Business, human rights and climate in the UK-Indonesia relationship

Coal mining destroying forests near Maruwai, Central Kalimantan. (Photo: DTE)

How the UK government’s push for trade and investment risks making things worse for  hard-pressed communities

DTE 98, March 2014

This month DTE and AMAN wrote an open letter to Indonesian President Susilo Bambang Yudhoyono and British Prime Minister David Cameron, calling for immediate practical action to restore to Indonesia’s indigenous peoples their rights over their customary forests, as required by last year’s landmark Constitutional Court decision.[1]

We called for a review of UK government policy towards Indonesia so that conflicting policies on investment and development cooperation are amended to support the rights of indigenous peoples.

The UK government has six priority areas, as presented for public consumption on the website supporting British nationals in Indonesia; promoting human rights in Indonesia; safeguarding Britain’s national security from Indonesia; working with the Association of Southeast Asian Nations; addressing climate change and supporting Indonesia to achieve low carbon growth; and improving business with Indonesia. It is this last priority that is overriding the others and  in particular conflicting with the human rights and climate change agendas.  This imbalance and these contradictions need to be addressed.

There is a major problem with Britain’s approach to Indonesia: on the one hand the UK government presents itself as a champion of human rights and tackling climate change, on the other a supporter of business with Indonesia. There are not enough cross-cutting safeguards. This means that British government agencies are promoting investment by British companies in infrastructure development, and natural resources-based industries, which have negative impacts on community rights and livelihoods as well as greenhouse gas emission levels. The UK government’s “Improving business with Indonesia” web-page says that the business sectors which offer particularly good opportunities for UK companies include infrastructure, defence and security, consumer goods, energy, education, low-carbon solutions and financial services. Brochures produced by the UKTI do identify opportunities in low carbon, green buildings, and renewable energy industries, but they simultaneously  highlight infrastructure, oil and gas, mining, and agribusiness as sectors with particular potential for British companies.

In the UKTI brochure ‘Doing Business in Indonesia: A British Business Perspective’, for example, the regional manager of design and engineering consultancy Scott Wilson advises, “There are opportunities in niche technologies and various infrastructure projects, such as coal transportation systems, mass transit and power generating schemes. There is a massive requirement for infrastructure projects in Indonesia and opportunities could rival those of Brazil, Russia, India and China.”[2]

These are all sectors which involve appropriating land, using heavy machinery to clear away forest, farmland and anything else in the way, and/or extracting the natural wealth it contains. These sectors are also strongly associated with conflict, human rights violations, and environmental destruction, and increased emissions of greenhouse gases from forest and peatland destruction. In the case of fossil-fuel related business, the climate impacts extend into the future with the eventual burning of those fuels on top of emissions from extraction, processing and shipping.

This kind of primary industrial development features prominently in the Indonesian government’s economic masterplan for 2025 – known as the MP3EI - which has drawn strong criticism for ignoring the rights and interests of millions of people – including indigenous peoples and local communities, living in target areas (see box).

British companies investing in these sectors in Indonesia have a long history of association with serious social, environmental and climate impacts – DTE has regularly raised concerns with extractive sector companies Rio Tinto, BP, BHP-Billiton, and more recently Bumi Plc[3], as part of our campaign to hold companies to account for their impacts in Indonesia.[4] Currently, the London Mining Network (of which DTE is a founder member) is calling for more oversight of companies listing on the London Stock Exchange, as part of a broader campaign for corporate accountability by mining companies based in London (see separate item).

Business, business, business...

