Freeport Indonesia Case Study

Issue No: 80 January-April 2012

By Abu Mufakhir

Introduction

Extractive industry is a strategic sector for supplying raw materials for other industries. There is no modern economy can operate without any access to adequate, affordable, and safe raw materials produced by extractive industries. In general there are four characteristics of the extractive industry that distinguish it from other industrial sectors: (1) Extractive Industry processes non-renewable raw materials, therefore the raw materials in the industry are reduced and limited; (2) extractive industry has a bound with production sites with its local and specific nature right in the places where raw materials are available; this drives competition to get locations are potential with limitless raw material resources; (3) extractive industry is both capital-intensive and technology-intensive sector, therefore only companies with substantial financial support can operate; (4) extractive industry has more horrible ecologically destructive force than other industrial sectors. For example, Newmont Oil Company in Bima district in the eastern part of Indonesia, produces 140,000 tonnes of waste per day, means 21 times the daily solid waste of Jakarta city. These four characteristics are enforcing different development of extractive industry from the industries of other sectors.

This article attempts to describe the reality of extractive industries in Indonesia under the control and domination of transnational corporations, that making wealth in an unimaginable amount from a mining hotspot where the majority of the population are in poverty, experiencing various kinds of land-grabbing, eviction from their communal land, and the workers earn low wages with poor working conditions. The article puts the extractive industry in the context of relation between the state and the massive expansion of transnational corporations (TNCs) in order to obtain raw materials for profit, where TNCs do land-grabbing and natural resources by using the imperative power of the state, either through the establishment of regulation, as well as the mobilization of the state-owned violence means. In the accumulation of extraction industries, the land-grabbing to get raw materials resources currently is an inherent and dialectical process. The case of Freeport Mc-Morran Copper & Gold Inc will be elaborated as a case study.

General Overview of Extractive Industry in Indonesia

Since it has raw materials resources, the government considered the extractive sector as the most strategic sector to earn foreign exchange. In that context, the Government implemented a policy of export-oriented economy and provided discretion for foreign capital. For example, of the total copper production in 2002, 1.17 million tons or 78 per cent was exported, just as to the gold, from the production of 142.2 thousand kg, as much as 73 per cent was exported.[1]Indonesia had become the largest tin exporter that supplied 40 per cent of the world's tin[2]. In 2011, Indonesia produced 290,000 tonnes of coal, 72 per cent for export market.[3] In 2011, when Indonesia's export grew 13.6 per cent - it is beyond its historical average rate of 7.5 per cent. Mining sector had been counted for Indonesia’s high exports, particularly coal, while the manufacturing, textiles, and agricultural sectors had relatively slowed down and experienced a decline.[4]

Like many other natural sources-rich countries, Indonesia extractive industry is also under the control of foreign capital. For example, 85.4 per cent of the 137 management concessions over oil and gas fields in Indonesia owned by foreign multinational companies.[5] No less than 10 transnational oil companies are operating in Indonesia, such as Caltex, Exxon, Petrocina, with the production reached 921.487 barrels per day in 2004. Seventy five percent of the mining sector, particularly oil and gas, is controlled by foreign capital.[6]

The situation was started from the destruction of Soekarno era, with their guided economic policy throughout 1958-1965, during which time the state conducted interference toward the market and destroyed the dominance of foreign capital. Soeharto’s authoritarian regime that was commenced in blood, has initiated the return of more aggressive capital expansion up into the remotes of Indonesia for the second time after the colonial period. During the Soeharto regime, there are at least three Acts passed soon after one-year of ruling: Law No. 1 year 1967 concerning Foreign Investment, Law No. 11 year 1967 on Basic Provisions of Mining, and Law No. 5 year 1967 on Basic Provisions of Forestry. These three laws got rid of all the policies produced by Soekarno’s era that hindered foreign capitals. Since then, the management of extractive industries was being regulated (freed from any form of state intervention that inhibiting) so that foreign capital has exclusive access to land and the raw material resources, through a mechanism called the "Contract of Work”.

