Showing posts with label corporate. Show all posts
Showing posts with label corporate. Show all posts
,

Water and Power, are water services still public?

Friday, February 6, 2015

Municipal Services Project (MSP) have put a nice video for understanding the idea of 'corporatisation' and its implication on 'publicness'. Have a look also at an article by David McDonald "What is corporatization? The ‘new’ look of water and power utilities" at the MSP Blog.


,

Bribery Act (UK) 2011 is in Force. British Companies Overseas are covered for certain offences

Friday, July 1, 2011

The UK Bribery Act 2011 has just been given royal assent. Some of its offences covers British companies overseas.

s. 12 (5): An offence is committed under section 7 irrespective of whether the acts or omissions which form part of the offence take place in the United Kingdom or elsewhere.

 

s.7 Failure of commercial organisations to prevent bribery

(1) A relevant commercial organisation (“C”) is guilty of an offence under this
section if a person (“A”) associated with C bribes another person intending—
(a) to obtain or retain business for C, or
(b) to obtain or retain an advantage in the conduct of business for C.

Download the Original version of the Bribery Act here.

 

The Serious Fraud Office is in charge in enforcing these laws. There has been prosecutions involving Indonesian subsidiaries of an English companies in the past.

,

Foreign Direct Investment in Indonesia [Guest Post]

Monday, November 8, 2010

 

Ed note: this is a guest post by Suria Nataadmadja (suria[at]surialaw.com) and Selviyani from SURIA NATAADMADJA & ASSOCIATES. If you have further inquiry on this topic, please contact the authors directly.

As a matter of clarity, the term foreign direct investment is used here to distinguish it from the investment made by acquiring the shares of an Indonesian company from the stock market. Foreign direct investment can also be done by acquiring the shares of an established foreign investment company. The effect of foreign direct investment is to ascertain the share holding of foreign investors in a limited liability company as regulated by Law Number 40 of 2007 regarding Limited Liability Company, promulgated on August 16, 2007 in State Gazette 2007 Number 106 (“Law 40/2007”), and Supplement to State Gazette Number 4756.

Foreign direct investment in Indonesia has started as early as 1967 and the government has changed the law to Law Number 25 of 2007 regarding Investment, promulgated on April 26, 2007 in State Gazette 2007 Number 67, and Supplement to State Gazette Number 4724 (“Law 25/2007”). This Law supersedes Law No.1 of 1967 regarding Foreign Investment, and Law No.6 of 1968 regarding Domestic Investment. Compared to the 1967 Law, the new legislation is more accommodating to foreign investors, addressing important issues such as land rights. A presidential decree number 36 of 2010 regarding List of Business Open and Closed with Restriction for Investment (“Negative Investment List”) updated Indonesia’s Negative Investment List of December 2007 as regulated by presidential decree Number 76 of 2007. The main purpose of the new Negative Investment List are to implement the Indonesian government’s commitment to the Association of Southeast Asian Nations/ASEAN Economic Community but nevertheless it will encourage foreign direct investments from other countries as well. Only direct investments either foreign or domestic will be affected by the Negative Investment List. Indirect investment through the stock market will be exempted from complying with this Negative Investment List.

Certain investment that is meeting the requirement as stipulated in article 18 of Law 25/2007, entitled to be given tax incentives i.e. Income tax reduction; Custom exemption to machineries, capital goods and tools; Custom exemption on raw materials; VAT exemption; Accelerated amortization and depreciation; and Incentive on land and building tax. The government also recently issued Government Regulations No.1 of 2007 regarding the Facility of Income Tax for Investment on Certain Business Sectors or Regions (January 2, 2007). The certain business sectors amongst others are: food processing industries, packaging industries, plastic goods industries, cement industries, furniture industries, seafood processing industries, etc. Furthermore, the Government also issued the following regulations e.g. Ministry of Finance No.16/PML/03/2007 regarding Granting Income Tax Facilities for Investment on Certain Business Sectors or Certain Regions, Directorate General of Tax No. Per 67/PJ/07 of 2007 regarding Procedure of Granting Income Tax for Investment on Certain Business Sectors and/or Certain Regions.