The balance between the competing priorities in Britain’s policy towards Indonesia has shifted since David Cameron’s Coalition government came to power in 2010. Doing more business with Indonesia has moved up the priority list since Indonesia was identified as one of 17 priority high-growth markets[5] and part of the overall plan to boost Britain’s economic growth through exporting more. Currently, Britain and Indonesia have less than a 1% share of each other’s market, with Britain ranked 20th largest exporter to Indonesia.[6] By contrast, Britain is one of Indonesia’s biggest foreign investors, ranking fifth in 2013 (see box). This relationship is being nurtured by repeated official visits. Britain’s foreign minister visited Indonesia in January this year, the Minister for Trade and Investment and the Minister of Defence both visited Indonesia at different times in 2013. This was preceded by the visit of the Prime Minister, David Cameron,  in April of 2012, accompanied by 30 'business leaders'. Cameron was criticised by rights organisations for calling for Britain to sell more arms there[7], but apart from this relatively little attention has been paid to this 'race for business' in Indonesia.[8] President Susilo Bambang Yudhoyono was invited to pay a state visit to Britain later that year, where he was given an honorary knighthood by the Queen (and also  greeted by human rights and environmental protesters).[9] His visit included a meeting with BP executives at which Cameron announced the expansion of the BP-operated Tangguh gas project, the huge, high-impact gas extraction and liquefaction project developed on indigenous peoples’ land in Bintuni Bay, West Papua. “"This agreement on a £7.5bn development is great news for BP, one of the largest foreign investors in Indonesia. It's a huge boost to the UK's growing trade and investment in Indonesia's emerging market," said Cameron.[10]

UK trade and investment in Indonesia

Britain is already one of the biggest investors in Indonesia, and the current government is encouraging UK companies to invest more. It is also supporting UK exporters to sell more goods and services to what it recognises as a fast-growing market. In April 2012 the Prime Minister and President Yudhoyono announced a commitment to double trade (goods & services) by 2015 to £4.4 billion.  According to figures provided by Indonesia’s Bank Indonesia, UK direct investment flows to Indonesia between 2004 and 2013 amounted to USD 6.458 .[11] Britain was the EU’s biggest investor in Indonesia during that period, and in global terms, fourth biggest investor in Indonesia, behind Japan, Singapore, and the USA.[12] In 2013, the UK was Indonesia’s fifth largest investor (USD 926 million), according to the Bank’s data, with South Korea narrowly surpassing British investment that year. [13]

Brochures aimed at encouraging British businesses to develop trade links with Indonesia highlight the burgeoning markets as well as natural resources and low-cost labour. Sectors including energy, mining, infrastructure and agribusiness are identified as being of particular interest to British investors.

Globally, in 2012-13, the FCO and UKTI spent £420 million to promote UK economic growth through supporting UK exporters, via their network of offices overseas .

The special attention to Indonesia as a priority market means that boosting business with Indonesia gets enhanced resources in terms of staff, services and funding. The British government agency 'UK Trade & Investment Indonesia' helps UK-based companies to access business opportunities in Indonesia, offering information, contacts, advice and in-market support, according to the website.  It also helps with trade missions from UK to Indonesia and vice versa; and works with Cameron’s Trade Envoy for Indonesia, Richard Graham, to identify new opportunities to support British business seeking to enter the Indonesian market. Bilateral trade talks were started in 2011 aimed at improving market access, with the third round of these scheduled in November 2013; a business-led “Vision 2030 Group” is being established to report to both trade ministers on aspirations for the bilateral trade and investment relationship in 2030 and the action required to get there. [14] On the regional level, there is also an ‘Asia Task Force’ which aims to “bring together experts from industry, education and government to focus on boosting British exports to, and investment in, Asian countries.” It meets twice a year to discuss what it can practically do to help achieve this aim.[15]

UK NGOS push for transparency in new UK fund to tackle deforestation drivers

A group of UK-based NGOs, including Forest Peoples Programme, FERN, Greenpeace, Environmental Investigation Agency and Global Witness are calling on the government to finalise plans for a long-awaited new Forest and Climate Change (FCC) programme through a consultative and collaborative process with an accountable mechanism for disbursing funds under the UK International Climate Fund (ICF). In July last year, they made several recommendations to improve the design of the FCC, including that it should

  • support community systems of forest governance, and recognise the role of forest peoples as key rights holders and economic actors,[16] and
  • act on evidence of the effectiveness of secure community tenure in stemming forest loss and in delivering multiple benefits for local livelihoods and forest peoples including women.

