Bill Guerin, Jakarta – Less than two weeks after the US Agency for International Development (USAID) announced a $20 million program of assistance to help improve Indonesia's legal system, a 55-year-old American stands in the dock of a district court in the remote North Sulawesi province, 1,300 miles northeast of Jakarta, and could be jailed.
Richard Ness is chief executive of Newmont Minahasa Raya (NMR), a local subsidiary of US-based Newmont Mining Corporation, the world's largest gold producer. NMR is accused by state prosecutors of dumping toxic waste in the waters of the province's Buyat Bay, causing pollution and health disorders within the local community. The high-profile trial could last several weeks, according to lawyers, and if convicted, Ness could face up to 10 years in jail and a US$50,000 fine. NMR could be fined up to $50,000 and forced to pay for any proven environmental damage.
The indictment was read out on Friday. State prosecutor Robert Ilat said forensic evidence submitted to the court would show that pollution took place. A second hearing has been set for August 19, when the defense will present its case. An unfazed Ness says a "fair, open and transparent hearing of the facts" at the trial will prove that Newmont has done nothing wrong. "I am very confident about what the evidence shows. We will be exonerated." Wayne Murdy, chief executive of Newmont, points out that the company has never before faced criminal charges in any country. Indonesia accounts for 30% of Newmont's net income.
Environment Minister Rachmat Witolear has said he had the full support of President Susilo Bambang Yudhoyono and the rest of the government to go to court. Environmentalists have saluted the decision and said the trial is an opportunity to hold a foreign mining company accountable for bypassing, even ignoring, environmental laws.
Apart from the North Sulawesi operation, a site being explored by Newmont in Sumatra could hold up to 3 million ounces of gold, but the company's only working mine in Indonesia at present is in Batu Hijau in West Sumbawa province, where copper and gold reserves are expected to last until 2033.
No ordinary judges
Ness is charged under environmental laws that make it a criminal offense to intentionally or negligently engage in acts that result in pollution. Much of the case for the prosecution centers on interpretations of environmental tests. Witolear has been quoted as saying, "We will produce the best professional experts in the field."
Julianna Wullur, who is head of the district court in Manado, was one of two judges replaced by the Supreme Court before the criminal trial started last Friday. Both judges were forced to step down on the grounds that they were not qualified to determine decisions in environmental cases. "I have taken several courses on environmental issues and taken part in several seminars on the topic, but unfortunately I do not have the required certificate," she told local media.
Forensic matters muddy the waters
Newmont stopped mining two years ago at its Sulawesi site after extracting all the gold possible, but continued processing ore there until August 2004, when the mine was permanently shut down. The mine was the first in Indonesia to use a submarine tailings disposal (STD) method. Environmental NGOs in Indonesia have consistently blamed this system – banned in the US and Canada because of its harmful environmental and health impacts – for pollution of the nearby seabed with mercury and arsenic.
Their claims have been endorsed by Witoelar, who stated that waste from the mine caused arsenic levels in the seabed to rise to as much as 10 times greater than the levels allowed in the US. Newmont has denied the charges, saying its practices had approval from the government and its waste-disposal processes are within legal limits. It says toxins were disposed of safely and that levels of mercury and arsenic found around the mine were well within acceptable levels. The company says the results of measuring and monitoring arsenic levels were forwarded to the government on a quarterly basis.
Studies of the water around Buyat Bay have produced differing results. Villagers living near the mine complained of health problems to police last July after eating fish from the bay. But both the World Health Organization and an initial Environment Ministry report deemed the water unpolluted. A government-commissioned study released in May found that heavy metal traces in villagers living close to the mine were within normal levels, though slightly higher than those living farther away, but a Ministry of Health report concluded that the illnesses displayed by people living on Buyat Bay showed no relation to the mine's actions.
Robert Gallagher, Newmont's second in command in Indonesia, said, "There has been no crime committed. The facts show there is no pollution and Newmont has not negatively impacted the water or the fish, nor caused harm to the people."
Villagers may lose out
The government has also filed a civil lawsuit against Newmont, seeking $130 million in damages, but the company says it has refused to participate in any negotiations out of court to force it to pay out to local villagers. Villagers say the afflictions were caused by mercury from the mine tailings. Yet Newmont, like most other international mining companies, never uses mercury in its gold processing. The alleged victims have shown only skin disorders (a common affliction in North Sulawesi) and none have claimed or have been shown to suffer from any of the classic symptoms associated with mercury poisoning.
