Contracts and communities

Indonesia's foreign-dominated mining industry is on the defensive. Communities and NGOs are calling for a halt to all mining. Local governments want more money from companies and more control over their activities. In Jakarta ministers are arguing over whether or not they can change mining contracts signed during the corrupt rule of the Suharto period. After three decades of opportunity things have become uncertain for the mining giants and their prima donna status is under threat.

In response, companies warn of the dire consequences for investor confidence that changing contracts would bring. They know that President Wahid and his ministers are committed to a policy of attracting foreign investment to try and pull Indonesia out of economic crisis and are making full use of this scare tactic to retain the privileges they enjoyed under Suharto. The strategy appears to have worked up to a point, as far as the president and the majority of the cabinet is concerned. The official government line is to honour contracts in order to safeguard legal certainty and encourage foreign investment. But companies will be expected to make voluntary concessions to lessen social and environmental impacts and increase Indonesia's share of the profits.

In recent weeks the contracts of PT Newmont Minahasa Raya and PT Inco Indonesia in Sulawesi have been under attack (see below), but most attention has been focussed on the US-based PT Freeport Indonesia, operator of the enormous copper and gold mine in West Papua. The company, which is part-owned by Britain's Rio Tinto, includes the disgraced Indonesian timber tycoon Bob Hasan and Suharto's son Sigit among its Indonesian investors. Around 2.3 million ounces of gold were extracted last year from the Grasberg mine. The mine also produces up to 220,000 tonnes of waste material per day which is dumped on the Ajikwa River system and washed downstream toward the Arafura sea. Here it has smothered rainforests, clogged up waterways and destroyed the livelihoods of local indigenous peoples.

The Freeport contract

The main arguments over Freeport's contract are:

• whether or not the original contract (1967) was valid and whether the current contract (signed 1991), should be revoked;
• whether parts of the contracts should be changed in line with the post-Suharto era and regional autonomy measures introduced last year;
• whether or not to revoke a Suharto decree of 1994 which frees Freeport of its obligation to divest 51% of its shares within 20 years.

Those in the government in favour of amending the 1991 contract include environment minister Sonny Keraf, who has attacked the company's environmental record, and outgoing governor of Papua, (also State Minister for Administrative Reforms) Freddy Numberi, who has called on Freeport to donate 20% of its shares to the regional administration. (Deputy governor J.R.G. Djopari later said he would ask central government to split its 8% share when regional autonomy is implemented).

Opponents of changing the contract include foreign minister Alwi Shihab, and mines and energy minister Bambang Yudhoyono, who use the same arguments as the mining companies: that changing the contract would undermine legal certainty and damage investor confidence in Indonesia.

Freeport itself has pulled out all the stops to persuade the government not to touch its contract. Henry Kissinger, former US Secretary of State and a member of Freeport's Board of Directors, was dispatched to Jakarta in February to bully the government into submission. Dr Kissinger urged the Government to honour the contract, saying it was "in the interests of Indonesia" to do so. President Wahid and his economics minister, Kwik Gian Gie, duly stated their commitment to upholding the contract. Then, in a move that astonished Freeport's critics, the president invited Kissinger to become his special political advisor. This would seem to continue the Suharto tradition of cosy relations between the Indonesian presidency and the company. Kissinger's visit was reinforced by the now well-worn warnings about investor confidence from US Ambassador Robert Gelbard and senior US state department official Thomas R. Pickering, who visited the mine in March.

WALHI, the Indonesian environmental organisation, reacted angrily to Kissinger's visit, accusing him of "intimidation". "We think his statement is unethical, bullying and ignores the democratisation process now underway in this country," said the group, which has campaigned hard to expose the environmental impacts of the mine.

Now WALHI is itself under attack: Ambassador Gelbard has called for American funders USAID to cut its funding for the organisation.

The Ambassador's intervention is another indication of the US' more aggressive policy towards Indonesia. According to the Far Eastern Economic Review, "Gelbard has few qualms about upsetting Javanese sensitivities or using development assistance for political objectives". Ominously, the Review also notes that USAID now answers to him personally in its funding of civil-society programmes in Indonesia (FEER 4/May/00).

Tom Beanal, new Freeport commissioner

Where does all this leave the West Papuans themselves? In January a deputation of Amungme people led by veteran campaigner and human rights award winner Mama Yosepha Alomang, lobbied MPs to shut down the mine. She and the Amungme Council leader, Tom Beanal, have both filed lawsuits against the company in the past, and have regularly spoken out about the negative social and environmental impacts of the mine.

So the news that Tom Beanal was to become a Freeport commissioner came as quite a surprise. His reasons for doing so - as reported by the news media at least - do little to clear things up. He says it is his "duty" and "right" as an Amungme leader and landowner to accept the post and that the community are behind him. He reveals that Freeport first offered him the job in 1997 but that the government blocked the move. "I should have assumed this post in 1967. So, it is far too late." When asked whether he wants to review the company's contract of work, Beanal answered that, if reviewed, the company, government and landowners should get equal shares of the mine's profits. "But, I'm not in a position to tell Freeport to leave Timika," he added. What is most important, he says, is that "we stand now more on an equal footing than before." It is not yet clear what being a company commissioner means.

Environmental audit slammed

The glowing report of Freeport's operations produced by US-based auditor Montogomery Watson last year has been received with incredulity by environmentalists and government ministers alike. The head of Bapedal in West Papua, Ali Kastella, said the report failed to reveal the extent of ecological damage and did not explain adequately what Freeport has done to overcome the problems. The company published a full page summary of the audit in at least four national newspapers - a move that has annoyed environment minister Keraf in particular as the audit was not first verified and neither was the auditor approved by his department. Keraf has also said there are irregularities with Freeport's environmental impact analysis which need to be addressed.

Kastella's office recently published findings of an investigation into the downstream impact of the mine which found that 133,000 hectares of land in the company's concession had been seriously damaged and nearby rivers polluted. Only 124 hectares had been reclaimed and then only with short life-span plants that would not bring long term benefits to local people. Freeport rejects these findings, saying that "tailings deposition is currently impacting 13,300 hectares."

One concern is that the auditors, Montogomery Watson, were paid by Freeport and could not, therefore, be considered truly independent. The government is considering a new tax to overcome this difficulty. The idea is to tax mining companies between 10-15% of investment, or impose a tax on net profits, put the money into a trust fund and use it to pay for independent audits. No doubt the mining industry will lobby hard to stop this getting off the ground.
(Source: Indonesian Observer 2/Mar/00)

Rio Tinto quiet

It is worth noting that the other main shareholder in the mine, Rio Tinto, has kept quiet about the whole Freeport issue, preferring instead to publicise community development programmes at the two mines it operates in East Kalimantan. These are the Kaltim Prima coal mine and Kelian gold mine (visited recently by Britain's Ambassador to Indonesia) where, in fact, community relations remain problematic. The long-running dispute between the Kelian community and the company over human rights and environmental impacts remains unresolved. There is also concern about the mine's closure - due in 2003 - despite the company's assurances that it will "close the mine responsibly". (Asia Pulse 22/Mar/00; RT press release 22/Feb/00)