Pollution dispute tests Indonesia

Five Indonesia-based executives of Newmont Mining Corp. have been sitting in a concrete jail cell in Jakarta for nearly a month, caught up in an environmental controversy that could further impair Indonesia's ability to generate foreign investment.

The five, including an American, are facing a 10-year jail sentence over allegations that a local subsidiary of Denver-based Newmont, the world's largest gold mining company, poisoned a bay on Sulawesi Island with mercury and arsenic.

But scientists - including those from Indonesia's own Environment Ministry - are increasingly calling into doubt police reports that the company has violated the nation's environmental laws.

The Newmont case will be an early test of US-Indonesia relations for incoming President Susilo Bambang Yudhyono, who is set to be inaugurated Wednesday. Both environmental groups and foreign companies have complained about the handling of such cases in the past. Observers say Mr. Susilo must improve transparency and government coordination to restore confidence in Indonesia as a safe and fair place to do business.

"[The detention] is very bad for morale, very bad for the investment climate," says Paul Coutrier, an independent mining consultant in Jakarta and former oil executive. "People are watching the new government very closely: Will they be ambiguous or will they be resolute?"

The controversy first flared on July 20 when a local nongovernmental organization alleged that villagers were suffering from food poisoning, skin rashes, and strange lumps on their bodies. Walhi, a local environmental NGO, quickly claimed the "symptoms resembled Minamata disease," a condition of mercury poisoning first found in Japan in the 1950s.

In a July report, the Sam Ratulangi University Health Faculty, with campuses close to the mine, said the villagers' skin blemishes and health problems were to do with unsanitary conditions.

Walhi claimed that Newmont's practice of using "submarine tailings," or pumping daily some 1,700 tons of waste 82 meters down into the ocean, contaminated the bay with mercury. Villagers have filed a legal complaint and a $500 million lawsuit against Newmont.

Responding to the claims, national police conducted a three-month investigation that included taking water samples in Buyat Bay. After police tests turned up mercury levels 2.5 to 10 times the legal level, six executives were detained on Sept. 22. Newmont's president director, Richard Ness, was released a day later on health grounds.

However, subsequent tests by the World Health Organization and Indonesia's Environment Ministry found the mercury levels to be around 0.5 part per billionth of water, half the legal limit and roughly equal to naturally occurring mercury in soils nearby. "Buyat Bay is not polluted with mercury or arsenic," concluded the ministry's Oct. 14 report.

Newmont has also funded its own tests that match the lower 0.5 figure. The company readily disclosed its practice of using tailings and it claims mercury and arsenic are neutralized to a point no longer harmful to human health. However, the US Clean Water Act outlaws the tailings disposal method. "It stays there for a long, long time," says Nurhidayati, an activist with Walhi, "It could be dangerous in the future."

Police handling of the case has come under criticism here for lack of transparency and due process.

Indonesian police have not disclosed their testing methodology and did not return phone calls seeking comment. Speaking to the Indonesian press in August, national police chief of detectives Suyitno Landung said police claims were supported by local experts and NGOs.

"They [Newmont] are so powerful. They are untouchable" said Nurhidayati, an activist with Walhi, who says it's a "necessity" to hold the executives so that they "don't escape." Nurhidayati complains that US mining companies wield excessive power over the Indonesian government.

The police have also said that Newmont executives - who have not been arrested or charged - are being detained for "ease of questioning," and to prevent their escape or the destruction of evidence. Newmont, which claims it has cooperated with the police, has offered a $1 million guarantee its employees will not flee. After a visit to the jail on Aug. 1, outgoing US Ambassador Ralph Boyce said he was "worried" and described the detention as "inappropriate."

Under Indonesian law suspects can be detained for up to 20 days without charges. But the detention of the Newmont executives, still not formally charged, was extended by 40 days on Oct. 12. The chosen venue for the civic case against Newmont has also caused alarm; the South Jakarta District Court has a record of controversial rulings, particularly against foreign companies.

For the foreign businesses in Jakarta, the detention of the Newmont executives evokes memories of past legal entanglements. In 2000, police detained, without charge, executives of Canada's Manulife in a case that drew protests from foreign governments and the International Monetary Fund. The district court has declared a number of foreign companies, including British insurance company Prudential, to be insolvent through a literalist interpretation of a law designed to pursue debtors during the Asian financial crisis.

However, environmental groups have called for the government to respect the judicial process. Many of the most controversial lower court rulings have been overturned by the Supreme Court.

The perception of poorly functioning courts comes at a time of shrinking foreign investment, which fell 30 percent in the first eight months of 2004 against the same period in 2003. "We hope the detention of Newmont employees will not affect the investment climate in Indonesia," said Ambassador Boyce.

Mining, which accounted for 7 percent of GDP last year, has been particularly hard hit. Investment in the sector plummeted from $2.6 billion in 1997 to $177 million last year, a fall of 94 percent. The Fraser Institute, a conservative thinktank based in Canada, lists Indonesia as sixth in the world for geologic potential, but fourth worst in the world in terms of mining incentives. Indonesian law remains unclear whether the regional government or the central government has ultimate authority to regulate mining.

Beny Wahyu of the Indonesian Mining Association warns that the detention will further worsen sentiment in the mining industry. "The new government has to explain that things like this won't happen."