Lead lawyer for the defense, Luhut Pangaribuan, insists that the company will not pay compensation to the villagers. "Our position is clear, we have done nothing wrong, and so what is there to compensate for?" Newmont has fought back with several suits of its own. Last week another court ordered environmental activist Rinolda Jamaludin to pay the company $750,000, after finding him guilty of spreading false allegations about Newmont's mining activities.
Impact on foreign investors
Will prospects for investment be harmed by the case? Although Indonesia has the world's largest deposits of tin and copper, investment in the country's mining sector has declined dramatically since 1997, when $2.6 billion of new investment was made. After that, investment gradually slowed to a trickle. In 2003 it was a paltry $12 million, and last year was up to $177 million, still a low figure. The Fraser Institute, a Canadian think tank, lists Indonesia as sixth in the world for geologic potential, but fourth worst in the world in terms of mining incentives. PricewaterhouseCoopers (PwC) says that if the investment climate in the mining sector improves, Indonesia has the potential to become a world-class mining country.
Whatever the eventual verdict, Jakarta's determination to press charges and pursue the suit has cast another shadow over the country's perceived readiness as an attractive place for investment. The trial focuses attention on the negative impact that both the weaknesses in the country's legal system and the activities of Western-funded environmental activists can have on foreign investors. It comes at a time when the entire legal system, widely seen as an impediment to investment and growth, is under intense scrutiny. There is clearly a risk of further spooking those investors who shy off because of the reputation of Indonesia's legal system as being inefficient and corrupt, leading to lack of transparency and unpredictable court decisions. Foreign funding of NGOs also promotes an allegedly anti-mining agenda in developing countries like Indonesia, according to some analysts.
Anti-mining forces
Don D'Cruz from the Institute of Public Affairs (IPA), an Australian think tank, points out that local NGOs in developing countries get much of their funding from Western sources, such as government development agencies and large charities. An IPA report claims that NMR, like most foreign-owned mining ventures in Indonesia, has been the target of global anti-mining campaigns that work with, and fund local NGOs. IPA says such foreign backing often results in projects being blocked, costing vital jobs and further deterring investment.
Indonesia's biggest environmental lobby group, Walhi (Friends of the Earth Indonesia), and Jatam (Mining Advocacy Network) have led the campaign against Newmont. "If companies follow environment requirements and are concerned about the environment, they won't have to worry," said Raja Siregar from Wahli. "But if they don't, they will face a problem in future."
Five other Newmont executives – an American, an Australian and three Indonesians – were detained for 32 days in a police lockup before being released in late October, drawing a swift and testy response from the US embassy in Jakarta. A statement from the embassy said the detentions were unnecessary, and warned that the government's handling of the NMR case would put off investors. William Frej, Indonesia mission director for the US Agency for International Development (USAID), said last week that more American businesses would have invested in Indonesia if there were a better court system, and "the capacity of the court system at this point [in] time does preclude the total involvement of the US private sector". Yet, in its published list of grants, USAID records that Walhi was given almost $745,000 in 1999 and another $350,000 the following year.
Wider risks
Comments by Australia's attorney general Philip Ruddock suggest that there could be a much wider dimension to the case. Ruddock said he had raised concerns about the lawsuit and criminal charges with five top-level Indonesian government ministers who made an official visit to Canberra earlier in the year. "What we're concerned about – and I think Indonesia understands this well – is that if you're going to have investment from abroad in important projects that are going to help with the development of Indonesia, you need to have it occurring in an environment which is conducive to investment," he told the Nine television network.
Ness echoes these sentiments. "I think what they [the international business community and the domestic business community] are really worrying about is the rule of law; how it relates to due process; and I think they are so far astounded this case has gotten this far." In response to concerns about investor confidence, Witoelar told reporters that the president himself guaranteed that companies that managed their operations well would be protected. "We welcome the honest ones," he said. "There is no need for the crooked ones."
[Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has worked in Indonesia for 20 years as a journalist. He has been published by the BBC on East Timor and specializes in business/economic and political analysis of Indonesia.]