Jumat, 02 April 2010

Conflict between Local Government Units (LGUs) and the Prospect of Arbitration in the Dispute Resolution Process in Indonesian Public Sector


In 1999, Indonesian government enacted new Local Government Act, which gives broader authority and bigger freedom to LGUs in arranging household affairs. According to this law, there are some cross-border or inter-regional affairs such as river, fishery, road, mining, forest, etc. These affairs are likely to spur the emergence of conflict among regions or LGUs. Under the previous system in the New Order that was very centralized, most of decisions were made by the central government and most of conflicts were also solved by the central government. As a consequence of power transformation from central to local government, however, LGUs should have an agreement as a foundation of cross-border affairs arrangement; and at the same time they should make a consensus as a basis of conflict resolution. Unfortunately, there is no further legal provision regarding the institution and mechanism of conflict or dispute resolution. For this reason, study on the prospect of intermediary institution (esp. arbitration) in the public sector is very essential to be conducted.


In 1999, Law no. 22/1999 concerning Local Government (hereinafter referred to as LGA 1999) had been enacted to alter the previous Law no. 5/1974 (hereinafter referred to as LGA 1974). This new law gives broader authority and bigger freedom to Local Government Units (hereinafter referred to as LGUs) in arranging household affairs, formulating organization/institutional structure, allocating human resources, and exploring financial potency.

Generally speaking, the implementation of LGA 1999 brought about some constructive progresses in building democratic governance in Indonesia, especially in local community level. It not only promoted independency spirit of local peoples and apparatus, but also stimulated a more equal relation between LGUs and Central Government (hereinafter referred to as Government), and paid more attention for peoples’ aspirations. However, as logical consequences of transition period, some perplexing problems might occur, both in substantial aspects (regulatory weaknesses), execution aspects (improper interpretation, lack of legal provision details), and externalities (direct or indirect impacts derive from a certain legislation).

Substantial limitations simply require content revisions of such regulation, while execution weaknesses lead to the necessity to formulate more detail and less interpretable clauses. And when externalities take place, the enactment of separate provisions are extremely needed. This paper tries to focus on analyzing the third aspect.
It is quite clear that one of LGA 1999 implementation impacts or externalities is the emergence of conflicts between LGUs and Government, and among LGUs. Unfortunately, there are no apparent indications and directions about policies, procedures or mechanisms, and authoritative agencies in dealing and resolving such conflicts. This paper will begin with the patterns of conflicts, conflicts resolution during the New Order (under Soeharto regime) and after the implementation of LGA 1999, and finally, the prospect of arbitration or other Alternative Dispute Resolution (ADR).

Patterns of Conflict Between LGUs

One of the main characteristics of LGA 1999 is massive shift of executive authorities from Government to LGUs. According to article 7 LGA 1999, “regional authorities shall cover the authorities in all fields of governance, except authorities in the fields of international policies, defense and security, judicature, monetary and fiscal, religion and authorities in other fields”. Based on that provision, LGUs have ‘absolute territorial power’; all fields of governance belong to their domain as far as lay inside their territory. However, it should be considered that not all governance fields can be separated by regional / territorial border. Instead, there are some cross-border or inter-regional affairs such as river, fishery, road, mining, forest, etc. These affairs / fields are likely to spur the appearance of conflict among regions or LGUs. From the phenomena have been materialized (and will probably emerge), conflicts between LGUs can be classified into five categories:

1.      Conflict occurred due to cross-border assets.
Some assets classified as public goods such as road, fishery / maritime, river, natural water resource, mining area, etc., are indivisible (can’t be divided into smaller pieces). Basically, they constitute the main contributor to the occurrence of conflict, due to their disability to be managed individually or partially. For instance, it is impossible to limit a mining business based merely on geographical border. Surely, running such business needs a mutual understanding and cooperation between regions where certain mining found and will be produced. It is also very difficult to stop the flow of water to downstream area. Beside, prohibition for sailorman to catch fishes in certain radius miles, is violating the national constitution especially article 33 about social welfare.
In this first pattern, conflicts might be manifested in different forms. In a river or natural water resource case, downstream areas usually get some negative effects from upstream areas, mostly polluted water or spread of water-borne diseases. In other case like mining industry, profit sharing and management potentially leads to a disagreement among parties. The other forms of conflict might take place in social life. For example, service quality gap in periphery area such as basic infrastructure utilities (road, bridge, etc.) will create inequality, inequity and jealousy along with citizens living in different district / province. Conflict of fishing field between fishermen, in fact, represents conflict between LGUs as well.