See: for all the NGO recommendations and on the ICF. (Source: UK government to refine proposals for bilateral deforestation and climate fund. 1/Oct/2013)

Conflicting UK government priorities in East Kalimantan

One of the services provided for the business community is provided by the Foreign & Commonwealth Office (FCO), which issues Country Updates about Indonesia. October 2013’s Update, Indonesia: Land, Coal, People and Power in East Kalimantan, makes disturbing reading because it neatly captures the conflict between business, human rights and climate change priorities. The report follows a visit to East Kalimantan by the Jakarta Embassy’s Deputy Head of Mission and a team from the UK-funded Climate Change Unit (CCU). It is frank about the impacts of the province’s huge coal industry. “Open cast mines circle the city, even abutting major roads. During the Embassy’s meeting with provincial administrators, the team saw massive coal barges passing along the Mahakam River every couple of minutes.”

It describes the impact on people:

“As with many resource economies, local populations have struggled to benefit from the boom. Barely 5% of East Kalimantan’s population is employed in the extractive sector... The indigenous Dayak population remains marginalised, struggling with recognition of traditional land rights, whilst the descendants of original Javanese migrant farmers have been squeezed. The team met one village that was surrounded by mines (owned by the current and previous mayors). With their permanent water supply cut off, and little prospect of land rehabilitation, villagers described how neighbours and families had been pitted against each other.”

It also mentions the unintended impacts of Indonesia’s decentralisation programme:

“Decentralisation has fostered local accountability and may promote a new generation of reformist national leaders. But devolved decision-making on issues such as forestry and mining permits has also incentivised corruption and poor decision-making.”

Then it points out the inconsistencies in the local and national government approach to resources use:

“[East Kalimantan] Governor Awang has made sustainable development a priority, reinforcing President Yudhoyono’s four year moratorium on new forest concessions and mining permits. A provincial green strategy is in place; earlier this year he announced a one year ban on forest destruction. Awang is cooperating closely with the Presidential Delivery Unit. But Awang and Yudhoyono’s partnership illustrates the contradictory forces a[t] play. Until April this year, Awang was facing corruption charges for decisions he took as the regional leader overseeing the KPC mine.[17] And both he and Yudhoyono are promoting major infrastructure projects in the province; a 6m hectare palm oil development was recently announced.”

After detailing the huge economic, environmental, land, governance and climate challenges, and the problems faced by UK investors (which include BP, Rio Tinto, Churchill and the ill-fated Bumi Resources)[18], the FCO report explains how the CCU’s 4-year project is aimed at supporting “improved governance of land use, land use change and forestry in Indonesia, including in East Kalimantan.”

“Working with Yudhoyono’s delivery unit,[19] the provincial administration and local civil society organisations, the project aims to improve compliance and accountability in the granting and environment of permits for logging, oil palm plantations and mining industries, through transparency of local budgets, effective freedom of information laws and support for anti-corruption initiatives.”[20]

This just about makes sense for a climate change unit – if the general idea of the improved compliance and accountability is to prevent more licences being issued, since this would help limit the damage to forests, and therefore the climate, in an area of rampant coal mining and associated infrastructure development.

As the report goes on, the conflict of interests within UK policy towards Indonesia becomes increasingly apparent:

“In the meantime, we continue to encourage UK companies – historically slow to venture to Indonesia, let alone the hinterland – to benefit from the infrastructure and other opportunities that places such as East Kalimantan offer. Devolution has given rise to a complex picture at the local level in terms of land tenure and decision-making. But the pace of growth and a new raft of mega infrastructure projects (including an international container port in Balikpapan, several new regional airports, and a new port and industrial zone in Maloy) hold real opportunity for British investors.”

This prompts several questions: Is the FCO trying to encourage more UK investment in a part of Indonesia where companies like Rio Tinto, BP and Bumi have done so much damage to climate and community livelihoods already? Is it telling investors not to worry too much about the corruption risks because the CCU is helping to smooth the way for you with its governance improvement programme? Is supporting UK investment in infrastructure projects in Indonesia’s “hinterland” likely to fit with the aims of the Climate Change Unit to “support people in remote communities to have choice and control over their own development and to hold decision makers to account”?[21]

It is clear then, that there are contradictory forces at play in UK policy towards Indonesia. These need urgent attention so that the dominant business priority of the current UK government is subjected to greater scrutiny and tighter safeguards. These need to fully recognize and protect the human rights of vulnerable communities living in areas targeted for investment, in line with Britain’s international human rights treaty obligations. Safeguards are also needed to ensure British interventions in Indonesia reduce greenhouse gas emissions, not increase them.

