Has Indonesia’s Future been Watered Down [Coal Asia magazine Vol. 54]

HAS INDONESIA’S FUTURE BEEN WATERED DOWN?

The Constitutional Court decision number 85/PUU-XI/2013 determined that Law No. 7 of 2004 on Water Resources is contrary to the 1945 Constitution of the Republic of Indonesia and that the Water Resources law “does not have binding force”, The Water Resource law No. 11 of 1974 is reinstated as of 15:02pm on the 18^th of February 2015. The Constitutional Courts decision is final.

One lawyer who advises mining firms rejoiced in this decision to terminate Law 7 of 2004 (and thereby nullify the associated implementing regulations)as it negates some permits, fees and government inspections. For example; Government Regulation No. 38on Rivers is based on Law 7 of 2004 that sets out controls for river definition and management. Article 57 specifies permits to use the river for infrastructure transport (as may apply to barging?) and mining commodities in the river (as may apply to gravel or alluvial gold, zircon etc). Government regulation No. 42 on water resource management is also based on Law 7 of 2004. Article 42 statesthat “Business entities, groups, or individuals on their own initiative can undertake water resources infrastructure construction for its own sake.”(Thereby allowing water dams for coal wash plants etc). The total impact on the mining industry is likely to be small, as there are many overlapping ministry regulations that remain in force, such as the ministry for transport affecting barging etc.

Some ministries have responded to assure their industries of the Governments ongoing support. The Investment Coordinating Board (BKPM) was reported in the Jakarta Post (7 March 2015) “Existing investors in water companies need not worry, as the BKPM and related ministries have agreed to support those who have invested a lot of money in the water business”.

However the lack of such legislation may be of concern to others seeking clarity on corporate compliance issues.

Compare to MIGAS.

Not so long ago the Constitutional Court delivered a similar ruling whereby MIGAS was found to be not fully in line with the Constitution. This brought into jeopardy the entire oil & gas industry,whereupon the Mines Department moved at lightning speed to quell industry fears and install a new structure, including the continued employment of the appropriate government officers. However a similar level of commitment and decisive action does not seem to be forthcoming from the Government as shown by the Jakarta Post (2 March 2015) report that the Public Works and Public Housing Ministry “aims to finish a government regulation in April and a draft replacement law before the end of this year”. Perhaps the small and centralized MIGAS body was easier to revise than the multitude of water related bodies at Central, Provincial, Regional and City / District levels scattered about all parts of Indonesia. But those multitude of water bodies must have numerous staff and contractors that may now have uncertain futures. Each of these water bodies may have approved operational budgets for the present year, but the uncertain legal bases may threaten the continued disbursement, or if next year they can submit budgets for water resource management. It would seem the Water Resources law has a much wider and more immediate impact on the welfare of everyday Indonesian peoplethan that the MIGAS situation, but the urgency from the Government to resolve the situation is taking more time.

Compare to Ore Export Ban.

The Constitutional Courts decision on the Water Resources law used a similar interpretation of the law, in relation to the intent of the Constitution,tothe Constitutional Courts decision on the raw ore export limitations (effective ban). From nickel and bauxite it would now seem that water and bottled drinks may soon be banned from export, depriving Indonesia of a further export markets. Perhaps ships cannot take on water supplies or ballast, or Garuda international flights may turn to using foreign bottled water. Who knows if this could affectthe transport of high moisture coals from one hydrology basin to coal fired power station in another hydrology basin?

Parliament and the planed review of the 2004 Mining Law.

