Mas Rahmah and Muchammad Zaidun (2013) Divestment Policy on Mining Sectors : The Challenge and Implications for Foreign Direct Investment in Indonesia. In: Law & Practice "Critical Analysis and Legal Reasoning". International Association of IT Lawyers (IAITL), pp. 799-827. ISBN 978-87-994854-3-7

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Abstract

In 2012, Indonesia government issued the new divestment regulation that limits foreign ownership in mining sectors, by requiring a mandatory divestment of at least 51% of shares after 10 years of production and obligating all foreign mining firms to have an Indonesian majority shareholders by 2022. This paper aims at exploring the challenges in implementing the divestment policy at doctrinal, normative and practical level. At doctrinal level, the challenges relates to the conflict between the policy and “right of property”. At normative level, the existing problems are:(a) no detail regulations of divestment requirements;(b) no penalties for non compliance with the requirements;(c) no transitional provision providing “retrospective effect;(d) legal inconsistency with Indonesian obligations on Bilateral Investment Treaties (BITs) preventing the investment insecurity. At practical level, the policy seems difficult to be implemented regarding to:(a) the ability of Indonesian parties to purchase the shares, then to involve and manage mining companies professionally;(b) uncertain divestment mechanism such as slow progress of bureaucratic process, selling price of divested shares, continuity of the divestment obligation if there is no purchaser, etc. This paper argues that uncertain divestment policy will potentially deter the long term investment and attractiveness of investing in Indonesia’s mining sectors, influencing foreign direct investment (FDI) rate. This paper then proposes that divestment policy should balance the national interest and the interest of promoting investment by:(a) clearly regulating the term and method of divestment;(b) providing adequate incentives to investment returns prior to divestment deadlines;(c) providing transparent guidance; and (d) communicating the need of FDI to maximize the industry contribution to Indonesia development goals.

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