January 11, 2016
Indonesia : Freeport Mine Scandal–A Case of Ideology, Rent Seeking and Foreign Capital
by Gustidha Budiartie and Eve Warburtonhttp://asiapacific.anu.edu.au/newmandala/2015/12/22/indonesias-freeport-saga/
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.
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.