Rio Tinto: A tale of rampant capitalism
New Guinea, geographically as well as historically, is Australia’s closest relative. Separated from the mainland during the last glacial period, the waters filled-in what now separates them: 150km of the Torres Strait.
Despite being endowed with enviable mineral stores, economic and political exploitation has left New Guinea housing many of the poorest people on earth – particularly in the western half of West Papua.
Amidst a program toward independence from the Dutch, the international community neglected West Papua in order to realise a business deal between U.S. mining company Freeport-McMoRan Copper & Gold (“Freeport”) and Soeharto – at the time an Indonesian army general.
The deal granted a jointly-owned company, PT Freeport Indonesia (“Freeport-Indonesia”), full rights to prospect a ‘mountain of ore’ now known as the Grasberg complex. In return, Indonesia would derive significant tax revenues and fees as well as a minority 9.36 percent shareholding.
Observing the Grasberg mine via Google Earth, one sees a scar on the earth like no other: located four thousand metres above sea-level, open-pit (above ground) mining has bore a hole through the top of the mountain a kilometre wide. What they’re digging for is more than US$40 billion worth of copper and gold. Everyday, the operation discharges 230,000 tonnes of tailings (waste rock) into the Aghawagon River below. This process is expected to continue for a further six years, at which point, exploration will go underground until there’s no value left. Freeport estimates they’ll be done by 2041.
Now recognised as one of the most corrupt and tyrannical leaders in history, President Soeharto renewed Freeport-Indonesia’s exclusive mining rights in 1991 for a further 30 years with an option of two 10-year extensions. The licence included an option to prospect another 2.6 million-hectares, as far as the Papua New Guinea border.
Enter Rio Tinto.
In February 1995, Rio Tinto announced a few deals that secured access into Grasberg. First, they agreed to invest US$500 million of new capital in Freeport for a 12 percent stake in the U.S. miner’s business.
Second, Rio Tinto agreed to finance a US$184 million expansion of the Grasberg mine. In return, they received a 40 percent of post-1995 production revenue that exceeded certain output targets, and from 2021 a 40 percent stake in all production. And third, Rio Tinto would receive 40 percent of all production from new excavations elsewhere within West Papua.
By October 1995 an independent U.S. government agency had cancelled Freeport’s international political risk insurance. The insurer, Overseas Private Investment Corporation, specifically cited the Grasberg mine operation as contravening the Foreign Assistance Act of 1961, which required that “overseas investment projects do not pose unreasonable or major environmental hazards or cause the degradation of tropical forests”.
As Soeharto’s reign came to an end, an increasing number of West Papuans also began to campaign against the environmental and social impact of Grasberg. Papuan leaders brought the matter before the U.S. Federal District Court in April 1996 and later the Subcommittee on International Operations and Human Rights of the U.S. House of Representatives in May 1999.
Then in August 2002 two American teachers and an Indonesian employed by Freeport-Indonesia were murdered at the Grasberg mine complex. Following one rebel’s admission that he was a business partner of the Indonesian military, a revelation that might violate the Foreign Corrupt Practices Act, it was later revealed that Freeport was incurring costs of US$5 million per annum for government-provided security of the Grasberg complex and staff, and fluctuating annual costs reaching US$12 million for unarmed, in-house security costs.
On 23 March 2004, Rio Tinto announced it had sold its 11.9 percent shareholding in Freeport. Rio Tinto made a $518 million profit. Citing no environmental or social reasons, Rio Tinto’s then chief executive Leigh Clifford reassured shareholders that “the sale of [Freeport] does not affect the terms of the joint venture nor the management of the Grasberg mine” and that through “our significant direct interest in Grasberg, we will continue to benefit from our relationship with Freeport”.
Rio Tinto remained committed to the mining of Grasberg, and would continue overseeing its management through various operating and technical committees.
Alarmingly, as recently as 2008, fundamental human rights violations such as the “torture, excessive use of force and unlawful killings by police and security forces” have been confirmed by the United Nations Special Representative of the Secretary General on Human Rights Defenders, Amnesty International, and United Nations Committee against Torture.
“There is no alternative to our reliance on the Indonesian military and police”, Freeport chairman James Moffett wrote to the New York Times in 2005, “The need for this security, the support provided for such security, and the procedures governing such support, as well as decisions regarding our relationships with the Indonesian government and its security institutions, are ordinary business activities”.
Curiously, both Rio Tinto and Freeport position themselves in annual ‘sustainable development’ reports as socially responsible businesses. We’re told Freeport were pioneers in recognising the land rights of the Amungme and Kamoro people, paving the way to compensation and dialogue since 1974, and an updated Memorandum of Understanding in 2000. We find that 14 “invalid and unsubstantiated” land rights claims were made against the company globally in their 2008 report, and that steps are being taken to better process them in future. And we are told Rio Tinto and Freeport set aside one percent of net revenues from the Grasberg complex which has enabled the indigenous Amungme and Kamoro people “to become equity participants in the mine” since 1996. But we find the indigenous people are told, “the river upstream will largely recover naturally”.
The story of West Papua reminds us is that the global financial crisis was not caused by the limits of “extreme capitalism” as Australian Prime Minister Kevin Rudd suggests his government can control, but the rampant and uncontrollable nature of capitalism itself; nearly all of Australia’s financial institutions are invested in Rio Tinto, and the federal government’s $60 billion Future Fund don’t disclose what they are invested in whatsoever. They decide what’s a ‘good investment’, and in the absence of transparency and accountability, Australians just have to trust what they’re doing is ethical.
- Nicholas A.J. Taylor is principal of Taylor McKellar, an international political risk consultancy, and a lecturer at La Trobe University.
The full text of this article can be found here.
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