Freeport - Rio Tinto: new reports expose impacts

Down to Earth No 69  May 2006

Investors:
Freeport-McMoRan Copper and Gold Inc., based in New Orleans, USA, and Anglo-Australian multinational mining company Rio Tinto.

Investment:
The Freeport - Rio Tinto joint venture, in which Rio Tinto invested around US$1.7 billion, exploits a massive open-pit gold and copper deposit in West Papua. It is one of the world's largest gold producers. The giant Grasberg mine last year produced 273,900 tonnes of copper, 1,676,000 oz of gold and 3,410,000 oz of silver

Profits:
Freeport's profits more than quadrupled in 2005, due to high copper and gold prices and high levels of production. Net income totalled US$995.1 million. Personal profits were huge too: Freeport's chairman, Jim Bob Moffet and Richard Adkerson, president and chief executive gained almost US$59m after taxes by cashing in stock options. This followed 2005 compensation packages worth a total of US$77.3m.

Rio Tinto's profits reached US$5.2 billion last year, with $232 million coming from Grasberg.

These corporate and personal gains contrast starkly with the fact that 40% of Papuans remain in poverty.

Revenues for Indonesia and Papua:
Freeport estimates it has provided more than $33 billion in direct and indirect benefits to Indonesia from 1992 to 2004. The company paid $1.2 billion in taxes, royalties, dividends and fees to the Indonesian government in 2005, with $64 million spent on community development projects around the mine. Local people say they have never enjoyed a fair share of this, and have instead suffered from the devastating environmental and social impacts. Indeed most profits go to Indonesia, not Papua: 87% are paid to the national government, with only 13% reaching the Papuan provincial and local governments.

Security payments:
Between 1998 and 2004, Freeport paid individual military and police officers and military units nearly $20 million. For local people, Freeport security translates as human rights violators: military guards have a long history of abuse, including torture, disappearances and killings.

Update:
WALHI has completed an investigative report on the environmental impacts of the Freeport mine, produced with the assistance of Down to Earth. The report documents severe environmental damage and clear breaches of environment law, based on a number of unreleased company and government monitoring reports, including an Environmental Risk Assessment never made available to the public.

The report reveals that freshwater aquatic life has been largely destroyed through heavy metal pollution and habitat destruction in the watercourses which receive tailings. Controlled tests and field sampling show that plants grown in tailings accumulate these heavy metals in their tissues, posing risks to wildlife that feed on them. The alpine portion of the Lorentz National Park World Heritage site, adjacent to the mine, is affected by polluted groundwater from Freeport-Rio Tinto's acid and copper producing waste rock dumps. Meanwhile, the coastal portion of the Lorentz National Park is affected by copper pollution through deposition of tailings released from the Ajkwa Estuary into the Arafura sea, and carried eastwards into the World Heritage area.

The English copy of the report is summarised and the full version available for download at www.eng.walhi.or.id/kampanye/tambang/frpt-report-may-06/

Parliamentary investigation

The Indonesian Parliamentary Special Investigative Commission on Freeport has been holding hearings in parliament over the past couple of months, and sent a delegation to visit the mine site and the town of Timika from the 4th - 7th of May 2006. Upon their return, parliamentarian and ex-environment minister, Sonny Keraf, confirmed the findings of WALHI's new report that millions of tonnes of hazardous waste had caused severe destruction to the Arafura coastline1. While visiting Timika, the parliamentarians met with Amungme leader 'Mama' Yosepha Alomang, who discussed environment and development issues associated with the mine. Yosepha also presented the commission with a briefing paper produced by Papuan NGOs Yahamak, a Timika-based organisation for the empowerment of women and children, and the human rights group ELSHAM Papua.

The Yahamak/ELSHAM briefing paper2 is the only recent independent report on social issues to emerge from the tightly controlled mine area. Read together with the WALHI report on environment al impacts, an unfortunate picture emerges of the current situation for local people and the environment. The Yahamak/ELSHAM report condemns failures of company-sponsored community development schemes, and documents the current security situation and the rise of small-scale mining activity in the Freeport-Rio Tinto concession area. The following is a summary of some of the key findings of the report.

Failures in community development

The Amungme and Kamoro Community Development Organisation (LPMAK) was established by Freeport to distribute money from the Freeport Partnership Fund, more commonly known as the '1% Fund'. LPMAK is governed by representatives from the company, government and local community. The funds are disbursed in conjunction with the Amungme organisation, LEMASA and the Kamoro organisation, LEMASKO.