Parliament has included a revision of the 2004 Mining Law in its 2015 work program. Initially this was to provide further clarity and better coordination with other Laws. The Constitutional Courts recent decisions on the Water Resources Law, along with other recent decisions, suggests that the Parliament may need to consider the message the Constitutional Court is spouting – that empathy for National Socialism is on the rise, and any changes to the mining law may be struck down should they not consider this trend. This will be difficult for parliamentarians, as the Judiciary is essentially saying that Parliament needs to find the money to increase its support for a greater part of the resource sector (mining, water, etc.) The imposition of such Constitutional Court decisions shall mean there are less private industries paying taxes, and there is no guarantee the space shall be taken up by profitable state enterprises. Ultimately the State’s provision of water resource infrastructure and management is likely to degrade, or that a broadening of the taxation system will be imposed to pay for such Government services. Either way the outlookis that the “welfare of the Indonesian people” is at risk of being watered down.

Other Considerations.

One similarity to other recent Court decisions is in the approach of some of the experts witness wherein they urge the Court to consider that the disputed law is not fully in linewith the intent of the Constitution. This splitting of hairs seems to be an important factor for the Court. One different to the ore export ban is that some elements in the Constitutional Court’sWater Resources decision indicate that the Government does not have the capacity to manage Indonesian Water Resources, but should do it! I wonder if, by analogy, that the Government should also mine and export raw ore for the benefit of the Indonesian people!

The petitioners focus on private or public companies profit orientation as being a fundamental aspect that determines that they are not using the water resources for the full benefit of the people, but some benefit goes to profit. The petitioners appear to ignore that responsible companies put great emphases in their brand, and this is one of the market factors that drive them to maintain high standards in delivering a quality product and broad distribution. It would seem the petitioners and the Court have overlooked the aspect that State Owner Enterprises are required by their articles of establishment that they must make a profit, and there is little market incentive to deliver a reliable product. Indeed one part of the Court document gives an example where the local government is not able to deliver tap water to some of its poorest communities.

The Presidential expert Raymond Valiant Ruritan, argued that “Positive discrimination by the Government is factual, that farmers do not pay for water services received, but the water to electricity users have obligations bear the cost of management of natural resources”.This positive discrimination is in relation to Article 28D (1) of the 1945 Constitution “Everyone has the right to recognition, security, protection, and legal certainty and equal treatment before the law“. Much of the petitioner’s arguments appears to be directed at subsistence farmers and neglects profit farmers, (rice, vegetables, tobacco, palm oil, coffeeetc). Perhaps a new Water Resources law may take this ConstitutionalArticle 28D (1)into consideration and introduce a water fee for all farmers. The petitioners seem to want that no one pays a fee, so by inference the petitioners (including Muhammadiyah) want taxes to be broadened.

The following is a summary of the Constitutional Courts decision. Note that all quotes are by Google translate of the Courts published document and may not be accurate. Note that this article should not be considered as a legal opinion.

The Petition.

The petition was brought to the Constitutional Court by members of the muslim organization Muhammadiya and other parties on 23 September 2013 citing the 2004 Water Resource law contravened several paragraphs of the 1945 Constitution, including Article 33 (3) that the “Land and water and natural resources contained in it are controlled by the state and used for the greatest prosperity of the people”. The 2004 Water Law contains many articles that detail the government’s management roll and the relationship of water to all Indonesians, including business parties. One of the key concerns of the petitioners seems to be that the Water Law permits concessions to foreign capital companies to participate in the management of water resources. The Petitioners recognize that the 1945 Constitution allows for private sector in Indonesia, but emphasize that it should not eliminate the meaning of control by the state. Principal Petition part 35 “it can be concluded that the existence of tenure in Law No. 7 of 2004 is fundamentally to reconstruct the value of water from a public good (the common good) into an economic commodity (commercial good) that can be controlled a group of individuals and business entities.”The petitioners clearly want the water to be managed by the local and state governments, and to exclude the concept of water being the source of profit for companies. The petitioners go further in their concern that bottled water and beverage company’s activity of transporting water from one basin to another, or to be exported, could lessen the water available to the people of the source basin, and thus be contrary to Article 28 of the 1945 Constitution.

Expert testimony for petitioners.