A growing consensus on the need to move away from investment in coal?

In November 2013, Britain announced a new policy to no longer put public money into the financing of coal-fired power generation in developing countries.

“It is completely illogical for countries such as the UK and the US to be decarbonising our energy sectors while paying for coal-fired power plants to be built in other countries. It undermines global efforts to prevent dangerous climate change and stores up a future financial time bomb for those countries [where they are built],"

said Britain’s energy secretary, Ed Davey at last year’s intergovernmental climate talks in Warsaw. However, since 2007, the UK has provided about $500m (£310m) to coal projects, mostly through its share in development banks such as the World Bank, according to figures collated by the US Natural Resource Defense Council (NRDC). The US has provided nearly $9bn over the same period, Germany about $6bn and Japan nearly $20bn. A survey by the US NGO Environmental Defense, found that in 2009 Indonesia was the highest recipient of public funds (including World Bank Group funds) for coal-fired power stations.[22]

The UK government’s move, which follows similar announcements by the USA and the World Bank, has been welcomed, but also criticised for not going far enough. This is because the funding ban doesn’t include export guarantee finance, which is continuing to underwrite companies involved in coal mining (the latest export credit agreement was with a company supplying coal mining equipment to Siberia).[23] Despite the World Bank announcement in July 2013 that it would limit coal lending to 'rare circumstances', it continues to back (to the tune of US$33.9 million) a government guarantee for the construction of the Central Java Power Project, which is due to be of one of the biggest coal-fired power plants in Southeast Asia.[24]   

Recently, the British NGO, the World Development Movement (WDM) welcomed the government step, but is now calling for the British government to take action to curb UK private financing for coal.

“Current government policy on coal finance is inconsistent. Ending public funding of overseas coal without taking any action on private funding is unlikely to have a transformative impact because public funding for coal only makes up a tiny proportion of the billions of pounds that flow into the industry every year from the private sector. The UK government has put about £330m of public money into coal-fired power stations and coal mining since 2007,while UK banks have put £12bn of private money into coal mining alone since 2005. That means that UK banks have put in at least 27 times more money per year into coal than the UK government.”

“Around the world, in countries such as Indonesia and Colombia, coal mining is destroying agricultural land, polluting water supplies and displacing whole villages. It is the private banking sector, not public funding, that is financing this boom in coal.” [25]

Last year, following a visit to Kalimantan by WDM and DTE, a WDM report revealed that, since 2009, UK banks have lent more for Indonesian coal than banks from any other country in the world.[26]  Previously in 2012, together with the London Mining Network, and conscious of the fuelling effect of the London financial markets, DTE called for stricter regulation of mining companies listed on the London Stock Market, highlighting the case of Bumi plc.[27]  More and more, coal mining companies, such as Bumi, are losing their legitimacy even in the eyes of the investment community. At the same time, civil society organisations are increasingly calling on the UK government to act to reduce UK investment in coal, impose green credit controls, require mandatory reporting of financed carbon emissions and ensure tighter criteria and regulation of companies listed on the London Stock Exchange. (See also separate article on LMN’s submission to the UK parliamentary enquiry on the extractives industry).[28]

In recent months, a series of reports have been published focusing on investment and the economics of the Indonesian coal industry, highlighting many of the inconsistencies mentioned here.  Increasingly, investors themselves are waking up to these realities, the true costs and, most importantly, the impacts of the mining operations themselves.[29]

File 605

Coal mining as far as the eye can see, KPC / Bumi Resources mine, East Kalimantan: an abandoned stump is all that remains of the rainforest. (DTE)









