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Revoke the regulation on cost recovery!

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OGEASIA July 30 - August 30, 2011

Respected lawyer Todung Mulia Lubis of the Lubis, Santosa & Mulyana Law Office, which has been appointed to represent the Indonesian Petroleum Association (IPA) in its request for a judicial review of Government Regulation (PP) 79/2010 on cost recovery, maintained that the PP should be revoked, or some conflicting articles in the PP should be declared invalid. He explained at length about the concerns of the IPA over the new regulation in an interview with OGE Asia's Sonar Sihombing at his office at Equity Tower in the Sudirman Central Business District on July 12,2011. The interview ran as follows:

Why did the Indonesian Petroleum Association (IPA) ask for a judicial review against Government Regulation PP 79/2010?

From a legal point of view, PP 79/2010 has many articles that are against the laws that are above the regulation, such as the Law on Oil and Gas, the Law on Manpower, the Law on Human Rights, the Law on Legal Drafting, and the tax law. This means that PP 79/2010, which is of lower status, is against laws of higher status.

What is the impact of this?

Because this PP is against laws of higher status, it has the potential to create restlessness among business people in the oil and gas sector and (the potential to) cause legal uncertainty. There is restlessness and legal uncertainty because something has disturbed the contracts they have signed with the government. The legal certainty of this is disturbed.

Why? Because all oil and gas companies sign Production Sharing Contracts (PSC) with the oil and gas upstream sector regulator (now BPMIGAS, formerly state oil and gas company PT Pertamina). The PSC is a standard contract and everybody knows that it has a time frame. According to civil law, this contract is binding for the parties that sign it. Secondly, the contract applies like a law. When a contract that has been agreed upon and is binding becomes ineffective with the introduction of PP 79/2010, this is disturbing. The contract has not been respected and there is no legal certainty.

Precisely which part of PP 79/2009 is under the spotlight of the IPA?

In the judicial review motion we have submitted to the Supreme Court we proposed that 22 points be changed or revoked. Out of all of them, it is Article 38, Paragraph B that is the most disturbing. If this article did not exist, oil and gas business people who had signed contracts (the PSC) would be at peace, because this article allows the government to unilaterally change the content of the contract immediately. This is the problem. In a contract, any change should be made upon the agreement of all parties bound by the contract. It is confirmed under the law that all PSCs are effective until the end of the terms agreed in the contracts.

Does that mean that the government no longer has any right to regulate our national oil and gas industry and has to obey the contracts made in the past, even though the content of them is considered no longer suitable?

A contract can be changed if both parties agree to make the change. What should not be done is the use of force unilaterally. Therefore, if a contract's term would end in 2020, the change can only be done in 2020, after the end of the term, except if both parties agree to change the content of the contract. The government could not force a change unilaterally. This is really important, because it relates to the sanctity of contracts. If a contract is changed unilaterally, this means there is a breach of contract. If a breach of contract happens, it should be handled through an arbitration panel. Is that what we want? Future contracts can be made based on PP 79/2010. However, would investors be interested in the terms and requirements? The regulation should not be retroactive; it should be effective only for the future.

If the government insists on applying and implementing PP 79/2009, what will the main impact be?

It will have a huge impact. At the very least, it would be harmful for the state budget, because the oil and gas sector still plays quite a big role in our state budget. This means that foreign investors that are restless and do not feel comfortable will not increase their investment. They may even transfer it to other countries that give them benefits and comfort in doing their business. It will have a great impact. Our oil and gas industry will decline even further and the supporting industry would be in ruins. It has the potential to diminish our economic performance.

According to your analysis, what chances are there of winning the judicial review request?

It depends on how the government sees it. I will certainly look at how big the role of the oil and gas sector is in its contribution to our state budget. The bigger its role in the state budget, the more the government should give its attention to the request. The judicial review motion is submitted due to the restlessness of investors in the oil and gas sector. If there are no more investors coming here, or if investors who have been here do not increase their investment but move from Indonesia, the results would be devastating. There would be no increase in our oil and gas production and our national income would drop. So does the government want to increase the national income or not? That is their choice.

In your opinion, what should the government do?

