Business as Usual?

illustration by Doug Potter

How did Freeport- McMoRan Copper & Gold win the contract to mine Busang, a gigantic gold deposit on the island of Borneo worth at least $25 billion, that virtually every other gold company on earth wanted?

Securities analysts are crediting Freeport's experience in Indonesia and their proven ability to operate a large mine -- like their huge Grasberg operation -- in a remote location. However, the deal that gave Freeport a 15% stake in Busang is being scrutinized here in the U.S. and in Indonesia for evidence of corruption.

In addition to Freeport's appearance out of nowhere in the Busang sweepstakes ("Naked City," Feb. 21), questions about the deal are being fueled by two things: the reputation for corruption in the regime of Indonesian President Suharto, and the ownership of the venture created to mine Busang. Freeport will operate the project and own 15%; the Government of Indonesia gets 10%; Bre-X Minerals, the Calgary-based company that discovered the deposit 16 months ago, gets 45%. The remaining 30% will be shared by two Indonesian companies -- P.T. Askatindo Karya Mineral and P.T. Amsya Lyna -- that are controlled by Suharto, Suharto's son Sigit Harjojudanto, and billionaire and Suharto confidant Muhammad "Bob" Hasan.

Hasan is Suharto's closest business associate. A timber and banking magnate who owns all or part of more than 200 companies in Indonesia, Hasan also heads a company called Nusantara Ampera Bakti, more commonly known as Nusamba. He and Suharto's son, Sigit, each own 10% of Nusamba, with the other 80% owned by three foundations headed by Suharto. And according to a Feb. 17 report by Reuters, Nusamba "holds a controlling interest of just over 50% in Askatindo and Amsya" -- the two Indonesian companies that will share the 30% stake in Busang. That would give Suharto just about the same ownership interest as Freeport, the mine's operator.

And there's other evidence that Suharto is being personally enriched by his interests in the Indonesian mining sector. In addition to Nusamba's controlling interest in Askatindo and Amsya, Nusamba recently bought a slice of P.T. Freeport Indonesia (PTFI), the Freeport-McMoRan Copper & Gold subsidiary which mines the Grasberg site on the western half of the island of New Guinea. In late January, Hasan brokered a deal to buy -- for $300 million -- a 4.5% stake in PTFI from the investment firm Bakrie Brothers. Bakrie was reportedly under intense pressure from Suharto to sell their interest in PTFI to Nusamba, and the sale came just a few weeks after a meeting attended by Hasan, Suharto, and Freeport CEO Jim Bob Moffett. The New York Times reported last month that the three met in December at Suharto's ranch outside of Jakarta.

Jeffrey Winters, an associate professor of politics at Northwestern University in Chicago who specializes in Indonesian affairs, says the sale of Bakrie's share of PTFI to Nusamba was not coincidental. "Everything you've heard about how corrupt Indonesia is in business practices is true," he said. Noting that Freeport has obviously had very good success in Indonesia, he asks, "How did they do it without paying anything?"

Winters hastens to add that he has no knowledge that Freeport has made payoffs to Indonesian officials. But he says that several groups in Jakarta are looking closely at the Busang deal. "In the coming years, we may see a very big scandal erupt," he said.

Federal regulators are also growing interested in American companies operating in Indonesia. On Feb. 27, Dallas-based Triton Energy agreed to pay a $300,000 civil penalty to the Securities and Exchange Commission (SEC) to settle allegations that the company's Indonesian subsidiary had made nearly half a million dollars in improper payments to Indonesian officials. Triton did not admit wrongdoing in the case, which was the first prosecution under the Foreign Corrupt Practices Act in 10 years, but SEC officials said other cases of foreign corruption are being investigated. When asked if Freeport was being investigated, an SEC spokesman said the commission is not authorized to confirm or deny any investigative activity.

But if Triton allegedly paid half a million dollars to facilitate the operation of a $24 million oil recovery project on the island of Sumatra, what might Indonesian officials demand for a gold mine worth $25 billion?

