IA Reporter | 20 November 2015
Indonesia ramps up termination of BITs – and kills survival clause in one such treaty – but faces new $600 mil. claim from Indian mining investor
by Luke Eric Peterson
This article is reproduced with permission of Investment Arbitration Reporter, a specialized news and analysis service covering investor state claims.
Research by IAReporter finds that the Republic of Indonesia has made good on an earlier promise to begin phasing out some of its 67 odd bilateral investment treaties.
Since news broke in 2014 of Indonesia’s plans, the government has formally notified more than 20 treaty partners that the government will terminate unilaterally BITs with those partners.
Effective termination of those treaties depends upon the particular wording of the treaties, but already nine agreements have fully terminated.
Of further interest, Indonesia’s treaty with one additional country, the Republic of Argentina, has been terminated bymutual agreement, and in such a manner that the so-called survival or sunset clause will not operate so as to confer some residual protection (for existing investments) following termination.
We discuss Indonesia’s termination steps in more detail below.
In addition, we discuss a new arbitration claim that has come to light under one of the treaties – the India-Indonesia BIT – that Indonesia has move to terminate (but whose effective termination will not come until April of 2016).
Unilateral treaty terminations unfold as promised
According to information obtained by IAReporter from Indonesia’s Ministry of Foreign Affairs, nine BITs have been fully terminated by Indonesia, although “survival clauses” or “sunset clauses” in such treaties may continue to protect previously-made investments for further periods of time.
The nine treaties are with (dates of effective termination appear in brackets):
– China (March 31, 2015)
– Laos (October 13, 2015)
– Malaysia (June 20, 2015)
– Netherlands (June 30, 2015)
– Italy (June 23, 2015)
– France (April 28, 2015)
– Slovakia (February 28, 2015)
– Bulgaria (January 25, 2015)
– Egypt (November 30, 2014)
Argentina agrees with Indonesia to terminate, and to neuter survival clause prior to doing so
Of particular interest, the Ministry tells IAReporter that another treaty terminated by Indonesia with the Republic of Argentina will be extinguished by mutual agreement as of October 19, 2016, in such a way that its survival clause will notapply. (As we revealed some time ago, the Czech Republic pioneered this particular approach to terminating investment treaties, such that the survival or sunset clause is first neutered prior to the agreed termination.)
Indonesia professes to have reached agreement with Argentina on October 19th of this year to terminate the agreement, with that agreement taking effect in a year’s time and accompanied by a further agreement “not to impose the survival clause”.
Eleven more treaties set to terminate in coming years
Indonesia’s Ministry of Foreign Affairs also reveals that the government has given notice to eleven additional countries of a desire to terminate, meaning that treaties with the following countries will lapse on the dates indicated in brackets:
– Spain (November 11, 2016)
– Cambodia (January 7, 2016)
– India (April 7, 2016)
– Romania (January 7, 2016)
– Turkey (January 7, 2016)
– Vietnam (January 7, 2016)
– Hungary (February 12, 2016)
– Singapore (June 20, 2016)
– Pakistan (December 2, 2016)
– Switzerland (April 8, 2016)
– Kyrgyzstan (February 18, 2018)
Apart from the treaties discussed above, Indonesia appears poised to terminate additional BITs, and IAReporter will continue to monitor the government’s subsequent actions.
Indian investor sues under BIT
While Indonesia moves to terminate certain BITs, investment arbitration claims under such treaties continue to arise.
This week, media in India and Indonesia reported that an Indian company India Metals & Ferro Alloys (IMFA) Limited have commenced arbitration under the India-Indonesia bilateral investment treaty. The case may mark the first claim where an Indian investor has invoked one of India’s treaties for purposes of suing a host state. (Another BIT case backed by Indian interests has been brought formally by a Dutch entity under the Netherlands-Uzbekistan BIT.)
According to IMFA’s website, the firm paid $8.75 million for a 70% interest, via a Singapore subsidiary, in a Kalimantan-based coal mining company in July of 2011.
IMFA company disclosures confirm that an arbitration was launched – at an unclear juncture – with (terse) reference to such a claim appearing as early as a quarterly securities disclosure for the First Quarter of 2015.
Other company documents examined by IAReporter confirm recent media reports that have indicated that the Indonesian investment has been hobbled by the fact that its exploration and exploitation permits overlap with those other companies who also appear to enjoy rights to mine in identical territories. IMFA also adverts to undefined “border issues” that have frustrated the company’s activities.
Local media reports – unconfirmed by IAReporter – have suggested that IMFA seeks approximately $600 million (US) and that hearings in the case could come as soon as December of this year. (It is unclear whether such hearings are merely a first procedural meeting between the parties and the arbitrators, or a more advanced hearing). We have sought clarification from IMFA and Indonesian authorities, and will clarify further if we receive further information.