Globalization had made companies had transnational operations. Many developed nation companies relocate their plants to developing nations where policies are less stringent. One must be aware that the business environment in developing countries posed different risks compared to developed countries. Less stringent policies, weak law enforcement, high political instability etc. lead to high level of uncertainty in these areas. However, economic benefits offered by operating in these nations still motivate many companies to relocate their plants to these countries. These foreign direct investments (FDI) do help the local economic to grow, but often at the stake of environmental condition which lead to social disturbances.
Insurance as a tool to transfer risks might be helpful for companies unfamiliar with risks in developing nations, but not all insurers would cover those kinds of risks. This paper takes a look at a case study of developed nation based companies which do have business activities in developing nations and faced risks which are very unlikely to appear when conducting business in developed nations.
The case involves PT Newmont Minahasa Raya (PTNMR) in Indonesia, subsidiary of Newmont Mining Corporation (NMC). PTNMR conducted gold mining activities in Indonesia and were alleged had polluted surrounding area and caused health problems to local residents. Possibilities of covering the risks through insurance policies then discussed.
2. Newmont Buyat Bay Case
NMC is the world largest gold mining company, based in Denver, USA, with core assets in North America, South America, Australia, Indonesia, and Ghana. NMC's 80%-owned subsidiary, PTNMR, operated the Mesel Gold Mine in North Sulawesi, Indonesia from 1996 to August 2004. PTNMR had acquired authorizations from Indonesian government to use submarine tailing disposal (STD) to dispose wastes from its mining operation. As known and analyzed in the environmental impact assessment (EIA) completed prior to operations, the tailings contained small amounts of naturally occurring, insoluble mercury and arsenic compounds. Disposal on the seabed would also alter seabed habitat.
Figure 1 PTNMR's Location of Operation
In July 2004, shortly before eight years of operations were scheduled to cease due to depletion of gold ore at the mine, a local environmentalist NGO, Friends of the Earth Indonesia (WALHI), instigated a campaign alleging that PTNMR's use of STD, which had been banned in USA and Canada, had polluted Buyat Bay resulting in adverse health effects in local residents due to the arsenic and mercury content in the tailing. It was alleged that people were having symptoms of Minamata disease , affected by eating contaminated fish caught from the bay. The death of a 6-months old baby girl had catalyzed the whole campaign, by breaking into media headlines. PTNMR denied any wrongdoing which caused pollution.
A US$543m civil claim was filed against PTNMR by residents in July 2004, but later was withdrawn in December 2004 due to unavailability of fund to finance the litigation. PTNMR had enticement offered to the residents , but it was unclear whether it had been realized or not since later most of the villagers in the bay area were relocated to Duminanga, 100 km from Buyat Bay.
In September 2004, six employees of PTNMR (2 Americans, 1 Australian, and 3 Indonesian) were named by Indonesian police as criminal suspects, investigated them and detained five of them without bail in a Jakarta jail for 32 days. All were banned to leave Indonesia for the following six months. The detentions were done without any strong legal reasons.
In December 2004, a Jakarta district court ruled in favour of Newmont's habeas corpus appeal and declared the police investigation to be illegal. The police appealed the habeas corpus decision and the Supreme Court accepted the appeal, in spite of a law which clearly...
Please join StudyMode to read the full document