Source: The Jakarta Globe – Is Freeport Doomed?
By Yanto Soegiarto, October 25, 2011

Unless it makes concessions both to Indonesian workers and the government, Freeport is done for.

And if the government isn’t serious about handling the Papua problem comprehensively, the company is finished.

Since July 2009, at least eight people have been shot by unknown gunmen and more than forty have been injured in the area. The last spate of violence was sparked by a strike by workers demanding higher wages.

The latest meeting at Hotel Rimba in Timika between workers and Freeport management, who were represented only by Freeport’s local staff, ended in deadlock.

And Freeport won’t accommodate the government’s wish to review the long term contract, which does not end until 2041.

House members from Jakarta met with Freeport workers, but nothing was achieved. At the same time, Freeport insists that workers must cease blockading key roads before any negotiations take place.

The workers union wants a minimum wage of $7.50 an hour, which would be more on par with Freeport workers in other countries. They had initially asked for $17.50 an hour. The workers are also demanding that Freeport pay the striking workers full back wages to Sept. 15, the start of the strike.

Now there is no solution in sight. Meanwhile, a greater danger looms.

Unless top leaders from Freeport and Indonesia sit down together to discuss the future of Freeport and security in Papua, the region will become a hotbed of violence and death and foster the rise of a larger scale separatist movement.

Freeport could shut down causing Indonesia to lose billions of dollars in revenues, or even Papua itself, the most resource-rich region in the country.

Local grievances with the mine have existed for a long, long time. Freeport’s operations have shaved hundreds of meters off the Puncak Jaya mountain to extract copper and gold from some of the world’s largest reserves. In doing so the company has caused massive environmental damage, which has had a negative affect on the local tribes.

Sukarno & Suharto

On Dec. 19, 1961, then-president Sukarno launched the Trikora military operation, to be led by then-major general Suharto, to command the Mandala Military Operations to free West Papua from Dutch rule and prepare the region’s inception into Indonesia. In 1963, the Dutch handed over West Papua, then Netherlands New Guinea, to the United Nations to become part of Indonesia. But Sukarno had always rejected any mining plans in Western Papua.

In 1966, after Suharto became president, his New Order government invited Freeport to Jakarta to begin negotiations on the first mining contract to extract gold and cooper. In 1967, Indonesia and Freeport signed a 30-year contract to conduct mining operations. A clause in the contract allowed two 10-year extensions.

The decision at the time was justified on the grounds that Indonesia did not have the know-how, investment capacity or technology to operate the mine on its own. The mistake came after more than 24 years of mining exploitation. The Suharto administration signed another 30-year contract, also with two 10-year extensions, defying calls to end the contract by Indonesian, US opposition, the World Bank as well as other institutions.

The Kissinger Effect

Then US secretary of state and former Freeport director Henry Kissinger lobbied to get the deal done. Kissinger and his consulting firm received $600,000 from Freeport in 1994, according to the Los Angeles Times. Suharto, meanwhile, benefited from returns to favors he had asked.

In terms of fairness, the contract between Indonesia and Freeport needs to be reviewed. The government of President Susilo Bambang Yudhoyono has made it clear that Indonesia wants to review contracts with foreign companies based on fairness and honoring the sanctity of the contracts.

Freeport currently holds a 90.6 percent majority stake in Papua’s Grasberg mine while Indonesia only owns 9.4 percent. For the past 24 years, Freeport has exported at least $8 million worth of metals every day. Indonesia receives significant royalties and revenues, but that pales in comparison to what Freeport earns. Such injustice is why Indonesia wants for a greater stake in the mine.

Based on Article 33 of the 1945 Indonesian Constitution, the state controls the land, water and all natural resources, which can only be used to promote the welfare of the people. In this regard, both the Suharto administration and Freeport violated the Indonesian Constitution.

Where to Now?

The Freeport issue and the violence in Papua have become very dangerous, but Indonesia and Freeport are not serious about solving the problem. Settling the security issue would be simple, but the government must first provide welfare to the Indonesian military first. In the past, Freeport gave them $5 million for security purposes. The military won’t have a job if West Papua is secure.

And Freeport must make concessions to both the workers and the government. All parties must seek a win-win solution or it will be the guns, bows and arrows, and stones that will decide.