Feb 20, 2018 Last Updated 12:49 AM, Feb 16, 2018

Freeport's troubled future


Denise Leith

In 1936 a Dutch geologist named Jean Jacques Dozy on an expedition to the centre of West New Guinea was struck by the magnificence of a 180-metre barren black rock wall covered in green splotches standing above an alpine meadow. Forbes Wilson, a geologist with Freeport Sulphur of the US, first heard of Dozy's discovery in 1959. He persuaded the company to send him to West Papua the following year. After seeing Dozy's 'Ertzberg' (Ore Mountain), Wilson was so excited that he correctly predicted that Ertsberg would prove to be the largest above-ground copper deposit discovered at that time.

The political turmoil in West New Guinea and the subsequent takeover of the region by the left-leaning Sukarno meant that in the early sixties the project was considered too great a political risk for Freeport. However, the company did not forget the possibilities it had glimpsed. Just two weeks after the military coup in Indonesia in 1965 the company opened negotiations with the generals in Jakarta. Although the political situation in Indonesia was extraordinarily unstable, Freeport's connections to the highest echelons of power in Washington, including the CIA, the Pentagon, and the White House, must have given it some measure of assurance, as did the messages it was receiving out of Jakarta.

With the balance of power firmly with the American mining company there was little the insecure regime would not do for Freeport and its powerful friends. Jakarta requested that the company produce its own contract. Despite a question over the legality of Jakarta signing over Papuan assets, in April 1967 Freeport was the first foreign company to sign with the new government. The Freeport contract signalled the beginning of a complex but mutually supportive and beneficial relationship between the American company, the regime and its arm of repression (TNI) that was to last another thirty years.

Under the contract Freeport was given mining rights for thirty years within a 250,000 acre concession. The company was under no obligation to the traditional Papuan owners of the land, who were excluded from the consultations. Freeport was not required to pay compensation, nor was it obliged to participate in local or provincial development. There were no environmental restrictions on the mining operation.

El Dorado

In 1988, with the Ertsberg mine nearing exhaustion, Freeport announced that only a couple of kilometres away from the hole that Ertsberg had become it had found its El Dorado: Grasberg. Protected both physically and politically by the regime, the company was given two new contracts which by 1994 allowed it to explore approximately 9 million acres and mine one of the most promising mineralised zones of the globe for another 50 years. With Suharto and Freeport sharing an overriding desire to turn the copper and gold of the Carstensz Range into foreign currency as expeditiously as possible, the company was so successful that it became Jakarta's largest taxpayer, the largest employer in the province, and the source of over 50% of West Papua's GDP.

Many Indonesians felt that their all-powerful president was unable to deny the American company anything. However, such an assessment ignored the complexity of the relationship and the complementary interests which defined it. In 1967 the New Order government had simply been grateful for Freeport's support, but by the early seventies the regime's confidence had grown. It demanded a 10% share in the operation. With the announcement of the discovery of Grasberg and the extraordinary wealth that it promised, Suharto's demands on the company increased dramatically. Eventually, Freeport financed Suharto's government, his closest associates, and even the president into the company on exceptionally favourable, if not questionable, terms. By the early nineties the American company had become an integral part of Suharto's patronage system.

The president put Freeport to good political use as well. To all intents and purposes it became a quasi-state organisation for Jakarta in West Papua as the principal developer and administrator of its project area and surrounds. Through indirect support of the transmigration settlements and direct financial and practical support of the military in the concession area, the company also assisted Jakarta in its policy of 'Indonesianisation'. Finally, back in the US Freeport became an important public relations agent for the regime. Far from Suharto being a puppet of the company, Freeport had became a compliant and valuable asset which, with the company's complicity, was exploited by the president.

