polluting the facts? a second case study of gold mining in indonesia

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

Polluting the Facts? A Second CaseStudy of Gold Mining in Indonesia

Alison Shaw and Richard Welford*Centre of Urban Planning and Environmental Management, University of Hong Kong

Introduction

ALL THE MATERIAL IN THIS CASE IS BASED ON PUBLICLY AVAILABLE INFORMATION. THE CASE IS

intended to be used for both research and teaching purposes. The authors make no judgmentwhatsoever about the conduct of any of the parties involved in this case study. For a detaileddiscussion of Newmont’s history in Indonesia as well as the key allegations and early develop-

ments in the story the reader is referred to the first part of the case published in this journal (Hills andWelford, 2005). This case study focuses on developments since early 2005 in the controversy surrounding Newmont’s PTNMR operation.

Background

Headquartered in Denver, Colorado, Newmont Mining Corporation is one of the world’s largest gold-producing companies. Operating core assets in the Americas, Australia, Indonesia and Ghana, the firmemploys around 15000 employees and approximately 19000 contractors to engage in gold explorationand mining across more than 29 million acres of land worldwide. The company also mines copper andsilver.

In 2006, the firm reported a net income of US$791 million, a year-on-year increase of 146 per cent.Newmont trades on the New York, Australian and Toronto stock exchanges.

The firm’s website provides the company’s six core values. Specifically, Newmont pledges to

• act with integrity, trust and respect;• reward an entrepreneurial spirit, a determination to excel and a commitment to action;• demand leadership in safety, stewardship of the environment and social responsibility;• develop the best people in pursuit of excellence;• insist on teamwork and honest communication and• demand positive change by continually seeking out and applying best practices.

Newmont has been operating in Indonesia for over 19 years. The firm’s interests are represented bythree companies but this case focuses on PT Newmont Minhasa Raya (PTNMR), a gold mine in North

* Correspondence to: Richard Welford, Centre of Urban Planning and Environmental Management, University of Hong Kong, Pokfulam Road,Hong Kong SAR, China. E-mail: [email protected]

Corporate Social Responsibility and Environmental ManagementCorp. Soc. Responsib. Environ. Mgmt. 14, 289–297 (2007)Published online 11 July 2007 in Wiley InterScience(www.interscience.wiley.com) DOI: 10.1002/csr.156

290 A. Shaw and R. Welford

Sulawesi established in 1996 following a decade of exploration. Actual mining activity ended in 2001 due to the depletion of gold deposits in the area. Newmont holds an 80 per cent interest in PTNMR.

According to Newmont Indonesia’s website, PTNMR has contributed significantly to the economy ofNorth Sulawesi and Indonesia. During the mine’s operations, it was the largest direct and indirectemployer in the Minhasa area. At its peak, it provided 700 local jobs, with 85 per cent of employeescoming from the Sulawesi Utara province. PTNMR claims to have purchased over US$100 million worthof goods and services from local economies in north Sulawesi since 1994. Over its seven years of oper-ation, the direct and indirect benefits of the mine to Indonesia’s economy totaled around US$544million.

On 23 September 2004, police arrested five PTNMR employees for questioning over whether thecompany has violated environmental laws. State prosecutors rejected a police dossier on alleged pollu-tion by PTNMR but extended the employees’ detention.

The Environment Ministry released a report that found no mercury or arsenic pollution in Buyat Bay.The New York Times claimed it was an incomplete version and was released prematurely by the Envi-ronment Minister Nabiel Makarim. Newmont said it might sue certain NGOs and the Indonesian police.

The five PTNMR employees were released on 25 October.In November, a new Environment Ministry report claimed arsenic and mercury pollution existed at

Buyat, but that water quality met Indonesian standards. However, fish were said to be not fit for con-sumption and the area presented a ‘high risk to human health’. The report also alleged that the companyhad deposited tailings in water that was shallower and warmer than it had pledged.

