Thu, 04 May 2000

Up in the air

I thank Mr. Richard B. Ness of PT. Newmont Minahasa Raya for his courtesy in responding to my article so thoughtfully and openly (The Jakarta Post, April 28, 2000). Mr. Ness says correctly that my article was based on news reports of the settlement terms and not on the settlement document itself.

If I understand Mr. Ness correctly, the settlement actually involved a payment of US$500,000 for unpaid taxes and penalties, not $2.5 million. Insofar as my conclusions grew out of a mistaken belief that the company paid an excessive sum to settle the case and agreed to establish a new community development fund, then to that degree what I implied -- that this settlement was suspect and therefore casts doubt on Newmont's motives -- was also mistaken. I apologize for any unwarranted or wrong presumption of guilt I might have conveyed about Newmont.

Mr. Ness explained that the $500,000 that the company paid represented previously unpaid Mineral C tax on materials used for community development programs. The company feels satisfied that because the regent dropped his claim to Mineral C tax on this overburden material, there has been an implicit acknowledgement that contracts of work will be immune from local interference.

But the dropping of a claim does not normally have the legal effect of settling the underlying question of whether a claim was lawful or not in the first place; it only protects one party from the other party in a specific situation. (If this settlement did have that effect of settling a question of law, it might be useful for the government to disseminate a fuller explanation in the National Gazette). Without knowing what the company's contract of work says, what the Mineral C tax law says and how the law defines "overburden", it remains unclear whether the regent had any reasonable basis for trying in the first place to tax that part of the company's extracted material used for community development programs. Consequently the ultimate significance of the settlement remains unclear. This column might not be the place to carry on an extended debate on finer legal points, but at another time and place I'd enjoy doing that with Mr. Ness.

I am not sure that Mr. Ness's explanation addressed the underlying points of my article. Point One: foreign companies with large investments here sometimes feel that they are held hostage by local officials who will not perform their official duties responsibly (e.g. to issue permits expeditiously, to provide police protection against crime) unless they receive extra payments in cash or in kind. Charging a company with some violation of law, in this case tax regulations; imposing an inflated penalty; then offering the company a cheaper way out by bargaining over the penalty: this is a favorite strategy of corrupt officials. Point two: Once a company begins operations it is usually on the local level that problems of corruption, collusion and nepotism arise. For those corporations that do make a good-faith attempt to comply with their contract terms and with applicable laws, the national appeals court system represents a company's last best hope of fair treatment in the face of recalcitrant local officials. And here the system fails, as in those cases in which local governments flaunt the authority and rulings of the central court or the ministry which agreed to the company's terms of operation. This is what seemed to have been the situation in the Newmont case for several months, and I am not sure that Mr. Ness's letter has discussed this point. In truth, that may be a question better discussed in another forum.

It's very gracious of Mr. Ness to invite me to observe discussions on implementation of Newmont's new foundation. This speaks well of Newmont's seriousness about deciding matters that affect the community in an open manner, rather than behind closed doors. I would like to accept that invitation by asking Mr. Ness' office to contact me via


Medan, North Sumatra