An Analysis of the Complexities of Domestic Law and the Foundations of Customary Rights
In the context of land acquisition by private mining companies—particularly when the targeted area consists of customary lands located within forest areas—the application of the principle of Free, Prior, and Informed Consent (FPIC) is a central and complex legal issue.
Under Indonesian domestic law, the absolute obligation of FPIC has not been explicitly regulated in the Land Law for purely private land acquisition transactions (transfer of rights). However, Indonesia’s legal framework provides strong support for the recognition of the rights of Indigenous Communities (MHA), which indirectly mandates a process equivalent to FPIC.
This recognition of ILC rights is rooted in Article 18B, Paragraph (2) of the 1945 Constitution, which acknowledges and respects the unity of Indigenous Legal Communities along with their traditional rights. Article 3 of Law No. 5 of 1960 on Agrarian Principles (UUPA) also normatively recognizes customary land rights and similar rights of Indigenous Legal Communities (MHA) over land, provided that such rights still exist in practice and their use does not conflict with national interests or higher-ranking laws and regulations. Regulation of the Minister of Home Affairs (Permendagri) No. 52 of 2014 on Guidelines for the Recognition and Protection of Customary Law Communities also provides a formal mechanism for local governments to recognize the existence of Customary Law Communities and their customary territories.
Because the land is classified as customary land, the company bears significant moral and social obligations, reinforced by Constitutional Court Decision No. 35/PUU-X/2012, which affirms that customary forests are no longer state forests. Consequently, the use of customary land for commercial purposes requires recognition and consent from the relevant Customary Law Community (MHA), not merely a permit from the Ministry of Environment and Forestry (KLHK) through a Forest Area Borrow-to-Use Permit (IPPKH).
The Absolute Obligation of FPIC in Access to Global Capital and ESG Standards
Furthermore, the implementation of FPIC becomes a crucial aspect when private companies seek international financing or strive to comply with strict Environmental, Social, and Governance (ESG) standards; thus, compliance with FPIC becomes a non-negotiable prerequisite. International financial institutions, such as Multilateral Development Banks and major commercial banks, employ standards that effectively bind companies to FPIC.
One key framework is the Equator Principles (EPs), adopted by over 100 financial institutions worldwide. For large-scale sensitive projects (including mining), banks bound by EPs require their clients to comply with the IFC Performance Standards (PS), specifically PS7 on Indigenous Peoples. PS7 explicitly requires obtaining FPIC from Indigenous Peoples as a mandatory condition for projects in indigenous territories that have significant impacts. A company’s failure to provide valid and verified FPIC documentation directly increases the risk of financing being categorized as high risk, leading to loan rejection or significant interest rate increases.
Furthermore, within the ESG (Environmental, Social, and Governance) framework, a failure to obtain FPIC automatically lowers a company’s “S” (Social) score, prompting major financial institutions to sell the company’s shares (divestment) due to reputational and social conflict risks and ethical concerns.
Thus, the recognition of FPIC in financing serves as a very powerful non-state check-and-balance mechanism, transforming compliance with indigenous rights into a necessity for maintaining operational sustainability and access to global capital.
Case Studies and the Consequences of Negligence: Conflicts Over Indigenous Lands in Papua
Failure to meet these FPIC standards—even if such transactions are legally considered voluntary under domestic law—can trigger protracted disputes, the criminalization of residents, project suspensions, and even the withdrawal of investments, demonstrating that FPIC is not merely a matter of social ethics but has evolved into a de facto obligation in the context of modern mining business.
One of the most prominent and recent cases illustrating the complexity of this issue is the conflict involving the development of oil palm plantations and nickel/critical mineral mines in the Papua region, particularly those related to the Customary Law Communities (MHA) of the Awyu Tribe in Boven Digoel and the Moi Tribe in Sorong.
The disputed land consists of customary forests or communal lands traditionally managed by the Awyu Tribe’s Customary Law Community (and also the Moi Tribe in a separate conflict) in Papua Province. This land is often located within forest areas that have been granted concession permits, whether Forest Area Borrow-to-Use Permits (IPPKH) for mining companies or Business Permits for the Utilization of Timber Products from Natural Forests (IUPHHK-HA), which were subsequently rezoned.
The Awyu Indigenous Community and environmental activists filed a lawsuit because they argue that:
- No Prior and Informed Consent: The permitting process (particularly the Environmental Impact Assessment, or Amdal) was conducted behind closed doors, without providing complete, honest, and transparent information to all indigenous communities that would be affected. Decisions were made unilaterally by the government and the company before the community fully understood the impacts.
- Lack of Free Consent: The consent claims obtained by the company often stemmed from only a handful of representatives deemed illegitimate or unrepresentative of all clans and lineages, or were even obtained under pressure and through unfulfilled promises.
- Critical Impacts: Massive land clearing, planned for mines and smelters, threatens food sources, clean water, and the cultural identity of the MHA, who are heavily dependent on these forests.
These cases are often brought before the State Administrative Court (PTUN) and even the Supreme Court (MA) to revoke environmental permits and concession permits that have already been issued.
Although Supreme Court rulings sometimes vary, the MHA’s courage in bringing this case to court demonstrates that the de facto obligation of FPIC has now become the primary legal weapon for indigenous communities in opposing private business expansion that seizes their land. This conflict proves that, without the valid consent of customary landowners, government permits alone are not sufficient to guarantee the smooth operation and legitimacy of private mining projects in Indonesia.
The Ideal Process for Implementing FPIC as a Risk Mitigation Strategy
Implementing FPIC is not merely about obtaining signatures; it is an ongoing process rooted in consultation and a deep recognition of rights. This process must take place before field activities begin (Prior), starting with the identification and recognition of legitimate customary structures and a mutually agreed-upon communication plan. The company is then required to provide all information regarding the project—including environmental risks and compensation schemes—in a language and format that is easily understood by the community (Informed), giving them sufficient time for internal discussion. The key is to ensure that the entire negotiation and decision-making process takes place without coercion, threats, or manipulation (Free). Finally, Consent must be reached collectively in accordance with applicable customary mechanisms, and the company must accept that the community has the full right to reject the project.
Thus, FPIC ensures that consent is not a fait accompli, but rather the result of an equal and ongoing dialogue, and includes a clause stating that such consent may be revoked in the event of a future breach of the agreement.
Legal Services and Due Diligence Solutions
We at Jurist Terra & Co provide services that serve as the first and crucial step for mining companies in mapping out risks:
- Land Tenure Due Diligence: Conducting comprehensive research (beyond official certificates) to identify potential overlaps between the company’s concession areas (IUP/IUPK) and customary lands, indigenous territories, or uncertified traditional management rights.
- Analysis of the Customary Legal Framework: Studying and conducting a legal analysis of the leadership structure, decision-making mechanisms, and customary laws (including customary sanctions) of the relevant MHA, which must be respected in the FPIC process.
- Human Rights Risk Assessment: Assessing the project’s potential negative impacts on the rights of the relevant indigenous peoples, which serves as the basis for designing a prevention-focused FPIC process.
