Indonesia : Freeport Mine Scandal

January 11, 2016

Indonesia : Freeport Mine Scandal–A Case of Ideology, Rent Seeking and Foreign Capital

by Gustidha Budiartie and Eve Warburton

Competing factions of politico-business elites are fighting a war over a lucrative mine contract and President Jokowi is caught in the middle.


The Speaker of the Indonesian Parliament, Setya Novanto, stepped down from his post last week (December 15, 2015).The powerful Golkar party operator was on trial in the Parliamentary Ethics Committee for allegedly meeting with American copper and gold mining company Freeport McMoran to arrange a private business deal. Setya beat the Committee to the punch, stepping down before it could formally request his resignation.

The scandal is a dramatic twist in what have been long and fraught negotiations between the government and Freeport over the company’s contract extension. Those within government and parliament who oppose the extension do so on nationalist grounds, arguing that the American miner should no longer exploit and benefit from Indonesia’s natural riches. Those who support an extension argue that neither state-owned nor private Indonesian companies have the capital or expertise to run such an operation.

But the Setya affair demonstrates there is another dimension to this conflict. The Freeport contract is the site of a factional war between different politico-business networks, and President Joko ‘Jokowi’ Widodo appears to be caught in the middle.

The scandal

In mid-November,2015, Indonesia’s media erupted over the publication of a transcript of a meeting in which Setya, and shady oil-man, Riza Chalid, met with the President Director of Freeport Indonesia.

In the recording, the pair offers to expedite the company’s contract extension in return for shares in an electrification project that will service the Freeport mine. They named the Coordinating Minister for Politics, Law and Security, Luhut Panjaitan, as a key enabler. Luhut (pic with Jokowi below) is an old business partner and close confidant of Jokowi.


What made this proposition particularly scandalous was that Setya and Riza presented themselves as gatekeepers of the Presidential Palace, with special access to and influence over Jokowi. At one point in the transcript, Riza even suggested that President Jokowi would “fall” should he attempt to prevent the contract extension.

The covert recording was made by President Director of Freeport Indonesia, Maroef Syamsuddin, who happens to be former Deputy Director of the State Intelligence Agency (BIN). Minister for Energy and Mineral Resources, Sudirman Said, went public with the transcript and reported Setya to the Parliamentary Ethics Committee.

The Minister is on the war path, determined to assert control over the contract negotiations and isolate other players like Luhut, Setya and Riza. While Jokowi has often been equivocal in his support for Sudirman Said, Vice President Jusuf Kalla has backed Sudirman from the start, and called for Setya’s resignation.

The controversial contract

The Freeport contract is far more significant than a typical mining contract. The American company has run the most profitable gold and copper mine in the world out of Indonesia’s Papua province since 1967. As it readies for an 18 billion dollar underground expansion of the mine, the company is seeking an early extension of its contract, which expires in 2021.

Negotiations with the government have dragged on for years. In part, this is because the mining company has a troubled history in Indonesia. Its Grasberg mine is situated in one of Indonesia’s poorest provinces, where a low-level separatist conflict has simmered for decades. Freeport has been accused of human and labour rights abuses, and has a checkered environmental record.


Many Indonesians also feel Freeport has not approached the contract negotiations in good faith. The company has threatened to take Indonesia to international arbitration for not honouring the terms of their original contract.At the same time, Freeport itself has avoided fulfilling some parts of that contract. For example, the company has only divested 9.36 per cent of its shares, when the contract mandates that 39 per cent should have been divested to local parties by this stage.

For all of these reasons, Freeport is controversial and unpopular with the public. Media and politicians often frame the contract negotiations as a test of Indonesian sovereignty. So extending the contract is politically sensitive, and the government must be seen to be getting the best possible deal.

Brokering a deal

Minister Sudirman Said recently indicated that the government would extend the contract in return for significant concessions from the company – everything from increased royalties and local content to a commitment to building refining facilities.

Sudirman has long argued that Indonesia needs this investment, and that local players have neither the financial capacity nor expertise to take over the mine. The problem is that providing the company an extension now requires changing a government regulation that mandates mining contracts may only be extended two years prior to expiry – in this case 2019.

Some insiders suggest that Said is a “Kalla man”, and that his approach to the Freeport contract is, in fact, part of a larger plan to facilitate the advance of Kalla’s private interests, including in the businesses that service the Freeport mine.

But such claims remain unsubstantiated, and to most observers Said represents the closest thing to a reformist that the Ministry has seen in years. Even if the Vice President does have his sights set on service contracts, there are many within the Indonesian mining industry and the Ministry for Energy and Mineral Resources (MoEMR) who argue the extension is necessary.

Either way, Said’s position on this matter, and his combative style, brings him into regular conflict with other powerful members of the executive – particularly Luhut Panjaitan, a political ally and business partner of Jokowi.

Luhut makes both a legal and ideological argument against extending the Freeport contract. First, he says, the regulations should not be changed for the benefit of a foreign company. Second, the state should acquire the mine once the contract expires, he argues, and only then invite Freeport to participate in a joint operating agreement with state owned company, Aneka Tambang.


