[nasional_list] [ppiindia] Freeport in Indonesia: Filling in the holes
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- Date: Sun, 26 Feb 2006 23:32:21 +0100
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Freeport in Indonesia: Filling in the holes
By John McBeth
JAKARTA - Burdened by a legacy of environmental destruction and what was widely
seen as an unhealthy relationship with president Suharto's New Order regime,
Louisiana-based Freeport McMoRan Copper & Gold has long been depicted as the
poster child for all that is wrong with mining in Indonesia. But does the US
mining giant still deserve that reputation, or are the company's many critics
simply living in the past?
For all the ugly holes they dig, multinational resource companies have changed
a lot in the past 15 years. Reined in by environmental groups, tougher
foreign-government regulations and often their own concerned shareholders, many
are now being held to higher standards of corporate governance than ever
before.
In Freeport's case, that's more than most. In the past 10-15 years it has tried
hard to make amends for past mistakes, introducing comprehensive community
development and livelihood programs, improving health services and employment
opportunities and working on innovative ways to help the environment bounce
back from mining activities.
Yet the same activists and media commentators who rely on copper as with
everyone else for their computers, telephones and electricity never seem to
tire of raking the firm over the coals - often for infractions incurred decades
ago.
Take the New York Times and the two full pages it devoted recently to
Freeport's hugely profitable Grasberg mine in the central highlands of
Indonesia's easternmost Papua province - much of it focusing once again on
long-familiar environmental issues and on the company's now well-documented, if
controversial, practice of funding Indonesian military forces guarding the
site.
The same newspaper has also extensively covered allegations of mercury
poisoning against the US gold company Newmont in North Sulawesi - charges that
have been disproved by a host of independent monitors, including the World
Health Organization, Japan's National Institute for Minamata Disease, the
Australian Commonwealth Scientific and Industrial Research Organization and
Indonesia's own Health Department.
With that store of technical evidence stacked against it, the Indonesian
government recently dropped a US$150 million civil lawsuit against the company
rather than take it to court-directed international arbitration. Instead, the
two parties came to a $30 million "goodwill" settlement last Thursday, whereby
Newmont maintained its innocence and the two sides merely agreed to disagree on
the issue in their joint announcement. The voluntary settlement is also
expected to have a bearing on the ongoing criminal trial against the company
and its president director in North Sulawesi.
Both cases raise the question of what critics expect of mining companies. Some
of the more radical groups, such as the Mining Advocacy Network and Australia's
Mining Policy Institute, deny they want to stop all mining. But everything they
do points to just that, lashing out at anyone who challenges their conventional
wisdom that Freeport and other mining companies haven't done enough to change
their old ways. As a result, the same allegations are repeated over and over
again without any effort to determine whether they remain valid.
Because much of their funding depends on attacking multinationals, the same
activists have long overlooked other more dangerous pollution. Why, for
example, do environmental activists and even the government continue to ignore
the unfettered use of liquid mercury by thousands of illegal gold miners in
North Sulawesi and Kalimantan? While they pass it off as quaint indigenous
mining, it is in fact organized and run by influential regional power-holders.
Freeport isn't about to abandon what is now a $12 billion investment. Nor does
a government close a mine that has already brought in revenues of $33 billion
and promises billions more over the next 40 years. Last year, a quarter of a
decade after going into Papua, the company's revenues hit an all-time high of
$4.1 billion, and it remains Indonesia's largest taxpayer and one of its
biggest employers, with more than 18,000 workers.
Freeport may be stocked with people working on its annual $60 million-plus
environmental and community development program, but the latest outcry shows
once again that it will probably have to resign itself to the role of
everyone's favorite whipping boy. The target this time around has less to do
with those issues and much more to do with its relations with the equally
reviled Indonesian military.
While the 1991 Contract of Work doesn't specifically refer to the military, the
company is bound under its enabling provisions to "develop special facilities
and carry out special functions", including "free medical care and attention to
all its employees and all government officials". For Freeport, providing
facilities and monthly allowances to the troops makes perfect sense when the
government itself is unable to offer adequate budgetary support.
The company learned a hard lesson back in 1994-95 that it was much better to
have contented soldiers than resentful ones when it was accused of complicity
in the deaths of Papuan activists on its concession - including some who had
been imprisoned in company-provided containers. Freeport denies it had anything
to do with the killings and the case is still unresolved. The government's
civilian presence in the area then was limited to only 50 officials, leaving
the company to provide most of the essential services, including the security
for the mine itself.
Freeport may have relished that proconsul role in the early days of its
presence, allowing it the freedom to do what it wanted. But as times changed in
the global mining industry, its position became increasingly uncomfortable,
finally coming to a head in March 1996 when riots broke out in the
high-altitude mining camp of Tembagapura and in Timika, the clapboard coastal
town that depends on Freeport for its economic livelihood.