Freeport spokesman Garland Robinette did not respond to phone calls from the Chronicle.

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Other Freeport Developments

Freeport's Grasberg operation is once again being scrutinized by human rights groups. A report issued Feb. 5 by Jakarta-based ELSAM, also known as the Institute for Policy Research and Advocacy, found that three local women from the Dani tribe were raped by "three members of Freeport Security Unit." According to the report, the women were raped for "two (2) hours by the three Freeport security personnel, after the latter had succeeded to detain those Dani women in a container owned by Freeport."

The six-page report -- which was issued by ELSAM, one of the leading human rights watchdogs in Indonesia, WALHI, the umbrella group for Indonesian environmental groups, and INFID, an international association of non-governmental organizations -- says that the rapes triggered a riot between members of the Amungme tribe and the Dani tribe, which lasted for two days and resulted in six deaths. It also speculates that Freeport "had an `interest' in the riot," and claims that "There was even a strong indication that Freeport security apparatus intentionally left this disturbance unsettled so as to involve more Amungmes in this problem."

According to the report, Freeport is trying to undermine and confuse the lawsuit against Freeport which was brought by Tom Beanal, a leader of the Amungme leadership council, LEMASA. Beanal is the named plaintiff in a $6 billion lawsuit against Freeport that is now pending in federal court in New Orleans.

Emmy Hafild, the director of Jakarta-based WALHI, confirmed the report in a telephone interview with the Chronicle. "I think this is part of Freeport's effort to disintegrate the communities," he said. "There is an indication that the riot was made possible by the conflict between LEMASA and the Amungkal Foundation that Freeport has helped establish as a counter-organization to LEMASA." Hafild and several other observers close to the situation believe that Freeport funded the Amungkal Foundation in an effort to undermine the leadership of Beanal and LEMASA.

There are two other things afoot regarding Freeport: Last week, six American human rights and environmental groups issued a press release asking for a meeting with Freeport officials to discuss the human rights and environmental issues at Busang. The groups want Freeport to exclude the Indonesian military from the site, make sure local people have independent advocates, identify how it will minimize environmental and social impacts, and permit regular monitoring by environmental and human rights groups.

Stephanie Fried of the Environmental Defense Fund in Washington said the groups want to be assured that Freeport will "protect the rights of the indigenous people who are living in the region, and that there's careful environmental planning." On Feb. 26, Freeport issued a press release quoting Moffett as saying it "is much too early to discuss specific issues" relating to Busang. Moffett also faces a potentially sticky shareholder resolution at the company's annual meeting next month. The Seattle Mennonite Church has gained SEC approval to introduce a resolution which asks the company to do four things: postpone expansion of milling operations until local indigenous concerns are resolved; end company cooperation with the Indonesian military; allow for an independent environmental study of PT-FI operations; and publicly release the entire 1996 Labat Anderson social audit, the March 1996 Dames and Moore environmental audit, and all other environmental audits.

Bob Pauw, a member of the church's leadership council, said the church has had stock in Freeport Copper & Gold for several years. Pauw said that selling the stock would have been "a cop out. That may be an easy way out, to wash our hands," he said. "But to the extent that we are shareholders, it seems we have a responsibility to raise these issues and to address the issue of how the company is operating in another part of the world."

To read the text of the shareholder resolution and the report on the rapes in Tembagapura, go to UT professor Bob Boyer's webpage at: http://www.cs.utexas.edu/users/boyer/fp. You may also want to visit a new webpage on issues relating to West Papua that was created by another member of the "Freeport Seven," UT prof Alan Cline. Go to: http://www.cs.utexas.edu/users/cline/papua.

Correction: Yikes! Two weeks ago I mistakenly reported that videos on how to harvest rainwater were available through the Center for Maximum Potential Building Systems. Not true. If you want a booklet or video on cisterns, etc., contact the Conservation Section, Texas Water Development Board, Box 13231, Austin, 78711-3231.