Investments in Indonesia are coordinated by the Investment Coordination Board or Badan Koordinasi Penanaman Modal (“BKPM”); a nongovernmental department board leads by Head of BKPM, a position of ministerial level. BKPM’s policy has a very simple guidelines, forms, and requirements for filling applications of investment licenses as regulated by Decree of Head of BKPM Number 57/SK/2004 and Number 70/SK/2004. Latest regulation issued by BKPM is regulation No. 12 of 2009 regarding Guidelines and Procedures Application of December 23, 2009, that replaced the previous BKPM regulations on the guidelines and procedures for investment applications under domestic and foreign Investments. The latest regulation is sufficiently clear and self explanatory whereas it is attached with the necessary forms and guidance which are provided in Indonesian and English.

In practice, the process from the application to BKPM approval will take approximately between 3 weeks to 3 months. The most time consuming process is to translate foreign company documents to English, the language accepted by BKPM, and communicating Indonesian regulations to the foreign investors.

The approval from BKPM shall be followed by limited liability company establishment which for the foreign investment company shall be in form of a limited liability company under the foreign investment scheme (usually called “PT. PMA”). PT. PMA shall be formed by at least two share holders in form of a civil law notary’s deed (paragraph 1 article 7 Law 40/2007). Then, the deed shall obtain a statutory body status from the Minister of Law and Human Rights (paragraph 4 article 7 Law 40/2007) and published at the Supplement to State Gazette (article 30 Law 40/2007).

Although BKPM has been designed to be a “one stop services” institution, as regulated by a presidential decree Number 27 of 2009, which has given BKPM the authority to issue investment licenses, however, major specific licenses e.g. For Mining and oil and gas, plantation and forestry sectors still have to obtain licenses from other government related authorities. Certain permits will also be applied through the local government authorities e.g. Tax and related land permits and recommendations, etc.

Suria Nataadmadja, Partner

Selviyani, Associate

SURIA NATAADMADJA & ASSOCIATES

www.surialaw.com

, ,

Confidential reports on Lapindo mudflow leaked to wiki

Tuesday, August 3, 2010

 

Two confidential reports about Lapindo mudflow were uploaded to wikileaks. Here’s an excerpt from the wikileak page:

UK geologists downplayed Lapindo's argument and concluded that the earthquake was merely coincidental. While it could have generated a new fracture system and weakened strata surrounding the Banjar-Panji 1 well, it could not have been the cause of the formation of the hydraulic fracture that created the main vent 200 m (660 ft) away from the borehole. Additionally there was no other mud volcano reported on Java after the earthquake and the main drilling site is 300 km (190 mi) away from the earthquake's epicenter. The intensity of the earthquake at the drilling site was estimated to have been only magnitude 2 on Richter scale, the same effect as of a heavy truck passing over the area.

Read more.

, , , ,

What does “BP” stand for?

Tuesday, June 8, 2010

Allrite mate, time for sum intermezzo. Here's a homework for you CSR and social media experts. That fake BPGlobalPR twitter account just crowdsource a disparaging quizz a few minutes ago. What does BP stand for? he asked. Well, here's a snippet of the answers:




, , , , , , , , ,

Transparency Agenda in Water Utilities Regulation

Thursday, May 20, 2010

 

I contributed a paper about the transparency agenda in water utilities regulation and the role of Freedom of Information Law for the next edition of the Journal of Water Law. The case studies are England and Indonesia. The paper is quite relevant for the situation in Indonesia as the Freedom of Information Law has just been recently enacted and not so many literature is available. This is the content of the forthcoming Journal of Water Law which you might find interesting:

 

CONTENTS

 

Preface

Promoting water (law) for all Addressing the world’s water problems – a focus

on international and national water law and the challenges of an integrated approach

PATRICIA WOUTERS, SARAH HENDRY

 

International Water Law

Reframing the water security dialogue

DAN TARLOCK, PATRICIA WOUTERS

 

Introducing an analytical framework for water security: a platform for the refinement of

international water law BJØRN-OLIVER MAGSIG

 

The principle of good faith in the Argentina-Uruguay pulp mills dispute

TERESA LIGUORI

 

Examining the thresholds of harm for international watercourses in the Canada-US

context: would a mining development in the Flathead River watershed violate the Boundary

Waters Treaty?

