The Application of New Article 33, Section 4 of Indonesia's Constitution to Indonesia's Upstream Oil and Gas Legal Framework

Abstract

This thesis focusses its attention on the rivalry between state control and market control of natural resources in Indonesia. Most recently, this rivalry has been highlighted by the addition of section 4 to Article 33 of the 1945 Indonesian Constitution. Section 4 was added by way of constitutional amendment in 2002. The thesis addresses the impact and implications of this amendment on key sectors of the Indonesian economy, with particular emphasis on the Indonesian oil and gas legal framework. The analysis is situated in the context of inconsistent decisions delivered by Indonesia’s Constitutional Court (the Court) regarding the meaning of,and the requirements imposed by, Article 33. A 2003 decision by the Court, Number 022/PUUI/ 2003, shortly following the addition of section 4, held that the liberalised market principles introduced by the new section allowed for private interests to exploit Indonesian natural resources for profit under the Oil and Gas Law 2001, provided that exploitation was appropriately licenced, regulated and overseen by a governmental supervisory agency. The Oil and Gas Law 2001 had created such an agency for upstream oil and gas known as Badan Pelaksana Minyak dan Gas Bumi (BP Migas). Nine years later in 2012, the Court, without explicitly overruling its 2003 decision, re-established state control of natural resources. It held that the creation and operation of BP Migas was in violation of section 3 of Article 33 and abolished the agency. The inconsistency of these decisions raises fundamental legal questions involving constitutional interpretation and the economic ordering of the state. I argue that the inconsistency of the decisions is due to the inconclusiveness of amended Article 33 and the juxtaposition of original section 3 (with state control of natural resources) and new section 4 (with allowance for the involvement of private initiative and market forces). The retention of section 3 allowed the pre-amendment interpretation of Article 33, with its emphasis on section 3, to resurface in the Court’s 2012 decision. This pre-amendment interpretation puts the state at centre stage in governing Indonesia’s key economic sectors under Article 33, marginalising private initiative. This thesis argues that the pre-amendment interpretation’s continued control improperly ignores the intendment of section 4 of Article 33. The argument is divided into two major parts. The first part outlines the background of Article 33 under the Constitution and the nature of its amendment in 2002. I seek to provide the basis for a post-amendment interpretation that maintains a fidelity to Article 33 with its new section 4. I utilise a philosophical approach in this task which is a version of ‘originalism’ in constitutional interpretation discourse. I find that the post-amendment constitutional reading of the new Article 33 section 4 is best situated in Mohammad Hatta’s philosophical idea of social democracy. The post-amendment interpretation allows for the operation of a regulated market economy in the key economic sectors under Article 33, provided that this produces a ‘just’ outcome. This interpretation accords with the original intent of Article 33, established as part of the constitutional deliberations in 1945. This post-amendment interpretation has been overshadowed by the re-emergence of a pre-amendment interpretation that is based exclusively on statism reflected in section 3, which was based on Soepomo’s philosophic idea of ‘integralism’, a form of state socialism (sosialisme negara). Soepomo’s integralism took centre stage in defining Indonesia’s economic and political policy under Article 33. This preamendment interpretation of today must ignore entirely the changed meaning of Article 33 by the addition of section 4. The second part of the argument of this thesis involves the application of originalist Hattaian ideas in a post-amendment interpretation of Article 33 in the context of Indonesia’s oil and gas resources. By way of case study, a post-amendment interpretation informed by Hatta’s social democratic principles is applied to the Oil and Gas Bill 2017 that is currently being debated – a Bill intended to replace the Oil and Gas Law 2001 when enacted. In addition, I employ a comparative law approach with the aim of demonstrating international best practice related to upstream oil and gas regulatory frameworks. This is intended to illuminate the application of the constitutional requirements under amended Article 33, which in some instances is still unclear and abstract. I limit this argument to three essential upstream oil and gas regulatory frameworks: the institutional regulatory framework; the model contract framework; and the public participation framework. The institutional regulatory framework governs the role of three key essential institutions: the government agency responsible for the key economic sectors, the National Oil Company (NOC), a state-owned enterprise that is responsible for commercial activity in the upstream sector, and privately owned companies (POCs), either foreign oil companies (FOCs) or private national oil companies (PNOCs) operating in the upstream sector. The model contract regulatory framework defines the relationship between these three key institutions in the exploration and production of oil and gas. Finally, the public participation regulatory framework defines the public’s right to participate in decisions related to oil and gas exploration and production projects that will affect their social, economic, natural and cultural environment. The analysis indicates that a substantive number of the Oil and Gas Bill 2017 stipulations relating to the three essential regulatory frameworks were misaligned with the constitutional requirements, and that some customisation is needed to realign the Oil and Gas Bill 2017 with the constitutional requirements, based on the post-amendment interpretation of Article 33. My thesis concludes that the requirements of post-amendment Article 33 lie in the aspiration to balance social justice and market forces in the economy, as indicated in the ‘just efficiency’ term, and how those principles apply to the oil and gas legal framework. This finding is important to fill the gap in the existing literatures by focusing more on the preamendment Article 33 sections (2) and (3), notably on the definition of state control. Focusing the discussion on section 4 of Article 33 brings new insight to the theoretical discourse as well as the practical policy-making discourse. The wording of section 4 of Article 33 includes the phrase ‘just efficiency’. I argue that this wording doesn’t just capture the original intent of the constitutional amendment of 2002, but also captures the intent of Mohammad Hatta’s social democracy ideal laid out in the ‘original’ phrase of Article 33. I have extracted two key constitutional requirements of Article 33 from exploring thehistorical trajectory of the development of Article 33 and the precedent developed by the Constitutional Court. First, the operation of the market is permissible if it is proven to produce both a ‘just’ and an ‘efficient’ outcome. If these two criteria clashes and cannot be reconciled, then the ‘just’ requirement – as an embodiment of the greatest possible prosperity for the people – should prevail over the ‘efficient’ requirement. Second, the ‘just’ outcome in Article 33 can be achieved via two avenues: the role of government in controlling the price of goods and services in the key economic sectors; and the participation of the public in economic development – notably, the indigenous/local people in the vicinity of natural resources or economic development. A robust and stable application of Article 33 in the key economic sectors should therefore be based within the ‘just efficiency’ perspective. Finally, the application of the requirements of Article 33 suggest that the current Oil and Gas Bill 2017 being debated in the Court does not fall within the requirements parameter. Instead, the Oil and Gas Bill 2017 makes the same mistakes as the previous law regime during the Suharto era, which potentially leads to further corruption and the continuation of an inefficient system in the oil and gas sector.