Indonesian officials linked to mining and ‘dirty energy’ firms benefiting from deregulation law

• Top Indonesian ministers who pushed for the passage of a deregulation bill that benefits the mining and “dirty energy” industry have links to some of those very companies, a new report shows.
• The report by a coalition of NGOs highlights “massive potential for conflicts of interest” in the drafting and passage of the so-called omnibus bill on job creation.
• Under the new law, coal companies can qualify for an exemption from paying royalties, as well as be absolved of criminal and financial sanctions for mining in forest areas.
• Activists say the omnibus law is emblematic of an increasingly “despotic” government that puts the interests of the wealthy few above the welfare of the country’s environment and its rural communities.

JAKARTA — When Indonesia’s parliament passed a new slate of deregulation that, among other things, drastically strips back environmental protections against coal mining, critics and protesters denounced it as catering to business interests.

Now, a new report lays bare what many already suspected: several of the politicians who pushed for the new legislation have links to the mining companies that stand to benefit from the changes.

The report, compiled by a coalition of Indonesian NGOs, uses corporate registries and other publicly available sources to map out the connections between the mining and “dirty energy” industry and the drafting of the so-called omnibus law on job creation.

“There has been a massive potential for conflicts of interest,” Ahmad Ashov Birry, a spokesman for the coalition, said at the recent online launch of the report.

He said the coalition had identified 18 politicians mired in potential conflicts of interest, including prominent figures such as Airlangga Hartarto, the coordinating minister for the economy; Luhut Binsar Pandjaitan, the coordinating minister in charge of investment and a close confidant to President Joko Widodo; and Puan Maharani, the parliamentary speaker and a senior member of Widodo’s ruling party.

Airlangga brought the omnibus bill to life last year by convening a 127-person committee, dominated by business leaders, to draft the legislation. Nine of the drafters were affiliated with coal or other “dirty energy” companies, the report says. Airlangga himself is also affiliated with two mining companies, which Ahmad identified as Bara Hanyu Kapuas and Multi Harapan Utama.

He also linked Puan to the industry, albeit indirectly: her husband, Happy Hapsoro, is affiliated with several oil and gas companies, including Odira Energy Karang Agung and Rukun Raharja.

Luhut has a minority stake in PT Toba Bara Sejahtra, a company that operates coal mines in Borneo and several coal-fired power plants in Java. One of the company’s former board members is Fachrul Razi, the current minister for religious affairs. Toba Bara Sejahtera also plans to build several power plants on the island of Sulawesi. According to the report, Luhut is also connected to nickel miner PT Bintang Delapan Mineral and steelmaker Tsingshan Steel in an industrial park in Morowali, Central Sulawesi province, through his business partner, Sintong Panjaitan, who serves as on the board of Bintang Mineral Delapan.

Waivers and whitewashing

The report shows that these officials either own a stake in coal mining and energy companies, or are listed as board members or executives of these companies. The NGOs also looked through minutes of official discussions of the omnibus bill and found that none of the officials they’d identified had said anything critical about the proposed deregulation.

Parliament passed the bill into law on Oct. 5, capping a drafting and deliberation process heavily criticized for its lack of transparency and public participation. The passage of the law sparked a nationwide series of protests, still ongoing, by groups ranging from university students, labor unions and religious conservatives, to environmental and Indigenous rights activists.

Of particular concern for the latter group is the sweeping overhaul of mining regulations ushered in by the omnibus law, which they warn will make it easier for companies to dig for coal, unconstrained by environmental or social safeguards.

The energy and mining industry has its fingerprints all over the omnibus law, says Merah Johansyah from the Mining Advocacy Network (Jatam), one of the NGOs in the coalition. One article, for instance, exempts coal-mining companies from paying royalties if they develop downstream facilities, such as gasification plants or coal-fired power stations.

Energy and Mineral Resources Minister Arifin Tasrif says this is aimed at adding value to coal so that the product can be more competitive in the market and to attract businesses to invest more in the coal industry, which in turn will create more jobs.

But the NGOs say the stipulation will deprive the state of up to $1.1 billion in annual coal-mining royalties, at a time when the country is suffering from an economic slump due to the COVID-19 pandemic.

