Indonesia cancels its bilateral investment treaty with the Netherlands by Laura Lozano

Laura Lozano

The Dutch Ministry of Foreign Affairs announced last March 20 that the Republic of Indonesia had decided to terminate its bilateral investment treaty with the Kingdom of the Netherlands. The effects will come into force from 1 July 2015. Nonetheless, according to the so-called sunset clause, the treaty provisions will be applicable until 2030 [1].

The states entered into their investment treaty back in 1968. Interestingly, it was Netherlands the first country that entered into a BIT with Indonesia [2].  Indeed the current "Agreement between the Government of the Republic Indonesia and the Government of the Kingdom of the Netherlands on Promotion and Protection of Investment" has been in force since 1995.

However, this might not be the only investment treaty cancelled, as the Dutch ministry stated that Indonesia had intentions to terminate all of its 67 bilateral investment treaties. According to experts, the high profile treaty claims against Indonesia might have lead to revisit its investment treaty policy. In this regard, Indonesia is currently facing the Churchill cases and has already faced several shareholders claims related to a bank bailout by the government in 2008.

The Churchill Mining Plc v Indonesia cases (ICSID Cases ARB/12/14 and 12/40) have been brought under the Indonesia’s BITs with the UK and Australia. In two recent jurisdictional decisions, on 24 February 2014, an ICSID tribunal has allowed Churchill Mining and an Australian subsidiary to proceed with claims worth US$ 1 billion against the country.

Regarding the shareholders claims related to a bank bailout by the government, Indonesia was able to succeed against a UK national last year. However, it expressed dissatisfaction with how the tribunal interpreted requirements in the BIT concerning admission of foreign investors. Moreover the UK national has annulled the decision so the dispute is not yet over.

Furthermore, a Saudi national, Hesham al-Warraq, brought a case under the Organisation of Islamic Cooperation (OIC Agreement) related to a bank bailout. By this, an UNCITRAL Tribunal decided in Hesham al-Warraq v Indonesia that the agreement for the promotion, protection and guarantee of investments among member states of the OIC Agreement did allow investors to take host states to arbitration. Apart from the above, Indonesia has recently avoided an ICSID case by paying out US$ 557 million to settle a dispute over ownership of a hydroelectric and aluminium project.

Therefore, despite BITs make a genuine contribution to economic development, it seems that Indonesia's protection to foreign investor is taking a new steps. Nonetheless, the termination of its BITs does not imply that Indonesia is withdrawing from all investment protection obligations and mechanism.  Time will let us know how the investment treaty policy of Indonesia evolves. In the meantime, Indonesia is not the only country expressing concerns about the availability of investor-state dispute settlement. South Africa has issued cancellation notices for its BITs with Germany and Switzerland. Moreover, Germany announced a couple of weeks ago, that it did not want investor-state dispute settlement provisions included in a trade agreement between the United States and the European Union. Consequently, it will be interesting to see the future trends on investment protection.

[1] Under sunset clauses existing investors are still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period after the BIT’s termination.

[2] It should be remarked that Indonesia was a Dutch colony.

© Conflict Change Consulting Ltd.  2014