Luhut’s position is a popular one with the public and some members of the executive and parliament. Rizal Ramli, one of Jokowi’s coordinating ministers, makes similar arguments against an early extension of the contract. This approach resonates with the broader, more assertive nationalist mood that has characterised political discourse in recent years, particularly when it comes to resource sectors.

Opportunists like Setya leverage the nationalist mood for their own private benefit. In fact, the transcript makes Luhut’s nationalism appear disingenuous, too. Setya and Riza implicate him in their attempted deal, though Luhut denies any involvement.

Like many within Indonesia’s politico-business class, Luhut has interests in the mining sector. In fact, he’s spoken openly about meeting with Freeport back in 2012 to discuss acquiring company shares.

The fallout?

The Indonesian public was understandably incensed by the transcript. A flurry of memes and videos supporting Sudirman and disparaging Setya did the rounds on Twitter and Facebook.

The popular current affairs show, Mata Najwa, dedicated several programs to the case, and attacked Ethics Committee members for their own ethical transgressions. Various petitions circulated via social media, calling for Setya’s resignation; some called for the Ethics Committee and even the entire parliament to be replaced.

The investigation by the Ethics Committee reeked of political manipulation. Golkar quickly stacked the Committee with party members loyal to Setya, and their treatment of Minister Said revealed blatant bias.

Given the hearing’s politicisation, many observers were surprised that the majority found Setya had indeed committed a serious ethical violation. Mounting public pressure probably contributed to Setya’s resignation.But it appears that Setya loyalists in the Commission were merely pushing for a second hearing, in order to stall a decision. In the end, Setya offered to step down on condition that the case against him is brought to an end, and that he be made Golkar’s caucus chairman.

Not only did Setya escape serious punishment, he was given a strategic role in Parliament.He is a key political broker, skilled at extracting and distributing rent, and is clearly indispensible to Golkar and party chairman Aburizal Bakrie. It was always going to be hard to punish Setya for his transgression.

Luhut and Setya are primarily responsible for organising parliamentary support for the government’s policies and its budget. Opposition parties have been relatively quiescent since Jokowi came to power, and most political analysts put this down to wheeling and dealing – and probably the distribution of largesse – between Luhut, the former House of Representatives speaker and the leaders of opposition parties.

So even though Jokowi was reportedly furious at the content of Setya’s meeting, the President was in a difficult position politically. Striking at Setya might snare Luhut, and could threaten the deal-making that has helped his government to function.

Ideology, rent seeking and foreign capital

Observers frequently scratch their heads, wondering why the Indonesian government appears so bellicose with regard to foreign companies, particularly Freeport, when at the same time government leaders reiterate that the country badly needs investment. The assumption is often that state officials are myopic, naïve and corrupt in their approach to the business community. But this proposition is unsatisfying.

The reality is that the structure of the Indonesian economy necessitates foreign investment, but structural features of Indonesian politics often inhibit it.While some within the Ministry of Energy and Mineral Resources and the political elite would prefer to extend the contract (with significant concessions from Freeport of course), they face widespread and assertive nationalist sentiment, and a political system that is built around extraction.

As more and more foreign resource contracts approach expiration, the question of who should control and profit from Indonesia’s resource sectors becomes increasingly contentious. Popular nationalist narratives of indigenous ownership dovetail neatly with the goals of an aggressive politico-business elite that sees lucrative resource projects as ripe for the picking.

And politics is expensive. As the system currently operates, political parties need business types like Jusuf Kalla, Setya Novanto, Aburizal Bakrie and Luhut Panjaitan to fund campaigns and purchase political deals. These politico-business elites expect to be repaid with preferential access to lucrative resource contracts, and Freeport is the gold prize.

Jokowi made a strong public statement against Setya’s actions, and made it clear he expected Setya to resign. But Jokowi is a political outsider, and lacks influence in Jakarta’s elite political networks. The President’s weak position means that rent-seeking competition around the Freeport contract is creating deep fissures within the executive.

In the coming weeks, this current scandal will fade from the front pages. Setya will survive, and Riza will remain abroad for as long as it takes to broker a deal for his protection. Luhut’s relationship with Jokowi will probably weather the recent storm as well. Freeport’s contract negotiations will almost certainly be pushed back to 2019.

But the case remains significant. Setya was forced to resign as Speaker, and politicians may be a little more cautious next time they sit down to extort rents from a foreign company. And Indonesia’s public was able to witness, in fascinating and nauseating detail, the mechanics of rent seeking at the highest level.

Some may begin to interrogate the nationalist pomp of their leaders. Leaving Indonesia’s copper and gold in the hands of an American company might be hard to swallow, but is passing it to the political oligarchs any better?

Gustidha Budiartie is a Jakarta-based journalist. Eve Warburton is a PhD candidate at the Coral Bell School of Asia-Pacific Affairs, the Australian National University. 

