Newsletter

Our Arbitration Series Newsletter is back. This time we look at the introduction of two new sectoral arbitral institutions in Indonesia: “BASE” in energy sector and “LAPS-SK”, in banking sector.

27 Jun 2024 | Rizki Karim & Kelvin Zhafran Egi

Arbitration Series:

Energy Arbitration Centre and Central Bank’s Dispute Resolution Body –

Another two new Indonesian Arbitration Institutions?

The end of 2023 marked somewhat of a significant development in Indonesia’s arbitration landscape with the issuance of Supreme Court Regulation No. 3 of Year 2023 on the Procedure of Appointment of Arbitrator by the Court, Right to Challenge, Examination on Application of Enforcement and Annulment of Arbitral Awards (otherwise known as “SC Reg 3/2023”). The SC Reg 2023 is the first ever implementing regulation of the Indonesian Arbitration Law.

The first half of this year, 2024, then signals further development in the arbitration regime with the potential introduction of two new sectoral arbitral institutions in Indonesia: Energy Sector Arbitration Board (“BASE”) in the energy sector and Financial Sector Alternative Dispute Resolution Board (“LAPS-SK”) in the banking sector, specifically under the auspice of Indonesia Central Bank, Bank Indonesia. These additions would add to the plethora of sectoral arbitral institutions that are already operating in Indonesia.

BASE (Indonesia Energy Disputes Arbitral Institution)

            Badan Arbitrase Sengketa Sektor Energi Indonesia, abbreviated BASE, was first announced publicly on 15 January 2024. It was reportedly founded by several energy industry-related associations, including IMA (Indonesia Mining Association), AESI (Indonesia Solar Energy Association), APLSI (Indonesian Private Power Producers Association) APHMET (Association of Oil and Gas and Renewable Energy Law Practitioners), and APMI (Association of Indonesian Oil, Gas, and Geothermal Drilling Companies).[i]

The energy sector is one of the largest and most important sectors contributing to the Indonesian economy. Being a country with abundant natural resources, the energy sector is one of the primary sources of revenue for Indonesia. Inevitably though, it has also become one of the most contentious sectors. A 2017 report prepared by BANI (Indonesia’s general arbitration institution) showed that energy disputes ranked as the 5th most common sectoral disputes in Indonesia.[ii]  Globally, the energy sector is also one of the most disputed, with the ICC reporting 167 energy disputes in 2020 alone[iii], while almost a third of the entirety of ICSID cases were comprised of energy related disputes.[iv]

The establishment of BASE, thus, is hoped to further accelerate the energy sector in Indonesia by developing a more stable climate for investment while also becoming the pioneer dispute settlement body in the industry. At the moment, it seems BASE is still very much in its infancy stage,[v] though it is likely that it will have its own arbitral procedural rules as well as its own arbitrator roster. Based on the news available, BASE will handle disputes across various energy sectors, including oil and gas, electricity, mining, as well as renewable energy.

LAPS-SK – Another new arbitration body in the banking sub-sector?

A rather more surprising addition is a new arbitral institution in the banking sector under the auspice of Indonesia Central Bank, Bank Indonesia. On 7 May 2024, Bank Indonesia issued Regulation No. 3 of 2024 in Alternative Dispute Resolution Institution for Financial Sector (“PBI 3/2024”). PBI 3/2024 is the implementing regulation of Law No. 4 of 2023 on Development and Strengthening of the Financial Sector. The regulation sets out a legal framework for the establishment of a new alternative dispute resolution body specifically for the banking subsector, which will be named LAPS-SK.[vi]  

The idea of establishing a new arbitral institution in the banking subsector raises the question of a potential overlap with the already existing arbitration institution in the financial services sector, Financial Services Sector Alternative Dispute Resolution Board (also known as “LAPS-SJK”), an integrated arbitral institution established by Indonesia’s Financial Services Authority (“OJK”). LAPS-SJK covers the whole sector of financial services, including capital market, insurance and, of course, banking.

