Mining giants benefit from crisis

Down to Earth No. 39, November 1998

New mining investment has been in the doldrums since last year's Busang fraud and the slump in world metals prices. Japanese investors are pulling in their horns; many Indonesian companies face bankruptcy. In its desperation to attract and keep foreign investment in Indonesia, Habibie's government is giving international mining giants like Newmont and Rio Tinto an easy ride. "We're going to make a lot of money when copper prices are low," said Jim Bob Moffett of Freeport, "and an amazing amount of money when they're high".

The Habibie government is also making strenuous efforts to court new investors into the mining sector. Its response to the slump in new investments is to open the door to further globalisation and to relinquish more control of its natural resources to foreign companies. Critics have condemned the selling of government mining interests, with opposition leader Amien Rais calling for the suspension of current operations so that resources can be saved for development by domestic companies.

The new measures favouring the international mining community include:

  • Higher levels of foreign investment in future contracts; allowed since 1986);
  • Foreign investors will be permitted to operate in Java and Bali (only local firms have been allowed since 1986);
  • The approval process for contract application will be streamlined; All existing contracts will be guaranteed;
  • Greater authority to provincial government to approve land acquisition;
  • Environmental impact assessments to be carried out at provincial level;


Share sell-off to feed cash-hungry economy

In its desperate quest for cash, Jakarta is also preparing to sell government shares in state-owned companies, prompting fears that state assets will be sold off cheap against the national interest. The assets include the state-owned mining firms PT Aneka Tambang (various minerals), PT Tambang Timah (mainly tin) – both of which are already partially privatised - and PT Tambang Batubara Bukit Asam (coal). Tambang Timah and Tambang Batubara may be merged before the sell-off. Aneka Tambang, which is to be sold individually, is one of the very few firms listed on the Jakarta stock exchange which is still in profit.

The privatisation programme, agreed with the IMF earlier this year, has already run into trouble, however. The number of companies has been cut from twelve to ten and the earnings target of US $ 1.5 billion trimmed. The current deadline is March 1999. In July the government said it would not sell shares in direct public offerings because of unfavourable conditions, but would invite 'strategic partners' to buy the shares instead. (This does not seem to apply to Aneka Tambang which has been allowed to list on foreign stock exchanges. In August the company's shares soared 11% on the news that it planned to list its shares on the Australian stock exchange.)

The stakes on offer are reportedly for 25%, designed to prevent any one company from gaining overall control. There has been little indication of who the main contenders are. According to one report, five foreign companies currently operating in joint ventures with Aneka Tambang are interested in buying up government stakes. Five companies from Germany, Britain, United States, Norway and Japan are currently bidding to finance and develop a third ferronickel processing plant at Aneka Tambang's Pomalaa site in Sulawesi.


Sitting pretty

< Large companies operating export-orientated mines have found they can easily ride Indonesia's economic storm. Rio Tinto's first half results for 1998 were down for copper, gold and other minerals. But the effect of lower prices was mitigated by its Indonesian operations. More gold and copper was produced at Grasberg in West Papua as expansion was completed. Coal production was also up at the Kaltim Prima mine in East Kalimantan which helped offset lower coal prices. The lower rupiah exchange rate worked to the company's advantage, helping it reduce costs and stay profitable (Company press release excerpts, 23/9/98) These reduced costs translate as a fall in workers' wages paid in rupiah, against the company's dollar earnings which has led to labour unrest over the past months (see DTE 38). More profits are planned for the future as Kaltim Prima hopes to expand to 20 million tonnes a year.


How high a price foreign investors are willing to pay remains to be seen. Those seeking good ethical credentials will steer clear – Aneka Tambang is involved in projects violating indigenous rights, on Haruku island in the Moluccas, for instance (see DTE 36 & 37). But it is quite likely that companies already involved in operations which harm communities and the environment – like the mining giants already operating in Indonesia – will buy up the state shares. By doing so, they will consolidate their domination of the sector and be in a better position to bend social and environmental policy in ways that best serve their interests.

Indeed, companies like Rio Tinto, Newmont and Inco, who have a well-established presence in Indonesia, are also best placed to benefit from the new investment incentives of the Indonesian government.


Protests gather momentum

The political convulsions of the past year which ended the absolute control of Suharto and his business cronies have given hope to communities whose resource rights have been denied for many years. Better communications, improved organisation and reduced censorship will mean more effective opposition to the excesses of mining companies and force the government to act to limit the damage.

Recent action by communities affected by mining include protest by a Benuaq Dayak community against coal mining by PT Truba Indo Coal Mining on their customary (adat) land in East Kalimantan. The Dayak community whose lands were taken for Rio Tinto's Kelian mine, also in East Kalimantan, have succeeded in forcing the company to negotiate over compensation payments, human rights violations and pollution. (See also DTE 38) Protests against the massive impact of Freeport/Rio Tinto's operations in West Papua continue in the US courts and in Indonesia.

Poverty is also pushing thousands of local people to take control of resources in areas leased to companies. Local military authorities, disempowered and demoralised by the fall of Suharto are failing to stop them effectively.

Under Suharto, many communities who carried out small-scale panning or mining activities in areas subsequently leased by the government to large companies were vilified as 'illegal' miners. Typically, local people were banned from their former mining sites by the companies, with the help of the security forces.

Now poverty is so extreme that even the authorities and the companies are having to make some concessions. PT Batubara Bukit Asam said it would permit the miners to continue working in its area in West Sumatra if they organised themselves into co-operatives and sold the coal to the company. At the same time, the government has also said it will allow provincial governments to issue permits for "People's Mining Areas" – the locations where small-scale mining by local people are officially sanctioned – to cut red tape and speed up applications.

(Sources: Reuters 18/8/98; Singapore Business Times 19/8/98; Wall Street Journal 26/8/98; Australian Financial Review 29/8/98; Bloomberg 22/9/98; Dow Jones Newswire 20/7/98; Bisnis 3/10/98,30/9/98; Dayak letter email posting by WALHI 2/10/98, Jakarta Post 27/7/98, 7/9/98, 18/9/98)