ASEAN Civil Society welcomes the Launch of ASEAN Community with reservations

November 23, 2015

ASEAN Civil Society welcomes the Launch of ASEAN Community with reservations

For the peoples of ASEAN, this long-awaited moment is met with some disappointment.While the documents signed are replete with language premised on a people-centred community that belongs to all, there remains serious scepticism on the part of civil society as to what the agreements reached and commitments made by ASEAN governments will actually mean for human rights, democracy, development and environment  for the ASEAN peoples.


The ASEAN Civil  Society congratulates the ASEAN leaders for the launching of the new ASEAN Community. This community, our community, is what we have been looking forward to for a long time.

The 27th ASEAN Summit and Related Summits 2015 has officially signed the Kuala Lumpur Declaration on the establishment of the ASEAN Community and the Kuala Lumpur Declaration on the ASEAN Community Vision 2025.

Further, we have also witnessed the signing of the ASEAN Convention against Human Trafficking in Persons, Especially Women and Children (Actip).

For the peoples of ASEAN, this long-awaited moment is met with some disappointment. While the documents signed are replete with language premised on a people-centred community that belongs to all, there remains serious scepticism on the part of civil society as to what the agreements reached and commitments made by ASEAN governments will actually mean for human rights, democracy, development and environment for the ASEAN peoples.

Asean Economic Community 2016

In his opening address on November 21, 2015, Prime Minister Dato’ Seri Najib Razak, as 2015 chair of ASEAN, declared that Asean had stressed “community and consensus building, over the excesses of individualism and the seeking of selfish objectives”.

He added in his statement that the adoption of the ASEAN Community marked the culmination of decades of effort to integrate, cohere and to forge ahead together.

However, a dichotomy exists between the integration touted by ASEAN officials and the socially minded integration sought by civil society.

“What does this really mean for the peoples of ASEAN?” asked Jerald Joseph of Pusat Komas, chair of the ASEAN Civil Society Conference/ASEAN Peoples’ Forum (ACSC/APF) 2015.

“Regional integration might be the goal but could it be instead selective integration, which has the potential of widening the development gaps? We recognise that this region has huge disparities in political, economic and social development and bargaining powers in the region.”

“Thus ensuring measures are in place to ensure fair representation of diverse interests of the peoples in ASEAN rather than certain dominant nations and interests of certain groups, especially the businesses and the multi-national corporations must be made a priority,” he said.

The ASEAN Community 2015 cannot focus only on integration policies which clearly provide economic and development gains without also removing its reluctance to commit to addressing issues which are deemed to infringe on national sovereignty such as internal conflict, territorial disputes, environmental degradation, treatment of minorities and human rights violations which have negative trans-boundary impacts and consequences.

Today we also witnessed the signing of the Kuala Lumpur Declaration on ASEAN 2025, Forging Ahead Together, which incorporates the ASEAN Community Vision. The rhetoric around the vision claims that it will be a “bold, visionary, progressive and forward-looking document to reflect the aspirations of the next generation of ASEAN nationals”.

“A review of the document adopted falls short of the above aspirations,” said Joseph. “Despite the ambitious claim, it continues to retain mediocre ASEAN commitment.An example is the commitment to eradicating corruption which seem to focus more on ‘establishing support’, ‘developing programmes’ and ‘strengthening cooperation’, rather than actual commitment on policy and institutional changes. This is typical of ASEAN adopting the lowest common denominator as the threshold for action.”

This new vision gave the possibility of a new approach. Unfortunately it is again a missed opportunity.

The human rights agenda of ASEAN in its Vision 2025 yet again focuses too much on the promotional aspect without a solid protection framework inserted.

Civil society’s call for the mainstreaming human rights in the ASEAN Community 2015 process and in the ASEAN Vision 2015 has again been ignored or given peripheral attention.

“Commitment to human rights is again rather fragmented and established in silos in the 3 pillars’ blueprints,” said Wathshlah Naidu of Women’s Aid Organisation Malaysia, who led the drafting of the ACSC/APF 2015 statement and outcome document.

“It has not holistically addressed how Asean plans to respond to and share resources in addressing emerging issues and issues exacerbated by regional integration such as migration, asylum seekers and refugees and heightened extremism and terrorism.

“Purely addressing these regional concerns as security issues without a grounding in human rights principles and standards creates the path for continued human rights violations.”

Naidu added that “gender equality and the diversity of peoples of ASEAN are also not reflected comprehensively in the Vision.

“Eliminating all forms of discrimination and human rights violations is fundamental towards achieving regional integration that is rooted in achieving equality of all ASEAN countries and its peoples.”

Another key concern raised by civil society is the lack of meaningful and substantive participation, inclusion and representation of all peoples of ASEAN in the drafting process of the ASEAN Vision 2025.

“As civil society, we demand that ASEAN stop co-opting its peoples through its rhetoric on ‘people-centred’ or ‘people-oriented’ mantras without genuinely making the commitment and institutionalising a process where all interests of its diverse peoples are included in its policy documents and agreements through meaningful dialogue with all stakeholders,” said Soe Min Than of Think Center Singapore, who is also a member of the ACSC/APF 2015 Regional Steering Committee.

