VZCZCXRO3447
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHJS #0043/01 1201442
ZNR UUUUU ZZH
R 301442Z APR 09
FM AMCONSUL SURABAYA
TO RUEHC/SECSTATE WASHDC 0403
INFO RUCPDOC/USDOC WASHDC 0001
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHJA/AMEMBASSY JAKARTA 0390
RUEHJS/AMCONSUL SURABAYA 0412
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 03 SURABAYA 000043 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MTS AND EEB/ESC/IEC/ENR 
COMMERCE FOR 4430/NADJMI AND 6930/HUEPER 
ENERGY FOR PI-32 CUTLER 
STATE PASS TO USTR EHLERS AND WEISEL 
STATE PASS TO EXIM HANNELENE BEILLARD 
 
E.O. 12958: N/A 
TAGS: ECON EMIN EFIN ETRD EINV PREL SENV SOCI ID
SUBJECT: NEWMONT'S FUTURE IN SUMBAWA 
 
REF: JAKARTA 0731 
 
SURABAYA 00000043  001.2 OF 003 
 
 
¶1.  (SBU) Summary.  ConGenOff visited western Sumbawa from April 
21-24, meeting with Newmont representatives as well as 
government officials and non-governmental organizations (NGO). 
The General Manager of Newmont Nusa Tenggara (PTNNT) said the 
recent arbitration ruling offers clarity in regard to how shares 
will be divested.  The company does not expect its land use 
permit to be renewed until after the initial phase of 
divestiture and the presidential election.  While the Head 
(Bupati) of West Sumbawa District expressed concerns about 
environmental impact, most officials and NGO representatives 
expressed general satisfaction with Newmont's environmental 
protection practices and all stated support for Newmont's 
continued operations.  The Bupati complained that the company 
has failed to partner with local government on community 
development initiatives.  Officials in Sumbawa District, the 
district to the north of Newmont's current facility, expressed 
approval for what they described as Newmont's planned 
exploration activities in the district.  End Summary. 
 
Context 
------ 
¶2.  (SBU) Newmont Nusa Tenggara (PTNNT), hereafter referred to 
as Newmont, began operations on the southwest corner of Sumbawa 
in Nusa Tenggara Barat (NTB) Province in 1997.  The gold and 
copper mine became operational in 1999 and is now considered a 
mature mine.  According to the General Manager, the company 
expects the extraction life of the mine to continue an 
additional ten years followed by several additional years for 
processing.  West Sumbawa District, where the mine is located, 
was previously part of Sumbawa District, but became an 
independent district in 2003 as a result of the district's 
growing economic importance and population density.  According 
to the Bupati, Mr. Zulkifli Muhadli, Newmont accounts for 95 
percent of the district's economy.  The company employs more 
than 7,000 people.  Well over half of the current inhabitants of 
the sub-districts nearest the mine are originally from outside 
Sumbawa.  Newmont reports total wage payments of approximately 
$100 million annually, with more than 60 percent going to 
employees who are now resident in Sumbawa, although much of 
their income is reportedly sent to their places of origin in 
other parts of Indonesia.  The average monthly salary of 
Newmont's Indonesian employees is between 400 and 800 USD, while 
the average monthly earnings of non-Newmont employees in the 
area reportedly average approximately 100 USD. 
 
Divestiture Ruling and the Holding of Shares 
------------------------------------------ 
¶3.  (SBU) ConGenOff met with Leigh Taylor, the outgoing General 
Manager of Newmont's Sumbawa-based mining operation, on April 
21, 2009.  He indicated that the recent arbitration ruling 
provided direction into how shares would be divested.  He added 
that Newmont originally wanted to have control over who would 
become their Indonesian partners, an option no longer possible. 
He also noted that the pricing of shares, particularly those 
that were to be divested from 2008 on,  will be a matter of 
considerable debate due to Indonesian financing issues and 
differing opinions regarding the depreciation of the mine's ore 
value.  He made no comment regarding how the Government of 
Indonesia (GOI) would finance the shares, but noted that the 
local government expects to control the divested shares under 
the stewardship of the West Nusa Tenggara (NTB) Provincial 
Government in Mataram, Lombok.  The Bupati of West Sumbawa 
District argued that all 31 percent of shares scheduled to be 
divested should belong to NTB.  He indicated that the central 
government has agreed that the 10 percent of shares that were to 
be divested between 2006 and 2007 will be held by NTB, adding 
that NTB has also requested the seven percent of shares that 
were scheduled to be divested in 2008. 
 
