Freeport loses Midas touch in Indonesia By Jacob Zenn
JAKARTA - A six week-long strike at the world's third-largest copper and
biggest gold mine has brought to the surface local discontent with both
Indonesia's central government and the United States-based mining giant
Freeport-McMoran, a conflict that threatens to spiral into a destabilizing
separatist uprising in the remote and restive Papua province.
An estimated 10,000 unionized workers at the Grasberg mine walked off the job
on September 15 demanding wages more than five times higher than the
US$2.10-$3.54 per hour they currently earn. Strikers have blocked the access
road to the remote mine and allegedly sabotaged a mine pipeline. The strike is
a
continuation of a one-week work stoppage in July that was temporarily resolved
on the basis that new negotiations be held towards a new collective labor
agreement.
Worker unions have complained they are the lowest paid among all of Freeport's
global mining properties, including concerns in Peru, Congo, and Mongolia, even
though the Grasberg mine is its most profitable with the lowest production
costs. Freeport has offered a 25% salary rise to be implemented over two years,
an offer the unions have refused. Talks are continuing with no resolution in
sight to the country's longest mining strike.
Grasberg's work stoppage threatens to curb supplies and raise copper and gold
prices on global markets at a time both metals have recently touched record
highs. There could be more Indonesia-inspired supply shocks in the offing:
Freeport workers in other countries, including Peru's Corro Verde mine, have
recently gone on strike to demand higher wages after the company offered to
increase Grasberg worker salaries by 25%.
The week of suspended operations in July caused Freeport to lose about US$30
million per day in lost revenues. Media reports indicate the current strike is
costing the company three million pounds of copper and 5,000 ounces of gold in
lost daily production. Freeport also suddenly finds itself in conflict with
Jakarta over its refusal to discuss a review of its contract, which gives it a
91% controlling stake in the mine through 2041.
Freeport is Indonesia's largest corporate taxpayer, contributing more than $1
billion annually in taxes, dividends and royalties to state coffers. Freeport
also claims to make major national contributions through its investments in
infrastructure, including power plants, airports, seaports, roads and bridges
in remote areas near the mine.
Freeport employs an estimated 23,000 workers at Grasberg, one-third of whom are
believed to be indigenous Papuans. That's nearly twice the number of Papuans it
employed five years ago. The company committed in recent years to hire and
develop local workers to assuage Papuan grievances that the mine
disproportionately benefited workers from Java, the country's main island and
heart of political power.
Insurgent threat
There are indications that the separatist Free Papua Movement (Organisasi Papua
Merdeka, OPM) feels emboldened by recent state abuses, including the deaths of
two strikers, and aim to transform the strike from a localized labor dispute
into an issue that strikes at the heart of the Indonesian state. Since 1963,
the OPM has fought a mostly low intensity battle against what it views as
Indonesia's occupation of Papua.
On October 19, the OPM-linked Third Papuan Congress met in the city of Abepura
to call for the full closure of the Grasberg mine. In Jayapura, Papua's
provincial capital, more than 5,000 people attended a rally calling for
independence from Indonesian rule. Armed Indonesian soldiers and Papuan police
stormed the event, resulting in the deaths of three protesters and an estimated
300 arrests.
Two days later, unidentified gunmen shot and killed three people, including a
Freeport contract worker, in a company truck that was traveling in Timika, the
town situated nearest the mine. On Monday, two men shot dead a local police
chief at a Papua airport. A police spokesman said the OPM was likely
responsible for the hit and run assassination.
The renewed calls for independence represent a challenge to the Act of Free
Choice of 1969, which provides the legal framework for Freeport's contractual
rights to the mine. In 1967, former dictator Suharto and Freeport entered into
a 24-year contract that gave the US company mining rights in Papua. Those
rights were extended for another 30 years with two 10-year extensions in 1991,
giving Freeport contractual control over the lucrative mine until 2041.
However, Papuan nationalists contend that Freeport's 1967 contract with former
dictator Suharto is invalid because it was signed two years before Papua was
officially annexed as part of Indonesia. With East Timor achieving independence
in 1999, Aceh province still showing signs of resistance after decades of civil
war, and a persistent challenge to Java's central authority from the Moluccan
independence movement, Bambang Susilo Yudhoyono has taken a hard line against
Papua's separatist ambitions.
Access to the province is tightly controlled and rights groups have documented
long lists of violations committed by security forces, including killings,
enforced disappearances, torture and arbitrary arrests and detentions, against
Papuan nationalists. Yudhoyono is expected to reassert soon Jakarta's control
over the Grasberg mine and other Papuan cities to undermine the rallying power
of strikers and protesters.
If government security forces resort to violence and enforce harsh prison
sentences against detained protesters, some believe the situation could quickly
spiral out of control and spur even stronger Papuan demands for political
independence and economic autonomy over Papua's natural resources. In any such
conflict, Freeport is likely to be an OPM target. The insurgent group has
targeted Freeport's operations in the past, including a series of violent
attacks in 1977 and 1986. Those attacks likely contributed to the company's
discriminatory hiring practices, where Javanese were given preference to
Papuans who might have sympathies with the OPM.
Freeport has over the years become synonymous in the minds of many Papuans with
human rights abuses, environmental degradation and unequal economic
opportunities. To maintain order and stability at the site, Freeport spends
nearly $15 million annually on security costs while also helping to finance the
deployment of approximately 3,000 Indonesian troops in the mine area. Without a
speedy resolution to the strike, that security bill is likely to rise in the
months ahead.
Jacob Zenn is a graduate of Georgetown Law's Global Law Scholars program
and was a State Department Critical Language Scholar in Indonesia in 2011. He
writes about security issues and regional affairs in Southeast Asia and works
as an international affairs consultant for companies based in Washington DC.
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