“ASEAN can only demonstrate its commitment to community building and implementation of the ASEAN Community agenda and the ASEAN Vision 2025 by ensuring engagement of all stakeholders through multifaceted dialogue, feedback and effective participation in determining and shaping the aspiration and future of the region and its peoples.”

As ASEAN moves on with its summit with various dialogue partners, ASEAN civil society again reiterates its concerns and recommendations made over the last 10 years of engagement and calls on ASEAN to escalate its responses to the interventions by the civil society.

“We look forward to strengthened solidarity, understanding and coordinated actions among ASEAN and civil society as key stakeholder for a truly ‘people-oriented, people-centred and rules-based ASEAN Community’,” said Pen Somony of the Cambodian Volunteers for Society, who is also a member of the ACSC/APF 2015 Regional Steering Committee.


Malaysia’s spectacular drop in inequality… for real?

October 18, 2015

Malaysia’s spectacular drop in inequality… for real?

by Lee Hwok-Aun*

Poverty has fallen sharply in Malaysia. The divide between rich and poor phenomenally narrowed the past few years. If only you knew.

Dr. Lee Hwok-Aun University of Malaya Kuala Lumpur, Malaysia

Dr. Lee Hwok-Aun University of Malaya
Kuala Lumpur, Malaysia

Judging by public discourses and perceptions, most people do not know. And most of the time we talk about inequality, we hear the opposite: inequality has been rising and rich-poor gaps are widening. Writings on our socioeconomic condition, such as the commendable Rich Malaysia, Poor Malaysians by Anas Alam Faizli, largely argue that the benefits of economic growth trickle down to the masses much less than the affluence sucked upwards to the rich.

The government knows about this massive decline in inequality; our official statistics plot out the trend. The Gini coefficient, a figure between 0 and 1, is a widely used, simple and effective measure of inequality. The higher the Gini, the more unequal the distribution.

Visualising it helps. Malaysia’s Gini coefficient series shows a clear downward trend in household income inequality from 2004 to 2012, after which it falls off a cliff. In 2014, inequality plunged to the lowest level ever.

These calculations are based on the Household Income Survey, a large and nationally representative dataset, and the best resource for computing income statistics. But are we handling the dataset properly?

The latest inequality figures painfully stretches the limits of plausibility. The data have been reported, without any attempt to explain possible causes for such a spectacular outcome. Even if we can rationalize this downtrend in inequality, could it have dropped so steeply?

Corresponding to the fall in overall inequality as captured in the Gini coefficient, income growth at the bottom segments is exceedingly high. From 2012 to 2014, the bottom 40 per cent enjoyed household income growth of 15.9 per cent PER YEAR, the middle 40 per cent saw a 10.7 per cent annual rise and the top 20 per cent got 8.1 per cent.

Curiously, the government itself whispers softly about this outstanding success. It almost seems as if Putrajaya does not want us to know much about it. I can think of two reasons. First, the record has simply escaped attention; second, the record plainly defies logic. Maybe we are just not in the habit of tracking inequality in total. For decades we have instinctively paid close attention to inter-ethnic inequality and cared less about general rich-poor disparity. We may also not realize how awesome Malaysia’s record is when compared to the world. I exaggerate not. Rising inequality is a true tale of our times, a problem that makes many governments sweat. The uptrend in inequality is documented and vigorously analysed in rich countries. The steadily growing major Asian economies of China, India, Indonesia and South Korea have registered increases in inequality, according to a landmark Asian Development Bank report.

A few places have bucked this trend, most prominently Latin American countries like Brazil, Argentina, and Mexico, whose experiences are examined in scholarly work.

The narrowing of inequalities in these countries is attributed to two main factors: declining wage gaps between tertiary educated versus less qualified workers, and expansion of pro-poor social assistance, such as cash transfers.

Malaysia’s Gini coefficient shrank by an exceptionally high 1.32 per cent per year between 2004 and 2014. Thirteen Latin American countries on average recorded a 0.96 per cent reduction per year in the 2000s.

Malaysia has handsomely outdone these fellow middle-income countries. Any other government would go to town trumpeting this success, but Putrajaya zips its lips.

This odd silence raises another possibility: these numbers do not just escape notice, they also defy logic. Perhaps the government does not fully trust its own statistics? The Eleventh Malaysia Plan blithely noted that the Gini coefficient had touched 0.401 in 2014, surpassing the target of 0.420 by 2015. This is a splendid overachievement! But again, no further comment, no attempt to explain how it happened.

Without access to the Household Income Survey raw data, we cannot go beyond inference and speculation on the credibility of Malaysia’s mightily perplexing decline in inequality. What is certain, however, is that the official report has overlooked stark red flags.