MICHAEL AZULAY

 

The concepts of equitable utilization, no significant harm and benefit sharing under

the Nile River Basin Cooperative Framework Agreement: some highlights on theory and

practice

MUSA MOHAMMED ABSENO


International water law in Central Asia: commitments, compliance and beyond

DINARA ZIGANSHINA

 

National Water Law

Protection of foreign investment and the implications for regulation of water services and

resources: challenges for investment arbitration
ANA MARIA DAZA VARGAS

Responding to the ‘water crisis’: the complementary roles of water governance and

the human right to water
HILARY J GRIMES

The transparency agenda in water utilities regulation and the role of freedom of

information: England and Jakarta case studies

MOHAMAD MOVA AL ‘AFGHANI

 

Valuing water in law: how can Indigenous cultural values be reconciled with Australia’s

water law in order to strengthen Indigenous water rights?

TRAN TRAN

An analytical framework for legal regimes applicable to freshwater ecosystems

HUGO TREMBLAY

Bridging the water law, policy, science interface: flood risk management in Scotland

CHRIS SPRAY, TOM BALL, JOSSELIN ROUILLARD


Related Posts:
Transparency in Water Services
Indonesian Water Services Suffering from a Lack of Governance
Supreme Court Decision on Water Monopoly in Batam
Missing water and shadow users
14 Disturbing Facts about Jakarta's Water
Tomorrow, the Freedom of Information Law is in force!
Three ways for your business to be implicated by the new Indonesian freedom of information law
Where to complain for bad water services – a comparison
Jakarta’s water crisis, whose fault?

Human Right  Aspects of Private Sector Participation in the Water Sector
Is water a commodity or human rights?
The human right to water is not a property right
Why busy with the right to water instead of governance
Consultation on the Human Right  Aspects of Private Sector Participation in the Water Sector: more responses from the private sector

, , , , , , ,

Indonesia: Turning Critics into Criminal (HRW 2010 Report)

Wednesday, May 19, 2010

 

The HRW 2010 report released earlier this May focused on Indonesia’s defamation law. According to the Human Rights Watch’s press release:

The 91-page report, "Turning Critics into Criminals: The Human Rights Consequences of Criminal Defamation Law in Indonesia," documents recent cases in which criminal libel, slander, and "insult" laws have been used to silence public criticism. Criminal defamation charges have been filed against individuals after they held public demonstrations protesting corruption, wrote letters to the editor complaining about fraud, registered formal complaints with the authorities, and published news reports about sensitive subjects.

In an SMH op-ed published today, the author of the report argue:

Not everyone in Indonesia who airs critical facts or opinions ends up accused of a criminal offence. But the arbitrary enforcement of such laws, and even the mere threat of enforcement, has a damaging chilling effect on civil society, the media, and private citizens' willingness to express critical thoughts or opinions, especially online.


The cover page of the report pictured Prita Mulyasari, the housewife sent to trial under the defamation law for complaining for a bad health service she had received from a hospital. In my earlier op-ed, I emphasize the need for an efficient and effective out of court settlement in health cases, such as that involving Prita’s:

In a market-based solution, the parties stay out of court. If the health service provider does something wrong, they pay the patient and the patient can agree not to sue at a price. If providers don't do anything wrong, they ask the patient to issue a public apology and a sum of money to the extent that they can pay. The cost expended in this mechanism is much lower compared to going to court. This mechanism requires the government to reduce information asymmetry in the market as parties can only negotiate when the evidence is available.

This report sends a very strong message to the international community and create pressures to the government that a reform is urgent. Click on the image below to download the full report:

 


Related posts:
Bringing patients to court may not be efficient
Housewife on trial for defamation



, , , , , , , ,

Where to complain for bad water services – a comparison

Tuesday, May 11, 2010

 

If you are in England, UK:

 

 

http://www.ccwater.org.uk/

Consumer Council for Water : Consumer Council for Water via kwout

 

 

If you are in Victoria, Australia:

 

 

 

If you are in Indonesia:

 

 

 

 

With one caveat however. The Indonesian Ombudsman does not deal particularly with water (or utilities issues). So I have no idea how they can help, especially when the service is privatized. Read my article here.

 

Related Posts:

 

Missing water and shadow users
Human Right Aspects of Private Sector Participation in the Water Sector
14 Disturbing Facts about Jakarta's Water
Water companies duty to satisfy reasonable demands

, , ,

Supreme Court Decision on Water Monopoly in Batam







Quick Blogging.

