Panorama from high up at the Grasberg gold and copper mine in Indonesian Papua on the island of New Guinea. Photo by Richard Jones/flickr.
Hans Nicholas Jong | Mongabay | 13 October 2017
- Through its local subsidiary, US-based Freeport-McMoRan operates the world’s largest and most profitable gold mine in Indonesia’s Papua province.
- Changes to Indonesia’s mining laws earlier this year raised hopes that Papua’s indigenous people might finally get a stake in the mine.
- With negotiations between the government and the company snagging on key issues, activists say these hopes may be premature.
High hopes that the world’s biggest gold mine will finally bring meaningful benefit to the community for which it has for decades been a source of contention have been deflated as negotiations hit a wall.
Freeport McMoRan Inc. (FCX) and the Indonesian government are currently hashing out the details of a long-term agreement for an extension of the company’s contract to operate the giant Grasberg gold and copper mine in Papua province, due to expire in 2021.
Freeport announced in August that it had agreed to divest a 51 percent stake in its Indonesian subsidiary, PT Freeport Indonesia (PTFI), in which it currently holds a 90.64 percent stake, following sustained pressure by the government to reform a mining sector long seen as not doing enough to benefit local communities or contribute to the national economy.
As part of broader changes to Indonesia’s mining law, the government has required that all mining firms build smelters in-country; convert their existing contracts into more flexible permits; and, for those with a foreign majority shareholder, divest a 51 percent stake in their operations to local partners within a decade of the mines coming into production.
Freeport’s announcement was cheered by Indonesians, many of whom believe the country has been getting the short end of the stick in its business dealings with foreign miners.
The indigenous inhabitants of Papua, in particular, welcomed the announcement, hoping the redrawn contract would finally address the impact of the company’s mining operations on the local community and improve their welfare.
But as negotiations between Freeport and the government stall over the terms of the divestment, the role Papuans will play in determining the future of the mining project is once again shrouded in uncertainty.
A map of the Grasberg mine in Papua. Image by AK Rockefeller/flickr.
Sharing the wealth
In 2016 alone, Freeport’s Indonesian operations generated $3.8 billion in revenue for the parent company. Yet despite having the world’s most profitable gold mine, Papua remains Indonesia’s poorest province, where 28 percent of the people live below the poverty line. It also has some of the worst infant mortality and literacy rates in Asia.
To ensure that some of the mine’s revenues trickle down to Papuans, Energy and Mineral Resources Minister Ignasius Jonan has said that up to 10 percent of PTFI’s shares should be reserved for the Papuan government and indigenous Papuan people.
But Freeport has balked at the details of the government’s plan to manage the divestment. In a letter dated Sept. 28, the company expressed strong disagreement with the valuation, timing and structure put forward by the government.
The government has proposed acquiring a majority stake in PTFI by the end of 2018, but Freeport wants the divestment to take place in stages over a period of several years. It also wants the first batch of shares to be offered publicly through the stock exchange, rather than allocated directly to the government.
The price is another sticking point. Last year Freeport offered to divest a 10.64 percent stake in PTFI for $1.7 billion, which would give a valuation of around $8.1 billion for a 51 percent stake. Jonan, however, has called for a much lower figure. Conflating FCX’s market capitalization on the New York Stock Exchange and its share of revenue from PTFI, the minister argues that the fair value for a 51 percent stake in the Indonesian operator should be $4 billion.
Any hopes for immediate benefits as a result of the divestment, particularly the promised 10 percent stake for Papuans, have diminished as a result of the impasse.
Maryati Abdullah, the national coordinator of mining sector watchdog Publish What You Pay Indonesia, said such disagreements should have been foreseen. “The contentions in the negotiation process were predictable. So any claims of victory after the divestment agreement [in August] were premature, given that there are still many details that haven’t been agreed upon,” she told Mongabay. “As long as there’s no written agreement, there’s a high chance that things could still change.”
A woman from the Korowai tribe, who live in southeastern West Papua in the Indonesian Province of Papua. Photo by Mari/flickr.
‘Our nature is damaged’
Community leaders in Papua argue they should be involved in the ongoing negotiations, regardless of whether Papuans get a share in PTFI.
A group representing various indigenous tribes affected by PTFI’s mining operation met with Jonan last month to discuss the issue.
“We hope we will be involved in the negotiation of the details of the agreement and that a good deal will be given be to the local people,” said Odizeus Beanal, a representative of the Amungme tribe, whose highland home is where Grasberg is located. “Our hope in the future is for an agreement to be reached for indigenous people.”