Take the inequality trend within the Indian Malaysian population (Figure 2). These figures are reported in the Household Income Survey Reports, but omitted in the Malaysia Plans. From 1989 to 2012 we observe a sustained increase – with some fluctuation – in disparities within the community: the Gini rises from 0.390 to 0.443.

Rising inequality among Indian Malaysians has recently been recognised as a policy priority, only for the data to show the trend is already reversed. After expanding for 23 years, in two years (2012 to 2014) inequality basically shrank back to its 1989 level. Is anyone seriously buying this?

More amazing developments have taken place far north, if we are to believe the official account. Inequality statistics within states throw up some mystifying results, especially in Perlis, where the Gini coefficient, like a stone in water, went from 0.455 in 2012 to 0.346 in 2014.

To put this in perspective, the scale of Perlis’ inequality reduction is equivalent to the United States, with its brand of brawny capitalism, transforming into the Netherlands and its mode of northern European welfare capitalism – all within the space of two years (In the last decade the Gini coefficients of the US and the Netherlands were, respectively, 0.408 and 0.309).

No reform or social policy can redistribute so much income in so little time – it takes a revolution. Was there a socialist uprising in Perlis that I missed?

Undeniably, we have seen some inequality-reducing interventions in the past few years – chiefly, Bantuan Rakyat 1Malaysia (BR1M) cash transfers and minimum wage. But the scale of these measures do not tally with the dent in national inequality. BR1M payments amount to only RM55 a month. Likewise, minimum wage kicks in at a mere RM900 per month for the Peninsula and RM800 for Sabah and Sarawak, and has largely affected foreign workers who are excluded from the official inequality statistics.

Let me state clearly that I am certain there is no deliberate manipulation of data, no attempt to deceive us with doctored reports that are contrary to some other objective accounts. But many of the numbers are too implausible based on what we know, and unbelievable without further substantiation.

One possible explanation derives from artificial addition of imputed rent to household income. Imputed rent is market valued rent of owner occupied houses that is added to household income, even though no such payment is actually received. Is this being over-calculated, particularly for low income households? Super high income growth in the low-income segments may also be due to over-counting of government welfare payments and gifts in kind. Who knows? I’m still stumped on what could drive the drastic drop in inequality within the Indian population and inside Perlis. These are mysteries that demand to be solved.

It is also worth noting that the World Bank’s Malaysia Economic Monitor put the 2014 Gini coefficient of gross household income at 0.421, exceeding the government’s calculation of 0.401.

But enough of highlighting aberrations and discrepancies. What we need is for government and citizens to strive together for clarity on these vital bits of information, which shape policies and track progress. And for this to work, the income data must be made accessible to the public – without restriction and at minimal cost, if not free. Data collection is fully paid with taxpayers’ money.

For the millions already spent collecting the income survey data, the rakyat deserve to get much more than inequality statistics that the government itself does not seem to believe.

* Dr Lee Hwok Aun is Senior Lecturer in the Department of Development Studies, University of Malaya.

Malaysia’s Penang: The Pearl of the Orient

August 24, 2015


Malaysia’s Penang: The Pearl of the Orient

by Zairil Khir Johari

Penang1 Pearl of the Orient and Rugged Society

When tabling the 11th Malaysia Plan (11MP) in Parliament on May 21, the Prime Minister waxed lyrical about the government’s intention of “anchoring growth on people” in this upcoming five-year development plan that is set to bring Malaysia towards the “aspiration of an advanced nation that is inclusive and sustainable by 2020.”

As usual, the Prime Minister is never short on verbosity. The 11MP document is replete with impressive jargons that tick all the right check boxes. However, the devil is always in the details, and the details in this case belie the grand promises of the Prime Minister.

Is the 11MP truly inclusive?

The term “inclusive”, for example, is used judiciously throughout the entire document. This implies a commitment towards ensuring that any gains from development and progress would be spread and shared by all Malaysians. Unfortunately, the inclusiveness of the 11MP is cast in serious doubt when one finds that the RM260 billion development plan has conveniently ignored certain regions, despite its massive scale.

For example, one of the six “game changer” strategies that have been introduced – “investing in competitive cities.” This strategy rightly recognises cities as a critical growth engine of the 21st century economy which plays a key role in spurring growth not only by providing jobs and trade opportunity, but also by connecting them to rural and suburban areas. Such a strategy is all the more relevant given the current context of a globalised world where talent migration is increasingly influenced by choice of city before choice of jobs.

Therefore, the 11MP seeks to develop “competitiveness master plans” for four major Malaysian cities, namely Kuala Lumpur, Johor Bahru, Kuching and Kota Kinabalu. These master plans are based on the principles of “creating density, expanding transit-oriented development, strengthening knowledge-based clusters, enhancing liveability, encouraging   development and practices, as well as ensuring inclusivity.”

The list of chosen cities appears to have one major exclusion – Penang.Notwithstanding the fact that Penang is the most well-known and developed city after KL, as well as the most liveable city in Malaysia and the eighth most liveable in Asia according to ECA International, the exclusion of the city-state is also incongruent with the very criteria purportedly used in making the selection.