Seven expert testimonies were presented to the Court to support the petitioners claim. Prof, DrSuteki SH, MH referred to the field of natural resources management. Hisarguements include the point that PAM Jaya is a profit oriented company, and that some poor people in Indonesia find bottled water too expensive. I find it interesting to note that his argument ignores the point that the larger majority of Indonesians are appreciative of bottled water quality and reliability, and are prepared to pay a premium for branded bottled water. Prof. DrAbsori, SH,MH refers to “The Qur’an says that water is a symbol of justice, a symbol of life, and a symbol of prosperity, so it is important to stress in Law 7/2004”. He also refers to the Environmental Law and other laws concluding that “Even if there is a delegation in the form of cooperation, then the Government should dominate”. Dr.Dea Erwin Ramedhanis concerned that the Government is now not able to properly manage the Water Law, first citing conflicts between farmers drawing bore water for crops in Klaten and Sukabumi. He also cites the Aqua Golden Missippi profit history with a concern that increased production was not matched with a similar increase in tax revenues. Dr. AidulFitriciadaAzhary, SH,MHargues for his interpretation of the philosophy of the Constitution as outlined in the following extracts“Constitutionalism liberalism is a reflection of economic liberalism which requires the enactment of a free market economic system that is parallel to the liberal political system”. “Drafting the 1945 Constitution rejected the teachings of liberal constitutionalism, and chose the form of national political and economic system based on social justice”. “In relation to Article 27 of the 1945 Constitution, water resources cannot be interpreted solely as an economic commodity, but more fundamentally as one a fundamental human right to survive”. He goes on to mix in comments relating to a number of subjects, including the Dutch East Indies colonial system.Dr. Hamid Chalid SH, LLM, makes a number ofarguments relatingthe principal “that water is a human right, so that human rights to water are protected from malignancy or economic commoditization of water”. He goes on to compare water rights in countries such as Holland, India and the outlook of a number of NGO’s that support his stance that “granting rights to the business sector is the delivery of benefits from the water resources of the state to the private sector, which istantamountto surrender ownership of water resources to the private sector”. I find it interesting that this argument seems to contradict the petitioners opening statements (point 50) that “organization which operates in the field of water resources as defined in Article 92 of Law No. 7 of 2004 had violated the most fundamental principle in law enforcement and guarantee the recognition, protection and legal certainty that a fair and equal treatment before the law as stated in the 1945 Constitution, inter alia, the provisions of Article 92 paragraph (1) of Law No. 7 of 2004 is a discriminatory clause”. So it is difficult to understandDr Hamid argument that apparently does not recognize business entities as being guaranteed similar equal treatment before the Indonesian Law. Dr. Irma A. Putra Sidin SH,MH, argues that “Water Resources Act does not give priority to the conception of ruler-ship of the state, but is more directed to the horizontal management”. Salamuddin (Daeng) states that the IMF’s 1997 bail out was in part linked to the opening of Indonesia’s water resources to the private sector, and in recent years the ADB has funded a number of water projects. Salamuddin argues the World Bank hada significant input to the draft National Water Resources Policy Action Plan for 1994 to 2020 and has influenced the inclusion of private investment opportunities within the 2004 Water Resources law. Salamuddin concludes that “The private sector should not dominate or have a water resources because it is very harmful to the public interest. The spirit of community involvement and water management through the provision of rights of exploitation is a violation of the constitution.”

President Statement for Court.

