A Swiss-based international arbitration panel has determined that the Indonesian Government cannot terminate the Contract of Work for PT Newmont Nusa Tenggara, which operates the Batu Hijau copper-gold mine in Indonesia.
Newmont Nusa Teggara was supposed to reduce its ownership the Nusa Tenggara Mining Corporation from 80% to 49% by the 10th year of operation or 2010.
Provincial and regional governments--who are supposed to acquire shares of Nusa Tenggara Mining--have had a difficult time either acquiring sufficient capital for the acquisition or may have been clandestinely backed by Indonesian mining companies competing with Newmont.
However, Indonesian officials told reporters Tuesday that the international panel also ordered foreign shareholders in Nusa Tenggara Mining- Newmont and Sumitomo, which respectively own 45% and 35%--to sell a 17% stake in their joint venture within 180 days.
Indonesian prosecutor Joseph Suwardi Sanda told Reuters that Newmont's unit was ordered to pay $1.8 million to the Indonesian Government in compensation for the arbitration trial costs.
In a statement, Newmont President and CEO Richard O'Brien said, We are currently reviewing the decision and look forward to outlining a path forward with the government to implement the arbitration panel's decision. Until we meet with the government to discuss the path forward, we are not in a position to comment further on the specifics of the decision, other than to state that the Contract of Work was not terminated and remains in full force and effect and we are committed to following the divestiture process as clarified in the decision. We appreciate the government's willingness to resolve through arbitration our apparent misinterpretation of the divestiture provisions in the Contract of Work.
Nonetheless, a lawyer for the Indonesian Government told reports that if Newmont does not comply with the arbitration ruling, we can terminate. That is very clear.
Previously, Newmont has questioned the sources of funds backing regencies and other local governments in buying shares of PT Newmont Nusa Tenggara. Among those suspected to be financially supporting local government bids is coal miner PT Bumi Resources, a subsidiary of the Bakrie Group, considered to be one of Indonesia's more controversial business families.
Reuters reports that, Despite a long history of foreign involvement in the economy, some firms have run into trouble in Indonesia, with the situation often made worse by red tape, graft and a weak legal system.