A closer reading of PBI 3/2024 suggests that the scope of jurisdiction of Bank Indonesia’s LAPS-SK will technically be different from OJK’s LAPS-SJK’s jurisdiction. Article 1 of PBI 3/2024 stipulates that LAPS-SK will be focusing on the financial sector (a more general scope rather than LAPS-SJK that focuses only on financial services), specifically between what is termed as Organizer in the financial sector and the consumer. Organizer itself is defined as a bank or a non-bank institution which carries out activities that are regulated and supervised by Bank Indonesia, including also organizers in the payment system sector, money service activities, and money market and foreign-exchange market.[vii]

Having said that, the existing LAPS-SJK, in accordance to OJK Regulation No. 61 of 2020, covers disputes in the financial service sector between consumers and financial service providers, which include, among others, banks and other financing institutions.[viii] So while technically different, an overlap of jurisdiction is more than likely to occur. Obviously, the similar names, i.e., LAPS-SJK (for financial services sector) and LAPS-SK (for financial sector), also do not help the confusion and certainly raise the question of why a new banking-focused dispute body is required at all.

In fact, OJK’s establishing of LAPS-SJK was meant to replace a number of arbitral institutions in the financial service sector, including one in the banking subsector, namely LAPSPI. For information, LAPSPI itself was only incepted in 2016, but within its first few years, LAPSPI was able to emerge as a top performing dispute resolution institution in the financial service sector, having received considerably more cases than any other in the sector. In its first three years, LAPSPI had handled 165 banking cases.[ix] Most of the cases LAPSPI had handled relate to non-performing loans between banks and its customers.[x]

As of now, it is unclear in which direction the PBI 3/2024 is going. Will it establish a completely new banking-focused arbitral institution in the same mold as LAPSPI? Or will the new LAPS-SK only take a specific portion of disputes that are beyond the jurisdiction of OJK’s LAPS-SJK? Article 47 of the PBI 3/2024 indicates that Bank Indonesia will conduct further coordination with the financial service sector in establishing the new LAPS-SK. Time will tell more.

Profiling the dozen arbitral institutions in Indonesia

As it is, Indonesia is poised to welcome two new additions to its roster of arbitral institutions. Aside from BANI, being the leading institution with general scope, Indonesia already has a plethora of sectoral arbitral institutions. LAPS-SJK, in the financial service sector, has already been mentioned. Indonesia also has BAKTI in the commodity trading sector, BADAPSKI in the construction sector, and BASYARNAS for Islamic economics. The sports sector even has 3 different and separate arbitral institutions, named BAORI, BAKI, and NDRC.[xi] The trend of sectoral arbitration institutions in Indonesia – with the introduction of BASE and potentially LAPS-SK – thus seems to continue on.

Disclaimer: The content above is intended to provide a general guide to the subject matter, and should not be treated as legal advice.

This newsletter is the part of our arbitration series, in which we will regularly post about developments of the arbitration climate, both domestically as well as internationally. For more information on the subject matter, or assistance in relation to arbitration, please feel free to contact the firm at rizki.karim@karimsyah.com

References:

[i] See for example, https://nasional.kontan.co.id/news/badan-arbitrase-sengketa-energi-indonesia-base-resmi-didirikan, or https://www.antaranews.com/berita/3917184/base-diharapkan-jadi-sarana-efektif-selesaikan-sengketa-energi.

[ii] BANI, Arbitration Brochure, 2017.

[iii] International Chambers of Commerce, Dispute Resolution 2020 Statistics, 2020, at: https://iccwbo.org/news-publications/arbitration-adr-rules-and-tools/icc-dispute-resolution-statistics-2020/

[iv] ICSID, ICSID Caseload Statistics Issue, 2022, at: https://icsid.worldbank.org/resources/publications/icsid-caseload-statistics.

[v] BASE has its own website, at: https://base.or.id/, with showcases its logo, but is currently still mainly under construction.

[vi] PBI 3/2024, Article 1(1).

[vii] PBI 3/2024, Article 3.

[viii] OJK Regulation No. 61 of 2020, Article 1(2).

[ix] Ipak Nurcaya, “Since 2016, LAPSPI has handled 165 banking cases, Bisnis.com (2019), at; https://finansial.bisnis.com/read/20190504/90/918568/sejak-2016-lapspi-layani-165-kasus-perbankan.

[x] See for example, https://pasardana.id/news/2016/8/12/sembilan-kasus-kredit-macet-diterima-lapsi/; https://money.kompas.com/read/2016/08/11/165654826/kredit.macet.jadi.sumber.sengketa.antara.nasabah.dan.bank.

[xi] For a more thorough review on the sports arbitration in Indonesia, see our previous newsletter at: https://www.karimsyah.com/newsletter/arbitration-series-the-subsector-of-sports-arbitration-in-indonesia.