Site icon Conservation news

Waste management rules threaten to derail Indonesia mine takeover

  • The Indonesian government expects to conclude this month the takeover of a controlling stake in the operator of the country’s Grasberg mine, the world’s biggest copper and gold mine.
  • However, new requirements on waste management imposed by the environment ministry could derail the deal, according to officials from both sides involved in the negotiations.
  • Among the requirements is that the operator, a subsidiary of Arizona-based Freeport-McMoRan, slash the toxicity levels at its waste dumping sites around Grasberg.

JAKARTA — The Indonesian government expects to take a controlling stake in the operator of the world’s biggest copper and gold mine this month, even as sanctions it imposed for environmental violations threaten to hamstring the multibillion-dollar deal.

Arizona-based Freeport-McMoRan is expected to divest its decades-old majority stake in its Indonesian subsidiary, PT Freeport Indonesia (PTFI), the operator of the Grasberg mine in Papua province, by the end of June, according to Ignasius Jonan, Indonesia’s minister of energy and mines.

In testimony to the country’s parliament on May 30, Ignasius said the move, mandated under the country’s mining law, would cut Freeport’s stake in PTFI to 49 percent, from the current 90.64 percent, although it will remain the mine’s operator. The Indonesian government, through state-owned mining holding company PT Inalum, will control 51 percent, up from 9.36 percent at present. The takeover has been valued as high as $8.1 billion.

Discussions between Freeport and PT Inalum have “reached the final stage,” Jonan said as reported by local media. “We hope the whole acquisition process can be completed in June, which is among the government’s requests to extend [Freeport’s operation].”

However, Inalum CEO Budi Gunadi Sadikin told reporters in May that the main hurdle to the acquisition was the dumping of mining waste, or tailings, by PTFI, for which the government has imposed sanctions on the miner.

Budi said Freeport had “made breaches that need to be revised through the environmental audit,” Reuters reported on May 24.

“The biggest issue is the issue of tailings — that has to be improved,” Sadikin said.

A screen grab showing the location of Freeport’s Grasberg Mine in Indonesia’s Papua province. Image by Google Maps.

The sanctions on PTFI, imposed in October last year, stemmed from findings by the Indonesian state auditor, the BPK, that identified a wide range of irregularities in the company’s operations and contract. These included indications of reckless mining, and the dumping of mining waste into rivers, forests and the sea. An earlier review by the agency pegged the environmental damage from the company’s operations at 185 trillion rupiah ($13.1 billion).

In April this year, the Ministry of Environment and Forestry followed up with a pair of decrees ordering PTFI to overhaul its waste management within six months. They include slashing toxicity levels at dumping sites and producing a strategic environmental impact assessment, known as a KLHS. Freeport has balked at the conditions laid out, with its CEO, Richard Adkerson, saying they imposed “undue and unachievable restrictions” on Freeport’s basic operations, according to the Reuters report.

Reuters also quoted local media as reporting that Adkerson, in a letter to the government, said, “I am deeply concerned that these actions have the potential to derail the progress that all of us have worked so hard to achieve.”

“The main point is that [Freeport] must fix all of this, though we know it can’t all be done at one time,” Siti Nurbaya Bakar, Indonesia’s environment minister, told reporters in Jakarta on May 23. “We are giving them a transition period in which they can consult with the government [on the waste management].”

A river in which PT Freeport Indonesia dumps some of the mining waste from its Grasberg site in Papua. Image courtesy of Yoga Pribadi/Mongabay Indonesia.

The minister and officials from Freeport have met several times to discuss the decrees on the tailings management, with the latest taking place in Jakarta on May 17.

Siti said that particular meeting lasted almost three hours, but no decision was reached. She said her office would continue to talk with Freeport officials, and that pending a conclusive outcome, PTFI would still be allowed to operate.

PTFI spokesman Riza Pratama, however, was not as optimistic about the company being able to comply with the decrees.

“The new ministerial decrees are impossible to be implemented right now, and we are still trying to negotiate with the environment ministry to find a solution,” he said on May 24 as reported by local media.

The BPK audit that set off the sanctions and decrees over PTFI’s waste management practices also found that Freeport had used 4,536 hectares (11,208 acres) of protected forest area without obtaining the proper permits, costing the government $20 million in lost fees between 2008 and 2015.

Panoramic view of the Grasberg gold and copper mine in Indonesian Papua on the island of New Guinea. Image by Richard Jones/Flickr.

In addition to the environmental damages, PTFI’s operations have also been blamed for disrupting the lives of the indigenous Papuans whose ancestral territory is the site of Freeport’s mining town of Timika. The indigenous Amungme and Kamoro communities traditionally subsisted on sustainable agriculture, fishing and hunting until the opening of the mine in 1967. They were stripped of their rights to 1,000 square kilometers (386 square miles) of their ancestral land, and over the following decades have been further displaced and marginalized by migrants from elsewhere in Indonesia drawn to the mining boomtown.

The National Commission on Human Rights (Komnas HAM), a state-funded body, said in March 2017 that PTFI had never compensated the indigenous people as the original stewards of the land where it operates, characterizing Freeport’s concession as a land grab.

Activists have urged the government to use the BPK’s findings as a basis in the share negotiations with Freeport. President Joko Widodo, who is seeking re-election next year, has said his administration wants a win-win solution as quickly as possible, despite neither side seeing eye to eye on the key issues.

FEEDBACK: Use this form to send a message to the author of this post. If you want to post a public comment, you can do that at the bottom of the page.