The Supreme Court recently upholds KPPU (the Indonesian Competition Commission) condemning PT. Adhya Tirta Batam (ATB) for violating Article 17 of the Competition Law. The KPPU Decision reads:

  • PT. Adhya Tirta Batam is proven legally and convincingly violating Article 17 of Law Number 5 Year 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition;
  • PT. Adhya Tirta Batam is not proven violating Article 19, point d of Law Number 5 Year 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition;
  • PT. Adhya Tirta Batam is not proven violating Article 25 paragraph (1), point a of Law Number 5 Year 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition;
  • PT. Adhya Tirta Batam should revoke the policy of disconnecting the new water meter connection;

Given my current workload, I am unable to provide analysis for this verdict. But this could be the first legal decision involving the abuse of dominant position in a natural monopoly environment. As such, this could set a benchmark for legal principles of economic regulation of water utilities in the future.

Read here for more news.

, , ,

Key issues on the human right aspects of water privatization (1) #lawtalk

Tuesday, April 27, 2010

This paper by Phillip Turri nicely summarizes the key issues of Private Sector Participation on the water services sector. The first issue I would like to raise here is the problem of universal coverage. Companies are, by default, a profit making entity, protected under corporate and commercial law. Extending access to areas with low purchasing power may mean that there is less money to be put on dividends. 

This triggers a legal problem: would directors be in breach of their fiduciary duty to shareholders, if they decide to extend the network to unprofitable areas? The answer should be "yes", unless the default corporate law is reformed or is derogated by sectoral rules. In any case, shareholders will have the standing to sue the directors for this alleged breach of the fiduciary duty.



Reblog this post [with Zemanta]

, , ,

Legal System and Governance Transparency

Friday, March 26, 2010

Bushman, Piotroski and Smith (2004) distinguished between two elements of Corporate Transparency: Governance Transparency and Financial Transparency. The factors of financial disclosure are segments, r&d, capex, accounting policies and subsidiaries. Meanwhile, the factors of governance disclosure are major shareholders, management, boards, director and officer's remuneration and officer's shareholdings.

The results of their study is very interesting. They found that financial transparency is correlated with political economy, while governance transparency is correlated to legal systems. Financial transparency is higher in states where state ownership of enterprises and bank is low while governance transparency is higher in common law systems compared to civil law tradition.

One of the explanation for this result is because governance transparency is highly dependent of efficient judicial system and legal framework, and it appears, civil law countries are not that efficient with respect to their judicial system. 
 
On the qualitative side, it will be interesting to evaluate if legal frameworks in civil law countries are -- independently of the efficiency of their judicial systems -- adequate with respect to corporate reporting.  It would also be interesting to see if this situation in civil law tradition can be rectified using both mandatory and voluntary disclosure policies combined with incentive.
 


, , ,

Indonesia needs a strong water services law

Monday, August 31, 2009

Following is my latest op-ed at the JP:


Indonesia Needs a Strong Water Services Law

Mohamad Mova Al `Afghani , Dundee , UK | Mon, 08/31/2009 11:56 AM | Opinion

The current condition in the water and sanitation sector is bleak. Only 31 percent of the urban population and 17 percent of the total population had access to piped water. Around 80 million Indonesians lack access to sanitation, contributing to 100,000 deaths annually and economic losses of up to US$6.3 billion.

The water law that was enacted in 2004 comprehensively regulates water as a finite natural resource. However, of all the law's 100 articles, only one (Article 40) specifically regulates water and sanitation services.

Meanwhile, the implementing regulation of Article 40, Government Regulation No. 16/2005 on the Development of Drinking Water Provision Systems (PP-16) regulates water and sanitation services only generally.

There are several possible reasons for this. The first is that the government perceives water services as a local problem and as such considers municipalities to be primarily responsible for water services. The second reason is that in order to avoid the law from being invalidated by the Constitutional Court, the Water Law does not regulate services specifically, but instead broadly and vaguely.

Indeed, the water law does not contain the word "privatization" but it does suggest at Article 40 that the "..private sector, as well as the cooperatives and other members of the society" may participate in the development of water services. Of course, some investment in water supply infrastructure can be small if they occur in rural areas.

However, in cities, water projects can be worth millions of dollars and involve multinational corporations and foreign lenders. It is certainly inadequate to regulate both these operations under the same article.

It is worth noting that the governance of water as a resource is different from water services, even though they are interrelated. The governance of water resources encompasses the management of groundwater, rivers, wetlands, lakes, catchments areas, effluent discharge and how water is allocated to competing interests such as the industrial, residential, farming and hydropower sectors.

