The implementation of foreign public-private partnerships (PPP) as alternative funding to build an infrastructure of a country has been a common practice. However, upon the termination of the PPP, the government may intend to own and manage the infrastructure fully. This article analyses whether such a situation falls under the legal concept of expropriation or a breach of contract. The article uses the doctrinal research method that combines the statute approaches, conceptual approaches, and case approach. The research concludes that the distinction can be made based on the government’s capacity as an authority or a party to the contract. If the government acts as a public authority, then the termination of PPP is considered as an indirect expropriation; if the government action is based on its commercial capacity or as a party to a contract, then the termination of PPP is considered a breach of contract.
There is a precise link between infrastructure and development. Infrastructure investment directly affects economic development. (B. Srinivasu et.,al, 2013: 81-91) A bien connu (commonly known) opinion in the economic field may implythat infrastructure development is coherent with economic growth. (Maryaningsih,et.,al, 2014: 61-98)This opinion can be proven in countries with developed economic conditions, which generally possess advanced infrastructure. (Maryaningsih,Hermansyahand Safitri,62) Therefore, to advance a country’s economy, countries generally focus on infrastructure development programs, such as infrastructure related to electricity, water, transportation, communication, etc.
The Principles and Regulations of Direct Expropriation in Indonesia
To grasp the notion of expropriation holistically, it is necessary to first expound the definition of expropriation.In Black’s Law Dictionary, expropriationis a voluntary surrender or claim of rights.( Black, Henry, 1990: 1990 )
In the case of a state, in general, expropriation is a process of distributing wealth from other parties to maximise the welfare of oneself or a Pacific group.(Dewi, 2015 :2) Expropriation within an area of foreign investors refers to the act of a host country seizing the ownership/property rights of foreign investors who invest in the host country.(nikiema, 2012: 1) In principle, the host countryhas the authority to take over foreign investors’ ownership or assets. This authority came from the sovereignty of a state;thus,a state has supreme control over its internal affairs.But, because this move is harmful tointernational investors, the host government mustgiveguarantees not to carry out expropriation towards a foreign investor.Even if the expropriation should be carried out, it must be carried out lawfully.
IndonesianizationIndonesiahadperformed expropriationagainst Dutch colonial companies back in 1958was successful in acquiring foreign ownership of 246 Dutch factories and businesses. The term used,at that time,was not expropriation but “Indonesianization”. The event of “Indonesianization” began when the post-independence Indonesian government was born. At that time, state leaders’ interestwas in buildingthe national economy. As a result, community and political parties encouragedthe Indonesian government to nationalise the Dutch companies.
Indirect Expropriation Provisions in Investment Agreements
Since direct expropriation already has a well-defined legal framework, thegovernment cannotcarry out direct expropriation. Therefore, the host state makes provisions or actions that indirectly target foreign investors’ rights.37One of which iscalled indirect expropriation, which deprives a portion of a foreign investor’s rights withoutfollowing the normal process of takeovers.Two motivescan explain the emergence of indirect expropriation:
- There are a considerable number of InternationalInvestment Agreements (IIAs) and Bilateral Investment Treaties (BITs)that protects investors from direct expropriation, including the right of an investor to challenge one’s government who carried direct expropriation.
- Nowadays, the government’s intervention inthe economy is increasing, and sometimes those actions have a negative impact on the private sector.
Conclusion
According to the above definition, direct expropriation is when a country takes over the ownership/property rights of international investors who haveinvestedwithin this country. In contrast,indirect expropriation is when a government expropriates a portion or all of the rights of international investors without going through a formal tauke over process. Regulation, form, and scope of action are three matters that separate those two. Expropriation, both direct and indirect, must be done legally. Theindicators are: the expropriation is done in the public interest, without discrimination, according to the law, and with ade quate compensation.To establish the termination of PPP by the governmentas an indirect expropriation in the form of contract expropriation or breach of contract, one must examine the government’s capacity, whether as a public authorityor as a contractingparty. If the government actionis based on its capacity as a public authority, then the termination of PPP by the government is an indirect expropriation.But, if the government acts as a party to the contract, such conduct constitutes a breachof contract. One of the ways to determine the government’s capacity in terminating foreign PPP is by analysing the government motives and conditions. If the government terminatesthe contract for the sake of public interest and/or terminates the PPP through legislation, then the government is using its capacity as a public authority. However, itis not easyto assess the government’s capacityinterminating foreign PPPs. Thenormalreaction of foreign investors who have sufferedlosses due tothetermination of the PPP by the government is to consider theact as a breach of contract. Therefore,they must first seek a settlement bybringing a case in the High Court based onbreach of contract. A foreign buyer will then have the ability to bring an ISDS claim based on expropriation if his case was rejected or denied by the Said Court.
Penulis : Faizal Kurniawan, Julienna Hartono, Xavier Nugraha dan Annida Aqiila Putri
Informasi Detail dari riset ini dapat dilihat pada tulisan kami di :
https://journals.iium.edu.my/iiumlj/index.php/iiumlj/article/view/703, Faizal Kurniawan, Julienna Hartono, Xavier Nugraha and Annida Aqiila Putri (2022) Analysis On The Termination Of Foreign Public-Private Partnership By The Government, IIUM Law Journal, 30(S1), 181–206. https://doi.org/10.31436/iiumlj.v30iS1.703
