Showing posts with label coastal management. Show all posts
Showing posts with label coastal management. Show all posts
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HP 3 Rights, What Strategy for NGOs?

Tuesday, May 19, 2009

Following my Articles on HP-3 in Jakarta Post ("The need for Clarification on HP-3 Rights" and previously "Coastal Management Law Review?") it is relevant to ask question on which course of (legal) action would our Civil Societies colleagues take, in response to the enactment of Coastal Law.

I can think of three possible actions by Civil Societies:
  1. Judicial Review. Most activist would blame the Law for its interest in privatizing coastal areas. As such, they would be inclined to invalidate Law 27/2007. But what reasons can be used to submit the JR? Roughly speaking, I would say that any attempt to invalidate Law 27/2007 will have a very minimal chance of success. I do not see any provision under the Law which diametrically contradicts the Constitution. True, that the implementation of the Law may deprive certain members of the societies (such as the Adat Community) from their Constitutional rights, but in general, the black letters of Law 27 guarantees the preservation of existing traditional rights. Thus, if JR is to be opted, the most convincing hole would be to contradict the ill-defined HP-3 rights against "legal certainty" provision of the Constitution. I am not suggesting that this measure would be effective as property rights needs not to to be fully defined (a 'complete' property rights is impossible anyway), but there is a chance of success since "legal certainty" is weighed considerably by the Court. In any case, a move in reviewing Law 27 must not be aimed at winning the case completely (which result in the complete invalidation of the law) but simply in getting partial invalidation of harmful articles or, if not possible at all, in gaining the Court's recommendation for safeguarding its implementing regulations.
  2. Legislative Review. If one thinks that the Law is insufficient or defective invalidation may not be the option. The Court's function is in ensuring that provisions of Laws are Consistent with the Constitution. So, if there are provisions of laws which is consistent with the Constitution but is nevertheless defective, the Court may choose to reject the petition to invalidate and recommends it for a legislative review. However, when a Law is recommended for a legislative review by the Court, it does not necessarily follows that the parliament will take the Court's suggestion. There are so many Bills that the Parliament needs to enact in any given year and there are political (as well as administrative) costs for rediscussing an already-enacted bill.
  3. Implementing Regulation and Its Reviews. Law 27 will require plenty of government regulations and regional regulations to be implemented. In terms of technicalities, this measure is the most technically feasible. It is easier to change implementing regulation than annuling a provision of a Law or modifying it through legislative measures. Option #1 involves proceedings at the Constitutional Court and option #2 involves deliberation by parliament members. Option #3 however, only involves the government. It is easier for the government to enact regulations which are friendly to the cause promoted to Civil Societies. But because Option #3 rests on the discretion of the government alone, there is always a chance of capture by business interests. A way of rejecting an enacted government regulation is by conducting an appeal to the Supreme Court. Note however that the appeal for Government Regulation (against a Law) in the Supreme Court would take a very long time, as the Supreme Court has a very high case-load.
From these options, I would suggest Civil Societies to first submit a JR to the Constitutional Court. This must be done with a caveat that it has a minimum chance of success, so the aim of the JR should not be in entirely invalidating the Law but in obtaining partial invalidation and recommendation from the Constitutional Court in safeguarding the Law's implementing regulation.

This move will benefit Civil Societies developing monitoring and stakeholder participation capacity during and after the property rights setting takes place, as institutional set-up for HP-3 (zoning, etc) and its implementation are prone to capture.

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The need for clarification on HP-3 rights

Thursday, May 14, 2009

I published an article in today's Jakarta Post:

Law 27/2007 enables private ownership of coastal zones through a system called HP-3 (which governs the right to commercialize coastal waters). The idea behind this system is to allow the exploitation of the currently neglected, but potentially profitable, 81,000 thousand kilometers of Indonesian coastline and its 12 mile wide territorial sea.

A HP-3 grants ownership to water columns (above the seabed to the water surface) in Indonesian territorial zones. In most cases, the Law stipulates that HP-3s will be granted by local governments. The Law says that the first period of ownership is granted for a period of 20 years but can be extended. As the law does not impose any limitation for extension, it is presumable that HP-3s could be owned perpetually. It is also worth noting that a HP-3 certificate can be used as collateral to secure a loan.

We know from theory that in order to be functional, property rights must fulfill the "3Ds" rule: definability, defensibility and defeasibility. Property rights can only be efficient within these three aspects, and only if transaction costs are low.

With respect to definability, the Law stipulates that a HP-3 covers a three dimensional space from the seabed up to the surface. This would mean that the seabed falls under another system of regulation. There is however, some interface between the seabed and the water column, and this becomes an issue in sea mining operations. If there is an overlap of ownership between the two (the seabed is granted to an oil company and the HP-3 on the surface is granted to an aquaculture company, for example).

A way of preventing this problem is by coordinating the awarding of property rights between the two areas. That is to say, the awarding of any marine mineral resources exploitation license by the central government must be coordinated with local government.