At the same year of the passing of the three laws, the Gold Mining Company, Freeport Indonesia received a "Contract of Work" as a license to operate and starttheir exploration in Papua. The Agreement between the Government of Indonesia and PT Freeport-was called 'First Generation Contract of Work” which was given only to Freeport.[7]

When Soeharto regime toppled down in 1998, there has been decentralization with the implementation of the Law No. 32 year 2004 on Regional Autonomy (Otonomi Daerah). The goal was to reduce the authority centralized in Jakarta, and to distribute it to the regions. Yet, in fact, what happened was the distribution of power in the hands of oligarchsat the local level. Law No. 32/2004 on Regional Autonomy, Article 13 provided “optional” authority to the local government toward the management of mineral and coal mining. This was later confirmed by the issue of Mining Regulations year 2008, which provides discretion to local authorities to issue Mining Authority. It triggered the grabbing of raw material resources in the outposts become increasingly disclosed. This condition continued with the enactment of Law No. 4/2009 on Mineral and Coal Mining that made the Law No. 11 year 1967 did not apply. The presence of Mineral and Coal Mining Law, to honour the previous contract, did not at all encourage (even just) renegotiation of contract compiled during the Soeharto regime. It was in contrary emphasizing that the contract made in the Soeharto regime should be applied until the contract was completed. Law on Mineral and Coal Mining only changed the regulation of Mining Authority into Mining Permit that expanded the authority (based on the regional scale) to local governments.[8]

Recent Mining Permits issued by Regions and Cities

Province

Number of Mining Permit*

Number of Contract in Oil and Gas Mining

Poverty (percentage)**

Urban

Rural

South Sumatra

189

29

16.73

14.67

Bangka Belitung

303

-

4.39

8.45

East java

209

24

10.58

19.74

East Kalimantan

788

25

4.02

13.66

South Kalimantan

261

2

4.54

5.69

Aceh

75

4

14.65

23.54

East Nusa Tenggara

56

1

13.57

25.10

Papua

9

22

5.55

46.02

*According to Directorate General of Oil and Gas, Ministry of Mines and Energy, 2011

** Central Bureau of Statistics 2011

Source: JATAM

As a result, after the legalization of the Mineral and Coal Mining Law, thousands of Mining Permit issued by local governments. In 2011 there were about 9,000 permits issued by the regions and cities. That means, from about 30 regions and cities that had the potential of mining, they had issued about 300 permits in average.[9] At least every day 6 to 7 mining permits were issued since 2008, and there were 5,171 permits from 8,263 categories of Clean & Clear based on the Mineral and Coal Mining Law.[10]

The integration of Indonesia's economy into global market, as well as the decentralization policy in terms of the distribution of power to facilitate business groups allied with local oligarchy to ease the deprivation of natural resources, are the characteristic of current extractive industry. Behind the extractive industry, since the enactment of Law No. 11/1967 and then replaced the Law No. 4/2009, JATAM recorded that at least 60 people killed by violent state-forces, in addition to 148 people imprisoned and put in trials with various reasons and allegations of having disturbed the mining investment. Many examples of cases on how corporations in extractive industries commit land-grabbing, eviction of indigenous peoples, environmental degradation, as well as implementing low wages. Among these cases, I will elaborate the case of Freeport Indonesia, a subsidiary of Freeport-McMoran Copper & Gold Inc. (FCX), called as the pioneer of foreign investment by Soeharto.

Freeport-McMoran Copper & Gold Inc:The Ultimate Killer of Local People

Freeport-McMoran Copper & Gold Inc has a subsidiary in Indonesia to operate in the country. Freeport Indonesia (hereafter Freeport) is a gold mining company with the most massive land concessions. Since 1991, through the extension of second contract, benefited with the area concession of ​​2.6 million hectares, Freeport had expelled people from their land. One of the indigenous communities around the Freeport area was Amungme Tribe, whose almost entire region has now become Freeport’s concession area.[11]

Currently, a total of 22 thousand people working in Freeport, 98 per cent are citizens of Indonesia and 28 per cent of Papua. Workers in the operating divisions work at an altitude of 4,600 meters above sea level with weather swings between high rainfall and extreme cold. They worked for an average of 12-14 hours per day. This excluded the threat such as mysterious shooting terror. Meanwhile local workers and Papuan were discriminated in terms of wages and facilities from expatriates. In particular, Papuan are often employed in indecent and disrespectful divisions, such as sweeping street and aviation field, with their almost nothing payment of Rp 40,- (USD 0,004) per hour or sometimes was just paid with grocery items such as corned beef, cigarettes, and tobacco. 

Since 1967 to 2010, Freeport has produced 7.3 million tons of copper and 724.7 million tons of gold. As of per 2011, their ore reserves of 2.6 billion tons in total. Roughly speaking, these reserves can produce 2.418 tons of gold. If the gold price is Rp 550 thousand per gram, the total value of the reserves is Rp 1329 trillion, almost equivalent to the amount of 2012 national budget of Rp1.435 trillion. The profit of Freeport Indonesia has contributed 50.75 per cent of total revenues of its parent company, Freeport McMoran Copper & Gold Inc. (FCX). FCX is the largest shareholder of Freeport Indonesia (81.28 per cent), other shares owned by PT Indocopper of 9.36 per cent, and by the Government of Indonesia of 9.36 per cent.

