Newmont stands firmly

Thank God, the tussle over the Indonesian government's request for 10 percent equity in the Batu Hijau gold property on Sumbawa Island, West Nusa Tenggara, ended only after a few days of hotly debated controversy. Newmont Gold Co of the United States, the controlling partner of the mining concession, should be commended for its firm decision to hold strongly to the terms of the 1986 contract by flatly turning down the government's bid.

The Indonesian government, though, should also be hailed for its decision to back down from its request and continue honoring Newmont's contract of work. Newmont announced in Denver on Thursday that the government had issued a construction permit, which the U.S. company applied for six months ago, and had approved the new shareholding composition in the Batu Hijau gold and copper property. Our great respect also went to former mining officials, notably Mohammad Sadli, and such outspoken analysts as Hartojo Wignjowijoto, who had immediately spoken their minds by warning the government of the great repercussions of its move on Newmont as soon as the story hit front-page headlines.

Had the government stubbornly exerted political pressures on Newmont, the future development of the huge mineral resources in the country would be in jeopardy.

We were painfully surprised to learn late last week about the government's request for 10 percent equity in the Batu Hijau concession, on the back of a nationalistic line. As if this embarrassing "capriciousness" had not been enough, Minister of Mines and Energy I.B. Sudjana also disclosed that two politically well-connected business groups -- Barito Pacific controlled by Prajogo Pangestu and Citra Lamtorogung by Mrs. Siti Hardijanti Rukmana, President Soeharto's eldest daughter -- had also tried to get a piece of the gold mine. This case reminded us of the manners in which the government dealt with Bre-X Minerals Ltd during contract negotiations late last year.

Sadli and other analysts had not exaggerated in cautioning the government that the impact of the Busang gold debacle was negligible compared to the fallout of a forced divestment by Newmont. At stake is the credibility of the concept of Indonesia's contract of work (COW) and the future development of the country's huge potential mineral deposits for the benefit and welfare of the people. Newmont's COW signed in 1986 requires the contractor to start divesting part of its shares only after the sixth year of commercial production, while the U.S. firm has yet to start constructing a mining plant.

The government not only has the legitimate right, but also has the obligation to strive for the greatest national interest in any deal it works out with private investors interested in the country's natural resources. In fact, the government has been vigorously implementing this principle in mining contracts for hydrocarbon development through a production-sharing scheme and for other kinds of minerals through the COW concept. The COW concept has so far been revised six times, resulting in six generations of COWs, and the seventh generation COW concept is now being negotiated with more than 170 new foreign investors.

However, when the government tries to unilaterally change the terms of a valid contract it risks breaching the legally binding agreement. This obviously reflects capricious attitude no matter what reason the government may use to justify itself. National interests do not entitle the government to ask for contractual changes midway, especially if what the government meant by national interests was modeled on the joint venture forced into the throat of Bre-X Minerals Ltd. Moreover, since the policy issues were related to proven gold reserves, one cannot help but see greed as one of the most influencing factors.

We wonder why the government had not learned from previous controversial manners in which it had tried to "pressure" Bre-X late last year in accepting Barrick Gold and its Indonesian partner Mrs. Siti Hardijanti Rukmana's Citra Lamtorogung group as the majority owner of the Busang gold property, when it was still assessed as the single largest gold deposit in the world (but now it is the hoax of the century). The manners in which politically well-connected businessman Muhammad "Bob" Hasan finally negotiated a deal for the Busang property last February also raised the eyebrows of many businessmen and analysts. The national interests in the Busang deal were not represented by a state company but largely by a politically powerful private business group owned partly by Bob himself.