Environment Ministry Affects Indonesian InvestmentsPublished by MAC on 2004-04-22
Environment Ministry Affects Indonesian Investments
Miningindo Weekly e-Newsletter
April 22 2004
On Apr.14 the Indonesian State Ministry of Environment announces the results of review under the ministry's program on corporate performance review (Proper) over the environmental management of companies in Indonesia for the years 2002-2004. Two mining companies managed to gain green category. The two companies are PT Kaltim Prima Coal (KPC) and PT Newmont Nusa Tenggara (NNT). PT Aneka Tambang Tbk (Antam) unit Pomalaa and PT International Nickel Indonesia Tbk (INCO) are rated "red".
Indonesian State Minister of Environment Nabiel Makarim said in Jakarta, companies that received red rating are those that have conducted environmental managements but have yet to meet minimal standard of conditions as cited in the prevailing law and regulation of environment in Indonesia.
Facts revealed that so far there has yet to be a standard of criteria under the Proper program for the appraisal of corporate performances of mining companies. On the other hand some indicators, however, can be used for such an appraisal based on the aspect of pollution to fresh and salt water and air, and the evaluation of toxic and hazardous (B3) wastes under the Analysis of Environmental Impact (Amdal) of each company.
For the cases of Antam and Inco viewed from the evaluation of the disposal of their B3 wastes, the two companies have yet to appropriately manage their wastes as referring to the prevailing regulations and permits. It can also be indicated from the gas emissions of the companies into the air. They have yet to meet the standard of quality of emissions into the air.
Oil and Gas Company Unocal Indonesia Company headquartered in Balikpapan was also rated "red". The rating was based on the company's management of environment in the operational site. Of the red ratings, Unocal was ranked 16th of 22 industrial companies in Indonesia.
The environment ministry has rated Pertamina Unit IV Cilacap "black" under Proper for the years 2002-2004. Based on the ratings under the Proper program, Cilacap refinery was regarded as the most hazardous operation to environment.
PT Pertamina admitted the management of wastes from Cilacap refinery was more problematic than those of other refineries. Meantime, the Indonesian ministry of environment has determined the criteria of wastes from Pertamina's refineries in Central Java, particularly about gas emission and sludge.
"Frankly speaking we did not quickly respond to the situation. The environment ministry has found wastes scattered on ground," said the spokesperson of Pertamina, Hanung Budya Yuktyanta.
Pertamina will make a big effort to improve the rating of the refinery. He declined to reveal the limit standard of criteria as set up by the Indonesian environment ministry. But Yuktyanta was optimistic the Cilacap refinery would be able to raise the environmental rating by next year.
The ministry's ratings have been determined since two years ago. "Two years ago all Pertamina's refineries were rated "black". But gradually Pertamina could improve the managements of wastes from refineries. The refinery of Dumai is now rated "blue" while the refineries of Plaju and Balikpapan are rated "red"," said Yuktyanta.
The public relations manager of Pertamina UP IV Cilacap Drs Husni Banser, SH,Pertamina UP IV Cilacap denied that as the largest refinery in the country Pertamina UP IV Cilacap does not have The Analysis of Environmental Impact (Amdal). "Pertamina UP IV has conducted the Amdal as seen from the availability of facilities to process the liquid wastes and to avoid air pollution," he confirmed.
Pertamina UP IV has even installed devices for continual emission monitoring (CEM) and sulfur retraction unit (SRU).
He said the rating was conducted haphazardly because the ministry's team of review just simply monitored the discharge of black smoke for 6 minutes from the refinery's chimney and then simply concluded that Pertamina UP IV had to be rated "black". Based on references kept by Pertamina UP VI, the discharge of such blackish smoke does not mean that Pertamina UP VI has to be rated "black" in conducting the environmental management.
Pertamina hoped the ministry's team of Proper would conduct prudent assessment in longer period. Longer time will allow the team to learn much on how a company can be consistent in conducting its environmental management.
