Conservation news

Lessons from the $2 billion coal mining lawsuit against Indonesia

  • An international arbitration panel ruled that Indonesia was not liable for damages sought by Churchill Mining, whose mining license was revoked by local officials.
  • The tribunal determined that 34 documents relating to Churchill’s mining concession in Kalimantan were forged, pointing to Churchill’s local partner as the most likely culprit.
  • Indonesia prevailed in court, but the verdict is an indictment of corruption and poor management by Indonesian officials as well as mining companies.

Indonesia cannot be held liable for $2 billion in compensation sought by Churchill Mining for the revocation of a coal-mining concession, the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) ruled in a Dec. 6 verdict. The tribunal determined that Churchill’s claim to the mine site — and therefore its case against Indonesia — was based on forged documents.

The London-registered mining firm, and its Australian subsidiary Planet Mining Pty., filed the case after local officials revoked the company’s license to mine coal in the East Kutai district in Indonesian Borneo.

The ruling was a rare win for a nation-state in an international arbitration hearing, a forum critics complain is often stacked in favor of multinational corporations. In addition to throwing out Churchill’s compensation claim, the tribunal also ordered the company to reimburse Indonesia for 75 percent of the $12.3 million dollars in legal expenses and court fees the country incurred over the course of the four-and-a-half-year arbitration process.

“We are obviously extremely disappointed by the Tribunal’s decision,” Churchill Chairman David Quinlivan said in a Dec. 7 press statement, adding that the company plans to challenge the ruling. Churchill itself was not judged to be responsible for the forgeries, but the tribunal criticized the company for failing to conduct adequate due diligence regarding claims made by its local partner, PT Ridlatama.

The verdict is a victory for Indonesia; it is also an indictment of the local governments and regulators that oversee the country’s mining industry. Court documents indicate that forgery, fraud, corruption and disorganization run rampant in the offices that are charged with managing Indonesia’s immensely valuable natural resources.

A dump truck at a coal mine owned by Banpu Public Company Ltd in a paddy field in Kerta Buana village in Kutai Kartanegara, East Kalimantan. Photo courtesy of Ardiles Rante/Greenpeace.

A seam of corruption

 Churchill’s complaint concerns a mining project in East Kutai district in Kalimantan, the Indonesian portion of Borneo Island, where some of the country’s richest coal deposits have been found. In 2007, Churchill bought a 75 percent stake in Indonesian mining company PT Ridlatama, which claimed to hold four mining licenses in the district.

Churchill thought it had struck it rich when exploration activities revealed far more coal than expected. In April 2008, the company announced its initial target had been exceeded by 150 percent, with the project’s coal resources now estimated at 250 million metric tons.

Instead, a rival claim emerged.

PT Nusantera, an energy company connected to some of Indonesia’s richest and most powerful men, claimed they held a still-valid exploration license for the same tract of land, issued by the same East Kutai office that granted permits to Ridlatama and Churchill. Each firm claimed it held the exclusive legal right to mine the huge coal deposit discovered there.

The companies battled the case all the way up to Indonesia’s supreme court. Against a backdrop of claims and counterclaims regarding illegal logging and the authenticity of both parties’ documents, the Supreme Court finally ruled against Churchill in April 2012.

With local options exhausted, Churchill turned to international arbitration, a recourse allowed under Indonesia’s bilateral investment treaties with foreign governments. These treaties allow foreign corporations who believe their rights have been violated to sue host governments. Churchill filed claims based on Indonesia’s treaties with both the United Kingdom and Australia, seeking around $2 billion in damages. These separate processes were eventually merged into a single case in front of the ICSID seeking an award of around $1.3 billion.

Coal barges come down the Mahakam river in Samarinda, East Kalimantan, Indonesian Borneo every few minutes. Photo courtesy of Ardiles Rante/Greenpeace.

The verdict

 In 2014, Indonesia applied to have the case dismissed, arguing that Churchill’s claims were based on forged documents. The tribunal agreed to the request. This month’s verdict supported Indonesia’s claims that Ridlatama’s claim to the mine – and by extension, Churchill’s – were based on fraudulent paperwork.

The authenticity of 34 documents dating from 2007 to 2010 was called into question. These included exploration licenses, survey licenses, spatial analyses and legality and cooperation letters, all purportedly signed by officials from either the East Kutai district or East Kalimantan province.

The tribunal agreed the signatures had been forged – in some cases using digital cut-and-paste jobs so crude the signature block obscured surrounding text, and in some cases with a level of sophistication indicating that an auto-pen device may have been used. It also pointed to other irregularities, such as “nonsensical” legends on survey maps reading “I Lover you” and “Oh yes/no.”

In other words, Ridlatama had attempted to substantiate its claim to the mining concession using crudely forged documents. According to the tribunal, this misconduct by Churchill’s local partner, and the company’s lack of valid licenses, fatally undermined any attempts to seek compensation for the loss of the East Kutai mine. “[T]he entire … project is an illegal enterprise affected by multiple forgeries,” the arbitration panel wrote.

In the early years of the arbitration process, Indonesia alleged that Churchill itself was complicit in fraud. In 2015, it dropped this claim, focusing instead on the local partner, Ridlatama. However, in its ruling the tribunal said it was “struck by the seriousness of the fraud that taints the entire [project]” and slammed Churchill for “lack of diligence overseeing the licensing process and investigating allegations of forgery.”

Komari, a 50 year-old farmer, and his wife Nurbaiti, at their damaged farm near a coal mine site in Makroman, East Kalimantan, Indonesian Borneo. Courtesy of Kemal Jufri/Greenpeace.

The tribunal had some harsh words for Indonesia, too.

The arbitration panel concluded that Ridlatama was most likely the driving force behind the fraud, but added that the company appeared to have “benefited from the assistance from an insider to introduce the fabricated documents into [East Kutai district’s] databases and archives.”

During testimony, even Awang Faroek Ishak , former head of East Kutai district and current governor of East Kalimantan, described the situation as “a major corruption case in our country.”  According to transcripts quoted in the verdict, Ishak alleged that Isran Noor, who succeeded Ishak as East Kutai district head (regent) may have been implicated in the scheme: “I do not know what happened after I left, but what is clear, one difficulty I have, suddenly the Regent has a private jet. It doesn’t make sense. An official suddenly has a private jet. How much it [sic] price for a private jet?”

Although a startling admission from a public official, it was certainly not the first allegation of corruption in the East Kutai district; Noor has been called to testify in more than one corruption case. (Indonesia did not make Noor available for testimony, and declined to provide the tribunal with details of investigations by Indonesia’s anti-corruption authority, the KPK.)

The trial also cast an unflattering spotlight on record-keeping in the East Kutai district. Proceedings were repeatedly delayed due to Indonesia’s difficulty locating documents relevant to the case, a problem that caused Indonesia’s costs to skyrocket. In fact, the tribunal explained this was one of the reasons they ordered Churchill to pay 75 percent of Indonesia’s costs rather than 100 percent; essentially, they decided Indonesia should bear the costs of its own disorganization.

The original dispute between Churchill and PT Nusantara regarding overlapping mining permits also reflects a much larger issue in Indonesia. Investigations by the KPK have found that more than 1,000 coal mining licenses were issued in violation of existing laws, and has moved to revoke around 490 of them. Brett Gunter, a Jakarta-based consultant who managed drilling operations for Churchill, testified that over 5,000 overlaps of mining licenses exist in the country.

The proceedings of the tribunal brought to light details of the misconduct and poor management that underlie the permits issued to PT Ridlatama. The question remains: What else might be out there?