The government should improve the people's welfare more and more. This requires the development of infrastructure such as roads, housing, education, and health, as expected. It also needs bigger funds. This means that investment in the oil and gas sector, which contributes much, should be increased. The government should create a conducive business climate, not one that creates restlessness, and respond immediately to the judicial review motion filed by the IPA. Or it should make laws and/or regulations that give more incentives, instead of disincentives like PP 79/2010. The government should look at the psychology of business people in the oil and gas sector. They think that PP 79/2010 creates a basic problem, so the government should respond as soon as possible. The government should also see that talking about the oil and gas sector is not merely talking about oil companies, but also the supporting industry, workers who rely on them, and many people in the informal sectors that indirectly relate to the industry, like food stalls, guesthouses, transportation services, photocopying services, and other supporting businesses.

Is there any time limit as to when the ruling on the judicial review request would be announced?

Until now there is the submission of the judicial review motion that is regulated, so (the time limit is) before 180 days after it is introduced. However, there is no regulation about how long any judicial review motion should wait before it receives a response. I think that because the oil and gas sector is very important, it would be better for the Supreme Court to give its response as soon as possible in order to create comfort for all parties bound by the contracts. The country is facing a demand to provide welfare for the people. Included in this is the provision of good infrastructure, instead of provision of just rice or money that would last only briefly. The development of infrastructure can be carried out if there are enough funds in the state budget, and most of the state budget comes from the oil and gas sector.

Have there been any impacts of PP 79/2010?

Yes! We saw it recently when the government conducted a tender for new oil fields/blocks, and almost no one was interested. They failed to attract bidders. This regulation has been discussed for more than a year. This is about cost recovery. When an oil field is producing, costs should be reimbursed. The reimbursement fund is not the government's money and it is not the businessman's, either. Therefore no one makes money here. On the other hand, if an oil field does not produce, the big risk is held by the company that brings a lot of capital and technology, so they have no legal certainty even though the investment is quite huge. Businessmen must think twice before they invest. Yes, we have already felt the impact.

If we look at the commitment of big companies like BP and Total, which will increase their investment in Indonesia by billions of dollars, does that mean that PP 79/2010 is not really a problem?

That is still a promise. The realization remains to be seen. That is a commitment. A commitment must be followed by various requirements. Article 38, Paragraph B says, "Things that have not been regulated in the contract would be regulated properly." This is hard to understand. What is meant by "have not been regulated properly"? Article 38 is all about the content of a contract. Which (of the contents of the contracts) have not been regulated and by whom? By the government or by the businessman? Or both? This article is debatable.

In your opinion, what should we do with PP 79/2010?

Ideally, this regulation should be revoked. The IPA would be grateful if conflicting articles are declared invalid. The Supreme Court has the authority only to declare that this or that article, or all points in the judicial review motion, is not valid. It would then be up to the Minister of Energy and Mineral Resources.

Stripped of Charges, Ex-Playboy Editor to Walk Free

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The Jakarta Globe

Rangga Prakoso, June 23,2011

The jailed former editor in chief of the short-lived Indonesian edition of Playboy magazine will likely walk free today after the Supreme Court overtuned a 2009 decesion to convict him. 

Two years ago, the Supreme Court controversially overturned Erwin Arnada's acquittal and sentenced him him to two years in jail for distributing pictures that offended common decency.

Erwin, who has been detained since October 2010, will likely be freed from Cipinang Penitentiary in East Jakarta this morning.

"Ww have coordinated with the prison, "Masyudi, head of the South Jakarta prosecutors" office, said on Thursday. "The implementattion will be during business hours, possibly during the morning."

He said a copy of the Supreme Court ruling, issued on May 25, was received by his office on Wednesday.

The ruling, which Masyhudi said had come directly from chief Justice Harifin A. Tumpa, stated that the Court had accepted a judicial review and new evidence was admitted to contest the 2009 verdict.

The Court "is acquitting the convict of the charges leveled by the prosecutor," it said.

Masyhudi said there could be no more appeals after a judicial review and that the ruling would be final.