What sparked the violence has always been a mystery, but Freeport employees and
security staff claim they saw straight-haired men carrying walkie-talkie radios
directing the rioters in Tembagapura and later in the destruction of Freeport's
new $2 million state-of-the-art environmental laboratory, built to monitor the
quality of the water in the Ajkwa River - the conduit for tailings, or waste
rock, from the mine.
Human-rights groups blamed the military, accusing it of deliberately stirring
up trouble so it could increase its influence in Papua. Freeport security
officials, suspicious that the laboratory had been specifically targeted, have
long wondered whether radical environmental activists may have been behind the
disturbances that left at least three people dead and scores wounded.
In the end, at the company's request, the government stationed a
battalion-sized task force at the mine, built around a strong core of
well-disciplined Army Strategic Reserve (Kostrad) combat troops. Anxious to
ensure they were well looked after, Freeport spent $32 million on building new
barracks and other amenities in late 1996, and also set aside an annual budget
of $6 million to $7 million for ongoing support.
Over the past nine years, 75-85% of that money has been for in-kind goods and
services - housing, food, medical care and transportation. The soldiers use
Freeport's dining facilities, with the company paying the food services
contractor for an extra 850 people per sitting. The company similarly
reimburses medical expenses for soldiers treated at two modern, well-equipped
hospitals, something they would be unlikely to find in most other parts of the
country.
What leaves Freeport open to scrutiny is the remaining cash disbursements,
which are done through wire transfer to unit bank accounts where the
signatories are individual officers. Much of this money is for a monthly per
diem of $35 for each soldier and $50 for each officer to offset the cost of
living and working in a remote area. Privates and non-commissioned officers,
for example, can exhaust their entire month's salary making a five-minute phone
call to check on their wife and children living in far-off Java.
One former Freeport security employee said it was decided early on not to send
the funds through the military's Jakarta headquarters because "it would never
have got to the guys on the ground, hence forcing them to steal and extort for
the supplemental money they need". Some local unit commanders did not have bank
accounts, relying instead on paymasters and couriers. In other cases where they
did have one, it was only used for official military transactions.
For a long time, many refused Freeport's repeated requests for them to open
accounts in their unit's name, afraid of losing control of the funds. Even the
banks resisted. In fact it was only in late 2002 that the company finally
persuaded the officer corps to adapt the practice. "We constantly monitored the
payments to make sure the soldiers received it," recalled the former employee.
"The commander would have faced a revolt if he didn't pay out because every
soldier and policeman knew exactly how much he was allotted."
Additional funds have also gone to the regional command in the provincial
capital Jayapura - a scheme that began under the now-retired Major-General
Johnny Lumintang, still regarded among Western diplomats and other independent
observers as one of Indonesia's ablest and cleanest officers. Lumintang wanted
to replace combat patrol posts with civil-affairs personnel, but he lacked the
funds to carry out the hearts and minds programs needed to implement it.
Freeport obliged.
The company has since financed numerous projects that have run from about
$90,000 to $150,000 a year. The money is paid directly to the regional
commander and, in one year for example, was used to buy new equipment for a
run-down military hospital in Jayapura, Papua's province capital. The company
has all along required a written program and a full costing of materials and
services, along with an on-site inspection in some but not all cases.
A third financing category is the reimbursement of administrative and logistics
costs that are over and above normal expenses. Often this includes establishing
and maintaining communications nets, paying for investigations and disciplinary
actions and also for the use of the military's aviation assets. The money,
which never amounts to more than $1,500 a month for each command, is wired to
the regional army chief and individual unit commanders.
Although Freeport has never denied paying the Indonesian military, it only
began disclosing the aggregate amounts in 2002-03 after the ambush deaths of
two American schoolteachers and their Indonesian colleague on the road to the
mine raised questions about the company's relationship with the military. It
continued to withhold details of individual payments, however, which were later
disclosed in embarrassing detail by Global Witness, a London-based
investigative organization that works to expose links between natural-resource
exploitation and human-rights abuses.
What wasn't reported in those findings was what the amounts were spent on, even
though that information must have been available as well. Those are noted in
the company's general ledger and also in much more detail in the records of the
firm's security department, made available to the US Federal Bureau of
Investigation (FBI) when it was called in to investigate the ambush. They are
now being scrutinized by investigators from the US Securities Exchange
Commission and the Justice Department, responding to renewed complaints from
the New York City comptroller, representing shareholders of city pension funds.
While it might look suspect to outsiders, it is not clear how this practice
contravenes the United States' Foreign Corrupt Practices Act, which invariably
involves commercial contractual arrangements. The military is not involved in
any of that. If the issue is bribery, then what are army commanders actually
being bribed to do? After all, protecting the mine is already part of a
commander's duties and would reflect badly on him if he failed.