The Court documents provide a Presidential statement on this issue including a reference to the Constitution “Article 33 paragraph (3) of the Constitution of 1945 states that the earth and water and natural resources contained in it are controlledby the state and used for the welfare of the people”. The statement continues with the governments obligation to implement Article 33 “In order for the management of water resources can be performed well in anticipation of the above problems required strict legal instruments which form the basis for the management of water resources”. The statement provides further rational “In order to realize the values ​​of respect, protection and fulfillment of human rights to water, the Act SDA has three basic ideas, the philosophical, sociological, and juridical as follows” 1) “Philosophically water is a gift of Almighty God is the source of life and livelihoods.”2)” Sociologically, water resources management should pay attention to the social function, to accommodate the spirit of democratization, decentralization, transparency in the order of society, nation, and state, as well as respect for the rights of indigenous peoples”.3)”Legally Article 33 paragraph (3) of the Constitution of 1945 states that the earth, and water, and natural resources contained in it are controlled by the state and used for the welfare of the people.” The statement goes further with the definition of “controlled by the statethat includes understanding regulate and / or organize, direct and supervise, especially to repair and improve service, so that water resources can be utilized in a fair and sustainable way.” The statement then gives a number of technical ideas on the nature of water and principals in the management of water.

Governments’ arguments against petitioners.

The Government provides its case against the petitioner’s arguments. 1) That the petitioners concept of private control or monopoly is incorrect, with various explanations including “that the leaseholders Right to Water is not an ownership right on the water, but only limited to the right to obtain and use or exploit a number (quota) of water in accordance with the allocations set by the Government to the water users”. 2) The Government cites 15 points to explain” that the Act provides protection of natural resources and ensure the rights of the people on the water” and quotes a 2005  Constitutional Court statement on water that supports the Governments conclusion that the petitioners case is based on “unfounded assumptions, irrelevant, and is not appropriate”. 3) That the references to clauses in the Water Resources law are there to ensure the State is responsible for meeting water needs, and “mastery of the water will not fall into private hands.” 4) The petitioner’s argument that the Act is discriminatory is countered with an explanation that the law formulates the practical aspect of the people’s right to sue over water issues. “Such an arrangement is necessary so that people also get the correct understanding and can channel their aspirations through a proportional channel” and not turn to open conflict. “This is consistent with the wording of Article 28I (5) of the 1945 Constitution, namely that to uphold and protect human rights in accordance with the principles of a democratic constitutional state, the implementation of human rights are guaranteed, regulated, and set forth in the legislation”.

The Government goes on to list 7 implementing regulations, 15 product regulations and cite a number of water programs for the people of Indonesia associated with its Millennium Development Goals, plus a number of Presidential decrees to enable banking to support accelerated water supply programs etc. The Government explains that public-private partnership is different from privatization, and refers to schemes to support low income water users. “Noting the above considerations, the Government argues that the development of policy in the field of drinking water already provides protectionto prevent the practice of privatization or privatization and commercialization of the drinking water, and that drinking water is a human right as mandated by Article 33 paragraph (3) of the 1945 Constitution. The Government supports programs in order to meet the needs of drinking water services for low income people.”

Expert Testimony for the Government.

Prof.Dr I GdePantjaAstawa, SH,MH,arguments include that “licensing is an important juridical instrument for the purpose of the license is as an instrument of control” and “The pattern of water resource management is to benefit as much as possible for society in all areas of life.”Ir. Imam Anshori, MT, has a logical outlook on water management. The Governments roll includes conservation, utilization and control of the destructive force of water. Use of water is controlled through State approved plans and allocations that includes irrigation and considerations for local households etc. The access or use of water should be shared, but is often subject to rivalry. If the use of water as common property is not managed well, then there is potential for lowering to welfare of others. This leads to the concept of water rights that is outlined in the Water Resources Act of 2004. “Act quo provides a space for the public to protect and defend their rights in matters relating to the management of water resources.”Dr. JunkunMulyoHandoyoM.Ec, approach is that there is increasing demand and competition for water, wherein potential imbalance between supply and demand for Water Resources needs management.  There are several ways to calculate the cost of water management, and in reality the management of Water Resources is an acceptable State loss. The “willingness to pay for each person is different” is countered with a form of positive discrimination that “fee waiver water services in the utilization of natural resources for the people who are economically disadvantaged”.”This means the State continues to be in power through licensing and monitoring”.  Raymond Valiant Ruritan, ST, MT, uses the BrantasRiver as an example of how the Government uses the Water Resources Law of 2004 to manage the water supply in a fair and transparent manner. Hydroelectricity undergoes positive discrimination to pay a water fee, whereas irrigation farmers do not pay for water, while the PerumJasaTirta bottle water company adds value and employment opportunities.  The income received by the state is used to construct, maintain water infrastructure (dams, irrigation channels) and for managing the demand for water. If the water was not well managed, then free competition would “only leave the remnants of water for the weak.”IrArifBudiman, outlines that a number of implementing regulations are “related to the fulfillment of daily basic needs for drinking water as a human right guaranteed by the 1945 Constitution”.

