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    Southeast Asia
     Oct 27, 2011

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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