MP3EI, the Kalimantan coal railway and UK coal interests

Kalimantan’s coal-rush, so devastating for communities, farmland, forests, peatlands and climate, will intensify dramatically if Indonesia’s “MP3EI” economic masterplan is implemented. MP3EI is the national-level plan, published by the Coordinating Ministry For Economic Affairs in 2011, aimed at speeding up development in Indonesia.[30]

The plan divides the archipelago into 6 main target ‘corridors’, each with a differing economic focus. Kalimantan has been designated a ‘Center for Production and Processing of National Mining and Energy Reserves’, and the general strategy for the coal industry is “to encourage the extraction of large coal deposits located in inland Kalimantan, accessible with adequate infrastructure and supported by proper regulations while maintaining environmental sustainability.”[31]

This 'adequate infrastructure' involves building dedicated railways to transport coal from coal-rich areas such as Murung Raya district in Central Kalimantan – location of BHP Billiton’s planned Indomet coal project – to rivers or ports on the coast. It means opening up previously inaccessible areas for large-scale exploitation, enabling coal mining companies to shift coal far quicker and at much lower cost than they could by road. The MP3EI cites data on 2009 coal production suggesting that production will increase 6.7-fold if infrastructure improvements are applied in Central Kalimantan alone (see figure, copied from MP3EI).

The railway projects listed in the MP3EI document are from Central Kalimantan to East Kalimantan - Puruk Cahu - Tanjung Isuy (203 km) and Puruk Cahu - Bangkuang (185 km, both in Central Kalimantan), with both projects due to start in 2015.

More recent plans put forward by the National Development Planning Board in 2012 include extending the Puruk Cahu – Bangkuang project to Lupak Dalam (on Central Kalimantan’s coast) in order to “help the province transport more coal”(20 million tonnes annually).[32] The Transportation Ministry’s railway director has outlined 10 railway projects in Kalimantan, all part of the Trans Kalimantan Railway Masterplan, and needing total investment of around IDR 600 trillion (US$62.4 billion). Russia’s state company Russian Railways is building a coal railway in East Kalimantan, with a second phase of the project planned to connect East and Central Kalimantan (mentioned above). A separate coal railway project linking Muara Wahau to Lubuk Tutung Port in East Kalimantan, would be built by Middle East Coal Holdings of the United Arab Emirates, he said.[33]

These projects, and the severe negative impacts they will bring are a matter of growing concern for affected communities and CSOs defending their interests. A coalition of twelve organisations is opposing the Central Kalimantan project, saying it will lead to ecological destruction.[34] Nordin, executive director of one of the groups, Save Our Borneo, called for the planned project to be cancelled, saying it will lead to “massive exploitation of natural resources in Central Kalimantan and will not guarantee energy justice for the people.”[34] In East Kalimantan, the mining advocacy network Jatam Kaltim also opposes these railway projects, which, it says, will benefit foreign investors while doing nothing for communities. On a broader level, Indonesian CSOs are voicing serious concerns about the impacts of the MP3EI across the country, pointing out that its focus on large-scale projects will worsen conflicts over land and resources. MP3EI projects are being driven forward, they say, while the government fails to take action to protect communities on the ground, and, in the case of indigenous peoples, fails to implement the Constitutional Court’s decision which takes indigenous peoples’ customary forests out of state control (see separate article).

British-based coal mining companies, such as BHP Billiton, are very likely to benefit from the railway projects, even if they don’t want to be too publicly associated with initiatives that will trigger a lot more coal exploitation in Kalimantan with severe impacts for local communities. At the company’s most recent London AGM, DTE challenged the company’s board on this question. BHP Billiton Chairman Jac Nasser said the company was not progressing investigation or development of railway facilities. However he avoided giving any public undertaking not to mine and not to use the railway. [35]

It is somewhat ironic that BHP Billiton – one of the world’s biggest exporters of coal – feels the need to downplay the significance of the Kalimantan railway project at its AGM, while British public funds are being used to highlight investment opportunities in just this kind of infrastructure development, as well as other sectors closely associated with depriving communities of lands and resources. It is a further demonstration of just how un-joined-up are British priorities on climate change, human rights and business in Indonesia.