Despite Freeport's Grasberg mine in West Papua has the only largest gold reserves in the world and the largest copper deposits ever discovered13, it has nothing to do with the improvement of Papuan’s welfare. Papua remains the poorest province in Indonesia, with the highest risk of illness and death, and most violence by military throughout the country. According to the BPS (Statistics Central Bureau), the population of Papua that was at the poverty line reached 944.79 thousand people in 2010, while the number of unemployment increased from 53.6 thousand in August 2010 to 60.5 thousand people, with open unemployment of 3.94 per cent in August 2011 from 1.17 million of labour force. The poverty rate in Papua is also far exceeded the national average of 13.33 per cent.

During 42 years of operation, Freeport has spawned enormous ecological damage. Freeport's daily mining operations dispose 230,000 tons of rock waste into Aghawagon River and rivers around. The acid rock drainage - or the disposal of water containing acid- as much as 360000-510000 tons per day has ruined two valleys which include 4 miles (6.5 km) to a depth of 300 meters. The Exploration of the Grasberg reserves is estimated to produce 6 billion tons of industrial waste.[12]

Freeport that has employed more than 1000 security guards, through its status as a vital national asset, received protection of 700 police personnel, Mobile Brigade unit, and the military, even the special forces. Therefore, since 1998-2004, Freeport has expensed funding for the Police / Army amounted to 20 million dollars.14 Amount of money for security forces’ meals during 2001-2010, according to the Indonesia Corruption Watch (ICW), was amounting to 79.1 million dollars.

The Struggle of Freeport Workers[13]

On July 4, 2011, at least 8000 workers of Freeport Indonesia went on strike and faced by 349 heavily armed police personnel, together with 40 personnel members of the Detachment B Mobile Brigade of Papua Police completed with the Barracudas. The police argued that what done by Freeport workers was not on strike but protests and demonstrations, which not allowed to be done at the national vital objects, and Freeport is a vital national object.

The strike was triggered by the rejection of negotiations by the management due to the dualism occurred in the union leadership. In addition to refusing to negotiate, the management unilaterally terminated members of union board, including those who conducted negotiation. There the union filed a change in the concept of remuneration taking into account the working conditions, years of service and corporate profits. Initially, the union (PUK SPSI) proposed the remuneration package for level 1 to Level 3 by 35 dollars per hour - 200 dollars per hour, then fell to 17.5 dollars per hour - 43 dollars per hour. Meanwhile, Freeport insisted the concept of percentage wage. The management offered an increase of 16 per cent, turned to 22 per cent of basic payment. At that time the wage of Freeport workers was only 1.50 s / d 3.50 dollars per hour, while the lowest wage of Freeport workers in the world between 30-50 dollars per hour.

The strike continued for nearly six months, since the first strike in the late June, and resumed in September and extended until mid-January 2012, and recorded as the longest labour strike and involved the largest mass in the labour movement after Soeharto era. During the action, a support from workers and non-workers was getting greater in Papua. Participants of strike increased in number from 8 thousand to 12 thousand of workers from total of 22 thousand workers in Freeport. Supports also came from indigenous communities in Mimika regions, such as Tribe of Amungme, Kamoro, Damal, Nduga, Dani, Moni and Ekari. Solidarity echoed even to other countries.They questioned the wage discrimination and unfair work contract. While labor organizations and non-governmental organizations in Jakarta, Mojokerto, East Java, and Yogyakarta took rallies to condemn Freeport union busting practice, some foreign trade unions, such as the United Steelworkers,USA and the International Chemical Energy and Mining (ICEM), deplores the response of Freeport and repression the state apparatus in facing the strike. Occupy Phoenix and the Industrial Workers of the World in America also take action against the criminal acts in Freeport Indonesia.

On the grounds that Freeport is a vital national asset, the strikes were then prevented by various means. Mimika District Police, Papua charged the strikers with criminal incitement, vandalism, theft, and disturbing public interest. Pressure on the strikers was also carried out by means of terror in the form of mysterious shootings. KontraS recorded during the strike there were 11 shooting with seven Freeport workersdied, not to include  two victims from traditional mining area. Until today the authorities failed to investigate the shooters. The experience of Freeport workers in conducting strike teaches that labour strikes should be well-prepared. Strike participants involve traditional miners, contract-based workers as well as permanent workers. They also made alliance with trade unions and non-governmental organizations outside Papua. Freeport Union also run a campaign strategy, by audiencing with the House of Representatives, National Commission of Human Rights, and even writing letter to the President. On the field, workers combinedany forms of sabotage, marches, blockades and work area occupationto fight. Although, on December 14, 2011 reached an agreement to increase the basic wage by 24 per cent in the first year and 13 per cent in the second year, the value of the deal is far below the initial demands.

