This paper submitted as business law task

Lecturer : Gatot Soemartono, PhD

MBA UGM Program, Jakarta, 2016

DID INVESTMENT CERTAINTY IN INDONESIAN MINING SECTOR HAVE BEEN GOOD?

A Case Study from Mining License Dispute of Churchill Groups and Government of Republic
Indonesia

Pangaribuan, Meichelani1 and Matlubi, Muhammad Najih1

1
Student of the 1st International Program, FEB UGM, Jakarta, Indonesia
Email :, meichelani@gmail.com, matlubi.mn@gmail.com

Abstract
The study is about lawsuit Churchill Mining plc on the Indonesian government related to revocation mining
licenses of Ridlatama. Churchill Mining plc is a multinational mining company from London, UK. Its main activity
is the mining of coal. Churchill invest to acquire a 75% stake owned national company Ridlatama group. Both
companies are working to develop the East Kutai Coal Project (EKCP) in Busang and Telen, Kutai Timur district,
Kalimantan Timur Province, Indonesia. Revocation licenses of PT. Ridlatama by the Kutai Timur regional
government influence the course of EKCP, so that Churchill Mining plc does efforts to resolve these problems. The
results showed that Churchill Mining plc efforts in resolving disputes with the Kutai Timur government related to
revocation licenses of PT. Ridlatama is to propose a lawsuit to court of administrative Samarinda, court of
administrative Jakarta, and the supreme court of Indonesia but the efforts end with failure. Furthermore Churchill
Mining plc proposes a lawsuit to institute arbitration of International Centre for Settlement of Investment Dispute
(ICSID). The claim is received and in process inspection and verification lawsuit substance until the final verdict.

A. Background B. Problem Chronology

Churchill Mining Plc. is a company lawfully Government of Republic Indonesia-
established in the United Kingdom and listed on the Churchill mining license dispute can be shown
London Stock Exchanges Alternative Investment from table 1 below.
Market (AIM). Churchill Groups existence in Table1. Churchills problems Chronology
No Date Years Activity
Indonesia can be expressed by Ridlatama groups, a 1 10 March 2006 - Nusantara mining license has been expired
national company, with an Investment Agreement 2 26 February 2007 - ESDM bureau of East Kutai Regency announced that ' The Ridlatama's
Wanted Area ' was an open area and do not overlap with others and previous
from 2007, whereby Churchill agreed to fund and mining company licenses
manage exploration work of 75 % ownership share. ( in this case, previous mining company licenses are Nusantara group)
3 24 May - The Regent of East Kutai published mining general study license for
Churchill, in Indonesian business activity will be Ridlatama groups
associated by Ridlatama, has developed a coal - Churchill group register their investment to BKPM, and took over Ridlatama
project with 75% ownership share
exploration project in area that will be named East - Churchill sought capital to fund East Kutai Coal Project (EKCP)
Kutai Coal Project (EKCP) with 35.000 Ha wide. It 4 4 April 2008 - Ridlatama mining general study licenses upgraded to mining exploration
license
took about 1 year feasibility study and 3 years for 5 27 Mei - Churchill announced that threy discover coal deposit around 150M mT, 2
massive exploration which spent USD 14 million years later the discovery was increase up to 2,7 B mT
6 17 July - The Regent of East Kutai agreed to extend previous Nusantara group mining
capital expenses to fund EKCP, Ridlatama discover license
amount coal resources deposit around 2,7 Billion - (Nusantara's license was overlap with Ridlatama's around 24.000 Ha

mT. It is Indonesias second largest and the worlds 7 23 February

BPK Alleged the licenses held by the Ridlatama Companies were counterfeit.

seventh largest untapped coal resource. But all of 8 27 March 2009 - Ridlatama's exploration licenses was upgraded to exploitation license

Churchills asset and investment will disappear for 9 4 May

no apparent reason because Ridlatama mining
licenses suddenly revoke by The Regent of Kutai
Timur, Kalimatan Timur, Indonesia.
2010
- Decision letters of The Regent of East Kutai was published, that letter explain
that Ridlatama's licenses was revoked
(source : Churchill plc, The 2011 Annual general meeting report)