[2] UKTI, Doing Business in Indonesia: a UK Business Perspective, July 2010, page 23, downloadable from, accessed 25/Feb/2014. See also UKTI Doing Business in Indonesia, November 2010, downloadable from the same site, which provides more details of opportunities in several sectors including, railway (including for the mining sector), power generation, oil & gas and mining, as well as renewable energies.

[3] Now renamed 'Asia Resource Minerals' in an attempt to distance itself from the scandals engulfing the company.

[4] See coal campaign on DTE website for more information.

[5] See UK Trade and Investment “Indonesia” webpage at, accessed 25/Feb/2014

[6] Improving business with Indonesia, UK government,, accessed 25/Feb/2014.

[7] See’David Cameron calls for UK arms sales to Indonesia, The Guardian 11/Apr/2012, For more background on UK arms sales to Indonesia and the link to Indonesia’s external debt, see DTE 64, 2005 at

[8] “I am determined to do everything I can to ensure that Britain succeeds in the global race and to link British business up to the world’s fastest-growing economies….” Prime Minister David Cameron, February 2013.  See: See also:

[9]  See ‘Demonstration to mark visit of SBY to UK’, DTE ,

[10] Indonesian Government Approves Plan of Further Development for Expansion of Tangguh LNG, BP, 31/Oct/2012. For more information on the Tangguh project and community perspectives, see

[11] Net investment flow figures given by the UK’s Office for National Statistics differ somewhat from the Bank Indonesia figures, see

[12] See table: V33: Investasi Langsung di Indonesia Menurut Negara Asal, accessible via, accessed 25/Feb/2014.

[13] See table: V33: Investasi Langsung di Indonesia Menurut Negara Asal, as above.

[14] Improving business with Indonesia, UK government,, accessed 25/Feb/2014. More information on the serviced offered is listed on page 27 of the Brochure Doing Business in Indonesia: a UK Business Perspective, July 2010, one of two PDF format guides downloadable from

[16] In March 2014, an international workshop on deforestation and forest peoples' rights in Palangkaraya, Central Kalimantan issued a declaration on this:

[17] As we have documented, UK companies have played a key role in developing and managing this highly destructive mine. See DTE 85-86, August 2010, for more background.

[18] DTE website for more background. 

[19] The President’s Delivery Unit for Development Monitoring and Oversight, also known as UKP4, is led by Kuntoro Mangkusubroto. It is also leading the development of Indonesia’s One Map Policy – see  DTE 93-94, December 2012.

[22] See Environmental Defense, and ‘UK-Indonesia coal connections’ in DTE’s special edition newsletter (no 85-86, August 2010)

[23] See, the Export Finance UK 2012-2013 report is at UK Export finance for companies selling goods to Indonesia in the period were for products sold to the Indonesian police (bomb disposal equipment), the Ministry of Defence (Intelligence equipment) and pollution control equipment for a South Korean engineering and construction company (GS E&C Corp).

[25] Curbing UK private financing of coal, MP briefing, January 2014. WDM

[26] Scrivener A J (2013), Banking while Borneo Burns: How the UK financial sector is bankrolling Indonesia’s fossil fuel boom. World Development Movement. September 2013.

[29]  Banktrack report on Banks investment in coal: Greenpeace report on the effect of the coal industry on the Indonesian economy (in Indonesian & English):

[30] See Big Plans for Papua, DTE 91-92, May 2012, English language version of MP3EI see:

[31] MP3EI (English version), 2011, page 102.

[32] Central Kalimantan’s $2.8bn coal railway to kick off early next year”, Jakarta Post 14/Nov/2012

[33] Central Kalimantan’s $2.8bn coal railway to kick off early next year”, Jakarta Post 14/Nov/2012

[34] English version of civil society alliance statement see:

[35] ‘Coal railway could cause 'ecological disaster' in Indonesian Borneo, warn environmentalists’, Diana Parker, Mongabay, 30/Sep/13.

[36] See LMN report on BHP Billiton AGM, London, 5/Nov/2013, at