The governance of water services is different as it deals with water supply and sanitation infrastructure (sewerage), as well as the rights and responsibilities these utilities have and what roles local government plays.

The interconnection between *services' and *resources' only comes where water is abstracted from the environment by the utility and returned to the environment as waste.

Due to the complexity of the governance of water services, some countries regulate them in a specific law. In the UK and Scotland, they are regulated under the Water Industry Act, and in South Africa they are regulated under the Water Services Act. France does not have any specific water services law, however, models of private participation are regulated explicitly through multiple legislations. These legislations, backed by the court, which can act as a quasi-regulator, explicitly acknowledges the legal relation between municipalities, consumers and concessionaire holders and regulates their rights and responsibilities.

The water services law has important functions for both consumers and investors. It protects consumers from disconnection or limitation of supply (in Indonesia, disconnection is allowed by PP-16, while in the UK and South Africa it is illegal to disconnect), it establishes a consultation mechanism for tariff setting, sets out transparency requirements and regulatory accounts, sets quality standards for drinking water and details consumer rights.

In Indonesia, the laws do not define what the "minimum standard of services" is, as it is defined in a contract. In many other jurisdictions, these standards are not subjected to market mechanisms through contracts but are a matter of statutory obligation. The reason for this is because a sub-standard service is a public health issue which requires state intervention.

Note that one of the functions of the water services law is guaranteeing the property rights of the water utility. Without sufficient regulation, investors mainly depend on contracts. The political character of water services sometimes presses local governments to assume control of some rights of utility providers, such as denying tariff increases, or even striping them off their concessions when they lose popular support.

The problem in Indonesia is that the government views private participation to be desirable in the water sector, but the Constitutional Court and the civil societies are very reactive to the idea. So the parliament and the government regulate privatization discreetly in order to avoid the wrath of the court and civil society.

In effect, privatization happens without adequate statutory oversight. This has strong implications for consumers and investors. For consumers, this means that their rights to enjoy good quality, uninterrupted water supply at an affordable rate and their rights to complain and to request compensation for substandard services is not legally guaranteed, but is simply a matter of private arrangements enumerated in a contract.

For investors, this means that their investment relies only in the mercy of local government in honoring their contract. If there is a dispute between the government and an investor, the court and tribunals will be left in the dark, as there are no clear rules that regulate the settlement of disputes. Hence, without a water services law, their investment will be at risk.

, , , ,

Transparency in water utilities

Monday, March 23, 2009

I argued in my newspaper op-ed that the natural monopoly character of water services justifies its transparency. The purpose of water services regulation is to reduce natural monopoly and decreases information asymmetry. Transparency mechanisms work in that direction by allowing information to be interpreted by competing interest groups, thereby enhancing the regulator's capacity in deciphering information and producing more qualified decisions. Read more.

Economists have agreed that in every regulatory case, governments can never attain the same level of information as the company. Companies always know more about their own situation compared with the governments that regulates them.

The danger with this information asymmetry is that companies may inflate their actual costs and pass it on to consumers to pay. They may choose to deal with particular suppliers related to them (possibly a subsidiary of their parent company) rather than other suppliers offering lower prices.They may refuse to expand their network to slums or scarcely populated areas citing the reason of lack of capacity, although they actually can. Or, companies may conflate the number of leakages to add to the cost component.

As a result, governments must then be very well-equipped to be able to regulate water companies effectively; they must have all the technical, financial and legal auditing capability to discern and decipher information about water utility. The problem in most developing countries is that governments lack these regulatory capacities both in terms of human resources, technology and budget.

One way to mitigate this problem is by introducing transparency to the sector. Stakeholders can complain if they know that the company prefers to strike a water supply deal with real estate developers rather than invest in poor areas.

Potential suppliers can complain that they have been discriminated against, despite their ability to supply with cheaper costs. With transparency, governments can have help in interpreting information from other water companies, creditors, suppliers, consumers, NGOs, academia, the press or other interested parties.

However, it is difficult to make water utility companies agree to transparency. This response is natural as it is always better for them to conceal information than to be transparent.
Companies protect their information through confidentiality clauses in contracts and through trade secret laws. Freedom of Information laws typically do not work as they provide a blanket exception to disclosure when it comes to commercial confidentiality.

, , ,

CSR/GCG for utility companies

Monday, December 24, 2007

I wrote a paper explaining why certain Good Corporate Governance (GCG) and Corporate Social Responsibility (CSR) norms needs to be practiced by utility companies. You can download the paper here.