In 2004, Freeport and the Trikora regional command signed an agreement on
arrangements to secure what the government has designated a "vital national
asset". That was followed on January 27 this year with a decree, issued by the
political coordinating ministry, which provides a specific, but belated, legal
basis for the corporate assistance provided to government security forces
guarding both the Grasberg mine and ExxonMobil's gas fields in Aceh.
For all of the current hue and cry, the results of Freeport's largesse are now
readily apparent in the almost total absence of serious behavioral problems
over the past few years. "The soldiers we saw appeared much better in
discipline and dress than anything I've seen in Indonesia," said one Western
military officer who recently visited Timika as part of a rare inspection tour.
"The officers all looked like high-caliber people."
The inability of the army and the police to support their people in the field
had disastrous consequences during the bloody sectarian strife on the eastern
island of Ambon in the early 2000s. Forced to depend on local communities to
supply them with food and other essentials, whole units disintegrated and
joined forces with either the Christian or Muslim camps. Thousands died in the
fighting.
As with Freeport, the military is finding it difficult to live down a
reputation for human-rights abuse. Its critics still refuse to accept that the
army command had nothing to do with the killing of the schoolteachers in the
August 31, 2002, ambush. Brushing aside the FBI investigation and the recent
arrest of eight Papuan independence activists, media reports continue to cast
suspicion on "the military" - the inference being that the institution itself
was involved.
Investigators feel there may have been a degree of military involvement, but
only among low-ranking soldiers in the local district command who have little
to do with mine security. Three months before the surprise attack, the command
conducted an internal inquiry into a Papuan non-commissioned officer who had
sold 400 rounds of ammunition on the black market. It is that case that is
thought to have provided the FBI with valuable leads.
It is not known what happened to the ammunition, but the hundreds of rounds
expended in the 2002 shootings were starkly out of character with a rag-tag,
bow-and-arrow resistance force that normally doesn't have enough bullets to
fill a magazine. It is that and the military's reputation for abuse that no
doubt persuaded commanders they would be blamed no matter what happened.
In a private conversation, former armed forces chief General Endiartono Sutarto
said he is still incensed over a Washington Post report that wrongly implicated
him in the ambush. In fact, Western officers credit Sutarto with doing a lot to
clean up the army in the three years he held the post. Perhaps the best
illustration of that success has been in Aceh, where a peace agreement with the
separatist Free Aceh Movement (GAM) appears to be holding.
These days it is not only Freeport's mine that preoccupies military planners as
they look to improve Indonesia's eastern defenses and keep the Papuan
separatist movement in check. Before the plan was put on hold, Timika was to be
the brigade headquarters for a third Army Strategic Reserve division, to be
based in the western Papuan seaport of Sorong. The two existing Kostrad
divisions are both on Java.
As for Freeport, there is no question it received special treatment from
Suharto during his 32-year rule. But the president was clearly grateful that
the company took such a huge gamble on his fledgling administration in the late
1960s, at a time when investing in then-impoverished Indonesia - let alone
far-off Papua - was a wildly risky venture.
As the years went by, the mine became the cornerstone of Suharto's eastern
development plan and Freeport's chief executive, James "Jim Bob" Moffett,
enjoyed unprecedented access, flying into Jakarta in his private Boeing 757 jet
on regular visits. A big, larger-than-life Texan, Moffett would leave invited
Indonesian officials slack-jawed with his impromptu Elvis Presley
impersonations at staff gatherings.
But his roughshod style and a culturally taboo habit of loudly banging the
table when he was upset also made him a host of enemies. One rancorous meeting
with Moffett turned then-environment minister Sonny Keraf into a life-long foe.
Now in his new role as a member of the opposition Indonesian Democratic Party
for Struggle (PDI-P), Keraf also happens to be the vice chairman of the
parliamentary commission on the environment.
Another prominent critic is Amien Rais, a onetime presidential candidate and
founder of the National Mandate Party (PAN). Rais's anti-Freeport rhetoric,
which appeals to Indonesian nationalists in particular, goes back to the
Suharto days when he accused foreign resource companies of tax evasion and
other irregularities. He has now resurfaced, this time joining the chorus over
Freeport's relationship with the military.
After Suharto's fall in 1998, Moffett's visits tapered off sharply, in keeping
with a "no tall trees" policy he introduced to lower the company's profile. One
of the few occasions he has slipped into the country was in late 2003, soon
after a massive landslide in the Grasberg pit killed eight Indonesian employees
and led to a severe cutback in production. The publicity was surprisingly
muted, but Moffett wasn't happy.
