Resource Governance: Corporate Structure and Risk Management For Chinese Investments in Indonesia's Coal and Nickel Sectors Under Indonesian Law
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This paper examines the corporate governance risks facing Chinese mining investors in Indonesia, arising from the country’s regulatory pluralism and an increasingly assertive enforcement environment. Unlike China’s more integrated regulatory model, Indonesia separates authority over mining and forestry into distinct ministries, producing fragmented oversight and frequent coordination problems. This is compounded by multi-tiered governance across national, provincial, and regency governments, generating overlapping regulations that complicate compliance. Recent enforcement measures, including unannounced inspections, operational suspensions, and equipment seizures triggered by forestry permit gaps, have sharply increased operational and legal exposure for mining companies. Beyond corporate penalties and reputational harm, Law No. 18 of 2013 exposes individual directors and commissioners, including expatriates, to personal criminal liability and imprisonment for illegal mining within forest areas. Compliance failures can escalate into diplomatic matters, as seen in embassy involvement in land seizure disputes. To manage this environment, investors must adopt rigorous due diligence, including treating forest compliance as a board-level priority, maintaining dual-track compliance systems for mining and forestry regulations, and conducting spatial audits against current forest zone maps. Reviewing prior enforcement actions and assessing ESG risks are also essential for securing international financing and preserving a social license to operate. Remediation options, such as securing forest-use permits, adjusting mining plans to avoid forest areas, or appointing local directors with regulatory expertise, are critical to sustaining operations. Ultimately, proactive stakeholder engagement, consistent environmental monitoring, and careful record-keeping remain essential for demonstrating good-faith compliance and limiting operational, financial, and personal risks within Indonesia’s evolving regulatory landscape.
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