$100 million "political risk" insurance for huge gold mining project cancelled
JAKARTA -- Indonesian environmentalists praised the decision of a
U.S. insurance company to cancel its $100 million political risk
insurance for a huge gold mining project in Irian Jaya, an island in the
most eastern part of Indonesia, that is operated by Freeport McMoran
Copper and Gold Inc., a firm closely tied to former Secretary of State
Indro Tjahjono, the coordinator of the Indonesian NGO Network for Forest Conservation, said on November 3rd that the Indonesian government should have a moratorium on its contract with Freeport.
"Indeed, the Overseas Private Investment Corporation (OPIC) does not like to insure a company that has been destroying environment and marginalizing indigenous people over the last ten years," said Mr. Tjahjono.
The Washington-based agency, which provides insurance and financing to American companies doing business overseas, canceled the company's insurance effective at midnight on October 30th. Political risk insurance is intended to compensate a company if it loses assets because of terrorism, sabotage, a coup or other political volatility.
Intensive lobbying by Freeport McMoran officials, including former U.S. Secretary of State Kissinger
which had been rumored for nearly two weeks, was
confirmed by Edward Pressman, a spokesman for PT Freeport
Indonesia in Jakarta. "We are going into an arbitration in Washington as
provided by our contract with OPIC," Pressman said, to get the insurance
Mr. Pressman, however, stressed that the $100 million is not "really a huge amount of money" compared with its annual capitalization in Indonesia of $5 billion.
PT Freeport Indonesia, an affiliate of the Freeport McMoran Copper and Gold Inc., is 10 percent owned by the Indonesian government. Another 10 percent is held by private investors here and 80 percent by its parent company in New Orleans. It is one of the top five Indonesian corporate taxpayers over the last three years, giving direct and indirect benefit to the local government up to $1.4 billion last year alone.
Environmentalist Emmy Hafild of WALHI, a leading environmental group in Jakarta, said that the insurance was canceled because of environmental problems at the Grasberg Mine, which contains the world's largest known gold deposit, an estimated 22 million ounces. The ore body in the mountains of Irian Jaya also contains an estimated 15 billion pounds of copper and 37 million ounces of silver. The total value of the deposit is estimated at $50 billion.
"We talked with OPIC officials who were visiting Indonesia and really think that is a good precedent for any financial institution. They have to force their clients [to start thinking about] the environment," said Ms. Hafild, adding that while waiting for the abritation the U.S. company should better review its environment policy.
"They still hold an out-of-date environmental standard for mining. It is 1995 but they use the standard of the 1970's," said the U.S.-trained environmentalist.
Environmental groups in Indonesia, Europe, Australia and the United States that oppose the company's operation in the region say that PT Freeport Indonesia has done little to contain tailings below the mine site and that cyanide-laced runoff from the tailings has killed fish in nearby rivers. They also contend that local villagers can no longer drink water from the river.
The cancellation comes despite an intensive lobbying effort in Washington by Freeport McMoran officials, including former U.S. Secretary of State Henry A. Kissinger, who sits on Freeport's board. The insurance issue was also reported to have been raised by Indonesian President Suharto during a meeting with President Clinton last week at the White House.
Clinton, however, told the Indonesian leader that the White House would not get involved and would leave the Freeport-McMoran decision up to OPIC. "This is something that is going to be decided on the merits," an official said.
The Los Angeles Times reported that Freeport pays Kissinger Associates a retainer of $200,000 a year in consulting fees. In addition, Freeport-McMoran pays Kissinger himself additional money, totaling $400,000 in 1994, for consulting and advisory services.
Freeport security personnel accused of involvement in several of the killings
has been under increased scrutiny in recent months as a
result of two reports contending that there had been several dozen
instances of human-rights violations in and around the mine site. In
April, the Australian Council for Overseas Aid reported that 22 civilians
and 15 guerrillas had been killed or had disappeared in the region.
The report also accused Freeport security personnel of having taken part in several of the killings. Then, in August, the Roman Catholic church of Jayapura reported that it had found evidence to support many of the allegations in the Australian report. The church's report also included accusations of torture.
The company has repeatedly denied any involvement in the reported human-rights abuses. The Indonesian commission of human rights says it is also of the same opinion, saying that members of the Indonesian Armed Forces took the initiative in the killings themselves without prior knowledge of Freeport officials.
Four Indonesian soldiers are now under investigation over the killings, which took place in and around the Freeport mining area.
The company, however, moved to weaken one of its Indonesian critics, asking the U.S. government to cut off funds to WALHI. The group had previously filed a law suit against Freeport.
Over the last 11 years, the U.S. Agency for International Development (USAID) has provided $1.1 million to WALHI. An AID spokesman said the funds are part of a broader effort to promote a civil society and a growing middle class in Indonesia.
"It's just like a battle of Goliath versus David," said Ms. Hafild, referring to her small two-story rented office in South Jakarta, a flea compared to the modern Freeport headquarters in Jakarta's main district area. But Paul S. Murphy, executive vice president and director of Freeport-McMoran's Indonesian subsidiary, urged in a letter that the funds be stopped because WALHI has been organizing protests against the company and has filed a lawsuit against it.
Murphy also complained that WALHI "has openly affiliated itself with radical international (groups) such as Earth First!, Friends of the Earth, Global Response and Greenpeace."
This effort apparently failed. An AID spokesman said the U.S. agency has decided to give the Indonesian environmental group another $250,000 for work over the next two years.
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