Undermining mining contracts<\/p>\n
Major investment in natural-resource development in Indonesia
\nwould grind to a complete halt if other local administrations
\ntreated foreign companies the same way Newmont Mining Corp. has
\nbeen treated in North Sulawesi. The Minahasa regent has insisted
\nthat Newmont Minahasa Raya close its gold mine on April 16
\ndespite an appeal by the American company against the provincial
\ncourt order to the Supreme Court in Jakarta. This action is an
\narrogant exercise of power that will benefit no one; but it will
\ncause material losses and frighten away other companies
\ninterested in investing in developing local resources.<\/p>\n
True, the Minahasa district court ruled in January in favor of
\nthe local administration's lawsuit that demanded Newmont pay Rp
\n61.5 billion (US$8.2 million) in back local taxes for overburden
\nand underground water usage plus Rp 30 billion in damages and Rp
\n2.5 billion legal fees. And the verdict was upheld by the
\nprovincial high court.<\/p>\n
But ordering immediate closure of the mine that produces 340
\nkilograms of gold annually and employs hundreds of workers, while
\nthe appeal process is still underway amounts to the use of naked
\npower to force Newmont to immediately pay the back taxes and
\ndamages to the Minahasa administration. It is difficult to
\nbelieve the local administration would consider that such a
\ndrastic action was necessary to prevent the American company from
\nfleeing without settling the obligations imposed by the court.<\/p>\n
Newmont Minahasa's assets are all secured in the mine and
\nthese assets could be foreclosed if the Supreme Court further
\nupheld the provincial court's verdict and the company refused to
\npay. Moreover, Newmont is a well-respected company with a long
\nhistory in Indonesia. The American company also has invested $2.5
\nbillion in a huge copper and gold mine on Sumbawa island, east
\noff Bali.<\/p>\n
The case would be strikingly different and an immediate
\nclosure would be warranted if the litigation related to issues on
\nenvironmental destruction and danger to human life.<\/p>\n
But the lawsuit concerns only a tax dispute caused by
\ndifferent interpretations of regulations. Newmont insists, and
\nthe ministry of mines and energy in Jakarta agrees, that based on
\nits mining contract, awarded by the central government, it is not
\nrequired to pay local taxes on overburden or materials removed
\nduring the mining process. But the local administration has a
\ndifferent opinion, arguing that Newmont used part of its mining
\noverburden for commercial purposes and was therefore subject to
\nthe local taxes.<\/p>\n
It is hard to understand why the high court in Manado and the
\nMinahasa administration did not consider the findings of an
\nindependent audit made three weeks ago to prove whether or not
\nNewmont did use part of the overburden from its mining operations
\nfor commercial purposes.<\/p>\n
The manner in which the Minahasa administration pushed ahead
\nwith its demand for the mine's closure implies that the case
\nagainst Newmont is more complex than a simple tax dispute. It
\nreflects the venting of frustration and resentment of
\nexploitation of local resources by outside investors.<\/p>\n
The disillusionment, unleashed after the fall of the
\nauthoritarian government of former president Soeharto, reflects
\nlocal opposition against the central government for taking the
\nbulk of revenues derived from exploitation of local resources. It
\nalso amounts to an expression of anger against the arrogance on
\nthe part of some investors who, under the Soeharto regime, could
\noperate in total disregard of local interests as long as the
\ncentral government was kept satisfied.<\/p>\n
Local administrations appear to have become increasingly
\nfrustrated with the slow pace of the devolving of power and
\nresource-sharing as promised by the new laws on regional
\nadministration and inter-governmental fiscal relations.<\/p>\n
Even though the new laws do not become effective until next
\nJanuary, local administrations should be able to know now exactly
\nhow they will fare with the expanded autonomy. The longer this
\nuncertainty continues, the more damaging will be the impact on
\nthe investment climate in Indonesia. Worse, more foreign
\ninvestors could fall victim to arbitrary claims for back taxes,
\nspecial payments or community development funds.<\/p>\n
Surely, these underlying problems and the importance of the
\nNewmont case to other mining contractors in the country make it
\nclear to the central government that it is urgent that fairer
\nrevenue sharing and devolving of authority to provinces and
\nregencies be expedited.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/undermining-mining-contracts-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}