Asiaweek.com | In the Path of Progress

NOVEMBER 24, 2000 VOL. 26 NO. 46 | SEARCH ASIAWEEK

In the Path of Progress
Violence and strife are blocking a viable mine
By WARREN CARAGATA Jakarta

In his own words, Louis Clinton is sitting on a "gold mine." It's really a nickel mine — but a potentially lucrative one. The problem is that there's a danger that "sitting" will become more literal than figurative. Like so much of Indonesia, the Maluku islands, site of the nickel deposits, have been rocked by bloody communal violence for months. The rioting doesn't bother the one-time New York City cop that much. He's operated mines in Indonesia for years, and he knows the kind of profits that are buried at the site near Weda Bay on the island of Halmahera.

But the violence does frighten potential lenders, and Clinton, president of a Canadian company called Weda Bay Minerals, will need at least $600 million to develop the mine, build facilities to process the ore, and construct a deep-water port near the mine to ship it off. The bulk of that will need to come from banks. "If the political situation were better, this project would be booming," says Clinton. As it is, mining won't begin at Weda Bay until the end of next year at the soonest. By then a feasibility study will be completed and presented to potential backers. But if violence continues, it will be difficult to convince anyone to put up funds.

It's almost enough to make foreign mine operators long for the Suharto days, when protests and violence of the sort hampering operations across Indonesia were dealt with decisively. Natural resources provide just the sort of hard currency that is in particularly short supply in Indonesia these days. In 1998 mining companies contributed $571 million to state coffers, no small amount in a country with a budget deficit of $7.1 billion. Mining concerns had a total $7.4 billion invested in Indonesia that year and employed 29,000 people, accordingto the Indonesian Mining Association.

In part, the protests against extraction industries like mining and oil and gas production represent the empowerment of environmentalists and labor activists opposing an industry sometimes guilty of harmful pollution and exploitation of workers. But legitimate protest has become mixed up with wanton destruction or even violence unrelated to the activities of the businesses attacked. Some firms have given up any thought of developing mines in Indonesia. "Frankly speaking, the situation isn't very good," says Paul Coutrier, executive director of the mining association.

The latest company to feel the heat is PT Caltex Pacific Indonesia, an oil producer on Sumatra, which has been the target of sporadic attacks by local communities since April. The groups have blockaded roads and, in some cases, set fire to vehicles. The unrest is more than just a nuisance: Caltex has been forced to cut production by 30,000 barrels a day — about 5% of its regular output. At current prices that works out to a loss of $300 million a year for the company and partner Pertamina, the state-owned oil company. Robert Galbraith, the company's senior vice president, says it isn't always clear what the protestors want from the company. One day the issue might be the dust thrown up by company trucks and seismic operations. Another, there may be a demand for more jobs.

Just about every mining company in Indonesia has had problems. In Sulawesi, gold miner Newmount Minahasa Raya has shut its mine down four times this year because of protests by locals who say the company cheated them out of their land. Indonesia's largest coal producer, Kaltim Prima Coal, a joint venture between British Petroleum and Rio Tinto of Australia, resumed full production at its Kalimantan mine in August after two months of blockades and occupations by a striking minority of the company's workforce. "Nowhere in the world are people on strike allowed to occupy production facilities and take people hostage," says Noke Kiroyan, president of Rio Tinto's Indonesian subsidiary. Rio Tinto's Kelian Equatorial Mining gold operations in Kalimantan have been hit by local protests that forced it to reduce output.

Despite the protests and violence, the issue that really has everyone worried is a planned devolution of power by the central government to the regions. That change is due to take effect Jan. 1, but the new regulations that will be needed to implement that change are still being worked out. Just last week the central government announced that it was delaying plans to give local authorities the right to negotiate resource concessions. But that decision adds just one more layer of confusion, since Jakarta indicated it will retain control over oil and gas while giving local government the power to handle some mining issues. Delay and uncertainty are the last things Louis Clinton needs. "If [Indonesia] doesn't get its problems solved, we'll have difficulties," says the would-be Weda Bay miner. That's a widely-shared sentiment around Indonesia these days.

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