Freeport's Cosy Indonesia Govt Ties Not Helping End Strike

JAKARTA, KOMPAS.com - When Freeport renewed its contract for one of the world’s biggest copper and gold mines, some of Indonesia’s top officials were on hand at the celebration, cheerfully applauding the CEO’s impersonation of Elvis Presley.

Some 20 years, and several Indonesian presidents, later, that cosy relationship with the government in Jakarta is doing little to help resolve one of the resource-rich country’s worst industrial disputes.

It may well be a hindrance. The strike at Freeport McMoRan Copper & Gold Inc ’s Grasberg mine in the remote eastern province of Papua shut down production in mid-September, though the firm says it is back producing at reduced levels after sabotage to its main pipeline on Monday.

The dispute over pay has also drawn in local tribesmen, with their own grievances over land rights and pollution, armed with spears and arrows to join Freeport workers blocking the mine’s supply roads for food and fuel this week.

The company’s relationship with the central government stretches back to the 1960s when autocratic President Suharto was in the early years of his long rule. It was a rule, which ended in 1998 in the wake of the Asian financial crisis, when a major project without involvement of the country’s elite was unthinkable.

Freeport still has close ties with a government that keeps tight military control over Grasberg, which holds more gold than any other mine in the world, and the rest of its easternmost and independent-minded Papua province, to safeguard its vast reserves of natural resources.

The snag now for the Phoenix, Arizona-based company is that Jakarta, lord of all the archipelago during the Suharto era, has since 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.

But Wijaya says the local government simply does not have the power to negotiate with Freeport. And the central government’s failure to help despite sending in officials to mediate, has only added to the resentment.

Indonesia’s government owns about 9 percent in Freeport Indonesia, which contributes 1.6 percent of GDP in Southeast Asia’s top economy, and its inability to broker a deal to resolve the dispute is painful.

Freeport still beat Wall Street estimates in its third quarter results on Wednesday, but said production and sales were adversely affected by the strike, 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 .

Tarnished gold

One of Suharto’s first laws after rising to power in the mid-1960s was to allow Freeport into Papua, then a new province of Indonesia. In 1991, a new contract was signed to tap the huge riches of Grasberg mountain.

In a sign of how close relations were with the government’s upper levels, several of its most powerful officials attended the huge party in Jakarta to celebrate the 1991 deal. The entertainment included an impersonation of Elvis Presley by the now chairman of Freeport, James “Jim Bob” Moffett.

These days, however, politicians regularly sound off against foreign investment and there is a clear split between those who are pro-international capital and those who favour not just subsidies and protectionism, but resource asset expropriation — a divide that reaches even to the cabinet.

The new energy and mining minister, Jero Wacik, inaugurated on Wednesday, said one of his first priorities was to renegotiate “too unfair” production sharing contracts, though he did not name any company.

“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, the government doesn’t want to show its close relations with foreign investors, especially the mining industry,” said one 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.

Handouts

Security consultants say it is essential for resource firms to get on better with local communities which often demand a share of profits that are kept by the central government.

Freeport says it is trying. 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.

But 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 too close and argues that the local authorities are ineffectual.

“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.

“The local government is either too spoiled by Freeport’s presence or doesn’t have the ability to manage these resources.”