Why reclamation bonding mechanisms fail in Indonesia

Abstract

The objective of this article is to critically examine the regulatory framework associated with reclamation bonding mechanism in Indonesia. It suggests that the failure of the Indonesian reclamation bonding mechanism is due to a lack of regulatory clarity and the consequent weaknesses in law enforcement. In this context, this article reviews the existing literature on policy models pertaining to bonding mechanisms before arriving at the conclusion that the worst-case scenario described by Costanza and others (2015) represents the most apt remedy to improve Indonesia's reclamation bonding mechanism policy. Under a worst-case scenario bonding mechanism, the bond value is set up according to the costs associated with the most extensive probable environmental destruction. Such costs are over and above those associated with identified environmental damage. Companies intending to conduct mining activities are required to provide such a bond upfront, prior to commencing their exploration and operation–production.