A US$2 billion lawsuit filed against the Indonesian government for failing to honour the terms of a UK investment in a Kalimantan coal project could scare off future investors as the country’s reputation reels in the international mining sector. Indonesian President Susilo Bambang Yudhoyono has conceded to his Cabinet the dispute has affected his standing as head of state and added to Indonesia’s reputation as a risky investment destination.
UK-based Churchill Mining had set out a bilateral investment treaty with Indonesia after discovering a world-class thermal coal deposit in Kalimantan’s East Kutai in 2005. It is now seeking compensation because of the Indonesian Supreme Court’s ruling to uphold the Samarinda Administrative Court in East Kalimantan which favoured the East Kutai regency’s unilateral decision in May 2010 to seize its assets and revoke licences to develop coal deposits within its jurisdiction.
Churchill owns a 75% stake in the project and has launched an international claim against the Indonesian government which it says failed to rectify the issues described in two previous letters to the country’s President.
“Both letters emphasized that following a significant investment in East Kutai, Churchill identified a world-class thermal coal deposit in East Kalimantan. Shortly thereafter, Churchill became the subject of a sustained campaign designed to divest its legitimate rights to develop this deposit,” says Churchill’s chairman David Quinlivan.
Churchill’s claim is listed with the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC. “We will be seeking the full relief owed to the company under the provisions of the UK-Indonesia BIT and under International law,” he says.
President Bambang says there are concerns this is a direct contest between a multinational company with global connections against a developing country. Foreign investors view this as further test of Indonesia’s adherence to the rule of law, and many say Indonesia will only succeed in scaring off investors if it wins the arbitration.