The report claims that Freeport 'plays with' local organisations including Yahamak, LEMASA and LEMASKO, and that the company too often intervenes in NGO decision-making, with a 'we know best' attitude. The 1% Fund is cited in the report as a source of conflict: "What is this money for? Where does it come from? There is no explanation. Stick a leg of beef in the middle of the road and you make everyone fight. Even the dogs will join in."

Unfortunately, according to the Yahamak/ELSHAM briefing paper, the purpose of the funds is not clear. Is it 'riot money' paid to settle violence in 1996? Is it rent in exchange for traditional land rights? Or is it compensation for environmental damage? Yahamak and ELSHAM also question the process of disbursement of these funds, which they say is increasingly hazy:

"Unfortunately, in the development of its investment, PT Freeport Indonesia [PTFI] has provided minimal benefits for the Amungme and Kamoro peoples. On the other hand, the company has brought negative impacts through its exploration for gold and copper: tailings which destroy the habitats and ecosystems which provide livelihoods for the Amungme and Kamoro. It is unclear what the benefits are for these two indigenous peoples because there is no clear accountability in the community development process. Many progress reports which are produced by Community Development [of PTFI] are not in accordance with the real situation and problems faced by the community."

The report says much of the 'development' money is wasted on helicopter journeys, contractors who are not properly audited and training courses held in hotels.

There is a conspicuous failure to prevent conflict through providing appropriate benefits for the local people, the report says:

"The success of community development is not measured in the building of roads, bridges and buildings. Development is a success if people say 'I am prosperous, satisfied and peaceful'. If people are continuously demonstrating, if they are forced to pan for gold amongst the dangerous chemicals, then that's not a success."

Around 75% to 85% of the LPMAK funds are marked for education and health, yet the report asks, "Where are the Kamoro and Amungme university graduates? You can count with your fingers the number of graduates in the last decade. These are the people who are directly impacted. Where have the funds gone?" The briefing paper also cites data from the local public health service which shows an increase in the incidence of tuberculosis in the mine area over the past several years, 265 residents having been treated for tuberculosis since 2004. Local people's business ventures, such as seafood collection and export to Australia, and vegetable growing for marketing outside the area, are deemed to have failed for lack of support from the company.

Gold panning

The floatation method employed to extract metals from ore processed at the Freeport mine leaves significant quantities of gold, copper and other heavy metals in the tailings. What the briefing paper refers to as 'traditional mining' consists of panning for gold in these tailings, which Freeport-Rio Tinto disposes of into the Aghawagon-Otomona-Ajikwa river system. This gold panning began around the year 2000, apparently initiated by panners evicted from an earlier site in Nabire (in northern Papua, relatively far from the Freeport area), which was closed due to conflict between local people and outsiders.

According to Yahamak and ELSHAM, local people participate in gold panning because of the difficulty of making a living in the new industrial environment, particularly since most of the traditional landowners have little or no formal education. There are around 500 - 1000 people taking part in gold panning. They are mostly from the nearby Lani, Dani, Moni, Ekari, Damal, Nduga, Amungme and Kamoro indigenous peoples, although some participants come from as far away as Manokwari and Biak, and some are non-Papuan transmigrants.

Gold panning can be quite profitable: at the 'Mile 72' location near the Amungme village of Banti, only a few kilometres downstream from Freeport's tailings outlet into the Aghawagon river, a day's panning produces an average 6 - 10 grammes of raw gold particles, and a 'lucky' day can bring up to 20g. This raw gold is sold to Timika gold stores for Rp50,000 to Rp200,000 per gramme, depending on quality. This immediate income is very attractive, and even compares favourably with wages at Freeport, so that some off-duty staff take part in panning. Gold panning also takes place at locations further downstream such as Mile 50 and Mile 32. However gleanings at Mile 32 may total only 20 to 25g a month.

Dangers of gold panning

The authors of the briefing paper express concern for the long-term health of local people engaged in panning for gold in Freeport-Rio Tinto's tailings stream. They note that gold panners often forget to wash their hands before handling food, and that the alcohols and other processing chemicals present in the tailings can be ingested in this way. The main danger, however, is of gold panners working in the steep river valleys being swept away in flash floods or crushed in landslides. Yahamak and ELSHAM estimate that between 7 and 36 people have died in this way over the past few years.

