Michael Richardson, Jakarta – When Bre-X Minerals Ltd., a small Canadian mining company, found itself entangled in a jungle of conflicting ownership claims to one of the world's richest undeveloped gold deposits in Indonesia, it turned for help to a little-known but well-connected local company.
To gain quick government approval to start production, Bre-X said it had entered a "strategic alliance" with PT Panutan Duta, a consulting company controlled by Sigit Harjoyudanto, the eldest son of President Suharto, to win the permit and buy out some troublesome minority shareholders.
But Mr. Sigit's involvement and that of Mr. Suharto's other family members and close associates in the battle to control Busang, a field on Borneo Island that contains at least 57 million ounces of gold valued at more than $21 billion, is alarming investors.
Having poured tens of billions of dollars into Indonesia in recent years to develop its resources and low-cost manufacturing, investors now see the Busang affair as a symptom of the difficulty and unpredictability of doing business in the world's fourth most populous nation. Specifically, the 32-year rule of Mr. Suharto, 75, is entering its closing stages, and the expanding corporate empires of several of his six children are coming into conflict with each other.
The Busang battle followed several other tussles for commercial supremacy between members of the first family, including the right to exclusive tax breaks to build a so-called national car.
In a report to corporate clients, Political and Economic Risk Consultancy Ltd. of Hong Kong said that by showing very clearly the growing role of high-level political lobbying in the Indonesian economy, the national car controversy and the Busang gold mine battle could damage investment and business confidence.
"In a situation in which government rules can be applied or changed freely to suit those in power, many new investors may simply decide that it is safer to look elsewhere," the company warned.
Because Busang concerns "a very big amount of gold, people become greedy and are not afraid to use their political influence to get something from it," said Mohammed Sadli, a former Indonesian mines and energy minister. "It's nothing but fighting over treasure."
Under the deal sealed in October, Bre-X agreed to pay PT Panutan Duta $40 million over 40 months for assistance in "administrative, technical and other support matters."
Bre-X also gave Panutan the money to buy out minority Indonesian shareholders and said it would get a 10 percent equity stake in the mine when the project was approved.
The situation surrounding the Busang gold find is now even murkier.
Bre-X's saga has entangled three Canadian companies trying to curry favor with one of the world's most autocratic governments.
The affair has also stirred up nationalist and anti-foreign sentiment in Indonesia, with several economists urging the government to call an open tender for development of the Busang mine to maximize Indonesia's participation and benefits.
Under the constitution, "the Indonesian people are the owners of all mining deposits," said Rizal Ramli, a director of the Econit research institute in Jakarta. "But ironically, the foreign mining contractors have been the biggest beneficiaries."
So an Indonesian minority shareholder in the mine, claiming wrongful loss of equity, has filed a 2 billion Canadian dollar ($1.49 million) damage suit against Bre-X in Canada
In addition, two major Canadian miners - Barrick Gold Corp. and Placer Dome Inc. - are trying to drum up support in Indonesia for their rival bids to take control of Bre-X and its controlling interest in the Busang find.
Barrick appeared to have struck a deal with Bre-X in November in which Barrick would control 67.5 percent of Busang, Bre-X 22.5 percent and the government 10 percent.
Barrick's local partner is Siti Hadiyanti Rukmana, Mr. Suharto's eldest daughter, whose PT Citra Lamtoro group has interests in construction, toll roads, plantations, television, trading and pharmaceuticals. Barrick has said it will use her companies as the main contractors for construction of the $1.5 billion Busang mine if it wins a stake in the project.
Placer Dome made an offer to merge with Bre-X in a $4.5 billion stock swap. The offer would increase Indonesian participation in Busang to 40 percent from Barrick's 10 percent.
"We felt we had to get someone's attention," said John Willson, Placer Dome's chief executive. "We want to say that if Indonesia wants a bigger stake in Busang, they can get it."
Ida Bagus Sudjana, mines and energy minister, has given Bre-X and Barrick until Feb. 17 to settle differences with minority shareholders. Otherwise, he said, the government would find new investors in the project.
Meanwhile, some even bigger Indonesian players have entered the fray.
The plywood tycoon Mohammed Hasan, a regular golfing partner of Mr. Suharto's, bought a substantial minority stake in the Busang gold deposit this month. His purchases were made through PT Nusantara Ampera Bakti, which is 80 percent controlled by foundations headed by Mr. Suharto, 10 percent by his son Mr. Sigit and 10 percent by Mr. Hasan.
Analysts see the purchase, which follows talks between Placer Dome and Mr. Hasan, as a move by Mr. Suharto to try to defuse the Busang controversy by increasing Indonesian ownership in the project when production is finally approved. After meeting Mr. Suharto on Monday, Mr. Sudjana said the president had told him that, if necessary, regulations would be changed to eliminate conflicts of interest.
"We want the nationals of Indonesia to get as much as possible," the minister said.