14 July, 2015
Annulment of Water Resources Law
On 18 February 2015, the Constitutional Court annulled Law No. 7 2004 on Water Resources (Water Resources Law) through its decision No. 85/PUU- XI/2013 (MK Decision). The decision was made as a result of a claim made by the National Board of Muhammadiyah (Muhammadiyah), and several other non-governmental organisations, which primarily concerned the privatisation and commercialisation of water management in Indonesia. In its decision, the Constitutional Court considered that the Water Resources Law contradicts Article 33 (3) of the 1945 Constitution, which governs the control of natural resources, stating such control should not be given to any individual or private party.
Legal uncertainty on the applicable law
To prevent the state from the void of law the Constitutional Court also decided to reinstate Law No. 11 Year 1974 on Waterworks (Waterworks Law). However, there is a huge gap between the implementation dates of the Water Resources Law and the Waterworks Law which has resulted in uncertainty on how to directly implement the Waterworks Law.
The reason for such uncertainty is because in 1974 the Government was still centralised in central government. However, post-implementation of Law No. 32 Year 2004 on Local Government, the local government has more authority to manage their own region. Therefore, the Government will need to immediately implement the draft of the Government Regulation on Water Resources Utilization (Draft), as the implementation regulation of the Waterworks Law, and adjust it to be consistent with the current jurisdiction of local government. The Constitutional Court considered the following points as the main principles for the MK Decision.
However, because no further guidance or explanation was provided, the Government will need to clarify how to implement these principles in order to prevent inconsistent interpretations being made by different levels of government officials.
- the water utilisation shall not disrupt, override, or negate the public rights on water;
- the state shall protect the public rights on water utilisation;
- environmental sustainability shall be treated as one of the human rights;
- the state has absolute control over supervising and managing water utilisation;
- the ultimate priority for water utilisation shall be given to the State-Owned Enterprise or Regional Government-Owned Enterprise; and
- in the event all of the above restrictions have been fulfilled and evidently the water supplies are still available, the Government may be able to issue permits to private businesses to conduct water utilisation with certain and restricted conditions.
Validation of upcoming and existing operational licences
The validation of the existing operational licences is one of the biggest concerns for current foreign investors. The Ministry of Public Works and Housing and the Ministry of Energy and Mineral Resources have issued Circular Letter No. 04/SE/M/2015 and No. 01 E/40/MEM/2015 (Circular Letter), stating that any existing permit will still be valid until its expiry date. However, new permit applications that are processed at the Ministry of Public Works and Housing, will be subject to the six principles as set out under the MK Decision. Furthermore, new permit applications submitted to the Ministry of Energy and Mineral Resources, will be subject to the Waterworks Law.
According to the Draft, any new permit application must be submitted to the relevant issuer (i.e. Minister of Public Works and Housing, Governor or Regent/Mayor) and will be valid for a maximum of ten years. All renewal applications should be submitted within three months prior to the expiry of the water resources utilisation permit. If the permit holders fail to submit their application within this timeframe, they must apply for a new permit.
The Draft also provides that any water resources utilisation permit and groundwater utilisation permit, which has been issued prior to the implementation of the Draft will still be applicable until its expiry date. However, if a current permit holder has foreign capital investment, their permit will be subject to a limited validity period of two years from the implementation date of the Draft.
Automatic cancellation of any water resources utilisation permit
Under the Draft, any water resources utilisation permit will automatically be cancelled if there is a change of business ownership, and/or a change to the name of the business entity.
Government to provide change in the Law
It has been established that the Waterworks Law has been reinacted as a direct result of the MK Decision. Due to the uncertainty that has ensued, it is evident that the Government will need to prioritise its agenda in order to create certainty on the implementation of the Waterworks Law, by implementing the Draft and also drafting the new bill of the Waterworks Law.
Other ongoing judicial review
In addition to the MK Decision, 115 laws have been listed by Muhammadiyah as regulations that are considered to contradict the 1945 Constitution. Furthermore, there are two ongoing cases which were submitted by Muhammadiyah to the Constitutional Court for a judicial review of Law No. 25 Year 2007 regarding Foreign Capital Investment and Law No. 30 Year 2009 on Electric Power. These submissions have been made on the same basis as the respective submission relating to the Water Resources Law, whereby foreign participation and its consistency with the 1945 Constitution is being assessed. We will be sure to monitor the progress on this and update you on any significant developments.
For further information, please contact:
Ratih Nawangsari, Partner, Ashurst
ratih.nawangsari@oentoengsuria.com
Joe Hogarth, Partner, Ashurst
joe.hogarth@ashurst.com