2.      Conflict occurred due to cross-border occupation.
This kind of conflict is frequently occurring in transportation sector, where some peoples operate a certain mode of public transportation (bus, mini-bus, truck, taxi, or ojek – Indonesian specific transportation by motorbike). The operation of those transportations is cross-border, so that peoples run their business not only around their domicile, but also across adjacent regions (LGUs). Conflict emerges when each region collect the transportation fees (double regulation) to all transportation providers. Recently, behind the construction of Bubulak bus terminal, Bogor City and its neighboring LGU, Bogor District, engaged in such conflict.
The problem roots of such conflict are over-confidence from LGUs that the have legal basis to explore financial resources, including transportation taxes or fees. Moreover, transportation business conducted by peoples from other region is judged to give negative impacts to the same business conducted by indigenous people.

3.      Conflict occurred due to the needs of assets in other LGU.
In conjunction with the intricacy of urban development, open spaces become more and more limited. In fact, the necessities of open spaces are vital for urban system. One function of open spaces is for handling garbage. When a city doesn’t have a space for waste processing, it should look for space in other regions. Then, a memorandum of understanding (MoU) needs to be accomplished. Nevertheless, when mutual partnership or understanding cannot be achieved, conflict between LGUs tends to emerge. This kind of conflict takes place between Jakarta Provincial government and Bekasi City government in “Bantargebang” case. Similarly, Bogor City and Bogor District are involved in conflict concerning “Galuga” case (Pikiran Rakyat, June 12th, 2002).

4.      Conflict occurred due to overlapping of authority.
The massively political devolution from Government to LGUs, to some extent leads to vague of absolute and relative authority. As a result, LGUs make inappropriate interpretation very often. For example, through regional regulation no 19, 20, and 21 (2001), West Java Provincial government enacted forestry and transportation management to be its own authority. Unfortunately, Minister of Forestry and Minister of Transportation asked the West Java Governor to cancel those regulations. The ministers said that such authorities are not the domain of LGUs. Likewise, West Java regional regulation no 23/2000 about wood cutting, and regulation no 24/2000 about tea business, is considered to be overlap with regional regulation issued by Cianjur, Garut, Camis, and Tasikmalaya District (Pikiran Rakyat, June 19th, 2002). In such cases, two types of conflicts occur, conflict between central and provincial government, and conflict between provincial and district government.
Nevertheless, in other field that only has very insignificant economic or financial profit, LGUs tend to avoid from incorporating it to be a part of their responsibility. For example, neither Central Java Province Government nor Semarang City Government are willing to deal with the management of retention pond in front of Tawang station which produce unpleasant aroma for nearby dwellers (Kompas, June 24th, 2002). Such overlaps of authority indicate that economically prospective sectors of development, those are, sectors that might generate the local income, are subject of dispute / conflict. In turn, financial-driven conflict not only would hamper the process of governance itself, but also cause more severe tasks for the people due to the likelihood of double taxing systems.

5.      Conflict occurred due to regional expansion/development.
Since the completion LGA 1999, there are propensities to form autonomous provinces, cities and districts. Euphoria of democracy tends to lessen rational considerations of regional expansion or development. In fact, regional expansion sometimes presents disadvantages such as assets management in the new region. Badly, detail information about assets management is not available now, whether it belongs automatically to the new region or still under the previous region’s control. Bogor City Government and Bogor District Government have experienced in such conflict. Some areas of Bogor District have been integrated into Bogor City administration, but it was not escorted by further legal explanation concerning assets management such as building and land property at village level (tanah bengkok) (Pikiran Rakyat, June 12th, 2002).

On account of the variation of conflicts, it is likely that some conflicts may not belong to above categorization. However, such sorting is expected to make easier analysis on conflict and conflict resolution in the public sector in Indonesia. Furthermore, because of lack of legal explanation about how to cope with conflict, the existence of institution and system in resolving conflict is enormously essential. In this sense, one primary principle is that conflict should be solved based on win-win solution, not zero sum game.  Definitely, this principle constitutes the main concept in introducing the establishment of arbitration or other type of ADR (Alternative Dispute Resolution) in Indonesian public sector.