According to the 11MP, the four cities were chosen based on their potential in terms of “population size, GDP contribution, existing major infrastructure, concentration of higher learning institutions, geographical advantage, and also the principle of inclusivity and fair distribution.” On each of these criteria, there is nothing that suggests why Penang should be sidelined.

LGE1LGE leads a Clean, Accountable and Transparent Government

In terms of population, Penang constitutes 1.7 million people, while the “Greater Penang Conurbation” metropolitan area covering parts of central and southern Kedah, along with northern Perak, encompasses almost three million people. In addition to that, Penang can boast of having the second highest population density in the country after KL, with about 1,500 people per sq km. These are ideal conditions for a competitive city.

Statistics from the 11MP itself also recognises Penang as a major GDP contributor. In 2014 Penang produced a GDP of RM67bil, which is the fifth highest in the country after KL, Selangor, Johor and Sarawak – a significant achievement considering the fact that Penang is also the second smallest state after Perlis. This translates to an impressive GDP per capita. This year Penang is expected to surpass Selangor with a GDP per capita of RM46,019, compared to RM45,617 for the most developed state in Malaysia. Thus, there is no better evidence of Penang’s role as an integral cog in the Malaysian economy.

Where infrastructure is concerned, Penang is already an established logistics hub for the northern region, in which the principal seaport, airport and rail station are located. In fact, the conditions are ripe for the government to invest in expanding and integrating the existing infrastructure in order to create a world-class urban conurbation.

In terms of higher learning institutions, Penang is also a well-known centre for education at all levels. Besides nine international schools, Penang also houses one of the country’s top public universities, USM, along with many other private colleges and university colleges. In addition to that, Penang has also attracted foreign institutions such as Hull University from the UK which will be setting up a campus in Batu Kawan in the near future.

As for geographical advantage, it is almost impossible to deny Penang’s optimal location, be it by air, land or sea. More importantly, Penang is also an important link that connects northern Indonesia to southern Thailand.

Finally, the four chosen cities represent the two states of Borneo, as well as the central and southern regions of Peninsular Malaysia. This induces a very glaring question – why is the northern region of the peninsula left out? How then, can the choice of cities be said to reflect the principles of inclusivity and fair distribution?

Based on all the above criteria, Penang not only qualifies, but should in fact be a prime candidate for the development of a competitive cities master plan. Clearly, Penang’s progress would help drive growth in the entire northern region in particular and Malaysia in general. Unfortunately, despite such a logical corollary, the federal government has chosen to exclude Penang for reasons known only to them.

The Malaysian stepchild?

It must be noted that this is not the first time that Penang has been unfairly treated. In the Ninth Malaysia Plan (2006-2010), Penang was promised many things, including two massive public infrastructure projects in the form of an rm 2 billion monorail line and an RM1.5 billion highway called the Penang Outer Ring Road (PORR).

We don’t double check – we trust what people tell us. They might be lies, but I think a lie invented by a person who is lying also tells you something about them.

Both the monorail and the PORR projects were put on indefinite suspension during the mid-term review in 2008, coincidentally following the 12th General Election in March the same year.

The monorail project looked set to be on its way when a tender was held in 2007 and awarded in 2008. However, both the monorail and the PORR projects were put on indefinite suspension during the mid-term review in 2008, coincidentally following the 12th General Election in March the same year, which saw the ruling BN coalition losing power in Penang. Two Malaysia Plans later, both projects have yet to resurface.

Penang Port. The state is already an established logistics hub for the northern region of Malaysia, where the principal seaport, airport and rail station are located

Penang Port. The state is already an established logistics hub for the northern region of Malaysia, where the principal seaport, airport and rail station are located.

However, in spite of the federal government’s non-cooperation, the Penang state government has moved to resolve the longstanding problem of traffic congestion in the state by developing the Penang Transport Master Plan. This long-term transport infrastructure project seeks to alleviate traffic congestion by incorporating transport systems with development plans in order to achieve optimum mobility.

At a total estimated cost of RM27 billion, this integrated plan is based on comprehensive studies that began in 2011, and will encompass the construction of new road highways, a light rail system in the form of LRTs and trams, upgrading of the existing bus system, innovative features such as water transport and South-East Asia’s first under-seabed tunnel.

penang-free-schoolThe Oldest School-Born 1816-Fortis Atque Fidelis

Despite many challenges and financial limitations, the Penang state government has signalled its commitment by pressing ahead with its ambitious plan. Currently, the public transport portion is being tendered for a Project Delivery Partner, while some of the highway improvement projects are scheduled to be completed in two to three years’ time.

The federal government’s attitude towards Penang is, on the one hand, regrettable, and on the other, ironical. Treating the state as an unwanted stepchild is akin to cutting their nose to spite their face. And while they may feel smug about it now, they will regret it in the future when they realise that Penang will, as it has in the past, prove its resilience as the prodigal child of Malaysia.