Abstract:

This paper argues that utilities delivers basic services to society, a function that was previously undertaken by the state. Given the problematic nature of corporations, the prevalence of natural monopoly in utilities, the asymmetric information present in certain utility markets and the social costs that may occur due to utilities privatization, stronger government intervention in utilities might be desirable. It must however, be conducted in a manner which aligned the corporation's self-interest of profit seeking with the social cost. The inspiration for such regulation can come from the recently growing CSR and GCG norms.

, , , , , ,

Safeguarding Water Contracts (peer-reviewed version)

Saturday, December 8, 2007

Abstract:

The The provision of water and sewerage services has been in the public sector for thousands of years. However, the trend towards privatising these basic services has recently been growing. When dealing with Multinational Corporations (MNCs), governments face risks in the form of legal asymmetries.

This paper explains the theory and practice of water privatisation in Indonesia. It analyses the legal anatomy of privatisation, from the regulatory to the contractual levels. It attempts to highlight important issues and risks that governments and other stakeholders need to focus on when dealing with privatisation.

We've made some significant editing for this version. Download the full paper here.

, ,

Longing for Corporate Social Responsibility's (CSR) implementing regulation

Wednesday, August 22, 2007

Now that corporate social responsibility (CSR) is obligated under the new company law (for companies which its core business is Natural Resources or in one way or another related to the environment), business community in Indonesia awaits its implementing regulation. There are still some confusion about the nature of CSR obligation. For example, how should "Natural Resources or in one way or another related to the environment"be defined?

Noke Kiroyan explained this complexities on his article:
Almost as an afterthought, in verbal explanations by lawmakers, those industries producing hazardous waste such as hospitals are also included. What about state-owned and other hospitals that are not incorporated as limited liability companies, as the law regulates this legal form only?

Everyone is entitled to make up his or her own definition, but why go to the trouble of doing comparative studies outside the country if we end up going our own merry way?

Article 74(2) of the Company law specifically stated that the CSR will be accounted as a "cost". This may not be a good news for public service companies which are related to the environment. The cost will be reflected in the price, and thus the price of universal services (such as water and energy) might raise.

I'd say that the government must exclude USO companies from CSR obligation in its implementing regulation. I don't think it's a good idea to raise water, electricity and health bills in a country where these services remained poor.

(For a comparison, check also the Investment law's CSR clause)

, , ,

Company Law to be Judicially Reviewed

Sunday, August 19, 2007

Still an unconfirmed news (will be confirmed if they log their case on the Court's registrar). Chairman of Apindo Sofjan Wanandi planned to submit a Judicial Review of the newly enacted Company Law to the Constitutional Court. He argued (link in Bahasa) that the Merger Rules on the new law -- which obligates companies to announce its merger decision prior to general meeting of shareholders-- was unfair.

I still don't know how it can violate the Constitution. Article 33 of the Constitution expressed that the economy is built upon a 'common endeavour' based on familial principles. I suppose, the families here could mean the workers too.

,

What 'natural resources'? CSR clause in the new Company Law

Saturday, August 18, 2007

Just to start the conversation, there's a nice article from CSR Asia discussing the controversy surrounding the Corporate Social Responsibility (CSR) clause under the newly enacted Company Law. Here's a snippet:
Indonesian company law states that companies with an impact on natural resources must implement CSR which is to be budgeted for as a cost. Beyond that we await further regulations – both to define CSR in this context and to determine how it should be implemented and to clarify which companies are actually affected. Currently the law applies to companies ‘engaged in natural resources or those in business in connection with natural resources’, but it isn’t clear what is covered by the term ‘natural resources’.

Click here to read.

, , , , , ,

Safeguarding a water contract

Monday, July 23, 2007

If you are representing a municipality or a central government, and you have to deal with water MNCs in concluding an agreement, what will you do?

I wrote a paper on this issue for a conference held by the IELRC in Geneva, last April. Here's the abstract:

Due to financial and technological reasons, water undertakings are often being conducted by large scale Multi National Corporations (MNC). Governments often positioned Regional Authorities as a regulator to these MNCs, and at the same time engaged in water contracts with them through State Owned Enterprise (SOE).

