A good inconsistency?

Editorial The Jakarta Post, 23 Dec 2004

What is a good inconsistency?! For our honored Constitutional Court, that is probably the only way to describe their recent decisions. Last week, we were baffled by the court's decision to annul the Electricity Law. This week, however, we are encouraged by the court's verdict to uphold the Oil and Gas Law.

Those laws govern two of the country's most important commodities. Both laws seek to liberalize these two important sectors, the anti-liberalization plaintiffs demanded that the laws be revoked because they were inconsistent with Article 33 of the 1945 Constitution. And yet, despite the obvious similarities between the laws, the court's decisions differed. Could this be an example of a positive inconsistency?

The bone of the contention here is the interpretation of Article 33, especially the second and third paragraphs: (2) Branches of production, which are important for the state and which affect the life of most people, shall be controlled by the state; (3) Land and water and the natural riches contained therein shall be controlled by the state and shall be used for the welfare of the people.

With these two recent verdicts, the court's interpretation of that same article seems markedly inconsistent. In its verdict on the Electricity Law, it interpreted the words "controlled by the state" to mean the government must maintain a controlling stake in all companies that provide electricity to the nation; yet this is such a narrow-minded interpretation. But, in its verdict on the Oil and Gas Law, the court interpreted "controlled by the state" to mean the government's control over the industry. However, the means of control could be in any form, not necessarily a controlling stake in oil companies. In this case, we believe the latter interpretation was the correct one.

Interestingly, in its verdict on the Oil and Gas Law, the court tried to provide further explanation about the reasons behind its annulment of the Electricity Law. It seems that they were trying to explain that they were actually consistent. The court said that, unlike the Oil and Gas Law, the Electricity Law did not clearly stipulate the government's controlling roles in the electricity sector. Still, we do not put much credence in this new explanation. We basically do not agree with the court's decision to maintain the electricity monopoly by inefficient state company PT Perusahan Listrik Negara (PLN).

The court's different verdicts on these two crucial laws can perhaps be understood if we look at the realities around us. The Electricity Law had not been put into effect, as the government never issued any implementing regulation. Thus, canceling the law would not create havoc in the industry.

On the other hand, the Oil and Gas Law has been implemented, especially in the upstream sector. The government has stripped Pertamina of its monopoly and established BP Migas to assume Pertamina's roles in controlling the upstream sector. In addition, there have been a number of oil and gas contracts signed, involving billions of dollars in planned investment. Thus, annulling the Oil and Gas Law would have had grave repercussions.

In addition, the Constitutional Court is filled with people who are eloquent when it comes to constitutional law, but not the modern economy or the corporate world. Therefore, we do not expect these judges to be involved in a profound debate on a choice between competition and monopoly in important sectors like electricity and oil and gas. The result is, very simply, an inconsistency in its verdicts.

We hope that the court's legal experts have learned something from these important cases and broadened their minds to the reality of the changing world. We think the court needs the judges have a much broader world view and deeper understanding of modern economics, not just constitutional law. It is particularly important that they have a firm grasp of the ramifications of monopoly and competition. This call is especially important as the court is now deliberating on other important laws that have a great impact on the life of many people, such as the Water Law.

Not only that, the government is now drafting a new electricity bill, based on the annulled law with some minor changes. We expect the bill will pass through the House of Representatives in a timely fashion. However, we do understand that these narrow-minded, even xenophobic groups will ask the court to annul this revised electricity law, once it is complete.
Whether it is the Water Law or the new and improved electricity law, we hope the court will be consistent in its future decisions with a view to modern economic realities.
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