Erwin's lawyer, Todung Mulya Lubis, said previously that the judicial review would present a foreign publisher as a witness to explain that the Indonesian version of Playboy contained no nudity and was fartamer than overseas editions of the magazine.

The controversy, which put the spotlight on press freedom in Indonesia, began even before Playboy Indonesia's first was launched in April 2006.

Thought it did not feature the nudity common in other editions of the magazine, it was still greeted with a spate of vandalism and violent protests by hard-line religious groups, including the Islamic Defenders Front (FPI).

RI appoints lawyer to settle Komodo dispute

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February, 6'2011

The government appointed noted lawyer Todung Mulya Lubis to settle its recent dispute with new 7Wonders Foundation, which has said it may suspend Indonesia's Komodo National Park from the New & Wonders of Nature finalist list next week.

The Culture and Tourism Ministry announced the appointment before a number of local public figures, who had compaigned for Komodo Park, including celebrities Olga Lidya and Marcella Zalianty.

The Ministry's director general for marketing Sapta Nirwandar asked them to continue their campaigns despite the possible suspension.

"We want justice. The voting has been done since 2008; they cannot just dismiss us because we don't want to stage (the event to declare the winner's). Not only Indonesian's, people from other countries also take part in the voting,"Sapta said, as quoted Saturday by

He said there was a clause saying New 7 Wonders had a right to eliminate participants in a deal Indonesia had agreed on while registering Komodo in the voting. "But, that is if we commit a sin. Now what sin have we committed?" Sapta said.He reiterated that Culture and Tourism Minister Jero Wacik's statements saying the possible suspension was a threat due to Indonesia's refusal to host the declaration of the vote winners because it was too costly.

Sapta also said although New 7 Wonders was said to have signed a contract with a private consortium in the country regarding the hosting of the declaration event, the ministry had heard nothing about that.

New 7 Wonders has said in the response to Jero's statements that it has "never asked" the [Indonesian] governments to pay anything".

RI raises most funds since'98, draws foreign lawyers

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November,9 2010


Mark Nelson, a deal lawyer who left Jakarta after the 1998 collapse of Indonesia’s government and economy, now finds it hard to get back to the country to advise companies that have raised billions from investors this year.

So many bankers and lawyers are flying to Southeast Asia’s largest economy that “you practically have to be a Solitaire member to get a booking,” said Nelson, a Singapore-based partner of a US law firm Latham & Watkins LLP, referring to Singapore Airlines Ltd’s elite frequent flier status.

Investors, drawn by Indonesia’s consumer and resources-driven boom, have bought US$23.3 billion of debt and equity from the country this year, according to data compiled by Bloomberg. That’s close to the $25.4 billion raised for acquisitions or other spending in 2009, the most in at least 11 years.

“We’re moving back to where we were in the mid 1990s when Indonesia was where the action was in terms of consistent, large deals,” said David Dawborn, a partner of London-based Herbert Smith LLP who has worked in Jakarta since 1992 and is assigned to its associate office there. Companies like Krakatau Steel, whose privatization has been delayed since former President Suharto’s rule ended in 1998, will help boost initial share sales to $2.2 billion this year, according to the data, a similar to 1995 when PT Telekomunikasi Indonesia sold shares in the nation’s biggest IPO.

Lawyers say President Susilo Bambang Yudhoyono’s six-year record of fighting corruption and terrorism and spending on infrastructure has helped restore confidence.

The number of registered foreign lawyers working in Indonesia has risen from 20 in 2005 to 50, according to the Indonesian bar association Peradi. Foreign law firms, barred from having their own offices in the country can post their lawyers with domestic firms, which they can form alliances with.

Allen & Overy LLP in July became the first major international firm in 10 years to form an exclusive association agreement in Indonesia. Its associate office was formed by Daniel Ginting, who had previously been a partner at Baker Mcenzie’s local affiliate.

“None of our peers will be able to advise on Indonesia by flying in and out, said Kenneth Aboud, managing partner of London-based Allen & Overy’s Singapore office. Who’s been advising on Indonesian deals since 1996. About 40 international firms are pitching for deals in the country, he said.

