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The Controversy Over Renegotiation of Freeport's Contract of Work
The Controversy Over Renegotiation of Freeport's Contract of Work
Renegotiation is a simple word which seems to be easier said than done, especially if it’s related to multiple interests such as those expressed in PT Freeport Indonesia’s (FI) Contract of Work (CoW). Up to now, renegotiation has remained a subject of controversy, without ever becoming a reality. The word ‘renegotiation’ is treated like a lethal plague that will bring the end of investments to a country deeply buried in economic crisis. On the other hand, if we take a good look at its history, the making of the CoW, and the impacts that Freeport has caused, there is simply no reason to fear the word ‘renegotiation’. In fact, rather than a curse, the word might well turn out to be a blessing that might bring an end to the serious impacts longsuffered by the Papuans.
FLAWS IN THE CONTRACT OF WORK
The government’s blunders in this case started with the signing of the First CoW in 1967. PT Freeport Indonesia’s gold and copper mining operation in Papua was the very first mineral mining activity to enter Indonesia in the New Order regime. As the ruling authority, General Soeharto made considerable regulative and political moves in order to back up foreign investment on the land of the indigenous Amungme and Komoro people. Exactly three months after the release of Act (UU) No.1/1967 on Foreign Investment, the government took on the role of an independent law agency and signed a contract of work on mining with Freeport Indonesia Incorporated. The foreign company was established under the state law of Delaware, in US. The said contract of work signed on April 1967 was what would later be known as the First Generation Contract of Work (KK I).
Several points in the process of the signing of the CoW are of particular interest and need to be reviewed. First of all, the CoW was drafted and signed before the Act of Free Choice (PEPERA). Moreover, it was signed before West Papua gained international acknowledgement as a part of Republic of Indonesia. Thus, it can be said that through the birth of Freeport’s CoW, the Indonesian government and the company conspired to illegally claim Papua ’s territory.
However, apart from the legitimacy of PEPERA and the merging process of West Papua into Indonesia, the fact remains that there were still groups of Papuans that rejected the merging of West Papua into Indonesia. Therefore, it can also be said that Freeport’s CoW was illegitimate since it was not signed with the party holding legitimate authority over the area.
In addition, the CoW was also drafted and signed without any participation from the local Papuans. There was no consultation process, participation, and not even any chance to hear their opinion of the planned mining activity.
Legally, Freeport’s CoW was illegitimate because it was signed during an uncertain political condition in Indonesia due to the transition from the Old Order to the New Order regime. The Contract of Work agreement was given by General Soeharto on the basis of his position as Head of Presidium of the Ampera Cabinet. This remains as another proof of the instability of the Indonesian government system at the time.
The advisory decision contained in the preamble to the Presidium Cabinet Decree No. 82/EK/KEP/4/1967 makes it dear that the principal basis for contracts of work was Act (UU) No. 1/1967 concerning foreign investment, and not the mining regulations in effect at the time. These regulations should have been honored by the government. According to these regulations, Indonesia was actually closed for foreign investment in mining.
In December 1967, the Act (UU) No. 11/1967 on mining was put into effect. One of its articles regulates foreign investment in the mining sector. Despite this, FI and the government did not immediately revise the CoW to comply to the new regulations, which both parties were obligated to honor. The CoW also stated that copper was the mineral agreed to be mined by FI. However, after several years of exploitation, Freeport decided to also mine the existing gold—a mineral that was not even regulated in the CoW.
Moreover, the CoW itself was made without proper planning/calculation by the government. Several crucial points concerning the company’s standard operating procedures and obligations were not even listed in the contract.
Crucial obligations that are not listed in Freeport’s CoW are: the company’s obligations to protect the environment in accordance with international standards; the calculation and pricing on the value of the mineral as local assets; the obligation to pay royalties to the government; the obligation to pay environmental tax; the obligation for mine closure; and the obligation to cooperate with locals living in the mine area. Thus, it can be concluded that, in the CoW, the government has placed itself in a sub-ordinate position to the company. It is, therefore, no surprise that the government finds it difficult to enforce sanctions on the company’s horrible performance all these years.
Six years prior to the end of the First Contract of Work, the government and the company renewed the Contract of Work, which was signed in December 1991 (later referred to as the ‘91 Contract of Work). From the process and the substance regulated in the contract, the ’91 CoW posed some serious problems to the interests of the Papuans and the environment. Several weaknesses of the ’91 CoW are:
The ’91 CoW was signed at a time when Freeport was carrying out gold mining activity de-facto, since gold was not even regulated in their 1967 CoW. To make it worse, the ’91 CoW was even signed six years before the end of the ’ 67 CoW, a fact that put the whole process of the contract under severe scrutiny. Corruption, collusion and nepotism have long been associated with Freeport’s CoW. Questions related to composition and ownership of the company’s shares have long been discussed publicly. The government should have looked into these questions.