Military and police extortion and illegal businesses

Gold panning is considered illegal because PTFI's 1967 Contract of Work grants the company the exclusive right for mineral extraction in the area. This 'illegality' enables the military and police to extort large sums from participants, by seizing panning equipment and releasing it in return for payment.

The only road which leads from the lowland town of Timika up to the gold panning area near the village of Banti and the Freeport mine is off-limits to the public and guarded with numerous security checkpoints. Gold panners who wish to travel along this road must pay the military a sum of 400,000 - 700,000 rupiah to ride in a personnel bus, or charter a vehicle driven by a military or police officer for 3 million rupiah.

Strategic reserve command (Kostrad) troops sell food from the PTFI canteen to gold panners, at a rate of one packaged meal in exchange for one gramme of gold particles. Alcohol and other items are likewise bartered for gold. Some Brimob (special forces police) personnel act as gold buyers so that gold panners do not have to travel back to Timika to sell on the market there.

Acts of violence by security forces and gold panners

According to the Yahamak and ELSHAM briefing paper, much of the concession area is off-limits to all but company staff, and even traditional landowners are excluded from various areas by security which is strictly enforced. Countless indigenous landowners have been evicted 'like dogs' from the Freeport concession area, the briefing paper states. Local people who are found in the company residential area, canteen, or anywhere in the exploration area are liable to be kicked and beaten, then evicted, and some have been shot dead over the years.

The company policy is to attempt to inform people of the dangers of gold panning and to encourage them to leave. Freeport's civilian security does, on occasion, attempt to remove people from the gold panning areas although, according to the briefing paper, it is only panners in small numbers who are removed, while larger groups are ignored.

Intelligence operations and fabricated separatist threats

According to Indonesian security forces, the OPM (Free Papua Organisation) led by Kelly Kwalik have continues to pose a danger in the area around the Freeport mine over the last five years. However, according to Yahamak and ELSHAM, various acts have been carried out or rumors circulated which are falsely attributed to Kelly Kwalik in order to generate a profitable situation for the security forces. Local people contend that the security forces have fabricated the seriousness of the separatist threat. As one person cited in the report notes:

"When the Task Force staged an operation to control the gold panning, and burnt the tents, inside the tents they found an album. In the album there were local people photographed holding firearms and wearing military jackets. It's a trick. The military always go down there. The military sit there and guard the gold panning. It is the military themselves that give their weapons to the local people to pose and act up for the camera...So in the end this photo is used in a report saying 'There are armed separatists in this river area, so we have to send in an operation.' I just laugh because this is purely engineered by them."

The briefing paper reports that Freeport's security department includes a section called 'Security - Intelligence Collection' which conducts intelligence operations inside and outside the Freeport operation area, particularly gathering information on the danger of separatism. Around 30 people have reportedly been trained as company intelligence agents by an instructor from BIN, the Indonesian national intelligence agency.

The report makes the following recommendations:

1. The company should not be allowed to employ military officers in civil positions in the security department. These positions should be returned to civilians.
2. The security department should dissolve its intelligence-gathering facility.
3. Retired military officers must not be employed in the civilian security force.
4. The company must build good relations with the community via traditional landowner institutions and other means.
5. The 'separatist' label should not be applied to Papuans, neither staff nor community members.
6. The company should build partnerships with external organisations such as NGOs, churches, and university students. As long as the company is not open there will not be peace.
7. End recruitment of staff from outside Papua.
8. Develop the skills of Papuan staff and Papuan organisations.

(Sources for initial Freeport-Rio Tinto section: Rio Tinto 2005 Annual Report; Businessweek Online, accessed May17, 2006; Financial Times 11/Apr/06; Metal Bulletin 2/Feb/06; New York Times 19/Jan/06 & 5/Apr/06; WALHI report on Freeport - Rio Tinto, 2006)

References:
(1) M. Taufiqurrahman and T.B. Arie Rukmantara, The Jakarta Post, May 12, 2006: 'Lawmakers confirm report of pollution at Freeport'
(2) Yahamak (Yayasan Hak Asasi Manusia Anti Kekerasan) and ELSHAM Papua (Lembaga Studi dan Advokasi Hak Asasi Manusia), May 2006, Briefing Paper: Penambangan Tradisional Ilegal Di Areal Konsesi PT Freeport Indonesia.