--Clyde Russell is a Reuters columnist. The views expressedare his own.--
By Clyde Russell
LAUNCESTON, Australia, April 23 (Reuters) - Indonesia'sdecision to start cancelling investment treaties with 62countries has passed with little comment, but the move may havea greater impact than the recent banning of mineral ore exports.
Indonesia last month kick-started the process of terminatingall of its bilateral treaties by notifying the Netherlands thatits agreement to protect and promote investment would end in2015, and signalling that the others would end as soon aspossible.
The agreements, which are common between states, protect therights of investors in each other's country, and typicallyinclude clauses about fair treatment, no expropriation andguarantees that profits can be repatriated.
Most importantly for many investors in countries likeIndonesia, with its patchy record on legal certainty, is theright of appeal to the Washington-based International Centre forSettlement of Investment Disputes (ICSID).
Among the countries that have treaties with Indonesia aremajor foreign investors including China, India, Australia,Britain, Singapore and Russia. However, the United States andJapan are among nations that don't have agreements.
Why would the Indonesian government seek to end agreementsthat were designed to foster foreign investment and economicdevelopment, as well as protect Indonesian investments abroad?
The main argument seems to be that their time has passed andthey belong to an earlier era when foreigners feared assetswould be nationalised.
The treaties are seen favouring foreigners over domesticinvestors, something at odds with the government's drive toensure greater control of Indonesia's mineral resources.
This can be seen against the backdrop of a raft of changesto Indonesian law and regulations, which among others enforced aban on exporting unprocessed ores, mandated the building ofsmelters and introduced laws to force the sale of stakes tolocals of foreign-owned mines.
Indonesia is the world's biggest exporter of nickel ore andsupplies about two-thirds of top buyer China's imported bauxite,the raw ingredient for making aluminium.
London-traded nickel has gained almost 32 percentso far this year after the export ban came into force inJanuary, with China's imports of nickel ore from Indonesiaplunging 79 percent in March from a year earlier and bauxiteslumping 86 percent.
Indonesia is also the world's biggest exporter of thermalcoal used in power-stations, but the impact on coal has beenmuted so far as it isn't subject to a ban, but foreign ownerswill be caught by the need to divest.
The problem for many foreign investors is that they willdoubt whether the need for investment protection has passed.
I doubt that any investor in the Southeast Asian nationwould privately agree that his company would get a fair hearingin the legislative and court processes, especially if theopponent was the government or a well-connected local.
It seems that the decision to end investment treaties ispart of the ongoing process to ensure that Indonesia's resourcesare controlled by the government, and/or domestic investors.
CHURCHILL DISPUTE A TRIGGER?
The dispute between the government and London-listedChurchill Mining provides a short-term impetus for theend of investment treaties.
The miner won the first round of its dispute over coalassets with the Indonesian government in February at an ICSIDtribunal.
The Jakarta Globe reported on Feb. 28 that the governmentwill appeal the decision and it doesn't want to face the risk ofpaying compensation to Churchill, which the newspaper said couldbe as much as $1.05 billion.
The risk for the Indonesian government is that it could behit with dozens of cases in the ICSID from disgruntled foreigninvestors.
It's not hard to imagine Indian or Australian coal minerschallenging the rule that they have to sell half of their stakein a mine once it has been producing for 10 years.
Ending the investment agreements will mean foreign companieshaving to take their chances in Indonesian courts, a far betterprospect for the government.
However, cancelling the treaties will take time, as some runfor extended periods and have additional protection clauses oncenotice of termination is served.
This means the Indonesian government may well have to dealwith foreigners in an international tribunal, but it's a safebet they will play for time if this is the case.
The trend still appears clear, Indonesia is doing all it canto get control of its natural resources from foreign investors.
(Editing by Joseph Radford)
Chill Brands (CHLL)