Like the ’67 CoW, the ’91 CoW was signed without prior consultation with the local Papuans, which eliminated the locals’ obligations to respect or abide by anything regulated within a contract they did not make or were even aware of.
The ’91 CoW did not regulate any obligations for the company in environmental protection and management, mine-closure procedures, acknowledgement of the rights of the indigenous people, and the interests of the locals which should be facilitated by the company and the government.
WHY RENEGOTIATE?
The suffering of the Papuans (especially indigenous tribes of the central mountain slopes) brought by Freeport, and Papuans’ resistance against the company’s government-backed operation, will never cease as long as the real problem remains unacknowledged. Principally, it is because the locals themselves have never been invited to actively participate in any conflict resolution process. All of the government’s and Freeport’s efforts in conflict resolution have only brought new problems and added to the intense communal anger. Similarly, numerous efforts have been taken to stop the locals from expressing their grievances. Violence, giving 1% fund to the community, money politics practices, and community development programs sponsored by Freeport will never stop the Papuans from making their griveances known. In fact, these efforts have led in many cases to human rights violations, horizontal conflicts (tribal wars) cultural degradation, and the increase of violence against women.
All the weaknesses and flaws in Freeport’s First Generation CoW in 1967 and the Second Generation CoW in 1991 have brought only pain and destruction to the local Papuans, which some of them can largely be attributed to the company’s horrible performance.
Environmentally, the company has caused severe devastation to the local landscape mostly due to its excavation activities. Grasberg Mountain is one example. Soon, it will be nothing but a gigantic, 700-meter deep, hole in the ground. The same thing can be said about Lake Wanagon, a sacred lake of the local Amungme and Komoro tribes. Presently, the lake has been turned into a huge, dangerously acidic, waste rock pile. Furthermore, the company’s mining operation also contaminates three main river bodies, far upstream and downstream of Timika. The three rivers, Aghawagon River, Otomona River, and Ajkwa River are used as the company’s tailings (fine crushed rocks remaining after production) dumping points. The damage and contamination to these rivers kills off all life forms living within them and disrupts the fate of those dependant upon the river. To make it worse, reports show that tailings dumping has also reached up to the east of Ajkwa—the Kopi and Minajerwi Rivers. The impacts of the tailings themselves have been observed down and along the coast of Timika. In addition, dangerous acid mine drainage which can cause serious health effects if found in the food chain has widely contaminated the local ecosystem.
Disasters resulting from the company’s negligence have also caused nightmares to the locals and environment. Lake Wanagon is an example of this. The dam costructed here has failed three times (20 June 1998, 20-21 March 2000, and 4 May 2000) due to the company’s excessive overburden dumping. The lake was forced to sustain the company’s massive overburden dumping until the dam failed, causing severe floods, impacting environment and villages located below the lake. The Ajkwa River flooded under similar circumstances. The river could no longer contain the massive amount of tailings dumped by the company daily. The flooding, along with its impacts, reached up to the Kopi and Minajerwi Rivers. All of these incidents are living evidence of Freeport’s severe operational negligence.
Due to the numerous flaws in the ’67 CoW and the ’91 CoW, Freeport has managed to get away with all the disasters it has brought to the Papuans. Therefore, the most suitable solution to end the ongoing crisis in Papua is to re-negotiate Freeport’s CoW. The renegotiation must involve the government, Freeport and the local Papuans directly impacted by the company’ s mining operations.
Moreover, the two CoWs are obviously flawed both politically and legally. This means that all of Freeport’s mining activity and the state income gained from that activity are illegitimate—both from the legal perspective and for the interests of the Papuans. Therefore, a fundamental change is needed, which can only be accomplished through renegotiation.
Renegotiation is actually not a taboo in Freeport’s history. Between 1974-1984, Freeport and the government have amended the contract several times, especially on points regulating royalties and sharedownership missing in the ’67 CoW. In fact, a renegotiation did take place in 1991 when Freeport discovered a large gold deposit in Grasberg. This means that juridically a precedent has been set, and thus, renegotiation can no longer have negative legal implications against for the Indonesian government.
So, what “curse” is there to fear now?! [ChM]
For more information, please contact:
Igor O'Neill
Workphone: +62 21 794 1672
Mobile: +62 81 286 12 286
Created: 01 Jan 1970 | Last updated: 05 May 2004
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