Resource Nationalism and Constitutional Jihad

Introduction

On 13 November 2012, the Constitutional Court or Mahkamah Konstitusi granted parts of a judicial review of the 2001 Oil and Gas Law No. 22. The petition for the judicial review was spearheaded by Muhammadiyah, the second largest Islamic organization in Indonesia. Joining Muhammadiyah were ten other Islamic-associated organizations and a number of prominent individuals who included Hasyim Muzadi, former chairman of Nahdlatul Ulama (NU), the largest Islamic organization in Indonesia, Salahuddin Wahid, also a leading NU figure and the younger brother of the late President Abdurrahman Wahid, Komaruddin Hidayat, Rector of Syarif Hidayatullah State Islamic University, and Fahmi Idris, former Minister for Labour and Minister for Industry in the first term administration of President Susilo Bambang Yudhoyono (SBY).

The ruling on the judicial review included the immediate disbanding of BP Migas, the upstream oil and gas regulator and implementing agency. While the action against Law No. 22 had been expected and, indeed, revisions to the Law had been under discussion in the House of Representatives (DPR) for several years, the dissolution of BP Migas took almost everybody, including the government, by complete surprise. The disbandment sent shock waves not only throughout the Indonesian oil and gas industry, but in much of the country as well. While the oil and gas sector continued its decline in production (Indonesia has for some time been a net importer of oil), the sector is still of major importance to the country, contributing approximately 20 per cent of the country’s national revenue. So it was not surprising that the Court’s decision ignited media furore and public debate, not to mention the deep concern of foreign and national investors in the oil and gas industry regarding the status of their contractual agreements with BP Migas.

Public reactions that followed could be divided into two main categories. The first was that it was a dramatic manifestation of increasing resource nationalism that had already been evident, for example, in the mining sector. A regulation issued in 2010 relating to the mining sector required 20 per cent local ownership by the fifth year after the start of production. This was followed by another regulation in 2012 that required 51 per cent local ownership in the tenth year after production began. In the same year, a 20 per cent export tax was imposed on outgoing raw ores. In order to be able to continue to export raw ores, companies would have to build or obtain processing plants by January 2014.¹

The second main reaction was that the petition for the judicial review was part of the expected political manoeuvring by political elites playing to populist sentiments in the lead-up to the 2014 legislative and presidential elections. Representative of such a view was a vitriolic attack on the ruling by Lin Che Wei that gained wide circulation, essentially accusing some of those involved of hypocrisy since they had been active in government at the time the law was promulgated.² However, the chairman of Muhammadiyah, Din Syamsuddin, claimed the petition was submitted to ensure that the country’s natural resources were exploited for the benefit of the people. It was for that ostensible reason that he justified it as an act of “constitutional jihad”.³

This chapter focuses on resource nationalism as exemplified by the petition and the Constitutional Court’s ruling within the framework and dynamics of present-day democracy in Indonesia.

Global Resource Nationalism and Indonesia

The term “resource nationalism” is defined in different ways but can be summarized as “government efforts to maximize revenues from and exercise of greater state control over the exploitation of natural resources”.⁴ When sovereign states seek control over natural resources for strategic, political, and economic reasons, it is referred to as resource nationalism. A definition of resource nationalism that is specific to the oil and gas industry and to the Constitutional Court’s ruling on the 2001 Oil and Gas Law No. 22 has “two components — limiting the operations of private international oil companies (IOCs) and asserting a greater national control over natural resource development”.⁵

Engaged by developed and...