In December, The New York Times (that has always followed this story closely) had claimed that aninternal Newmont report in 2001 warned that the mine at Buyat was putting tonnes of toxic mercuryinto the environment and not abiding by public claims of upholding US environmental standards. Thecompany admitted that 33 tonnes of waste mercury was emitted into air and water during a five-yearperiod but that such emissions were below Indonesian emission standards.

In January 2005, the media reported that Newmont had wanted to bar shareholders from voting ona proposal that would require a company review of waste disposal programmes in Indonesia.

Recent Developments: Courting Controversy

March 2005

The Environment Ministry filed a US$133 million civil suit against PTNMR and its President RichardNess, for environmental damage allegedly caused by the company in Buyat Bay. The governmentrequested US$117.68 million in damages and a further Rp. 150 billion in non-material damages. Thecompany and Ness still face criminal prosecution.

April 2005

The Overseas Press Club awarded The New York Times reporter Jane Perlez the Whitman Bassow Awardfor best reporting in any medium on international environmental issues for her September 2004 articlethat exposed what the award’s organiser termed ‘an environmental hell’ in Buyat Bay. The organizersadded that Perlez’s story ‘had legs’ because ‘it forced the Indonesian government to take action againstthe company [PTNMR]’.

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Corp. Soc. Responsib. Environ. Mgmt. 14, 289–297 (2007)DOI: 10.1002/csr

Second Case Study of Gold Mining in Indonesia 291

May 2005

The Denver Post reported that a report by the Indonesian Ministry of Health showed no evidence of anycorrelation between PTNMR’s mine waste and health problems reported by people living in Buyat Bay.The report stated that ‘the average concentration of all heavy metals being examined was still under thetolerable level’. However, critics of the report took issue with the small sampling size – only 14 of the222 report respondents actually lived on the bay.

The South Jakarta district court issued a requirement for the parties in the civil case to engage inmediation. Following a closed-door meeting of Indonesian officials at the Office of Coordinating Min-ister for the Economy on the same day, Coordinating Minister for the Economy, Aburizal Bakrie,announced that ‘the government has decided to settle the case outside the court system’. The partieshad 22 days to mediate.

The Financial Times quoted Bakrie as saying that the government ‘cannot interfere’ with criminal pro-ceedings, but ‘we would like to be able to sit down and see what terms, what amount of money we canagree on’ in the civil case.

June 2005

Newmont President Pierre Lassonde told Reuters that NGOs ‘had co-opted the environment to create asocial controversy’. He also said he held The New York Times reporter Perlez personally responsible forthe arrests of the Newmont employees after she wrote a series of articles about Buyat villagers beingmade ill by material allegedly dumped by PTNMR. Lassonde was quoted as saying ‘Once the govern-ment saw The New York Times, they said “well, it must be real”. They didn’t believe it [before]. Their ownministry of environment has data that said Newmont is not polluting’.

Responding in a statement, The New York Times said ‘The facts belie the accusation. Eight days beforeMs Perlez wrote her first story, an Indonesian government panel publicly announced that Newmont hadengaged in illegal dumping’.

July 2005

The Indonesian government filed criminal charges against PTNMR and Ness.

August 2005

PTNMR won a defamation suit against a local NGO leader. Dr Rignolda Djamaluddin is chair of Manadoenvironmental group the Kelola Foundation, lecturer in marine science at Sam Ratulangi University inNorth Sulawesi and member of a Peer Review Team for the Environment Ministry’s investigation intothe alleged Buyat Bay pollution. Manado District Court ordered Dr Rignolda to pay US$750000 in non-material damages. He was also ordered to run apologies to the company in local and national electronicmedia for three consecutive days and place a quarter-page advertisement in several Indonesian dailiesfor three days. He had to pay Rp. 5 million per day for each day he failed to do this, reports the JakartaPost. Dr Rignolda had claimed that local people displayed symptoms that were similar to Minamatadisease.

