October 19, 2011 / 1:20 PM / 8 years ago

Freeport's cosy Indonesia govt ties not solving chaos

JAKARTA, Oct 19 (Reuters) - When Freeport renewed its contract for one of the world’s biggest copper and gold mines, some of Indonesia’s most powerful officials were on hand at a lavishls to mine the world;s some 20yearsthe head

The mobile phone of Ramdani Sirait, the spokesman at miner Freeport Indonesia in Jakarta, has been ringing a lot in recent days. With the firm’s Grasberg mine, the world’s second biggest copper mine, hit by a strike, sabotage and worker blockades, journalists have been chasing him for regular updates.

After a miners strike shut down Grasberg’s production in mid-September, Sirait told reporters not to worry, since the country’s mining minister would soon answer their questions.

Minutes later, the minister, Darwin Saleh, told reporters he was sending officials to speak to miners since the strike was costing the government $7 million a day. This week, Saleh claimed Freeport output was back to 50 percent of normal, just a day after pipeline sabotage halted its operations completely.

The ability to lean on an important government minister and ask them to help you out is a handy one, particularly in an opaque and often volatile emerging market country.

But the cosy relationship between Freeport McMoRan Copper & Gold Inc and Indonesia’s government, which stretches back to the 1960s and former autocratic leader Suharto, has not been enough this time to help them end one of the country’s worst industrial disputes.

It could even be a hindrance.

The close ties are with a government that still keeps tight military control over Grasberg, which holds more gold than any other mine in the world, and over the rest of its eastermost Papua province that wants independence, to safeguard its resources. Yet it has handed over political authority to a locally elected governor.

“Things are different now, the central government doesn’t have the same power it used to have...Now the power to deal with the strike and pay dispute is in the hand of the local government but they just don’t do that,” said Yunarto Wijaya, an analyst from Jakarta-based think tank Charta Politika.

Wijaya says the local government does not have the power to negotiate with Freeport, while the central government’s inability to back the local cause has created resentment. Local tribes armed with spears and arrows joined Freeport workers blocking the mine’s supply roads for food and fuel this week.

Indonesia’s government owns a stake of about 9 percent in Freeport Indonesia, which contributes 1.6 percent of GDP in Southeast Asia’s top economy, so its inability to broker a deal to resolve this dispute must be painful.

Freeport still beat Wall Street estimates in its third quarter results on Wednesday, but said production and sales were adversely affected, to the tune of 70 million pounds of copper and 100,000 ounces of gold. That’s $165 million worth of gold alone at today’s prices .


After one of Suharto’s first laws was to allow Freeport in, a 1991 contract and the discovery of the massive Grasberg mountain deposit led to very close relations between Freeport chairman James Moffett and Indonesia’s leaders.

.....party blurb colour from the 1990s...

Now, politicians regularly make noises against foreign investment and there is a split between those who are pro-international capital and those who favour not just subsidies and protectionism, but resource asset expropriation.

A new energy and mining minister, Jero Wacik, inaugurated on Wednesday to replace Saleh, said one of his first priorities was to renegotiate “too unfair” production sharing contracts.

“Maybe now, because there is so much criticism with regard to the contract of work, and not just Freeport...by some of the politicians and NGOs, so the government doesn’t want to show their close relations with foreign investors, especially the mining industry,” said a Indonesia mining consultant.

“I don’t think there is a special relationship between Freeport and the government. In the past yes, but that sometimes can be a burden for Freeport rather than a positive. People can be suspicious that a previous contract was based on relations at that time, and too good for Freeport,” he said.


Security consultants say that it is essential for resource firms in Indonesia to mitigate such problems having open lines of communication and good ‘corporate social responsibility’ programmes, in a country that is among the most graft-ridden in Asia, and where local communities often demand a share of profits that are not returned to them by central government.

Freeport appears to be doing the latter. Last year alone it spent $155 million on various sustainable development programmes in Papua, including nearly $70 million on community development in one of the country’s poorest regions.

Yet with gold prices at record highs, and Grasberg having the world’s biggest gold reserves, workers have demanded more than 10 times their current pay of $1.50 an hour.

The workers union, which has held pay talks with the firm mediated by government, says Freeport’s relationship with the government is very close, but authorities were spoiled by the money and local leaders were not able to manage the region.

“The way they let Freeport do things, such as firing people at will, forcing workers on strike to work, hiring new people to do the work are against the manpower law, but Freeport did not get a strong warning for doing so,” said Juli Parorrongan, spokesman for the union.

“I think the local government doesn’t want to or cannot manage the rich resources of Papua... We don’t even have a water company here,” he said. “The local government is either too spoiled by Freeport’s presence or doesn’t have the ability to manage these resources.”

Local people, who often walk barefoot and cannot afford the smartphones that Freeport’s copper helps make, are disappointed with both Freeport and the government. They lost their land to hunt or plant vegetables, and yet did not get the benefits of development such as electricity in return, Parorrongan said.

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