Also affected by PTFI’s operations are the Kamoro, a lowland people whose ancestral territory is the site of Freeport’s mining town of Timika. The Amungme and Kamoro have traditionally subsisted on sustainable agriculture, fishing and hunting. But the opening of the mine in 1967 disrupted their lives, stripping them of their rights to 100,000 hectares (247,100 acres) of their ancestral lands. They have been further displaced and marginalized by migrants from elsewhere across Indonesia drawn to the mining boomtown.
Indonesia’s National Commission on Human Rights (Komnas HAM), a state-funded body, said earlier this year that PTFI had never compensated the Amungme and the Kamoro as the original stewards of the land where it operates. It characterized Freeport’s concession as a land grab.
“The land that could be used to live on has been contaminated with chemicals,” Daniel Beanal, a Kamoro elder, told presidential staffers at a meeting earlier this year. “Our nature is damaged. The mountain is filled with holes. I’ve never received anything from Freeport.”
Beanal argued it would be best for PTFI to cease operations, a call echoed by another Kamoro elder, Nicolaus Kanunggok.
“Our aspiration is clear: to close and audit [PTFI] first. We’re not asking for a share, not even a single percent. Close the operation first, and then audit [them],” Kanunggok said.
The giant Grasberg open-pit copper and gold mine in Indonesian Papua on the island of New Guinea. US-based mining giant Freeport McMoRan, which operates the mine, was also granted an exemption from the 1999 Forestry Law. Photo by Alfindra Primaldhi/Wikimedia Commons
A recent report by Indonesia’s Supreme Audit Agency (BPK) identified a wide range of irregularities in PTFI’s operations and its current contract.
Eleven of the issues were attributed to weak management by the government, while 10 pointed to violations of regulations by PTFI. These include indications of reckless mining, and the dumping of mining waste into rivers, forests and the sea. An earlier review by the agency estimated the environmental damage from the company’s operations at 185 trillion rupiah ($13.7 billion).
PTFI spokesman Riza Pratama said the company manages its waste in accordance with the terms set out in the Environmental Impact Assessment (EIA) approved by the government in 1997. “We are operating in accordance with our mining contract and [mining waste processing and disposal] has been regulated in it,” he told Mongabay.
Noak Kapisa, the head of Papua’s environmental agency, said PTFI should pay for the environmental damage identified by the audit agency. “If the damage is done inside Freeport’s areas, then it has to fix it,” he told Mongabay. Kapisa also called on the government to revoke the company’s EIA, which is in the process of being renewed, if PTFI refuses to make amends for the environmental damage it has caused.
The BPK also found that Freeport had used 4,536 hectares (11,208 acres) of protected forest area without obtaining the proper permits, costing the government $20 million in lost fees between 2008 and 2015.
Riza declined to comment on this finding when asked by Mongabay.
View from the Grasberg open-pit copper and gold mine in Indonesian Papua on the island of New Guinea. Photo by Richard Jones/flickr.
Pitfalls and progress
As things stand, there is no guarantee of more environmentally sound mining operations once Freeport has relinquished a 51 percent stake in PTFI.
That’s because Freeport has insisted on retaining operational control of its subsidiary until 2041, even if the government holds the majority of PTFI shares. Should the miner get its way, Indonesia would have no leverage in the deal, according to PWYP Indonesia advocacy manager Aryanto Nugroho.
For instance, he argues, Freeport could refuse to pay dividends to the government by saying it needs the money to cover expenses like building a smelter, which it is required to do under the new mining law.
“Even if the government held the majority of shares, if FCX still retained operation control, what could we do? So there are traps like that,” Nugroho told Mongabay.
The government must ensure that Freeport pays all its obligations, including for environmental damage, before the divestment is done, says Henri Subagiyo, executive director of the Indonesian Center for Environmental Law (ICEL), an NGO.
“If the obligations are paid before the takeover, there won’t be many problems. But if the obligations [are held over until] after the takeover, then who would bear the burden?” Subagiyo told Mongabay. “If the government has the majority of shares, then the government would have the obligations [to pay for the damage]. If Papuans get a stake, they would bear the risk as well.”
Activists have urged the government to use the BPK’s findings as a basis in the negotiations with Freeport.
“These problems have to be probed further and discussed during the renegotiation process of Freeport’s mining contract,” said PWYP Indonesia’s Abdullah. “Environmental problems are no less important than other problems in the renegotiation, which are mainly financial, such as tax, divestment and the obligation to build smelters in Indonesia.”
President Joko Widodo has said the government is seeking a win-win solution as quickly as possible. But with neither side seeing eye to eye on the key issues, it remains unclear when the negotiations will conclude.
Additional reporting by Basten Gokkon.