What's really Behind the Indonesian Mining Giant Freeport Fracas - exposed what had been a series of behind-the-scene battles for the world’s largest gold mine
Protesters demanding the nationalization of Freeport Indonesia, earlier this month at the Corruption Eradication Commission (KPK) building in Jakarta. (Antara Photo/Akbar Nugroho Gumay)
When Minister of Energy and Mineral Resources Sudirman Said reported the then-speaker of the House of Representatives, Setya Novanto, to the House Ethics Council (MKD) over the latter’s alleged attempt to demand shares from the mining giant Freeport Indonesia, he effectively exposed what had been a series of behind-the-scene battles for the world’s largest gold mine. A major political scandal which has now cost the speaker his job, its ramifications are far from over, seemingly to be in a state of constant flux, unleashing surprising twists and turns.
Lying at the heart of the scandal is the recording secretly made by the Freeport Indonesia chief executive Maroef Sjamsoeddin in which Setya blatantly asked for a 20 percent stake in the company to ensure that negotiations to extend the Grasberg mine contract take place sooner than the legally stipulated schedule of 2019. Even more explosively, Setyo told Maroef that the stake would go to President Joko Widodo and Vice President Jusuf Kalla, a claim that both Jokowi and Kalla vehemently denied. Setya later said it he had never intended to shake down anybody and that it was all a misunderstanding.
Freeport’s determination to settle the uncertainty over its operation in Indonesia beyond 2021 as soon as possible is understandable. The 2019 date presents a major logistical challenge for the company as its Grasberg open pit mines are estimated to have been depleted by 2017, necessitating it to pump additional $16 to $18 billion investment to construct underground pits.
There are roughly two lobby groups currently trying to influence how the Freeport contract renewal will turn out: Indonesian nationalists plus pseudo-nationalists who oppose Freeport, and those who support the bid, consisting of Indonesian realists and those whose interests are interconnected with Freeport.
Prior to the disclosure of Maroef’s recording, Freeport’s opponents were heavily using online and social media to shape public opinion to the effect that the American company’s operation in Indonesia was a form of derogation of national sovereignty. Inherent in the argument was the accusation that Freeport had accrued so much wealth from Grasberg while giving back very little in return.
Indonesian economic patriots would like to see Freeport nationalized because they believe the current terms of the working contract are patently unfair. The Jokowi government also seems keen on securing “better” terms, although it doesn’t necessarily aim for nationalization, which explains why it tried to use the nationalist rhetoric to pressure Freeport into complying with the 2009 Minerals Law, one of which points mandates it to build a smelter locally.
In the nationalist camp are also the pseudo-nationalists whose chief goal seems to be to wrest control of Grasberg from Freeport and transfer it to an Indonesian company. If they prevail, however, it still may not mean that the mining operation at Grasberg will be totally Indonesian. Indonesia’s homegrown expertise may not be sufficient to operate the mine on its own, which is why Coordinating Minister for Political, Legal and Security Affairs Luhut Panjaitan suggested that the government appoint state mining company Antam to replace Freeport. The company would then partner any suitable foreign mining operator but control remains in Indonesian hands.
On the other hand, the realists are worried that expelling Freeport from Indonesia may result in complete cessation of mining operations if the local management somehow fails to acquire the necessary expertise to run it. Freeport, after all, having managed the mine for decades, knows the site better than anyone else. Doing away with it may mean starting from scratch. Should Freeport fare badly at the hands of the Indonesian government, it might even be difficult to find any foreign operator willing to take on what would seem to them a risky business undertaking.
Hence Maroef’s decision to submit to the energy minister the recorded meeting between himself, Setyo and oil magnate M. Riza Chalid was essentially a counter strike against the propaganda carried out by the economic nationalists.
The maneuver appeared to have infuriated Luhut, whose name is mentioned many times in the recording, so much so that the coordinating minister vowed that Freeport’s contract would be terminated.
Yet the remark was in itself surprising, considering the president had never explicitly said he was against the renewal of the Freeport contract.
In an interesting turn, the taped conversation swung public opinion against the House of Representatives while at the same time boosting Jokowi’s image and standing. To recoup their losses, the nationalist camp made allegations that Sudirman Said had reported Setya to the MKD in a bid to help Freeport secure a new contract, a move supposedly backed by Vice President Kalla, cast as Sudirman’s political patron.
The Freeport shakedown attempt undoubtedly opened a Pandora’s box at the epicenter of Indonesian politics. While the president initially appeared willing to throw his support behind the nationalists, if only to strengthen his own hand at negotiations for a better deal from Freeport, he now finds himself a political beneficiary of the company’s daring move. The focus of the debate has shifted from the unfairness of the Freeport contract to the outrageous corruption practiced by Indonesian politicians.
The battle continues; the end result is far from certain for a lot can happen between now and 2019.
Johannes Nugroho is a writer from Surabaya