Client Newsflash

Indonesia Limits the Jurisdiction of the ICSID

On September 22, 2012, the President of Indonesia issued Decree No. 31 of 2012 (“Presidential Decree No. 31/2012”), which determined to exclude disputes arising from state administrative decisions issued by Regencies (Kabupaten) from the types of disputes that may be settled by ICSID. ICSID received the Government’s notification on September 27, 2012.

Indonesia became a member of ICSID in 1968, when it ratified the Convention on the Settlement of Investment Disputes between States and Nationals of others States (“ICSID Convention”) and enacted Law No. 5 of 1968 dated June 29, 1968 regarding the Settlement of Disputes between States and Nationals of other States on Capital Investment (“Law No. 5/1968”).  Despite the general ratification of the ICSID Convention, Article 2 of Law No. 5/1968 states that the Indonesian government has the authority to grant consent for a dispute relating to foreign capital investment to be decided under the ICSID Convention and to represent the Republic of Indonesia, with the right of substitution, in such disputes.

In reference to the foregoing, Article 32 paragraph 4 of Law No. 25 of 2007 dated April 26, 2007 regarding Capital Investment (“Law No. 25/2007”) stipulates that a dispute in the field of capital investment between the Government of Indonesia and a foreign investor shall be settled through an agreed international arbitration tribunal. Accordingly, the Indonesian government affirms that it may or may not use ICSID as the forum for alternative dispute settlement in the field of foreign capital investment. Moreover, the ICSID Convention, as modified, allows any Contracting State at the time of ratification, acceptance, or approval of the Convention—or at any time thereafter—to notify ICSID of the class or classes of disputes that it would or would not consider submitting to the jurisdiction of ICSID. This provision formed part of the legal basis for the President issuing Presidential Decree No. 31/2012. However, the exclusion of Regency-level decisions will not apply retroactively. In the case of Churchill Mining versus the Regency of East Kutai, which prompted the Government’s exclusion, that case is still pending before the tribunal,

In light of recent events involving cases in the field of foreign capital investment in Indonesia, the issuance of Presidential Decree No. 31/2012 may stimulate concerns among investors about  how the Indonesian government provides legal certainty to their investments, particularly as many government decisions affecting foreign investment are issued at the local level (i.e.,  provinces and regencies) under the system of Regional Autonomy.

Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com) or Ali Suryadharma
(asuryadhama@aksetlaw.com) for further information.

ARFIDEA KADRI SAHETAPY-ENGEL TISNADISASTRA
December 31, 2012


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