Dispute Resolution Experience and the Changing Role of Government

During the New Order era, governmental system was very centralized. Although LGA 1974 provides some basic principles concerning decentralization, but still Government’s authorities was much more powerful through the implementation of deconcentration principle. Therefore, while LGUs have some devolved authorities, the Government may play crucial role in decision-making trough its representative bodies in each LGUs. According to this law, governance authorities are totally the domain of the Government, and that are subsequently delivered to LGUs. That’s why, everything related to the arrangement of authorities are fully controlled by the Government. The Government will also determine a management process for a certain conflict occurs from the execution of authorities. In other words, most of governmental decision-makings are made by the central government and most of conflicts occur from such decisions are also solved by the Government. Then, it is logical that in the past, conflict between LGUs seems to be something never happened.

In the case that one of five patterns of conflict takes place, the Government not only functions as policy formulator and provider, but also as mediator. However, differs from theoretical understanding that mediator has no power to intervene the substance of the conflict, the Government role, in fact, is massively penetrative. In such a case, the Government might determine everything should be accomplished by the conflicting LGUs. As a result of Government’s dominance in conflict management, arbitration or any other ADR is not recognized in resolving conflicts in the public sector.

Recently, in consequence of power transformation from central to local government, however, the Government couldn’t play such vital role anymore. Even if the Government wants to provide some basic regulations for conflict resolution, it can be done simply in macro level such as general guidance of dispute processing, etc. By reason of the changing role of the Government, LGUs should have an agreement as a foundation of cross-border affairs arrangement; and at the same time they should make a consensus as a basis of conflict resolution.

This agreement or consensus is absolutely imperative due to lack of provisions about institution, mechanism, and other legal requirements of conflict management in public sector. In this sense, consensus between LGUs contains not only related to cooperation (MoU) clauses, but also enactment of procedure or method for dispute resolution. Fortunately, such convention in building consensus is being initiated. For instance, Cirebon City Government and Cirebon District Government are engaged in studying and formulating an integrated legal provision, that will be functioned as judicial basis in directing any activities between them (Pikiran Rakyat, June 26, 2002).

The changing approach in conflict management from single determination approach to consensus-based resolution approach has an important implication. That is, disputes which constitute previously as purely public concerns, now is becoming private issues. It means that constitution or public administration law is not so valid anymore in arranging private relations among LGUs, while civil law and civil procedure is getting more significant instead. At the same time, the participation of public institutions such as the Government, court (litigation system), and other institutions in resolving conflict is not needed to any further extent. Basically, due to ‘freedom of contract principle’, the existence of third party is not required, but it can be formed. And if third party is to be established, arbitration or any other institution involved in mediation, negotiation and conciliation process is most universal. The next problem is arbitrability of the arbitration, that is, whether arbitration has competency in public sector. The below description and argument will deal with such question / problem.

The Prospect of Arbitration in the Public Sector

Generally, arbitration is formed to facilitate and resolve civil disputes, especially which is linked to commercial relations. Therefore, disputes categorized as ‘purely public’ are not arbitrable. For example, “Anti Trust case” conflict between Mitsubishi and American Co., though they constitute private institutions, is not arbitrable, because ‘trust’ or ‘monopolistic policy’ is fully governmental domain.[1] Yet, future deployment of arbitration in Indonesian public sector is quite feasible, based on the following two reasons:

1.      The essence of agreement / consensus between LGUs.
As mentioned above, disputes between LGUs take place among public institutions. Consequently, disputed substances are always related to public aspects or public interests. However, there is a tendency that those public matters are transforming to be semi-public or semi-private matters. In other words, legal basis in conducting agreement / consensus alters from constitutional / public administration law to private / civil law. In concrete, agreement / consensus between LGUs does not need to be poured formally in state legal product such as Government Regulation, Presidential Decree, Regional Regulation, or Head of Regional Decree. Instead, contract document or MoU (memory of understanding) is quite appropriate. To be brief, it can be simplified that due to the essence of agreement / consensus between LGUs is more private rather than public, so that the probability for implementing arbitration becomes wider and wider.