“Thirty-two provinces [out of 34 nationwide] and dozens of districts and cities will have their income from the mining and mineral resources sector reduced because the royalty payment will be 0%,” Merah said. “At the same time, the rate of exploitation [of mineral resources] remains at 100%. There’s no moratorium on mining permits or reduction of the issuance of coal-mining licenses.”

The royalty waiver also references an article in another piece of recently passed and highly controversial legislation: the revised mining law. But the wording of that reference — “companies that carry out [activities that] add value to coal” — is sufficiently broad that mining companies could qualify for the waiver without doing any meaningful value-added activity such as building gasification plants.

“If mining permit holders merely wash their coal [to reduce its ash content], it can still be interpreted as qualifying for the 0% royalty,” said Muhammad Iqbal Damanik from Auriga Nusantara, one of the NGOs in the coalition.

That such vague wording was allowed to pass in the omnibus law, despite the use of more specific language in the revised mining law, indicates that parliament was hasty in its passage of the former, Iqbal said.

“We see how rushed the passing of the omnibus law was, so much so that it was unlawful by referring to different terms,” he said.

For the wealthy few

The omnibus law also obliges the government to ensure that companies in the downstream coal industry can secure the land needed for their projects by designating them as being of national strategic importance. The NGO coalition identified at least eight such projects currently in the works.

This change affects, among others, farmland designated for sustainable agriculture, which was previously protected under a 2009 law. Unlike the industrial plantations managed by large agribusiness companies, sustainable agricultural land is managed mostly by smallholder farmers in Indigenous and rural communities. By allowing their land to be rezoned for the needs of the energy industry, the omnibus law caters to the interests of the wealthy few, says Rina Mardiana, a researcher at the Bogor Institute of Agriculture (IPB).

“This policy is not in favor of agriculture and there’s no systematic effort to achieve national food sovereignty,” she said.

The omnibus law also allows companies to take over the government’s role in acquiring land for national strategic projects in the case of the government being unable to do so.

“It means all citizens can be forced to give up their lands to companies appointed by the government for national strategic projects,” Iqbal said. “It means this law can force people off their lands. Even if a region needs land for farming, a national strategic project can override that.”

Another contentious article in the law effectively grants impunity to companies mining illegally inside forest areas. Under a 2013 law on forest conservation, this type of activity is punishable by up to 10 years in prison time and fines of up to 5 billion rupiah ($340,000) for individuals or 50 billion rupiah ($3.4 million) for companies.

But the omnibus law renders this punishment obsolete by allowing such mining to continue as long as the companies apply for the necessary permits within three years of the law’s passage. And even if they fail to do that, they face only the threat of administrative sanctions; criminal and financial sanctions no longer apply.

This effectively whitewashes existing violations by companies that mining inside forest areas and leaving behind degraded landscapes, Iqbal said.

“With this provision, they will be forgiven,” he said.

‘A despotic government’

It’s not just coal companies that pose a threat to Indonesia’s forests and rural communities. Geothermal companies also stand to benefit under the omnibus law: it states that landowners are “obligated to give permission to” these companies to operate on their lands.

“The phrase ‘obligated to give permission to’ will kill the public’s veto rights to reject the presence of the geothermal industry,” the NGO coalition said in its report.

The omnibus law also prescribes a criminal punishment of up to seven years in prison for anyone deliberately blocking a geothermal project. That’s up from the maximum one-year sentence prescribed in a 2014 law.

These problematic articles and the actors behind the omnibus law indicate that Indonesia is slipping back into a more authoritarian form of government exercising absolute power, says Tata Mustasya, climate and energy campaign coordinator at Greenpeace Southeast Asia.

“Various studies show that this [form of government] won’t grow the economy because in a despotic government, oligarchs will play in the economy and harm the public and the economy,” he said.

Tata called this a manifestation of the “resource curse” playing out in Indonesia, where the wealth of the land is plundered by those with money, abetted by those with power.

“Here, regulatory cuts happen,” Tata said. “There’s trading in influence. The people [oligarchs] have always been the same. Sometimes they’re businesspeople and sometimes they’re policymakers.

“As long as coal continues to be relied on as the backbone [of economic growth], these things are unavoidable.”

Banner image: Protesters rally against Indonesia’s deregulation law, called omnibus law, in Padang in October 2020. Image courtesy of Rhmtdns/Wikimedia Commons.