Thursday, December 6, 2012

Decentralising Indonesia’s mining sector

Indonesia’s Constitutional Court on 22 November partially upheld the challenge to seek judicial review of article 6(1) of the Mining Law 2009. With that decision, the court moved the authority to decide on mining zones, business mining zones, mining area sizes and borders of business mining permits from the central government to local governments.

However, even with the recommendation from local governments, the central government is still entitled to reject decisions if they are found to be incompatible with the national or even local spatial planning, or overlap with previous mining permits granted in the same areas.

The revision is not very significant. The central government still holds the ultimate authority to decide on mining zones and business mining. The difference is only in the process. Prior to the court’s decision, the central government decided on the mining zones after coordination with local governments. Now, local governments will first propose the mining zones to the central government, which will then make the final decision. In addition, the court’s decision puts more emphasis on the ‘decentralisation flavour’ of public policy making in the mining sector. Although the central government is the ultimate decision maker, the process comes from the bottom (a bottom-up process). Coordination between the central and local governments also becomes more confirmative since the central government cannot make any decisions without involving local governments or without recommendation from local governments.

So, the court’s decision on article 6(1) of the Mining Law 2009 only changes the process from being top-down to bottom-up.

Since the introduction of regional autonomy in Indonesia, management, particularly within the mining sector, has started to move toward the local level. The central government no longer monopolises the signing of contracts of work, mining concessions and coal contracts of work.
The Mining Law 2009 attempts to keep the balance between the principles of national importance, benefit to society, business certainty, and decentralised management of the mining sector.

First, this law lays the foundation for strengthening state authority over natural resources, which the central government implements through regulating and monitoring the management of mining businesses. For that, the Mining Law 2009 starts to change the contract regime to the licensing regime. The power of the state is no longer parallel to contractors who, for the past 42 years, have made the bargaining position of the government weak in the face of large mining investors.

Second, mining zones become the basis of issuing permits. The central government sets mining zones, and all permits in the local regions need to be adjusted to that. Local governments are expected to be more monitored in giving licences this way. Mining zones also need to be synchronised with national and local spatial planning in order to ensure legal certainty so that investors are no longer haunted by changes in the government’s use of land.

Third, the permit regime is simpler. Previously, there were six different types of mining concessions, but now there are only two types of permits: exploration and operating production. Domestic and foreign businesses also have equal opportunities in the licensing process because of the open auction mechanism for business permits. Provisions about time limits and land area limits that are currently not compatible with the standard needed in the mining industry should be inserted into the government regulation of the Mining Law.

The Mining Law 2009 actually gives much clearer directions for mining decentralisation than the National Mining Law 1967. Under the Mining Law 2009, local governments have a clearer line of authority. The central government only has an exclusive right over national policies, rule making, setting standards and guidelines, the national licensing system and decisions over mining zones. Beyond that, central and local government authority for licensing is substantially similar and only differs in the scale of areas covered. Municipalities are authorised to issue licences if the mining areas fall under their jurisdictions, which cover sea areas up until four miles from the shoreline; under provinces where the mining areas cross regencies or municipalities and cover sea areas up to four to twelve miles from the shoreline; and under the central government if the mining areas cross provinces and cover sea areas up to twelve miles from the shoreline.

The change set out in the Mining Law must be proven to work at the implementation level. 

Horizontal coordination across sectors and the involvement of local governments in drafting the government regulation to the Mining Law need to start now. Local governments have to work harder to build a stronger working capacity to be ready to carry out the functions of managing licences and monitoring mining activities in the field.

Implementation issues are arguably more important than policy changes, including through legal efforts. At the implementation level, local governments cannot arbitrarily assign thousands of licences that are overlapping, unclear and that violate good mining practices. According to central government data reconciliation there are 5940 mining permits (of the 10,566 mining permits that were issued by local governments during ten years of decentralisation) that are not clear and clean.

Prior to the court decision, the central government had to set maps of mining zones and business mining zones as the basis for regions to issue permits. Now the process is reversed: the local government is now required to set mining zones and business mining zones, and the central government must approve or reject the local government’s recommendations.

Looking forward, consistency in issuing regulations, building the capacity of implementers at each level of government, and effective coordination between the central and local governments should be the focus for the future.

If these issues are not addressed, then no matter how many judicial reviews there are, Indonesia will continue to face a variety of classic problems within the mining sector: bad mining practices, power conflicts between the central and local governments, and overlapping legal and illegal permits.
Robert Endi Jaweng is Executive Director of KPPOD (Regional Autonomy Watch), Jakarta. 

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