Dr Pangemanan, the subject of one of two defamation cases brought by the PTNMR but settled outof court, told The New York Times that she felt she had to sign a letter of retraction relating to commentsshe made in 2004 linking PTNMR to heavy metals poisoning because ‘my staff told me that Newmonthas seven layers of lawyers, and how could I fight them?’. Dr Pangemanan added that she was wrong



to sign as she felt the company had not fulfilled promises on public health that were part of the agreement.

The criminal case against PTNMR and Ness began. They were charged with breaching articles underthe law that deal with the criminalization of intentional or negligent acts that result in environmentalpollution. PTNMR was accused of breaching water quality standards numerous times, failing to dumptailings below the thermocline layer and discharging tailings without a proper permit (between 2001and 2004), with the results that Buyat Bay seawater, marine life and local residents were contaminatedwith arsenic and mercury.

November 2005

With the two parties having failed to reach an agreement through mediation, South Jakarta district courtdismissed the Environment Ministry’s civil case against PTNMR, ruling that the contract of workbetween PTNMR and the government meant that the case should be taken to international arbitrationor conciliation. The ministry stated it will appeal to a higher court since its case did not relate to con-tractual matters, but to a breach of Indonesian environmental law to which all people and companiesare subject irrespective of contracts.

December 2005

An Environment Ministry official stated that the government expected PTNMR to undertake commu-nity development projects in Buyat Bay as part of the out-of-court settlement of its civil case against thecompany. AFX News reported Deputy Minister for Environmental Compliance Hoetomo as saying ‘The negotiations are not about whether they are guilty or not, but what they can contribute to improvethe situation’.

February 2006

PTNMR and the Indonesian government announced they had signed a goodwill agreement which wouldresult in the Environment Ministry dropping its civil suit against the company. Involving the paymentof US$30 million over 10 years, the agreement had two key elements: (1) extended and new communitydevelopment programmes and (2) a 10-year independent scientific monitoring programme, designed togive long-term assurance of a safe and healthy environment to the communities in the vicinity ofPTNMR’s mining operations. The panel in charge of the monitoring programme would announce itsresults every year.

Aburizal Bakrie, now Coordinating Minister for the People’s Welfare following a cabinet reshuffle,said ‘With this agreement, we have put the people first and have demonstrated our commitment toproper care of the environment and to sustainable development. We believe this reiterates that our jointcommitment to responsible mining is more than just words. Newmont has undertaken extensive com-munity development and environmental programmes over the life of the mine. In moving forwardtogether, our priorities are the welfare of the communities around the mine and the long-term health and safety of the environment’. However, the criminal case against PTNMR and Richard Nesscontinued.

March 2006

The Wall Street Journal Asia reported that interviews with local villagers suggested that most of the com-munities surrounding the mine had been and still were ‘staunch supporters’ of PTNMR. The article



also reported that three villagers claim to have been offered cash and relocation by an NGO consortiumin exchange for speaking out against PTNMR.

July 2006

The panel of judges in the criminal trial ordered the retesting of the water quality in Buyat Bay by twolaboratories: Sarpedal (effectively under the jurisdiction of the prosecution – Indonesia’s Agency forEnvironmental Impact Handling) and Australian Laboratory Services (ALS) International (an indepen-dent and internationally accredited laboratory). The prosecution and Sarpedal failed to comply with thejudges’ order. ALS found that levels of mercury and arsenic were very low and within any existing standards worldwide.

September 2006

During the criminal trial, Dr Yayat Dahiyat, another member of the Peer Review Team, admitted thathe never researched the Buyat Bay area himself and his arguments were based on a limited review ofdocuments, particularly a report issued by NGO WALHI. Ness again highlighted findings by the Indone-sian government (Ministry of Energy and Mineral Resources), universities, the WHO, the MinamataInstitute and even the Environment Ministry that Buyat Bay was not polluted.

The State Prosecutor requested additional time to prepare charges and sentence recommendationsagainst PTNMR and Ness. The panel of five judges granted two weeks and postponed the next courthearing until 6 October.