Based on the data of Pertamina UP IV, a company can be rated "black" in environmental management if it obtains neither document of Amdal nor facility to process liquid wastes, does not prevent air pollution and does not further process toxic and hazardous (B3) wastes. In fact Pertamina UP IV has met those four conditions.
To prove that Pertamina was really committed to environmental management, in developing any new facility Pertamina UP IV always obtains the Amdal. Even since the initial development of the refinery of Pertamina UP IV in Cilacap it already obtained the Amdal.
When Pertamina UP IV had to expand the size of the site for its refinery it had also obtained an Amdal. In developing depots for de-bottlenecking, paraxylene, single point mooring and other facilities, Pertamina UP IV has always prepared the document of Amdal. Pertamina UP IV will continue improving the facilities and infrastructures of its environmental management.
Five Categories of Color
The results of review under the Proper system is grouped into five categories of color i.e. gold, green, blue, red, and black. At present there has yet to be a company that is granted with gold category, thus there is no company that has been satisfactorily managing its environment and producing clean products.
Ratings under the Proper program are based on seven aspects namely in compliance with regulation on water pollution control, in compliance with regulation on air pollution control, in compliance with regulation on pollution control of toxic and hazardous (B3) wastes, in compliance with The Analysis of Environmental Impact (AMDAL), appropriate system of environmental management, the use and process of resources, community development, participation, and relationship.
For the categories of black, red and blue, the environmental review is based on the company's compliance with the quality standard of liquid wastes and gas emission, and the management and process of B3 wastes.
Companies have to be given black category because of ignoring the procedure in processing their industrial wastes, which have yet to meet the quality standard of waste management; the wastes were rampantly discarded into the environment; and companies are granted red category because of having conducted the environmental management but yet to meet minimal standard of conditions as cited in the prevailing law and regulation of environment. Meantime, companies are granted blue category because their environmental managements have met the minimal standard of conditions.
For the categories of green and gold, in addition to the review of compliances to law and regulations, others that have to be taken into account are the system of environmental management, minimal output of wastes, community relations, community development, and transparency of environmental management.
Companies are granted green category because their environmental managements have satisfactorily met the conditions as cited in the prevailing environmental law and regulation.
For companies that are granted rating categories of green, blue, red and black, as a follow up the Indonesian environment ministry issues ministerial letters on statements over their corporate performances in connection with the environmental issues. In the ministerial letters will be revealed several factors that make those companies receive such categories of environmental ratings.
The Proper should have actually been imposed to all companies in Indonesia. But due to limited resources, the imposition of the Proper program has to be gradually carried out. For preliminary steps, companies that are included in the Proper program are the companies that are significantly impacting the environment, potentially polluting environment, registered on bourses and oriented in export.
The Proper program is regarded as a means of monitoring, transparency, and participation of the public in environmental management as referring to in Law No. 23/1997. From the ratings of the companies, the public will know which of them are good or which are bad. As consequences, any of the companies will be encouraged to improve their environment managements.
The Proper program cannot be single-handedly implemented but it is connected with and has to consider other factors like law enforcement and incentive policies. Take for instance; a bank will consider that a company with red category is highly risky to be provided with bank loans. As a consequence, such a company will be in difficulty to find loan from other banks. The company will also find it difficult to collect funds from stock exchanges or from the public. The minister added, there have been 49 environmental cases that are currently processed at court.
The result of the Proper program will unlikely be followed with the imposition of legal penalty. The ratings under the Proper program will merely trigger social and psychological punishment. Deputy to minister for the division of environmental impact control, Isa Karmisa Ardiputra, said.
A moral punishment might cause cancellation of credit from bank to a company with bad rating. Or the value of the company's shares will plummet due to bad rating. "We do not ponder on a context of legal substantiation, but we just simply wait for responses from the public against the ratings. Bad environmental management by a company that lacks effort to avoid bad impacts to environment will indeed trigger social and psychological punishments against stakeholders," he affirmed.
In case some companies are in difficulty to find fund sources to finance their corporate programs on environmental managements, the environment ministry will be ready to help them find the sources.