Zairil Khir Johari is MP for Bukit Bendera, Penang, and executive director of Penang Institute.

Cambodia and China: Chinese Investment and Aid

July 18, 2015

Cambodia and China: Chinese Investment and Aid

by Heng Pheakdey, EISD

The China–Cambodia relationship has reached new peaks in recent years. China is now Cambodia’s largest foreign investor, a major donor of aid and an increasingly important trading partner. But this growing relationship is also accompanied by renewed controversies.

China undeniably plays a crucial role in Cambodia’s economic development. China invested a total of US$9.17 billion between 1994 and 2012. Chinese investment in the textiles industry has increased Cambodia’s exports and created employment for thousands of women in rural areas, while investment in the energy sector, particularly in hydropower development, has helped reduce Cambodia’s chronic energy shortages. China is also a major source of foreign assistance for Cambodia. By 2012, Chinese loans and grants to Cambodia reached US$2.7 billion, making it the country’s second-largest donor after Japan. Cambodia has been using China’s so-called ‘no strings attached’ aid to build roads and bridges, helping to improve the country’s much needed infrastructure.

But behind these impressive numbers lie hidden agendas and serious social and political implications. While Chinese investment and aid is much needed for economic development, China’s unquestioning approach to how its aid and investment money is distributed and used has exacerbated corruption, deteriorated good governance and human rights, and ruined Cambodia’s resources and natural environment. Human rights activists have often accused Chinese textile factories of abusing worker’s rights, while China’s hydropower investments have destroyed protected areas, forest biodiversity and wildlife habitat.

Samdech Techo Hun Sen

In return for its generous financial aid, China has exerted its influence on Cambodia to propel its own political interests. Cambodia’s decision to deport 20 ethnic Uyghur asylum seekers to China upon Beijing’s request in 2009 is a clear example of this. In another instance, after receiving millions of dollar in pledges from China last year, Cambodia refrained from discussing the South China Sea disputes during the ASEAN Summit, which was harshly criticised by the international community and resulted in the failure by ASEAN’s foreign ministers to issue a joint communiqué for the first time in ASEAN history. Cambodia has also been accused of favouring Chinese investment, putting China’s investment interests above that of other nations. According to a report by the Cambodian Center for Human Rights, 50 per cent of the land concessions granted since 1994 — totalling 4.6 million hectares — were given to Chinese companies to invest in mining, hydropower and agriculture in Cambodia.

There are concerns that the government is at risk of losing its autonomy. If it were to rely solely on China, Cambodia also risks losing face and trust from the international community, and its role in ASEAN might be marginalised if it continues to put China ahead of ASEAN.

There is no doubt that Cambodia needs China’s assistance to further its economic development. Likewise, China sees Cambodia as an important ally for exercising greater influence in Southeast Asia and counterbalancing the United States. Chinese Ambassador to Cambodia Pan Guangxue recently said that the positive relationship China and Cambodia have built over the years serves as a role model of friendship between countries of different social systems. He is convinced that, with the careful guidance of its leaders and the efforts of its people, China and Cambodia can further deepen their mutual trust for one another and improve cooperation, so as to develop the relationship to a greater level.

To ensure this long-lasting relationship is mutually beneficial, the two nations must work together to improve transparency, promote participatory and inclusive development by involving all relevant stakeholders, and minimise environmental degradation. Cambodia must strengthen its institutions, implement policies that encourage responsible investment and link aid to poverty reduction. China needs to rebuild its image as a good neighbour and international citizen — one that is accountable for its foreign investment and promotes sustainable development.

Heng Pheakdey is a doctoral researcher at the UV University Amsterdam and Founding Director of Enrich Institute for Sustainable Development.

Next Steps for U.S.-South Korea Civil Nuclear Cooperation

east-west-center-asia-pacific-bulletinNumber 316 | July 1, 2015

July 2, 2015


Next Steps for U.S.-South Korea Civil Nuclear Cooperation

by James E. Platte

On June 15, U.S. Secretary of Energy Ernest Moniz and South Korean Foreign Minister Yun Byung-se signed a new agreement on civil nuclear cooperation (a so-called “123 Agreement”) between the two countries, and U.S. President Barack Obama submitted the proposed 123 Agreement to the U.S. Congress the next day. The Senate Foreign Relations Committee and the House Foreign Affairs Committee will have 30 days to review the agreement, and then the whole Congress will have 60 days for review. The proposed 123 Agreement will enter into force unless Congress enacts a joint resolution opposing the agreement, and the South Korean Ministry of Government Legislation also will review the proposed agreement.

The new 123 Agreement comes after several years of difficult negotiations and represents a step forward for bilateral nuclear cooperation, but this does not mark the end of negotiations and debates between Washington and Seoul in the civil nuclear energy field. South Korea and the United States have a long, robust history of civil nuclear cooperation, going back to the Atoms for Peace program and the initial 123 Agreement in 1956. Since then, the United States has played an integral role in the development of South Korea’s civil nuclear industry, which now comprises 24 operational reactors that generate about 30 percent of South Korea’s electricity.

