Indonesia's Minerals Generate Wealth, Discord

Indonesia's Minerals Generate Wealth, Discord

July 4 (Bloomberg) -- In Siti Maimunah's Jakarta office, on the wall behind her spartan desk, hangs a placard.

``Decolonize Freeport's imperium in Papua,'' the poster says, its ire targeted at Freeport-McMoRan Copper & Gold Inc.'s Grasberg gold mine, the world's largest, in eastern Indonesia. ``Thirty five years is enough.''

Maimunah is the executive director of Mining Advocacy Network, which claims to represent the rights of indigenous people affected by extraction of minerals in their natural habitat. She is even angrier than the posters in her office.

``It's a myth that mining brings welfare to the people,'' Maimunah says, citing as evidence Papua's human-development record, which she says is one of the worst among the 33 Indonesian provinces.

Decisions related to harnessing Indonesia's abundant natural wealth -- oil, gas, gold, copper, nickel, tin, coal, rubber, palm and timber -- are emerging as a bone of contention between environmentalists and human-rights activists on one side and mining and exploration companies on the other.

The Indonesian government, befuddled by the difficulty of accommodating divergent interest groups in this young democracy, is somewhere in the middle, its balancing act complicated by the growing hunger for resources in China and India.

Investors want the government of President Susilo Bambang Yudhoyono to honor the country's contractual obligations to mining and exploration companies and protect them from what they perceive to be harassment and propaganda, not to mention arbitrary local taxation that has become rampant since regional governments were given a say over mining in 2001.

Legal Uncertainty

Investors say they aren't tightfisted about sharing the wealth from booming metal prices. Freeport paid $880 million in taxes, dividends, royalties and other levies to the Indonesian government last year, more than triple what it paid in 2004.

Can't the government use its newfound riches to rehabilitate affected communities after giving them new skills? Maimunah is skeptical. What's the point of first robbing the livelihood of fishermen by polluting the rivers with scrap and then supplying them with sewing machines? ``Who'll go to them for sewing their coats?'' Maimunah asks. Let there be no mining, she says, until Indonesia learns to manage it better.

The policy flip-flops concerning mining in protected forests and the resultant confusion are the inevitable ``noise'' of a democracy where rule of law is yet to be established.

Pent-up Anger

This uncertainty is something new for Indonesia, though not wholly unwelcome. In the three decades to 1998, the period in which most of the large mining concessions were awarded, General Suharto's military would suppress any unrest, acting almost like a hired army. Now that the Suharto era is over and the military is in the barracks, the pent-up resentment is coming to the fore.

A human-rights group, acting on behalf of 11 Indonesian villagers, sued Exxon Mobil Corp. in a U.S. court in 2001.

The lawsuit claimed that Indonesian troops providing security to the company-operated Arun gas field in the troubled Aceh province committed murder, torture and rape. Exxon Mobil denies the allegations and says it bears no responsibility for the conduct of the forces.

In March this year, a group of protestors in Indonesia's Sumbawa Island burned down an exploration camp set up by Newmont Mining Corp., the world's largest gold miner.

Earlier this year, Newmont settled a civil suit related to pollution claims by agreeing to pay $30 million over 10 years for environmental monitoring and assessment. The government had sought $117 million in compensation.

Hot Mud

Foreign investors aren't the only ones under the gun. A May 29 gas leak from an oil well linked to Aburizal Bakrie's business group has caused hot mud to spew out of the ground, flooding houses, factories and paddy fields in densely populated East Java. Bakrie is the Coordinating Minister for Welfare.

There aren't any easy solutions to Indonesia's predicament.

Sure, the government needs investments. And yes, any talk of going back on Suharto-era concessions is bound to cause international outrage about lack of protection of property rights in Indonesia. At the same time, a democratic government can't be so preoccupied with its international image that it gives short shrift to the domestic constituency that legitimizes its rule.

Ultimately, the Constitutional Court, which was set up in 2003, will have to balance the interests of investors and communities. The court did try to strike just such a balance in its ruling last year about allowing open-pit mining in protected forest areas.

Challenge for Democracy

The root of the conflict goes deep. When it was a Dutch colony, all land in Indonesia that was declared as unused by the state became government property. And this included forest land.

This unfair practice was replaced in 1960 by an explicit acknowledgement of the customary property rights of indigenous communities. But there was a catch: No right could supersede national interest.

As the interests of the nation became alloyed with those of Suharto's family and cronies, indigenous people were easily evicted from their habitats, often without compensation.

Systematic plunder, including rapacious mining, illegal logging and rampant smuggling, has gone on for too long.

With rule of law, Indonesia can avoid the resource curse. Freeport and activist Siti Maimunah don't have to like each other. And neither has to like the government. But they all may be able to coexist.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)