2.      The competency of arbitration.
In understanding the competency or authority, both absolute and relative, of arbitration, it is beneficial to comprehend the basic law of arbitration in Indonesia. Generally speaking, the provisions of Indonesian law concerning arbitration are mostly directly derived from Dutch law. Particularly, it is set out in Articles 615-651 of the Reglement op de Rechtsvordering (RRV) 1847. Besides, the Foreign Investment Law of 1967 No 1, which governs joint venture foreign investments in Indonesia, contains an arbitration clause in Article 22. Of importance is also Law No. 5 of 1968 by virtue of which, in order to encourage and develop foreign investment in Indonesia, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States is adhered to.[2]
However, there is in Indonesia currently no systematic and comprehensive publication of Indonesian court decisions. There is also no journal or institution which publishes arbitral awards. In fact, proceedings and enforcement proceedings do not occur very frequently, even that BANI’s (Indonesian Board of Arbitration) experience in handling arbitrations is still limited. Yet, basic principles of Indonesian arbitration need to be understood. For example, certain categories of disputes may not be subjected to arbitration such as legacy and family law matters. In other words, absolute competency of arbitration concerns with commercial nature, including disputes with government agencies and state owned corporations.[3]
The above description implies that from the perspective of relative competency, arbitration can be fully functioned in the public sector. Nevertheless, from absolute competency perspective, some doubts might occur. The question is while agreement / consensus between LGUs can be classified as commercial nature / relation or not.
In constructing the answer on such question, we need to refer to the provision of Article 616 RRV. This article states that "anyone involved in a dispute concerning rights over which they have disposition may submit such dispute to arbitrators for decision". Moreover, it is provided too that any arbitration agreement referring disputes involving testamentary promises, housing, family law matters including the legal status persons or other disputes that the law does not permit to be settled by compromise, shall be null and void.
It may be interpreted that arbitration is open for any other cases except testamentary promises, housing, family law matters. Furthermore, it is obvious that agreement / consensus between LGUs does not deal with such matters. Therefore, absolute competency of arbitration is valid not only for cases according to Article 616 RRV, but also for other cases of conflict, including conflicts occur as a result of intergovernmental agreement. This interpretation emphasizes that public sector disputes made based on agreement / consensus, are covered by the absolute competency of arbitration. To sum, arbitration is arbitrable for settling disputes / conflict in the case of Indonesian public sectors.

Concluding Remarks: Next Agendas

In the short term, the utilization of arbitration in both mediating and resolving conflict between LGUs should be realized as soon as possible. Reasonably, this will advocate the implementation of new decentralization policy. For that purpose, the availability of further legal provisions regarding not only arbitration itself, but also procedures, requirements, and stages should be completed by LGUs in employing arbitration, is extremely essential. Furthermore, to strengthen the role of arbitration in the public sector, mediation and conciliation process is valuable to be considered as a complement. The combination between arbitration on the one hand and mediation and conciliation on the other hand, so called Med-Arb or Arb-Med,[4] offers some advantages such as financially / timely more efficient, procedurally more effective, and psychologically more satisfying for the conflicting parties.

In the long term, the utilization of arbitration in the public sector might be restricted, while the role of litigation is to be promoted. The reason behind this idea is that not all agreement / consensus between LGUs deals with internal affairs. In fact, what LGUs do through public policy formulation is frequently cope with peoples’ interests. That’s why, conflict occurs from such policy cannot be solved merely by or among the conflicting parties. Environmental exploitation and deterioration is a good example. In such a case, conflict resolution between LGUs is more proper to be processed in the court (litigation approach) rather than through an agreement. Firstly, environmental management and devastation is determined in specific regulation (lex specialis), so that LGA 1999 is invalid in steering the case. Secondly, when environmental pollution takes place, peoples will face the worst impacts. In that sense, peoples should have legal rights to sue either the Government or LGU because of mal-administration, which leads to the degradation of environmental quality.

Based on short term and long term planning above, it can be summarized that decentralization policy changes in macro level is not followed by some anticipative efforts, both in terms of legal provisions, institutional structures, and managerial framework. Therefore, in order to minimize the externalities of LGA 1999 implementation, research on the implications of large-scale decentralization needs to be kept on. In this case, one topic should be highlighted is the probability of conflict between LGUs and the prospect of arbitration as alternative dispute resolutions in the public sector.


[1] Yasunobu Sato, 2002, Transnational Commercial Dispute Processing I, GSID lectures note, Nagoya.
[2] Kenneth R. Simmonds and Brian H.W. Hill, 1990, International Commercial Arbitration: Commercial Arbitration in Asia and the Pacific, Country Commentaries: Indonesia (Booklet 2.5), Oceana Publ.Co. page 3.
[3] Ibid., page 1. Some information concerning Indonesian Arbitration can also be found online at http://www.arbitration.co.nz/apec/indonesia/Arbitration.htm
[4] Yasunobu Sato, 2001, Commercial Dispute Processing and Japan, London: Kluwer Law International.

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