The foreign mining investment regime in Indonesia: regulatory risk under resource nationalism policy and how international investment treaties provide protection

Abstract

This article assesses the regulatory regime governing mining investment in Indonesia. It critically analyses the main factors behind the high level of regulatory risk for foreign mining investors and the increase of claims against the Indonesian government through the International Centre for Settlement of Investment Disputes (ICSID) based on the violation of bilateral investment treaties (BITs). The changing paradigm of mining legislation and regulation in Indonesia will be analysed. This is followed by an assessment of the performance of the new mining regulation. This article finds that government policy in foreign mining investment has been shifting to the adoption of a resource nationalism policy. It also argues that inconsistent implementation and poor enforcement of the new mining regulation and policy further increase the risk and challenge to be faced by investors. Finally, policy recommendations for improving the regulatory regime for mining investment and its law enforcement are proposed in order to reduce regulatory risk in the mining sector.