Land Use Permit "Pinjam Pakai" Issues 
------------------------------------- 
¶4.  (SBU) Newmont's General Manager noted that the company's 
land use permit, known in Indonesian as the "Pinjam Pakai," was 
originally issued in 1997.  However, the 2005 renewal permit was 
never granted.  The permit, which must be approved by the 
Departments of Forestry and Energy and Mineral Resources, is 
needed for Newmont to clear additional forest area near the mine 
for use as a disposal site.  Without the permit renewal, he said 
the mine would have to close its operations in 2011.  The 
General Manager informed us that the provincial government of 
NTB wants the permit renewed, but political opposition within 
 
SURABAYA 00000043  002.2 OF 003 
 
 
the central government has been the obstacle.  Newmont's 
security manager noted that the lack of the pinjam pakai had 
resulted in a significant slowing of the company's operations. 
He pointed out that 50 trucks and two shovels that would 
normally be running were parked due to the lack of sufficient 
waste disposal space.  He added that "other work" had been found 
for the truck drivers, but up to 500 layoffs would be possible 
in the future if the pinjam pakai is not approved. 
 
¶5.  (SBU) During a meeting with forestry officials in Mataram, 
the capital city of NTB, it was confirmed that the NTB Forestry 
Department is supportive of the continuation of Newmont's 
operations.  The Bupati of West Sumbawa, while an outspoken 
critic of Newmont's community development initiatives, informed 
us that he and NTB leadership, including the Forestry 
Department, had requested that the central government approve 
the permit on multiple occasions but had never received a 
response.  The original 1997 permit gave permission for use of 
the area around the mine (some 87,540 hectares) and resulted in 
a reclassification of the forest from "protected forest" to 
"limited production forest."  According to the Director of the 
Forestry Department in Mataram, however, the Minister of 
Forestry issued a decree in 1999 to return the forest to 
protected status, further complicating the Pinjam Pakai issue. 
The NTB Forestry Department has been trying to have the status 
changed back to limited production forest. 
 
¶6.  (SBU) One long-time employee of Newmont noted that the 
Departments of Mining and Forestry had met with Newmont 
officials within the past two weeks and had tentatively agreed 
to move forward with renewal of the permit.  The General 
Manager, however, suggested that the political will to renew the 
permit would not likely exist until both the first phase of 
divestiture and the presidential election take place.  He also 
said the recent appointment of well-known Indonesian businessman 
Mr. Martiono Hadianto as the company's new President Director 
represents the first time an Indonesian has headed the company. 
The General Manager expressed hope that having a well-known and 
respected Indonesian at the helm would help to improve relations 
with the central government. 
 
Community Development and Money Issues 
--------------------------------------- 
¶7.  (SBU) Newmont has an active community development program in 
the three sub-districts nearest the mine (Maluk, Sekongkang, and 
Jereweh) in West Sumbawa District.  During a visit to two of the 
three sub-districts, it was pointed out that almost every school 
and clinic had been constructed by Newmont.  According to 
Newmont's Director of Community Development, three high schools, 
five junior high schools, and 22 elementary schools have been 
constructed as well as several clinics and irrigation 
reservoirs.  Newmont has also provided funding for nurses who 
serve at clinics within the sub-districts as well as teaching 
assistants who assist both students and government-funded 
teachers.  We visited a small brick factory that was set up with 
Newmont assistance as well, the only production facility that 
was pointed out as a community development initiative.  More 
than 95 percent of the factory's income is derived from sales to 
Newmont. 
 