Currently some banks are willing to provide soft loans to companies that are conducting their environmental programs. Banks that are ready to provide the soft loans for corporate programs of environment are KFW of Germany and JBIC of Japan. In case the companies are also in difficulty to find experts to handle their environmental programs, the environment ministry can also help find experts from the Institute of Technology of Bandung (ITB) or other prominent universities all over the country. "The ministry will make every effort to help the companies raise their ratings of corporate performances in conducting the environmental managements during their operations in Indonesia," emphasized Ardiputra.
Has yet to have criteria
Environmental destruction in mining sector is not yet subject to penalties in Indonesia. It is because Indonesia has yet to have criteria on environmental damages in the sector. Such a situation will indeed be latent of triggering various conflicts between mining operators and the local people.
"It has been a big problem for Indonesian ministry of environment," said Nabiel Makarim, and Isa Karmisa Ardiputra, at a press conference when announcing the result of Proper. "In mining sector we have yet to have criteria and parameters on how to know exactly the environmental damages caused by mining operations. It is a problem for the ministry on how to impose sanction to companies due to environmental damages in mining sector," said Minister Makarim.
Any effort to set up criteria on damages of environment in mining sector has been made but so far there has yet to be confirmation on when the criteria will be completed. There is no reference on how to set up criteria on environmental damages in mining sector because no countries have so far set up such criteria on environmental damages in mining sector.
To create comprehensive criteria, a number of experts from universities in Indonesia will be involved. Determination on criteria of environmental damages in mining sector has actually been started since 10 years ago but so far it has yet to be completed.
In this regard the Indonesian ministry of environment has conducted surveys and comparative study on how to implement the Proper program. The ministry has conducted researches in various countries including Australia to find out the most appropriate criteria on environmental damages caused by mining operations in Indonesia.
But most countries applied their criteria on how to rate corporate performances without including criteria of environmental damages, particularly by mining operations. Environmental damages are usually not considered as a key factor on how to rate corporate performances.
Ardiputra commented, it could be so -- those developed countries do not set up their criteria on environmental damages -- because in fact their land spatial plans have been crystal clear and appropriately fixed. In that way most mining activities in those countries hardly cause damages and pollutions to environment, thus the people have not suffered from bad impacts of mining activities. On the other hand, in Indonesia the land spatial plan has so far been questionable and environmental damages caused by mining operations have emerged conflicts between mining companies and local people.
"In this regard we have to set up criteria on environmental damages caused by mining operations although we have to be different from those other countries," he said.
Executive Director of the Indonesian Forum of Environment (Walhi) Longgena Ginting told mass media in Jakarta, the 2004 Proper program conducted by the Indonesian ministry of environment remained partial and not comprehensive in covering various environmental problems in Indonesia. The mechanism seemed to be half-heartedly made and the ministry of environment had made unserious policy. The ratings were not comprehensive.
"The Proper program cannot be claimed as a good effort to prevent damages of environment. The program cannot integrally solve various environmental problems in Indonesia," he emphasized. Moreover some technologies that are not environmentally-friendlily implemented by industrialists in Indonesia should have been declared prohibitive.
Because of not including criteria on environmental damages under the Proper program it can be perceived that Indonesian government has so far regarded environmental issues as something simple and unserious. "If the government just makes efforts to prevent pollutions without calculating the destructive effects over the ratings of the corporate performances, we can say that the government is not seriousness in solving the environmental problems," he assured.
What is more, it should be taken into account that transparency on determining the ratings of corporate performances is a must. So far the government's policy on incentive and disincentive to companies has been politically made rather than finding solution to environmental problems all over the country.
The coordinator of Media and Publication of the Indonesian Network of Mining Advocacy (Jatam) Aminuddin A Kiram criticized the ministry. He was pessimistic over the Proper program. The Proper program would never become a means of enforcing environmental law. "It is not legally binding and there is no further steps of strategy under the program. The commitment of the government to preserving the environment has so far been questionable," he said.*