Agenda for the Labour Movement

Expansion on extractive industry means a capital geographical expansion on the land, since the extractive industrial activity is the extraction of dredged soil to obtain raw materials until no more remaining selling value. Corporations in the extractive industries are even allowed to operate within protected forests, allowed to evict migrant people’s territories and territories cultivated by indigenous peoples for generations, freed to violate human rights and commit environmental pollution vividly, allowed to produce any kinds of exploitation and cultural, social, and historical damages as a part of its accumulation practices. Extractive industry (read: capitalism) considers land as commodity, so they tend to disregard social bound between the people and their land. The Community release from their land is similar to the release of social bound within them, which led to the destruction of the life survival joints of the community itself. In this case, the exploitation victims of the extractive industry are community that lost their living space.

On the other hand, the exploitation of waged labour, in the form of poor working conditions and low wages happened. Both sides are the result of capital accumulation. Bring forth spirit to fight, which commonly divide social movements. Victimized communities fight against the destruction of their living space, consider the mining as a matter of themselves. That is why the mines must be closed. Meanwhile, the labour movement that represent the type of exploitation of waged labour, demand the mining companies to improve the workers’ welfare. This is the same as demanding the mining to remain operating. In this context, trade unions need to find organic relationship between the struggle for living space and work space. When trade unions continued to limit the issues in the work space, without engaged against the damage of the living space caused by work place, the trade unions then enter the elite-class politic of devide et impera (divide and rule) which creates horizontal conflicts between the work space versus living space, or even contributed to legitimize the exploitation of people's living space around the workplace.

Endnotes

* I would like to thank JATAM (Jaringan Advokasi Tambang-Mining Advocacy Network), especially Siti Maimunah who has willingly discussed the practices behind the extraction industry in Indonesia.

1) Salamudin Daeng, Penjajahan dari Lubang Tambang. Temali Modal, Utang dan Pengerukan Kekayaan Tambang Indonesia, Jakarta: Jatam, 2009, p. 10

2) Jatam, “Executive Summary” in Outlook 2012,Mining in Indonesia. Mine and ATM/Dirt of Politics, forthcoming.

3) http://www.esdm.go.id/

4) Bank Indonesia, Annual Report. Available online:   http://www.bi.go.id/web/id/Publikasi/Laporan+Tahunan/Laporan+Perekonomian+Indonesia/lpi_2011.htm  Accessed on May 16 2012.

5) Salamudin Daeng, p. 7

6) Ibid

7) Ibid, p. 26

8) In the Stipulation No 23 year 2010, a derivative of the Mineral and Coal Mining Law, the administration of IUP rocks carried based on the regions’ application. Application of the regions is any business enterprise, cooperative or an individual whowants to have IUP mustsubmit a request to the minister, governor or regent / mayor in accordance to their authorites. The divisions of authorities are: Minister of Energy, for  area application across-province or marine-territory of ​​more than 12 miles of shoreline; governor, for area application located across the region/ city in a provincial or marine territory of 4 to 12 miles ; regents / mayors, for area application withinregion/ city or marine territory up to4 miles. In a maximum of 10 working days after the application received, ministers, governors, orregents / mayor  must give a decision to accept or reject the request for WIUP. Sources:Stipulation (PP) No 23 year 2010.

9) Majalah Tambang, available online: http://m.majalahtambang.com/detail_berita.php?category=18&newsnr=5227

10) Jatam, loc.cit.

11) Amiruddin and Aderito Jesus de Soares, “Perjuangan Amungme. Freeport dan Militer (The Struggle of Amungme Tribes: Freeport and Military), Jakarta: Elsam, 2003

12) Al Jazeera, available online:http://www.aljazeera.com/indepth/opinion/2011/08/2011823133628702154.html, accessed on 17 May 2012.

13) This part is summarised from LIPS, Annual Labour Update (2011), in Sedane Labour Journal, Vol 12, No 2, 2011.

International Journal on Minority and Group Rights

Coverage: 1996-2012 (Vol. 4, No. 1 - Vol. 19, No. 4)

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ISSN: 13854879

EISSN: 15718115

Subjects: Law, Political Science, Social Sciences, Law

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