest of the Company;
e. On written request by shareholder, Board of Directors grants permission to shareholder to examine list of shareholders, special list, minutes of GMS and annual report, and to obtain copy of minutes of GMS and copy of annual report.
Through such rights, the Government and/or local government have special rights as shareholders. The right to vote in GMS; right to see list of shareholders and special list provided at Company domicile and other rights can create transparency and accountability in company management. This is completely different if the Government and/or local government become the party outside the company or party who has no shares in the company.
Therefore, participation of Government and/or local government in share ownership in foreign mineral and coal mining company is beneficial for materialization of transparency and accountability of foreign mineral and coal mining company in Indonesia.
3.2.4 Increasing Compliance of Foreign Mineral and Coal Mining Company in Indonesia with Provisions of Acts in Environmental Protection and Management
The existence of mining business activity will directly or indirectly impact on environment. Environmental damage in small or big magnitude because of mineral and coal mining business activity is inevitable. For example, the existence of mining activity in Indonesia forest region becomes the biggest cause of forest destruction of 70% (seventy per cent) as a result of mining exploration.
Wahana Lingkungan Hidup (WALHI) for example, photographed environmental impact of PT FI existence in Papua which causes the death of the Rivers Aijkwa, Aghawagon and Otomona due to piling up of mining stone waste and tailings which if calculated in total can reach 840,000 (eight hundred forty thousand) tons. On the other hand, Act No. 32 of 2009 and Act No. 4 of 2009 have regulated on environmental aspect which needs to be observed in implementation of mining business activity. Act No. 32 of 2009 regulates business activity which is obliged to obtain environmental permit in the frame of protecting and managing the environment, importance of assessment of strategic environment (KLHS) by the Government and local government, spatial use according to spatial arrangement, obligation of environmental solution and recovery, treatment of hazardous and toxic material and waste, and other obligations in accordance with Act No. 32 of 2009.
Moreover, in Act No. 4 of 2009 it is regulated that mining company has to carry out feasibility study including environmental study. Principle of mineral and coal mining management must be sustainable and with environmental orientation and to secure sustainable benefits of mineral and coal mining and with environmental orientation. Obligations of mining company are also regulated in Act No. 4 of 2009. Important obligations among others are obligation of reclamation and post-mining activity.
Furthermore as regulated in Article 3 clause (1) of PP No. 78 of 2010 Implementation of reclamation by IUP Exploration holder and IUPK Exploration holder is obliged to fulfill the principle of environmental mining protection and management. Principle of protection and management of mining environment, at least includes:
a. Protection to quality of surface water, land water, sea water, and land and air based on quality standards or criteria of environmental damage standard in accordance with legislative regulations;
b. Protection and recovery of bio-diversity; security of stability to stone cover pile, tailing pond, ex mining area, and other artificial structure;
c. Use of area ex mining in accordance with its allocation;
d. Observance with local social and cultural values; and
e. Protection to land water quantity according to legislative regulations.
Obligations in such provisions of legislative regulations must be carried out by all mining companies in Indonesia. Government and/or local government involvement in the company as shareholder even when the Government and/or local government can place its representative as one of the commissioners in the mining company, then it will push foreign mineral and coal mining company in Indonesia to more comply with provisions of Acts in environmental management area.
The important meaning of Government and/or local government participation in the company as shareholder is so significant for compliance of foreign mineral and coal mining company with provisions of Acts in environmental management area.
3.2.5 Become Supervision Pattern of Investment Activity in Extractive Industry which Manages Natural Resources, Including to Push KK and PKP2B Renegotiation
As industry that its raw material is directly taken from nature (extractive), mineral and coal mining must be supervised in such a way in its management because mineral and coal constitute non-renewable natural wealth that its management must be really maintained sustainably according to principle of sustainable development. Similarly with the intention of the Government to carry out KK and PKP2B renegotiation with mining companies. One of the aspects put into material for KK and PKP2B renegotiation is concerning share divestment, region area, royalty, domestic added value increase, and others. Share ownership by Indonesian participant is very important so that share divestment obligation as mandated in Article 112 of Act No. 4 of 2009 and Article 97 of PP No. 23 of 2010 as has been changed with PP No. 24 of 2012 can be implemented.
With the opportunity to purchase divested shares instructed in KK as occurred in PT NTT share divestment, participation of Government and/or local government in the said share ownership will reinforce the instructions of legislative regulations in mineral and coal mining area on obligation of share divestment to companies that not yet wish or do not wish to carry out share divestment because KK or PKP2B does not regulate on obligation of share divestment in certain quantity as PT FI.
3.3 Obligation to Use Domestic Mining Goods and Services
Other important aspect of KK and PKP2B renegotiation in foreign mineral and coal mining companies is potential use of domestic goods, services and technology.
This is in line with the provision of Article 39 clause (2) letter t which regulates the obligation on production operation IUP holder to use domestic goods, services and technology. Moreover, the form of implementation of use of domestic goods, services and technology is also supervised by Minister of ESDM (Energy and Mineral Resources), governor, and/or regent/mayor according to their authority as regulated in Article 141 clause (1) letter I which regulates that supervision by Minister of ESDM, governor, and/or regent/mayor according to their authority, among others, in the form of use of domestic goods, services, technology, and engineering and design capability.
With the existence of KK and PKP2B renegotiation then implementation of use of domestic goods, services, technology, and engineering and design capability can be more optimum.
Based on the discussion above, it can be concluded that renegotiation of KK and PKP2B constitutes the mandate of Article 169 letter b of Act No. 4 of 2009. People’s mandate manifested in the process of making such Act by DPR as materialization of people’s will, therefore, the renegotiation constitutes the mandate of Indonesian nation against implementation of mineral and coal mining undertakings in Indonesia. However, there is a separate legal regime which becomes norms in implementation of KK and PKP2B namely principles of pacta sunt servanda which its existence emphasizes on binding of the parties to the content of agreement determined by the parties themselves, in this case the Government of the Republic of Indonesia and mining company who sign the agreement. Without pacta sunt servanda it will be difficult to develop trust / good faith in making agreement between the parties.
In Article 1338 of Indonesia Civil Code it is stated that agreement is the law of the parties who make them. KK and PKP2B also constitute an agreement which its content is binding for the parties who make them.
Therefore, renegotiation of KK and PKP2B must be developed with equal understanding between the Government and mining company. There should be the same intention to evaluate the content of agreement that has been approved by both parties. Without the intention to evaluate and be adjusted with Act No. 4 of 2009 then renegotiation of KK and PKP2B cannot be implemented. Because this can lead to legal dispute between the Government and mineral and coal mining company.
On the other hand, the existence of mineral and coal mining undertakings must be viewed from mutual benefits of the parties. It means the Government as controller of natural wealth also has to get high benefits from mining undertaking activity and also the company can benefit from their mining operation activity. Without the intention to provide such benefits, then the loss suffered by either party shall constitute violation to justice principle.