The Limits of Foreign Investment Protection Over Contractual Obligations in Gas Sale Agreements for Electricity Supply in Indonesia

Abstract

Gas sale agreements for power generation are governed primarily by contractual obligations; however, their pricing and allocation provisions may be affected by state regulatory policies. This article examines the boundary between the contractual consequences arising from such policies and the potential for foreign investors to bring investment claims against Indonesia. This normative legal research employed statutory, conceptual, and case-based approaches without examining any confidential gas sale agreements. Using an analytical framework that distinguishes among the source of the obligation, attribution of conduct to the state, and the state’s regulatory space, the article analyzed a hypothetical policy change affecting the supply of natural gas to PLN. The analysis demonstrated that any failure to perform obligations under a gas sale agreement must be assessed in accordance with the parties’ contractual obligations and allocation of risk. An investment claim would require additional proof of a qualifying investor and protected investment, valid consent to investor–state arbitration, conduct attributable to the state, and a breach of the applicable substantive standard of investment protection. PLN’s status as a state-owned enterprise, or the mere fact that a foreign contractor suffered a loss, would not, by itself, satisfy these requirements. Conversely, the settlement of a contractual dispute would not necessarily preclude a separate examination of governmental conduct under an independent legal basis.