November 2006

The prosecution charged Richard Ness and PTNMR with environmental crimes. They asked that Nessserve a three-year jail term and pay a Rp. 500 million (US$55400) fine, and that PTNMR pay an additional Rp. 1 billion (US$110800) fine.

PTNMR notes that

(1) it obtained all necessary permits for its activities and was continually monitored/inspected for compliance;

(2) it submitted all required Environmental Management Plan and Environmental Monitoring Plan documents to the Ministry of Energy and Mineral Resources and the Environment Ministry on an annual/quarterly basis and

(3) throughout the life of the mine, its activities were never once suspended by the government.

January 2007

The reading of final arguments in the criminal trial began. PTNMR’s defence questioned the credibil-ity of the primary incriminating evidence – the results of the National Police Central Forensic Labora-tory. PTNMR noted that the laboratory is not accredited under Indonesia’s Environmental MonitoringAgency decree, did not follow sampling protocols of accredited laboratories, involved non-independentparties (including Dr Rignolda) in the sampling process and included 34 samples in the indictmentwhen only 24 samples were taken.

Newmont lawyer Luhut Pangaribuan also stated that, based on research by the head of a local healthcentre, a dermatologist from Kandou Hospital in Manado and an expert from the Medical School of



Sam Ratulangi University, the Buyat villagers were only suffering from common skin diseases found inany coastal area.

Appearing in his capacity as president–director of PTNMR, Ness reiterated that the company hadobtained all necessary permits at all stages, reported its activities every quarter and been subject tomining inspections every six months. Reuters reported Ness as stating ‘Legal facts show that I as thepresident director of PTNMR had done proper action to conserve the environment and processed indus-trial waste with the newest detoxification technology to avoid environmental damage and pollution inBuyat Bay’. In making his individual legal argument, Ness stated that ‘Throughout the life of the mine,PTNMR has never once received any complaints from related ministries, underscoring the company’scompliance to all applicable regulations’.

The Mines and Communities website, run by three UK-based NGOs, stated that Newmont’s ownEnvironmental Management Plan and Environmental Monitoring Plan documents indicated 121 inci-dents where tailings that passed through the detoxification process still exceeded environmental qualitystandards.

February 2007

Indonesian prosecutors made their closing arguments, reiterating their claim that PTNMR dumpedmining tailings in Buyat Bay without having the appropriate permits. They maintained their recom-mendations on charges and penalties for PTNMR and Ness.

The government tourist board continued to promote Buyat as one of four premier diving locations inthe region and the in-flight magazine of national airline Garuda featured Buyat Bay as a key tourist spot.

March 2007

Indonesian NGO WALHI lodged a civil suit against PTNMR and related parties in the South Jakartacourt, alleging negligence in the disposal of mine waste in Buyat Bay. The case was allegedly strength-ened by research carried out by the National Oceanic Research Centre and the Environment Ministry’sJoint (Investigation) Team. WALHI stated it was also suing the Ministry of Energy and MineralResources and the Environment Ministry for negligence. Resource Investor reported WALHI NationalDirector Chalid Muhammad as saying that the South Jakarta Court ‘made a dubious determination’ thatelevated commercial mining contracts over national laws . . . From this process we can see that the government is still weak in the eyes of extractive industry investors’.

Omar Jabara, director of media relations for Newmont, questioned the timing of WALHI’s lawsuit.‘The timing of this frivolous lawsuit is highly suspect, since WALHI had nearly two years to file suit . . .Clearly their intention is to influence the pending verdict in the Richard Ness trial by manipulatingmedia coverage.’

According to mineweb.net, in an interview with Rocky Mountain News Newmont Chairman and CEOWayne Murdy said that an ‘unfavourable’ verdict in the criminal case against PTNMR and Ness wouldforce Newmont to reconsider its plans for Indonesia, but stressed he was not making a threat.

In a Reuters report, the news agency noted that there was growing concern that other foreign com-panies would be less likely to invest in Indonesia if PTNMR and Ness were convicted. ‘Disposition ofthat case will most definitely have an impact on the foreign investment climate in Indonesia’, said TomDonohue, president of the US Chamber of Commerce in an interview with Rocky Mountain News severaldays earlier.