1

C. Problem Statement
1. Why Ridlatamas (Churchill Groups) mining
license was revoked?
2. What the effect of Government of Republic
Indonesia (GoRI)-Churchill Group dispute?
3. How to obtain the best solution of GoRI-
Churchill dispute based onbusiness law?
D. Analysis Solution
The dispute between Churchill group-
Government of Republic Indonesia was occured
because of Ridlatama mining license revocation by
the Regent of Kutai Timur, Kalimantan Timur
province, a moment after Churchill groups
announced that they had discover coal deposit
around 2.7 Billion metric tons in area which they
called as East Kutai Coal Project (EKCP). At that
moment, EKCP was the 2nd Indonesia and the 7th of
the worlds untapped coal resources deposit. Below
are three accusations which led Churchill mining
licenses been revoked:
1. Churchill mining licenses was overlap with
other mining licenses.
2. Indonesian Forestry Ministry recommendation
letter which stated that Churchill doesnt have
foresty land use permit and Churchill mining
activities disturb the forest in East Kutai.
3. Churchill was accused doing falsification of
mining licenses.
Figure1. East Kutai Coal Project Location
(source : http://www.churchillmining.com)
Why Churchill mining license was overlap
with other mining licenses? Regarding the case of
overlapping mining licenses, not just Churchill who
experience it. Based on the Directorate General of
Mineral and Coal, Indonesian Ministry of Energy
and Mineral Resources. Until 2014, the
Government of Indonesia has issued 10,922 mining
licenses. From that number, 45% of them (around
4880) the mining licenses has not been clean and
clear (CNC) status. In 2015, the number has been
This paper submitted as business law task
Lecturer : Gatot Soemartono, PhD
MBA UGM Program, Jakarta, 2016
reduced, even though the percentage is large
enough around 38% (3960 mining license). Why
get so?
The legal basic used for issuance of mining
license in Indonesia was The Act no. 11/1967 for
the mining principal provisions. Article 17
explained that the Indonesian mining licensor was
the minister of Indonesian ministry of Energy and
Mineral Resource. Based on 2012 data, Indonesian
Ministry of Energy and Mineral Resource was
issued 178 mining licenses which is consist 37
contract of work (CoW) for mineral deposit and
141 coal contract of work (CCoW) for coal deposit.
The number of highly skewed with data mining
licenses issued in 2014. So where are the problems?
Indonesia experienced the euphoria of
reform in end of 20th century. At that time, one of
developing issues were decentralization and
regional autonomy. Therefore, The Act no. 22/1999
for local and regional government was published. In
article number 7 chapter IV of the act explain about
regional authority, it was mentioned that the region
(in this case was governor or regent) has authority
to manage natural resources in their area. It was
strengthened by publishing the Act No.4/2009 for
Indonesian mineral and coal mining. The regional
head (governor/regent) vie to publish much mining
licenses as reason to get and increase local revenue
that will be allocated in APBD. A logical reason
why ministry was issued a number of mining
license data as listed above, but the effect was also
there were much overlap mining licenses.
Besides overlap with other mining company
license, not infrequently mining licenses that was
issued overlap with forestry area. As we know that
many mine commodities deposit discovered in
remote and forestry area. Based on the Act No
41/1999 for forestry, The Act No. 19/2006 for
Indonesia forest land use, and Indonesian ministry
of forestry regulation No. 16/2014, companies (not
only mining company) who work area in forest area
must have forest land use permition (in Indonesian
rules called as IPPKH) from Indonesian forestry
minister. In Churchill case, Churchill alleged
disturb Kutai Timur forest and doesnt have IPPKH
permit. So Indonesia forest minister publish a
recommendation letter of revocation Churchill
mining license to Kutai Timur regent.
2

Figure2. EKCP Tenement (with others mining and forest area)
(source : Churchill plc, The 2011 Annual general meeting report)
Why Churchill allegedly had fake license,
Through Churchill had license that has been
published Kutai Timur regent too? That was caused
by Indonesia complex bureaucratic process and not
synchronized yet between central, regions, and
local government in Indonesia. Although Nusantara
mining license was expired on March 10th, 2016,
based on that act Nusantara group has a right to
extend their mining licenses. While the principal of
Churchill (Ridlatama) mining licenses was the Act
No. 4/2009 whose issued by East Kutai regent.
Table2. The decision letter of the Regent of Kutai Timur
regarding all type Ridlatama mining licenses
(source: Regional Inspectorate of Kutai Timur, Special Audit Report, 2011)
Table3. The decision letter of the Regent of Kutai Timur
regarding Nusantara exploration licenses
(source: Regional Inspectorate of Kutai Timur, Special Audit Report, 2011)
What the effect that caused by this dispute
case from business aspect? This dispute effect was
emerges of pessimism from foreign business
institution about investment certainty in Indonesian
mining sector. The Indonesia government cant
render investment certainty to Churchill and make
This paper submitted as business law task
Lecturer : Gatot Soemartono, PhD
MBA UGM Program, Jakarta, 2016
worries that Churchills asset and investment will
disappear for no apparent reason. As a foreign
institution, Churchill has registered and listed their
business in Indonesia Investment Board (in
Indonesia called as BKPM), an institution
established to coordinate investment, particularly
foreign capital. Based on the Act No. 1/1967 for
foreign investment and article 4 and 6 the Act No.
25/2007 mentioned that Indonesian government
must give equal treatment to all investors whose
invest their capital in Indonesia. Besides that,
Indonesia has a bilateral agreement with The
United Kingdom (The 1976 Agreement Between
The Government of The United Kingdom of
Great Britain And Northern Ireland And The
Government of The Republic of Indonesia For
The Promotion And Protection of Investments
that signed in London on April 27th, 1976) which
emphasize and state that Indonesia shall ensure UK
investment and business units were guaranteed and
equal in the face of Indonesia laws and regulations.
And then, how to GoRI-Churchills dispute
settlement according to business law? Indonesian
government should execute some efforts, this effort
has been regulated in Indonesia-UK Bilateral
investment treaty (BIT) in article 8 as follow:
1. Disputes concerning the interpretation or
implementation of the Agreement shall if
possible be settled through diplomatic
negotiation between the Governments of the
Contracting Parties.
2. If the Contracting Parties are unable to reach
an agreement, the dispute shall, upon request
of either Contracting Party, be submitted to an
arbitral tribunal composed of three members.
Each Contracting Party shall appoint one
arbitrator and these two arbitrators shall
nominate a third arbitrator as Chairman who
shall be a national of a third State.
3. If either Contracting Party has not appointed its
arbitrator with two months of the receipt of the
request for arbitration, that arbitrator shall be
appointed, upon the request of the other
Contracting' Party, by the President of the
International Court of Justice.
4. If the two arbitrators are unable to reach an
agreement on the choice of the third arbitrator
within two months after the appointment of the
second, the third shall be appointed, upon the
request of either Contracting Party, by the
President of the International Court of Justice
3

