TEMPO.CO, Jakarta - The one thing that is always accepted without question in the debate over exporting raw commodities, is the understanding that the Mineral and Coal Mining Law is like the Holy Writ. It cannot be adjusted or changed. This is excessive. Retaining this point of view will only force a way out of the dead-end that will add to the long list of mutually conflicting regulations.
Understandably, the government does not want to be seen as ignoring those who want the ban on raw commodities exports to be implemented according to the rules. In the case of Freeport Indonesia, these voices are always louder because some people want to stir up nationalist and xenophobic sentiments. Hence suspicions that any government decision benefitting Freeport is bound to be a conspiracy. The delay in implementing the ban has the potential to trigger a political storm.
The problem is that Law No. 4/2009, which arose during the run-up to the general elections, is a regulation that concedes too much to demands to 'put pressure on foreign investors'.
It is important to understand that the government at that time did not want to appear too soft in its response to foreign pressure related to the deliberations of the law that were to replace Law No. 11/1967 on the Fundamentals of Mining. This resulted in the inclusion of articles burdening foreign investors with obligations that in hindsight, were not strategic and even undervalued and ignored the existence of operations based on ongoing contracts of work.
In order to implement the obligation to process and refine mineral ore, known as down-streaming, the government issued Government Regulation No. 23/2010, which was renewed by Government Regulation No. 1/2014. The restriction to export raw commodities, aimed at overcoming the complex situation caused by the exports of mining companies operating on permits issued by regional governments, came into force on January 12, 2014. In practice, companies like Freeport were given a three-year dispensation.
Today, Government Regulation No. 1/2014 is to be renewed. Because Freeport has shown no signs of trying to build the obligatory smelter, and it is not possible to apply strict measures in response, given the economic, social and political costs, the extension of the export permit will once again, be granted. But this does not mean a green light for the government to act arbitrarily.
What must be avoided is a regulation that can contradict or contravene existing laws, and which could lead to new problems. Issuing another government regulation, then providing an opportunity for a contract of work to become a special mining permit, is not a good option. There are provisions in Law No. 4/2009 that bar such a move.
The most rational option is to issue a government regulation in lieu of law, known as a Perpu. As a replacement of Law No. 4/1009, this perpu could be used as the basis to issue a new government regulation that would emphasize the continued validity of the contract of work, the basis for Freeport's operations.
This could very well lead to complicated political consequences. But it would enable the government to correct the mistakes of the past, guarantee legal certainty, and avoid a protracted logjam. (*)
Read the full story in this week's edition of Tempo English Magazine