Still, these have been halcyon years for Freeport, with copper prices at an
all-time high, gold not far behind and the company's share price soaring to
levels no one thought possible five years ago when political risk was seen as a
major drag on value. Grasberg's current reserves will last until 2041 - but
that's only based on annual replenishments. If the company began an active
exploration program again, they would probably be considerably larger.
Although the company is portrayed in most media reports as a gold miner,
sitting as it does on one of the largest gold reserves in the world, it is in
fact a New York Stock Exchange-listed copper play that uses its rich gold
grades to offset the production cost of copper. That enables Freeport to
produce copper at 10 cents a pound, compared with the 50-60 cents for most
other mines around the world.
The Grasberg mine has produced 16.1 billion pounds of copper and 23.3 million
ounces of gold net since it began production in 1988, shortly after exhausting
its initial discovery, which was first discovered by a Dutch explorer in the
1930s. The mine's reserves are currently estimated at more than 40 billion
pounds of copper and 46 million ounces of gold.
It is no secret that Freeport ignored environmental concerns for the first 20
years. But then so did virtually every other mining company around the world.
Miners, at least in those days, were not instinctively sensitive people. But
little by little Freeport has had to learn not only about lessening the impact
of what it does on the environment, but also on helping the Amungme and the
Komoro and other local tribal communities along Papua's southern coast.
Because it has a higher profile than anyone else, Freeport has been forced to
learn faster. Its executives acknowledge it has been a long and difficult road.
A scheme it initiated in 1997, for example, to provide 1% of the mine's revenue
to seven local tribal groups has been an unending headache since its inception.
But the company perseveres. These days, it simply has no choice.
It is hoped by the time the entire Grasberg operation goes underground in
2012-14, Papuans will have become the core of the company work force, rather
than the minority. The closing of the 2-kilometer-wide open pit will see daily
ore output drop from 250,000 tonnes to about 160,000 tonnes. That also means
fewer tailings flowing down the Ajkwa - as it has done with full government
approval since the beginning.
Freeport's riverine tailings deposition area makes for an ugly sight - a gross
acceleration of a process that occurs naturally with all other major rivers
plummeting out of the central highlands. Hemmed in on both sides by man-made
earthen levees, the gray expanse of ground-up waste rock covers 160 square
kilometers and will eventually rise to 20-30 meters at its highest point.
Most of the criticism about Freeport up to now has focused on this one issue -
without anyone ever mentioning that there is no other viable method of
disposal. Maintaining a tailings dam in the earthquake-prone highlands, with
its high rainfall, would invite disaster. Piping it down into a lowland dam
would have created a 100-200-meter high unstable mound on swampy land that
would have carried the risk of catastrophic release.
An alternative might be disposal at sea, the method used by Newmont in North
Sulawesi and also in its Batu Hijau mine on the island of Sumbawa, east of
Bali. But engineers say the Arafura Sea is so shallow, the tailings would have
to be piped more than 90km before reaching deeper waters. Even then, there
would be a risk of currents eventually depositing the waste across Australia's
Great Barrier Reef to the south.
The Ajkwa may be a mess, but it is only one river in the vastness of a province
that is three and a half times the size of Java. Lost in all the bad publicity
has been Freeport's successful efforts at ridding the area of malaria and the
world-class medical facilities it provides. The company has also shown that
with the addition of natural and artificial nutrients, anything can grow on the
tailings - from pineapples and vegetables to sago, a lowland Papuan staple, and
oil palms.
In a sign of what Freeport is up against, Environment Minister Rachmat Witoelar
was recently forced to acknowledge that a statement he issued on February 13
saying there were "preliminary indications" the tailings were toxic was based
on December's New York Times report - and not on an investigation now being
conducted by his own ministerial team. Their scientific findings are due some
time next month.
While it appeared the ministry's 25-man team was responding to the latest
outcry, it has had unrestricted access to the mine site since last year when
Freeport elected to join a volunteer corporate monitoring program, along with a
collection of other foreign resource companies. Last week the company served
the team an outdoor lunch including fish and shrimp from the river and fruit
and vegetables grown on the tailings.
The company insists that proper management does a lot to minimize the leaching
of residual amounts of copper, which amount to about 14% of what was in the ore
before it went through the mill. While higher levels of copper are found in
fish and shellfish, the company insists it is within internationally recognized
safe health limits. Indeed, one of the company's current concerns is the
depletion of fish stocks caused by the increasing number of people now fishing
in the river estuary below the deposition area.
The tailings that end up around the mouth of the estuary and settle along the
seashore are now being used to grow mangroves, which in turn are creating new
ecosystems. Long-term, Freeport may be proving that with careful thought and
constant experimentation the environment can rebound from the impact of mining.
And that's not what a lot of its blinkered critics want to hear.
John McBeth is a former correspondent with the Far Eastern Economic Review. He
is currently a Jakarta-based freelance journalist.
(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing .)
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