¶8.  (SBU) During a meeting with the West Sumbawa District 
Bupati, he complained that Newmont's community development 
methodology is a problem and that some of their projects were of 
no benefit.  Arguing that Newmont should view local government 
as a partner, he said Newmont never consults with local 
government about development projects.  He suggested that funds 
should be provided directly to the district government for 
community development initiatives due to the government's 
knowledge of community needs.  The most significant complaint 
from the Bupati, a complaint that was echoed by other officials 
and representatives of NGOs we met with in Sumbawa District, was 
the company's alleged lack of effort in setting up "production 
centers" near their facility.  Both the Bupati and NGO 
representatives complained that the "multiplier effect" of 
Newmont's operation is not what it should be due to Newmont's 
importation of its supplies from outside Sumbawa rather than 
assisting the local community in setting up local production 
facilities.  The Bupati gave the example of beef and poultry 
production as industries that should be developed locally. 
 
¶9.  (SBU) The Bupati also complained that the local government's 
share of the royalties from the mine has only a minor positive 
 
SURABAYA 00000043  003.2 OF 003 
 
 
impact on the district's bottom line.  He said the central 
government reduces the district's regular budget allocation 
based on the amount of royalties passed on (50 billion Rupiah 
per year - approximately 4.3 million USD, according to the 
Bupati).  The General Manager of Newmont informed us that West 
Sumbawa District had been charging the company "illegal taxes" 
for years, amounting to approximately 12 million USD annually. 
Following the recent arbitration ruling, however, he said the 
company would no longer pay these taxes (on fuel, vehicles, 
etc.) as they are illegal based on the company's contract of 
work obligations.  He added that the company could have done a 
better job with relationship building in the past and plans to 
do better in the future.  He also acknowledged the impact the 
loss of 12 million USD annually would have on the district and 
said the company is looking into responsible ways to help offset 
the local government's loss without simply handing money over to 
local officials without accountability.  The new President 
Director is expected to play the leading role in determining how 
best to improve the relationship with the district government. 
 
Environmental Awards and Concerns 
-------------------------------- 
¶10.  (SBU) In 2008, Newmont received the Green PROPER award from 
the Indonesian government in recognition of its environmental 
protection practices, Indonesia's second highest environmental 
designation.  During a meeting with forestry officials in 
Mataram, the head of the Provincial Forestry Department informed 
us that Newmont maintains quality environmental standards.  One 
of the NGO representatives we met in the city of Sumbawa Besar 
cited a university study (a couple years old) that demonstrated 
that waters near the mine were not negatively impacted by the 
tailings that are dumped three miles offshore.  He did, however, 
express concern about the long-term impact.  The Bupati of West 
Sumbawa District indicated that a doctoral student at a 
university in Mataram had conducted tests of coastal waters near 
the Newmont facility in early 2009 and discovered a higher than 
average concentration of heavy metals.  The Bupati was unable to 
provide any details about the study or the academic.  No other 
officials appeared to be aware of this study. 
 
Sumbawa District:  Supports Newmont Plans, With Caveats 
--------------------------------------------- ---------- 
¶11.  (SBU) Sumbawa District is located just north of West 
Sumbawa District.  According to Mr. Muhammad Jabir, the District 
Deputy Head (Vice Bupati), Newmont has conducted preliminary 
surveys of the district and has reportedly requested approval to 
conduct exploration in the district.  He also said a community 
survey revealed that more than 75 percent of the population 
supported Newmont's planned mining exploration.  However, the 
Vice Bupati as well as local forestry and NGO representatives 
all expressed the need for Newmont to work with the local 
government early on.  They indicated that if a future mine were 
allowed to operate in Sumbawa District, Newmont would be 
required to train the local population for jobs at the mine 
rather than recruiting employees from outside Sumbawa as was the 
practice in West Sumbawa District.  This, he said, would result 
in more money being spent locally rather than "leaking" to other 
parts of the country.  He also noted a desire to see local 
production capacity enhanced so as to avoid importation of basic 
supplies for any future mining operations.  Note:  During 
ConGenOff's meeting with Newmont's outgoing General Manager, he 
only mentioned one site that Newmont was interested in exploring 
- a site approximately 60 kilometers to the northeast of the 
current mine.  End Note. 
MCCLELLAND