Karima Anjani, Jakarta – The world's largest gold miner goes on trial in Indonesia next week in a dispute over pollution that has left the government torn between environmentalists and potential investors in the fourth most populous country.
Defeat for US-based Newmont Mining Corp., accused of spilling toxic waste into a bay in eastern Indonesia, would send a chilling signal to foreign investors, analysts say, although a transparent legal process could minimise any impact.
Newmont vigorously denies the charges and says its practices had approval from the Indonesian government.
"The government will need to show the world its fairness. The impact could be negative if Newmont is found guilty, because most of the mining sector believes Newmont has done nothing wrong," said Fauzi Ichsan, an economist with Standard Chartered Bank.
Bureaucratic and legal obstacles to business in Indonesia are often cited by economists as the main reasons for sluggish foreign investment in a country that boasts some of the world's largest deposits of copper, tin, nickel and gold.
Mining contributed 2.7 percent of Indonesia's GDP in 2003, a study by PricewaterhouseCoopers in January said. But only the Philippines ranked below it in Asia in terms of investment conditions, a survey by Canada's Fraser Institute showed.
The charges revolve around the disposal of waste containing mercury and arsenic from a gold mine in Buyat Bay, 2,200 km (1,400 miles) northeast of Jakarta, where residents have complained of rashes, lumps, breathing trouble and dizziness.
A guilty verdict would harm Newmont's image in a country where it still has ambitious plans. The American president director of its local unit, Richard Ness, could be locked up for as many as 10 years, although prosecutors have dropped accusations against five other executives.
But Ichsan said: "If the trial is done fairly, then I think the impact should be limited."
Executives detained
Mining industry officials have criticised the government for detaining the Newmont executives. Another American, an Australian and three Indonesians were held for around a month last year before formal charges were filed, drawing fire from the US embassy in Jakarta.
The government has called for an out-of-court settlement over a multi-million dollar civil suit filed against Newmont earlier this year by the environment ministry.
It is unclear from early negotiations whether the two sides will be able to reach an agreement.
The mine in North Sulawesi opened in 1996 and closed last August due to depleted reserves. Newmont has been carrying out reclamation work since, but the pollution charges relate to when the mine was operational.
Environmentalists say the case is progressing too slowly and urge strong action against Newmont, saying Indonesia has been too lenient with polluters.
"The case is a lesson for the government and investors to carefully prepare environmental assessments to avoid such problems," said mining analyst Adi Hartadi at Mandiri Securities.
A government-commissioned probe and a police study have concluded the bay was polluted, but several other studies, including one by the World Health Organization and the Indonesian health ministry, did not support the charges.
The health ministry reported earlier this year that illnesses reported by people living on Buyat Bay showed no correlation to the mine's actions.
Under President Susilo Bambang Yudhoyono, Indonesia is preparing mining legislation that would open the doors for investors. Tax regulations, royalties, and environmental rules have all been cited as problems that need to be tackled. Authorities hope the legislation can be enacted this year.
Other foreign miners active in Indonesia include US-based Freeport McMoRan Copper and Gold Inc. which operates Asia's largest copper mine in the rugged eastern province of Papua, and Canada's Inco Ltd. the world's second-largest nickel producer.