April 2007

The Manado court found PTNMR and Ness not guilty. In its findings, the panel of judges stated thatthe pollution evidence presented by the police was proved to be inaccurate and that other research byreputable national and international organizations had found no evidence of hazardous pollution.

Bloomberg reported the Environment Ministry as stating that it would ‘respect the verdict’. However,prosecutor Purwanta Sudarmadji was reported by Reuters as saying that they were not satisfied with theverdict and would appeal.

Newmont shareholders at the company’s annual meeting overwhelmingly approved a resolutionurging the company to report on the impact of its mining operations on local communities globally. Theresolution was sponsored by Christian Brothers Investment Services, a faith-based investor, which ownsaround 45000 Newmont shares. Almost 92 per cent of shareholders vote in favour.

Julie Tanner, corporate advocacy coordinator at Christian Brothers, praised the ‘strong vote in favourof the first social resolution embraced by a US mining company’. The resolution called for the estab-lishment of an independent committee of board members to review and evaluate the company’s poli-cies to deal with local opposition, to report before Newmont’s 2008 annual meeting. She also noted that it should reinforce ‘the ways that Newmont can improve its policies and practices, as well as bolsterrelations with the communities in which it operates’.

The Australian reported that a Newmont operation had been named Australia’s biggest emitter ofmercury. The Super Pit gold mine in Western Australia, a 50–50 joint venture with competitor BarrackGold, which has strict environmental conditions imposed on it due to its proximity to the historic outbackarea of Kalgoorlie-Boulder, released 6.5 tonnes of mercury into the atmosphere between 1 July 2005 and30 June 2006, giving it a first place ranking on the National Pollutant Inventory.

A spokesperson for operator Kalgoorlie Consolidated Gold Mines said mercury emissions were ‘wellbelow’ WHO limits. ‘All our current testing and modeling indicates that there is no health risk fromthe levels that are being emitted’, the spokesperson added. The Australian Department of Health andWest Australia Department of Environment did not believe these emissions were harmful to the public,based on their testing.

May 2007

Prosecutor Purwanta Sudarmaji told Jakarta Post that the criminal case appeal would be filed on 7 May.Newmont’s legal representatives claimed an appeal was not possible. They note that, according to Article244 of the Criminal Law Procedures Code, no appeal can be made when a court acquits a defendant ofall charges. They also stated that when the ‘goodwill agreement’ to monitor pollution in Buyat Bay for10 years was signed representatives of the prosecutor’s office were present. Under the agreement, thecase is entrusted to a team of experts. If this team finds new evidence of pollution, then a new case canbe opened.

The Straits Times reported that the chief judge in the case, Ridwan Damanik, raised questions as towhy the criminal case was pursued at all and criticized prosecutors for refusing the court order to re-test the water in the bay. The report notes that the water samples of the police and those of Newmontwere taken at the same time from the same place, yet the level of naturally occurring mercury sulphidein the police samples was 200 times higher than in Newmont’s samples. In a parallel analysis of fishand of blood and hair samples from Buyat villagers they were found to be well within acceptable levelsand lower than in neighbouring Totak Bay.

On the same day, Rocky Mountain News announced the results of the fifth year of the Colorado 50, aranking of Colorado companies in five financial categories. Newmont’s average score over the five yearswas better than any other company included in all the reports.



Indonesian prosecutors registered their appeal, with a further two weeks to file the reasons for theappeal.

Richard Ness filed a civil law suit again The New York Times, saying he wants to clear his name. Heargued that allegations against Newmont were fuelled by an inaccurate 8 September 2004 front pagearticle in the paper that said villagers living near the mine on Sulawesi Island had reported skin dis-eases and the death of a child. The Times’ story, he said, ‘convicted me in the court of public opinioneven though credible scientific studies have proven there was no pollution or illness in Buyat Bay’.

Issues for Consideration

This case raises many issues, particularly as regards accountability and appropriate actions. A few of themore significant issues are highlighted below for debate and discussion.