President Witness.

Ir. TeguhSupraptofrom the Coordination Team Members Regional Water Resources Management Solo River (TKPSDA) explains the workings of the Solo River management team that includes public participation in the “discussion of matters related to the management of natural resources, both from the aspect of conservation, utilization, and destructive force.”Ir. H.AgusSunarais the Executive Director of the Association of Indonesian Water (Perpamsi) and notes how regional companies of PDAM and SPAM explain the rational and management factors of public investment in upstream while the local government invests in downstream household & industry water systems. He warns that there is not enough subsidy for local government spending of reticulated water systems. Sardi Ahmad Khani, SHis DPP Chairman for the community based Association of Water Supply and Sanitation (APSPAMS) that has programs in urban and rural areas. He uses the example from Semarang where shallow poor quality water wells were replaced with a deep bore, water tank and distribution system. Funds were derived from the Central & Local government plus funds from the community that received the facility. Ir. EndahAngreni, MT is an activist with the Association of Sanitary and Environmental Engineering of East Java. He outlines the number of water user groups (HIPPAM) and consumers in a number of areas, wherein “the Government has encouraged cross-regional cooperation in the implementation of SPAM through Spatial Regulation of East Java”.

House of Representatives Statement.

The House argues against the petitioners, inthat various provisions in the Water Resources Law of 2004 are consistent with the Constitution with regard to A) greatest prosperity of the people, B) legal certainty and the rights of indigenous society, C) traditional rights & government management, D) state control over natural resources, E) concessions with state control and management, F) there is no privatization or commercialization of access to water resources, G) that control over water is not transferred to the private or business sector, I) is not a discriminatory law.

Minister of Public Works statement (Ir. Djoko Kirmanto).

Water is a gift of God Almighty and good management will provide benefits for all Indonesians. The Act is the implementing roll of the Government wherein the right to water must be considered from the philosophical, sociological and legal bases. The National Water Resources Board is directly responsible to the President and coordinates the various stakeholders. The Board assists the President to formulate national policies on water resources, and implements such policies through consultation with a number of parties. These policies are effective for the period 2011 to 2030, and act as a reference to various government bodies. The policies cover aspects related to increased coordination, the science of water resources, conservation, utilization, prevention of damage from water, information networks. Law No. 7 of 2004 is about the integrated management of water resources through many implementing regulations and water resource councils etc. The Minister rejects the petitioner’s arguments claiming that the Government has sought to avoid a monopoly situation or avoid horizontal conflict in the community, that the Government retains control over the water resources and has implemented good drinking water supply systems.

The Courts Decision.

The Court reviewed the arguments for and against the petition, and emphasized “that the right of control by the state over the water is the “spirit” or “heart” of the Act quo as mandated by the 1945 Constitution.” The Courts decision hung onthe Court’s interpretation onthe compliance of the Act’s implementing regulations. The Court concludes “that the Act concerned is contrary to the Constitution”. The Court further stated “Whereas since the SDA Act is declared contrary to the 1945 Constitution and to prevent a vacuum in regulation of water resources while waiting for the formation of the new Act that takes into account the decision of the Court by forming Act, the Act No. 11 of 1974 on Irrigation is reinstated.”