The confrontation between a highly traditional peoples and a Western mining transnational has given rise to complicated social issues. Initially the company cared nothing for the traditional landowners' rights and little for their concerns. By the early nineties, the benefits of Freeport's presence to the traditional owners were negligible. After the signing of the new contracts with Jakarta and the realisation that the company would remain in West Papua for another fifty years, Freeport began to make small efforts at community development. However, it was not until the release of the Australian Council For Overseas Aid (Acfoa) report into human rights violations in the Freeport concession in 1995 that the company began to seriously address the expanding social problems. Lacking direction, the development funds that Freeport initially pumped into the community after 1995 only served to heighten existing tensions by increasing divisions within, and between, competing landowning groups. By 1998 such tensions forced the company to reassess it programs and the distribution of development funding.

Generally over the last six years Freeport has been successful in expanding employment opportunities, building schools, medical clinics, a hospital and homes to improve the lives of the traditional landowners. However, development efforts continue to be undermined by the culture of the company, its inexperience, the behaviour of the local authorities, the fractures within the local community, and thirty years of antagonism. Today the area is awash with Freeport funds, while the mining company struggles to find answers to questions it is not equipped to deal with.

Military

Freeport had always welcomed the military in its contract area, and considered logistic and financial support for TNI a small price to pay for protection of its physically vulnerable operation. However, with the publication of the Acfoa report the company's relationship with the military left it morally and legally vulnerable, threatening to implicate Freeport directly in human rights abuses. Recognising that the continuation of this close relationship precluded any improvement in relations with the indigenous community, Freeport was eventually in the ignoble position of relying on the military to protect its operation while simultaneously attempting to distance itself from this increasingly discredited organisation. Freeport's subsequent decision to throw money at TNI only succeeded in strengthening the association in the eyes of the traditional landowners.

Freeport contends that it has always been committed to operating environmentally responsibly by adopting home-state standards. However, the history of the Freeport operation in West Papua demonstrates otherwise. The company's operating practices continue to destroy the environment to a degree which far exceeds that of the notorious neighbouring mines of Ok Tedi and Bougainville, and would be unacceptable in the US. Moreover, it is impossible for Freeport to predict what the long term damage of its operation will be.

Despite the great wealth still to be recovered in the Freeport concession, the directors of the parent company, Freeport-McMoRan Copper and Gold Inc, are keen to sell the operating subsidiary in West Papua. The political uncertainties associated with the future of the unitary state of Indonesia are obviously of great concern to the directors. Freeport may be the lowest-cost copper producer in the world, but the loss of its erstwhile powerful protector in Indonesia has also made Freeport potentially vulnerable in a number of areas, so that the potential costs of its operation in West Papua could rise substantially.

Unlike the New Order era, the current ministers in Jakarta dislike the company and its heavy-handed tactics. They have at times found it expedient to make life difficult for Freeport. Investigations within Indonesia into the corruption, collusion and nepotism of the New Order regime, coupled with the fact that the US Foreign Corrupt Practices Act forbids American companies from paying bribes, may force Freeport to legally defend its questionable relationship with Suharto and his cronies. The company is also being attacked within Indonesia over its environmental record and may eventually be held financially responsible for the damage it has created and will continue to create in the future. Mine closure costs could be extraordinary. Freeport's inability to resolve the escalating community relations problems also represents an ongoing financial and political burden on the company for which no end is in sight.

Finally, the financial and political costs of supporting the military, not listed in any Freeport balance sheet, is rising. American law courts have ruled that US companies can be held responsible for human rights violations which are carried out by it or on its behalf, of which it was a knowing beneficiary, or of which it was aware and which it could have prevented. Freeport's relationship with the Indonesian military therefore leaves it dangerously at risk. Today the future is as uncertain for this once seemingly invincible company as it is for its once powerful connections.

Denise Leith (djleith@hotmail.com) recently completed a PhD at Macquarie University, Sydney, Australia, on Freeport. A detailed article by her about the Suharto-Freeport relationship will appear soon in The Contemporary Pacific (Vol. 14, No. 1).

Inside Indonesia 67: Jul - Sep 2001

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