However, the relationship between Water MNC and Governments is asymmetrical as MNCs can move their assets overnight, transfer their ownership to third parties, seek various means of redress through bilateral, regional or international investment treaties and avoid confiscation by reallocating their assets. These are often done by hiding behind multiple jurisdictions enjoyed either by their parent companies, subsidiaries or shareholders.

The positions of Governments are the opposite as they do not have the flexibilities enjoyed by MNCs. This paper attempts to prescribe issues that need to be highlighted in safeguarding water contracts in Indonesia.

The first part discusses the legal relationship between institutions involved in a water undertaking. The second part listed down regulatory mechanisms in Indonesian context, more specific towards the impact of Constitutional Court’s review of the Water Law (2004). The third part of the paper examines the provisions existing normally in water contracts between a local subsidiary of MNC and regional authorities and presents a point of view in drafting the clauses.

Note that all laws mentioned there are as of March, 2007. The investment law has been modified recently. See the paper here.

, , , , ,

Water Privatization in Indonesia

Saturday, May 19, 2007

I wrote an op ed-piece for the JP a few days ago:

Privatization that involves MNCs will cover generally three legal arenas, namely transnational, national and contractual. Each legal arena requires a different model of legal protection.

In the transnational arena, governments may face parent companies and shareholders of an Indonesian-incorporated subsidiary company in arbitrations. In typical water contracts between local water authorities and a locally incorporated company, there is always a clause that refers every dispute arising from the contract exclusively to a local jurisdiction.

The problem is, MNCs can always refer to Bilateral Investment Treaty (BIT) to which Indonesia is a party and use the "umbrella clause" in the BIT to transform a problem that was originally a contractual dispute into an international investment dispute. So, the central government can be dragged into a costly international arbitration.

One of the drawbacks of international arbitration is that the proceedings are often closed to the public. This transparency can no longer be ensured once a dispute is settled at an international arbitration venue.

Another disadvantage in dealing with an MNC is that there is currently no adequate accountability and responsibility standard in place. Thus, it is theoretically possible for an MNC to cause losses (to the environment or labor) in a host state and get away with it. This is because an MNC is a single economic unity, but is legally distinct.

The losses are not attributable to its parent company in United States or Europe, because those companies exist beyond Indonesia's jurisdictions and they possess a distinct legal personality from their Indonesian "avatar".

From the above explanations, there are some conclusions that can be drawn.

First, the legal protections granted at the national level will be obsolete at the transnational level if the government decides to conclude a contract with an MNC.

Second, the damages created by an MNC to the host state may be irrecoverable due their transboundary character. Put it simply, the control by the government towards water provision will considerably diminish when privatization is opted.

The second legal arena is the national fora. Protection towards the right to water in Indonesia is very weak. The first weakness is that our constitution does not explicitly recognize the right to water. The right to water in Indonesia develops only out of a judicial interpretation of the Constitutional Court when the water law was reviewed.

The second weakness is the water law itself, which does not specifically cite the right to water as a human right. This is a mistake because it should have cited Chapter XA of the Constitution, which regulates human rights. If it is only Article 33 that is cited, then water would be perceived nothing but as an economic good.

The third weakness is that the current regulations governing infrastructure projects do not distinguish water from other projects. Currently, a 2005 Presidential regulation is used as a "catch-all" regulation for infrastructure project, including water. This could be fatal if the government decides to privatize more water services in the future.

Water projects are among the most critical infrastructure projects for emerging economies. They have natural, cultural, political and legal characteristics that differentiate them from other infrastructure projects. Naturally, water is a limited resource, inseparable from the hydrological cycle, it is an indispensable element of life for human, animal and the ecosystem as a whole.

Regulations governing water infrastructure must contain provisions that obligate financial and legal due diligence toward the bidders. There has to be provisions that specifically regulate water service companies, especially its shareholding, lending structure and corporate executives. Its financial condition must also be declared to the public.

The last of the legal arena is the contract between MNC's subsidiary and the authority. Provision of this contract is very delicate as it must embody and guarantee constitutional, human rights, environmental and financial benefits of all stakeholders.

Ensuring the sustainability of the contract would be difficult because MNC tends to always have a more favorable position to ask for renegotiation once the contract is signed. On the other hand, the government's interest is in ensuring water service from being impeded, and the government will be compelled to do it at any cost.

I also wrote a conference paper on the issue of water privatization and a power point presentation available here. Still on the water topic, I also wrote a paper on the Judicial Review of Indonesian water law available here.