5. If, in the cases specified under paragraphs (3)
and (4) of this Article, the President of the
International Court of Justice is prevented from
carrying out the said function or if he is a
national of either Contracting Party, the
appointment shall be made by the Vice-
President, and if the latter is prevented from
carrying out the said function or if he is a
national of either Contracting Party, the
appointment shall be made by the Member of
the Court next in seniority who is not a
national of either Contracting Party.
6. Unless the Contracting Parties decide
otherwise, the tribunal shall determine its own
procedure
7. The tribunal shall reach its decision by a
majority of votes and such decision shall be
final and binding on the Contracting Parties.
8. Each Contracting Party shall bear the cost of
its own member of the tribunal and of its
representation in the proceedings. The cost of
the Chairman and the remaining costs shall be
borne in equal parts by the Contracting Parties.
E. Conclusion
From the analysis solution above we can
conclude that:
1. To revoked business licenses again in the
future, Indonesia government should make-one
natural resources map and zonation. Map,
zoning, and clean and clear (CnC) status just
not for mining, but also for other natural
resources, like plantation, forestry, agriculture,
fishery, and others. The area that was including
in one segment above will not be issued by
others business segment license. Indonesian
government must to simplify bureaucratic
process and synchronized the regulations
between central, regions, and local government
This paper submitted as business law task
Lecturer : Gatot Soemartono, PhD
MBA UGM Program, Jakarta, 2016
In order of point 1 above, Indonesia
government can use dispute completion with
Indonesian law instruments as fair as possible. It is
done caused Indonesian law instruments fairly
complete, both the rules and type of existing court
(Administrative Court and Commercial Court). It
will be a good thing if it is done, because business
law have 3 kind of functions; to facilitate, to
regulate and to adjudicate.
In order of point 2 until 8 above, Churchill
should have dispute settlement to arbitration
tribunal. As mentioned before, it is the adjudication
function of Law. Specifically in The Churchill
Case, The Foreign Capital Investment Act No.1 of
1967 also provides for arbitration. In the case of
nationalization of a foreign investment company,
compensation is to be paid. If the nationalized
foreign investor regards the compensation amount
unsatisfactory, he may bring the matter to
arbitration.
2. The mining business generally have
characteristic that requires huge capital and
involving foreign companies or foreign capital.
So for the issuance of mining license and
businesses involving foreigners should pass
through the Indonesian central government. In
this case the ministry will issue a license. It is
closely related to bilateral and international
relations with other countries.
3. If there are business dispute in Indonesia,
dispute settlement should be done in
Indonesian law principium, and if not it will be
facilitated by arbitration.

F. References
Churchill mining plc, Legal Protection Application Letter for The President Of Republic Indonesia.
London, April 20th 2012.
Churchill mining plc, The 2011 Annual General Meeting Report. London. 2012
Hogans Lovells International law bureau, The letter of the right to ask a response for The President
of Republic Indonesia.
The Indonesian-United Kingdom Bilateral Investment Treaty (BIT). London, April 27th, 1976.
The Act No.1/1967 replaced by The Act No. 25/2007 for foreign investment.
The Act No.11/1697 for the mining principal provisions.
The Act No.22/1999 for the Indonesian local government.
The Act No.25/1999 for the financial balance between Indonesia central and local government.

4
 This paper submitted as business law task
Lecturer : Gatot Soemartono, PhD
MBA UGM Program, Jakarta, 2016
The Act No. 41/1999 for forestry
The Act No. 19/2006 for Indonesia forest land use.
The Act No. 4/2009 for Indonesia mineral and coal mining.
Indonesian ministry of forestry regulation No. 16/2014 for forest land use permit.