South Korea has become virtually self-sufficient in nuclear reactor design, construction, and operation but still relies on U.S. firms for some nuclear fuel and engineering services. In addition, South Korea and the United States cooperate on numerous bilateral and multilateral nuclear research and development projects. All of this cooperation is facilitated by the 123 Agreement. The Atomic Energy Act of 1954 requires that a 123 Agreement be in place for the United States to cooperate with international partners on peaceful uses of nuclear energy. Given the importance of nuclear power to the South Korean economy, maintaining civil nuclear cooperation with the United States is vital for Seoul. Yet, negotiations on the new agreement were difficult and lasted nearly five years.

In 2013, the two sides even approved a two-year extension of the previous 123 Agreement, which was set to expire in 2014, in order to give them more time to work out a deal. The major sticking point in the negotiations was over uranium enrichment and reprocessing technologies, which have the ability to produce fissile materials either for civilian nuclear fuel or for nuclear weapons.

The previous 123 Agreement was signed in 1974 and prohibited South Korea from enriching or reprocessing. Two other developments around that same time entrenched U.S. nuclear cooperation policy toward South Korea. First, the Indian nuclear test in 1974 changed U.S. nonproliferation policy in general, shifting from promoting reprocessing abroad to staunchly opposing the spread of enrichment and reprocessing technologies. Second, Washington found out about then-South Korean President Park Chung-hee’s clandestine nuclear weapons program in the mid-1970s and applied significant diplomatic pressure to stop that program. The U.S. government has consistently opposed granting South Korea consent to enrich or reprocess ever since.

Seoul pushed hard to gain that consent from Washington in the new 123 Agreement for several reasons. First, South Korea wants reprocessing technology in order to manage the country’s growing stocks of spent nuclear fuel. All spent fuel currently is kept on-site at reactors in temporary storage facilities, but some of these facilities may soon reach capacity, as early as 2016 according to one estimate, which would cause reactors to shut down. An interim solution is needed to alleviate this situation, but South Korea sees a type of reprocessing called pyroprocessing as a long-term solution to spent fuel management.

Siting radioactive waste storage facilities has been difficult in densely populated South Korea, but Seoul believes that pyroprocessing could significantly reduce the volume of waste and necessary storage time. Second, Seoul wants enrichment technology to support its nuclear reactor export business. South Korea won a $20 billion contract in 2009 to build four reactors in the United Arab Emirates and is looking to secure contracts in other countries, too. Because South Korea has no enrichment capability, the UAE contracted with North American and European companies to source natural uranium and supply enriched uranium for Korean companies to fabricate into fuel. Third, Seoul desires to be viewed on an equal footing as the other major nuclear technology suppliers, especially Japan, to which the United States granted consent for enrichment and reprocessing in 1987.

Despite a strong diplomatic push by Seoul, the new 123 Agreement does not give South Korea advanced consent for enrichment or reprocessing, at least not yet. The new 123 Agreement facilitates the continuation of a ten-year Joint Fuel Cycle Study (JFCS) between South Korea and the United States that was launched in 2011. The stated purpose of the JFCS is to assess the “…technical and economic feasibility and nonproliferation acceptability…” of technologies related to reprocessing and spent fuel management. A separate Nuclear Technology Transfer Agreement governs the transfer of technologies during the course of the JFCS, and the new 123 Agreement establishes a High-Level Bilateral Commission (HLBC) to enhance cooperation and address issues related to spent fuel management, fuel supply, and nuclear security.

Taken together, these agreements and mechanisms formed since 2011 significantly upgrade U.S.-South Korea civil nuclear cooperation, and they provide South Korea with formal channels to conduct research on reprocessing technologies and request consent for using these technologies in their civilian nuclear industry. They also set up times in the future that likely will see U.S. and South Korean negotiators once again discussing enrichment and reprocessing.

In 2018, the U.S.-Japan 123 Agreement, with advanced consent for Japan’s reprocessing program, is set to automatically renew unless either party calls for renegotiation, which appears unlikely, and this could be a time when Seoul asks, through the HLBC, why they also do not have advanced consent.

Three years later at the scheduled conclusion of the JFCS in 2021, Seoul may request permission to use the reprocessing technologies developed during the course of the study. The next foreseeable milestone is in 2032, when the new 123 Agreement requires the two parties to consult on whether to pursue an extension. Other developments, such as particularly acute spent fuel storage problems or more reactor export deals for South Korea, may also spur new talks over enrichment and reprocessing. Thus, the new 123 Agreement is a step forward for U.S.-South Korea civil nuclear cooperation, but the bigger steps regarding enrichment and reprocessing for South Korea remain yet to be taken.

About the Author: James E. Platte, PhD is an Asia Studies Visiting Fellow at the East-West Center in Washington, DC and a non-resident Sasakawa Peace Foundation Fellow with Pacific Forum CSIS. He holds a doctorate in international relations from the Fletcher School of Law and Diplomacy. He can be reached at

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