In another scenario, if both a seabed exploitation licenses and a HP-3 for the adjacent surface are owned by the same entity, disputes could occur from one area to another, which could dilute the value of the property of the neighboring HP-3 owner. One way to anticipate this is for the local government to stipulate which area is used for what. Zoning mechanisms must be very solid in order to prevent property rights disputes.

The law also does not define exact rights within a water column. A water column may be an area passed-though by highly migratory species protected under international law, which therefore cannot be harvested, even by HP-3 owners. A way to address this issue is by clarifying the dos and don'ts for HP-3 owners when implementing regulations.

Another significant problem is that marine boundaries constantly change because of natural phenomenon. HP-3 limits could be confused if the baseline used to measure a sea boundary also changes because the sea level rises. I am not certain as to what mechanism could be used to adapt to this problem.

As for defensibility; defending a property rights in the ocean is relatively more difficult than on land. On land, one can install fences in order to defend and mark their property. This is not possible in the sea. Nets can be used, but if used too extensively they could capture protected species. The surface structure could be used, but that should not hinder navigation for vessels passing through the area. And in any case, it is difficult to exclude traditional fishermen from fishing in HP-3 zones, as they may not be equipped with GPS.

HP-3s are interestingly defeasible enough. Defeasible basically means that the property rights can be transferred. In theory, a property right must be defeasible in order to enable exchange, so that a market can develop. The Law does stipulate that HP-3s can be transferred or encumbered with a mortgage. It is not yet clear which government department would be responsible for the registration of the mortgage. As long as the government has not clarified any institution responsible for the mortgage registration, the idea of mortgaging the sea will not be enforceable. Mortgage is an important part of the whole scheme, as it allows banks and other investor to enter and finance the project.

As we can see from the above explanations that property rights in the sea could be very costly in terms of its definability, defensibility and defeasibility. A huge amount of information would be required to define the property rights. Sonar imaging, GIS interpretation or anthropological studies on the existence of traditional fishing rights would expend a huge of amount of cost.

But these things are essential because, without a clear definition of property rights, future disputes may occur. Defending property rights is also difficult and the costs will be borne by the owners. If the cost of defending the property rights is more than the benefit of exploiting it, then it will not be a worthy investment. As for defeasibility, there is a high cost for institutional set-up. An institution will need to be established in order to maintain marine cadastre and administer HP-3 titles and their encumbrances.

The New Law on Coastal Management

Tuesday, April 15, 2008

Here's my recent Article on Coastal Management Law in JP:
Theoretically, there could be around 12 nautical miles times 81,000 kilometers of "greenfield" spaces in the sea, ready for exploitation, for up to 20 years. This is indeed a huge business opportunity. For companies whose core business is aquaculture (shrimp ponds, fishes, coral reefs, pearls) and eco-tourism, HP3 would be a crucial issue. What makes HP3 even more valuable is the fact that it can be used as security for loans.

HP3 is also considered to be a pro-rich policy, as it would be unreasonable for traditional and local fishermen to enter into such a scheme which entails high administrative costs.

Let us first consider the arguments above. Indeed, some parts of our coast could be vulnerable of tsunamis, but those located in internal waters are likely to be less exposed to the dangers. For the vulnerable parts, disaster mitigation measures might require the building of artificial or ecological infrastructure (sea defenses) in order to break the waves and such measures -- they argue -- might be in collision with HP3 rights. This concern is nevertheless already addressed by the law.

The second argument on public participation is important. Our Constitution specifically states the economy must be carried out as a "common endeavor" based on familial principle. The Coastal Management Law does say that when granting and monitoring HP3, public aspirations must be taken into account. But this role is only consultative as the public takes no part in the final decision-making process.

In addition to the lack of clarity on the participation of local communities in the granting of HP3 as explained above, the current law also opens a wide opportunity for private parties to apply for HP3 certificates, while ignoring that local and traditional communities have capacity constraints in doing the same thing.

The granting of HP3 certificates might be expensive, as there are quite a few prerequisites that the applicants must fulfill. As corporations are closer to banks, they can get loans easily. On the other hand, local and traditional fishermen may not be as bankable as corporations and the decision-making process there may entail higher transaction costs compared to corporations.

So, there is an asymmetrical position between the players here. The weaker parties must be granted facilities due to these asymmetries and the current law does not seem to guarantee this.

The law actually accommodates existing practices by obligating HP3 holders to "respect" the adat (customary) law. Nevertheless, the language of the law reflects that the rights of traditional societies are not treated on equal footing with certification-based rights. So, there are risks of "expropriation" of the pre-existing customary rights. Adat communities with fishery practices would therefore have a legal standing before the court, as their interest is clearly affected.

Another crucial point would be anticipation of the risks of the HP3 market. As explained above, HP3 could be used as a security for loans. If the market is good, it is theoretically possible to purchase as much HP3 certificates as possible (with loans from banks) and then re-sell to another company for a profit, while the field remains neglected.

Its a huge business opportunity, Im telling you ;)