Foreign Investment Protection Disputes Arising Under Indonesia Bits
I. Indonesia’s BIT Regime: Background and Structure
1. Nature and Purpose of Indonesian BITs
Indonesia entered into numerous BITs from the late 1960s to the early 2000s to:
Encourage foreign direct investment (FDI)
Provide legal certainty to foreign investors
Offer international arbitration as a neutral forum
Typical protections include:
Fair and equitable treatment (FET)
Full protection and security
National treatment and MFN treatment
Protection against unlawful expropriation
Free transfer of funds
Investor–State dispute settlement (ISDS)
2. Indonesia’s Policy Shift (Post-2014)
Indonesia:
Allowed many older BITs to lapse
Replaced them with a new-generation model BIT
Narrowed substantive standards and procedural access
However, disputes continue under:
Survival (sunset) clauses, often lasting 10–15 years
Existing BITs still in force at the time of investment
II. Legal Framework Governing BIT Disputes Against Indonesia
1. International Law Basis
BIT disputes are governed by:
The relevant BIT
International law principles (Vienna Convention on the Law of Treaties)
ICSID Convention or UNCITRAL Arbitration Rules (depending on treaty)
2. Interaction with Indonesian Domestic Law
While host State law is relevant:
BIT obligations are international obligations
Domestic law cannot excuse treaty breach
However, compliance with Indonesian law is often a jurisdictional requirement for investors
III. Common Types of BIT Disputes Involving Indonesia
Indirect expropriation through regulatory measures
Revocation or non-renewal of licenses
Mining and natural resources disputes
Banking and financial sector interventions
Contract termination involving state-linked entities
Claims of denial of justice
IV. Key Case Laws Under Indonesia’s BITs
Case 1: Churchill Mining plc & Planet Mining Pty Ltd v. Republic of Indonesia
Forum: ICSID
Treaty: UK–Indonesia BIT and Australia–Indonesia BIT
Issues:
Revocation of mining licenses
Alleged indirect expropriation and FET breach
Decision:
Tribunal dismissed claims for lack of jurisdiction
Found that the underlying licenses were obtained through forged documents
Significance:
Reinforced the clean hands doctrine
Confirmed that investments must be made in accordance with host State law
Major victory for Indonesia
Case 2: Newmont Mining Corporation v. Republic of Indonesia
Forum: UNCITRAL
Treaty: Netherlands–Indonesia BIT
Issues:
Export ban on unprocessed mineral ores
Alleged indirect expropriation and breach of FET
Outcome:
Dispute settled after arbitration commenced
Indonesia relaxed export restrictions temporarily
Significance:
Illustrates regulatory change disputes in resource nationalism
Shows arbitration pressure as a negotiation tool
Case 3: Cemex Asia Holdings Ltd v. Republic of Indonesia
Forum: ICSID
Treaty: ASEAN Investment Agreement / BIT protections
Issues:
Disputes arising from cement sector investment
Alleged discriminatory treatment
Outcome:
Case withdrawn following restructuring and negotiations
Significance:
Demonstrates use of treaty protections in strategic sectors
Highlights Indonesia’s preference for settlement
Case 4: Rafat Ali Rizvi v. Republic of Indonesia
Forum: ICSID
Treaty: UK–Indonesia BIT
Issues:
Government takeover of Bank Century
Alleged unlawful expropriation of shares
Claims of denial of justice
Decision:
Tribunal rejected jurisdiction
Found claimant did not qualify as a protected investor
Significance:
Emphasized strict interpretation of investor nationality
Shows jurisdictional defenses used by Indonesia
Case 5: Hesham Talaat M. Al-Warraq v. Republic of Indonesia
Forum: UNCITRAL
Treaty: OIC Investment Agreement (multilateral investment treaty)
Issues:
Arrest and prosecution of investor
Alleged politically motivated actions
Claims of FET breach and expropriation
Decision:
Tribunal largely ruled in favor of Indonesia
Held that bona fide criminal law enforcement does not breach BIT obligations
Significance:
Important precedent on police powers doctrine
Confirms State’s right to regulate and enforce criminal law
Case 6: Amco Asia Corporation v. Republic of Indonesia
Forum: ICSID
Treaty: US–Indonesia BIT (investment authorization regime)
Issues:
Revocation of hotel investment license
Alleged unlawful expropriation
Decision:
Long-running arbitration with annulment proceedings
Indonesia ultimately succeeded in resisting enforcement
Significance:
One of the earliest ICSID cases involving Indonesia
Influential on later BIT drafting and regulatory caution
V. Substantive Legal Standards Applied in Indonesian BIT Cases
1. Fair and Equitable Treatment (FET)
Tribunals assess:
Legitimate expectations
Transparency and due process
Regulatory stability (not regulatory freeze)
Indonesia has successfully argued:
No legitimate expectation against general law enforcement
2. Expropriation
Direct expropriation is rare
Most claims involve indirect expropriation
Tribunals consider:
Economic impact
Public purpose
Proportionality
3. Police Powers Doctrine
Indonesia frequently relies on:
Environmental regulation
Anti-corruption enforcement
Financial stability measures
Tribunals have largely accepted this defense.
VI. Jurisdictional and Procedural Defenses Used by Indonesia
Illegality of investment
Lack of investor nationality
Fork-in-the-road clauses
Failure to exhaust local remedies (where applicable)
Abuse of process and treaty shopping
These defenses have been notably effective.
VII. Indonesia’s New BIT Approach and Lessons Learned
Indonesia’s newer treaties:
Narrow FET definitions
Exclude umbrella clauses
Require exhaustion of local remedies
Encourage mediation before arbitration
This reflects lessons drawn directly from past BIT disputes.
VIII. Conclusion
Foreign investment protection disputes under Indonesia’s BITs reveal a mature and increasingly sophisticated State defense strategy. While early cases exposed regulatory vulnerabilities, Indonesia has:
Successfully defended high-profile claims
Leveraged jurisdictional objections effectively
Recalibrated its treaty practice to preserve regulatory space
Today, BIT disputes involving Indonesia demonstrate a balanced approach between investor protection and sovereign regulatory authority, shaped significantly by the case law discussed above.
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