Role of the Media

• What role does or should the media play in reporting on cases such as these?• Do journalists of large media corporations need to consider the credibility they may lend to an issue by

reporting on it?

The case highlights the influence of the media in forming opinion and precipitating action. Several com-mentators note that a series of articles in The New York Times on the ‘environmental hell’ (in the wordsof the Overseas Press Club) created by Newmont was instrumental in driving the Indonesia governmentto take action against the company, particularly given that President Susilo Bambang Yudhoyono cameto power on a stance that included cleaning up corruption and stamping out government complicity incovering up corporate misdeeds.

The media can play a vital role in giving a louder voice to groups and issues that might otherwise notbe heard. However, how much responsibility should journalists take for verifying the claims of theirinterviewees?

How should a company that is the subject of negative allegations manage such coverage?

Accountability of NGOs

• Do NGOs need to be held to higher standards of accountability for their actions?• From a multinational corporation’s perspective, how can it respond to an NGO allegation without further

accusations of bullying or corporation–government conspiracy?

Throughout the case, the primary drivers of allegations against the company were the claims made byseveral different NGOs. It appears that in some instances claims were made without real substance.

The media coverage that has been critical of the allegations made against PTNMR has primarilyfocused on the shortcomings of the evidence presented by the government and police. Very little coverage has been given to the validity of the claims made by some of the NGOs involved or how these influenced opinion in Indonesia and overseas.

Corruption and Personalized Politics

• How can multinational companies manage the risks of investing in countries where politics is highly personalized and corruption is a problem?



• How can the flip-flopping of position of government bodies such as the Environment Ministry in this case behandled by companies?

There was a marked change in the stance of the Environment Ministry towards the case with the change of Environment Minister from Nabiel Makarim to Rachmat Witoelar. Makarim was generallysupportive of PTNMR’s claims that it had not polluted Buyat Bay, but, following his replacement byWitoelar, Makarim was questioned by the police, who said they would charge him if there was evidenceto suggest he helped cover up pollution in Buyat.

Irrespective of the substance of such claims, there may be consequences for multinational companiesin such cases. Assuming a company has not engaged in corrupt practices, they may find themselvestainted by association or simply a convenient target for a new politician eager to mark out his or hernew territory.

In another twist, Witoelar’s wife is an environmental activist and one-time chairperson of WAHLI,one of the primary NGO critics of PTNMR.

Broader Political Considerations

• How do broader political considerations influence such cases?

President Yudhoyono came to power promising widespread reform and an end to corruption. Part ofthe plan included reforming the judicial system, which was widely viewed as highly corrupt. On the onehand, the wish to avoid any charge of interference in the judicial process may have helped the criminalcase move forward.

On the other hand, many of the President’s reform objectives were and are based on encouraginggreater levels of foreign investment. The Indonesian government has forecast inward mining invest-ment to reach US$1.13 billion in 2007, compared with US$880.4 million in 2006. A guilty verdict inthis case might not have conveyed the message of Indonesia as a favourable overseas investment target.

The Response from Multinational Corporations

• How should the head office of a multinational respond to allegations made against one of its group companies?

• Is it appropriate for a company to wave the ‘stick’ of investment in such situations?• Should a company employ production or process methods overseas that have been outlawed in its own country

for environmental or social reasons?

While at pains to stress that no threats were being made, Newmont’s CEO and other senior execu-tives were repeatedly reported as stating that the company would need to ‘reassess its investment inIndonesia’ if the ruling went against it, and that such an unfavourable decision would send a negativesignal to all investors. What message do such comments send?

How responsible was it for PTNMR to use the submarine tailings method in Indonesia, given that itis prohibited in the United States? Did it open itself up to criticism by such action?

Reference

Hills J, Welford R. 2005. Profits, pollution and prison: a case study of gold mining in Indonesia. Corporate Social Responsibil-ity and Environmental Management 12: 105–113.


polluting the facts? a second case study of gold mining in indonesia

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