Other firms like Sydney-based Allens Arthur Robinson have been expanding in Singapore, a 1 1/2- hour flight away. Singapore allows foreign law firms to open offices and the number has doubled to about 100 since 2005.

Indonesia-related matters are keeping at least 30 lawyers at White & Case LLP busy at any one time, the most in Southeast Asia, said William Kirschner, head of Asia mergers and Acquisitions at the New York-based firm.

White & Case, Allen & Overy, Herbert Smith and Latham & Watkins and two other firms won Singapore law licenses in 2008 and have added lawyers there to do regional work.

Indonesian bonds are now the best-performing in Asia and recently costs less to insure against default than investment-rated Italy. Fitch ratings in January raised Indonesia’s credit Rating to BB+, the highest since 1997-1998 Asian financial crisis, and some analysts expect an upgrade to investment level next year.

“There’s renewed sense of optimism and stability now,” said Rajeev Duggal, a Singapore-based mergers and acquisitions partner at Skadden Arps Slate Meagher & Flom LLP.

China Investment Corp. has earmarked $25 billion to invest in Indonesia, the world’s biggest producer of thermal coal. Indian billionaire Anil Ambani’s Reliance Power Ltd., which bought two Indonesian coal companies in June, may spend $5 billion in the nation, according to Yopie HIdayat, a spokesman for Indonesia’s vice president Boediono.

“The Chinese and Indians are definitely making their presence felt and looking to invest more,” said Tuti Hadiputranto, a founding partner of Hadiputranto, Hadinoto & Partners, Baker Mcenxie’s local affiliate. “We’ve got natural resources – oil, gas, coal – that’s gold today.”

International investors and banks still prefer to have their Indonesian disputes decided in courts elsewhere or in arbitration, said Todung Mulya Lubis, an Indonesian lawyer who helped Total SA’s unit defeat a bankruptcy petition by its former contractors.

Indonesian judges are paid as little as Rp 2 million ($225) a month, enhancing the temptation to accept bribes from middlemen when they preside over case where far more is at stake, Lubis said.

'Playboy' court ruling threatens press freedom, says expert

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The Jakarta Post - Jakarta Wed, 10/13/2010

Leading free-speech attorney Todung Mulya Lubis warned on Tuesday that press freedom was in
peril following a Supreme Court ruling that found Playboy Indonesia guilty of indecency, despite the relatively mild nature of the publication’s content.

“One fundamental flaw of the court ruling is that it shoved aside the press law and instead used the Criminal Code to prosecute the Playboy Indonesia editor,” Todung told a media conference.

“If it can happen to Erwin Arnada, it could happen to anyone,” Todung said, referring to his client.

Erwin began his two-year prison term on Saturday after the Supreme Court overturned the 2007
South Jakarta District Court not-guilty verdict, saying the magazine contained “soft pornography”
for which the editor should be held responsible.

“It’s only a matter of time before other editors will be prosecuted on criminal charges,” he said.

Earlier on Tuesday, Todung filed for a case review with the Supreme Court on behalf of his client.
“We need your support to get this case heard and settled as soon as possible,” Todung said at the conference attended by editors of major publications and TV networks.

“This is not only about defending Erwin. This is about defending press freedom.”

The Press Council, supporting Erwin’s case, said the number of cases of criminalization of the press had been increasing in recent years.

Todung said the long years of struggle by journalists to make sure courts used the 1999 Press Law instead of the Criminal Code had now been undermined.

“This is not only about defending Erwin. This is about defending press freedom,” Todung said.

He also requested that major news outlets in Indonesia and around the world support the cause by signing a memorandum of “friends of the court” that he plans to circulate.

Later, the editors, including the heads of the Indonesian Journalists Association (PWI) and the Alliance of Independent Journalists (AJI), signed a statement of concern about the growing “criminalization” and use of violence against media workers.

The Press Council said it had written to President Susilo Bambang Yudhoyono, requesting his
attention on the plight of journalists without the benefit of state protection against violence and criminalization stipulated in the 1999 Press Law.

The Council is also in discussion with the National Police in efforts to ensure adequate protection for journalists doing their job, including a commitment from the police to refer to the press law rather than the Criminal Code in all disputes involving the press.

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