Fri, 22 Dec 2000

The thorns in the sides of the oil and mining industries

By Johannes Simbolon

JAKARTA (JP): The country's oil and mining industries was in deeper trouble this year as local communities, supported by non- governmental organizations, continued their attack on the industries amid the lingering reform euphoria.

Local communities, who had gained little from the development of oil and mining resources in the more than three decades of former president Soeharto's administration, blamed their poverty on the industries. They are demanding compensation for loss of their land and livelihood.

The conflicts between local communities and investors surfaced after the resignation of former president Soeharto in the middle of 1998 and continued with greater intensity last year.

But, this year, Irwan Prayitno, head of the House of Representatives' Commission VIII for mines and energy, science and technology, and environment said, conflicts in the mining and energy sectors had become worse, citing various cases of arson, blockades and violent demonstrations by workers.

"I agree that conflicts in the oil and mining industries have been on the rise this year," Irwan told The Jakarta Post.

"This is not a happy year for the industries," Paul Louis Courtier, executive director of the Indonesian Mining Association (IMA) told the Post in his private capacity.

Among the major conflicts that gained media attention this year are the legal battle between the Minahasa regency in North Sulawesi and gold mining company PT Newmont Minahasa Raya; the land dispute between gold mining company PT Kelian Equatorial Mining (KEM) and the local communities in Kutai, East Kalimantan; the environmental dispute between oil and gas company PT Unocal Indonesia and the villagers of Marangkayu, East Kalimantan; and several disputes between PT Caltex Pacific Indonesia and the locals in Riau.

Labor protests occurred, among others, at Caltex; coal mining company PT Kaltim Prima Coal (KPC) in Sangatta, East Kalimantan; and oil and gas company PT Vico Indonesia, also in East Kalimantan.

All the labor protests were staged by workers grouped in the Indonesian Prosperity Trade Union (SBSI), while protests by villagers gained support from a number of non-governmental organizations, including the Indonesian Forum for Environment (Walhi) and the Mining Advocac Network (Jatam), according to the media reports.


The tax dispute between the Minahasa regency and Newmont looked "special" as it was the first case in the country's mining history where a regional administration sought to settle its dispute with a foreign investor in court.

Many regional administration leaders have publicly voiced their criticism of foreign mining operations in their respective areas, but they talked to the press and never tried to seek a legal solution to the matter.

Minahasa regent Dolfie Tanor filed a lawsuit against Newmont last year, demanding the company pay Rp 19 billion (US$2.02 million) in overdue taxes on building materials to the regency.

The regency maintained in its lawsuit that Newmont had used the building materials in its overburden, but Newmont said it had not made use of the overburden and had to remove the it to access the gold deposit.

The regency hired one of the country's most prominent lawyers, OC Kaligis, to represent it in the legal battle.

The country's mining industry was shocked early this year when the court in Tondano ruled in favor of the Minahasa regency, ordering Newmont to close its gold mine.

The central government intervened by asking the Supreme Court to annul the district court's decision in response to the investors' outcry. This was despite the promise made by President Abdurrahman Wahid in the early days of his presidency that his government would support judicial independence.

Many parties, including legislators, praised the government's move.

Newmont and the Minahasa regency finally reached an out-of- court settlement in April, where the regency agreed to drop its lawsuit if Newmont paid $500,000 in overdue taxes and compensated the regency. The compensation included community development programs.

Lawyer Todung Mulya Lubis regretted the government's move in asking the Supreme Court to annul the decision by the Tondano district court, saying the move was reminiscent of the New Order era of former president Soeharto, during which the government often intervened in court decisions.

Lubis noted however the government's move was understandable, in view of the fact that the country very much needed foreign investment and its legal system was still far from being clean, independent and impartial.

But, he warned the government not to repeat the move in future.

"Hopefully, the government's intervention in Newmont's legal battle will be its last intervention," Lubis said in an article in Kompas daily in April this year.

After the Newmont case, the central government appeared reluctant to intervene in other conflicts in the oil and mining industries.

It, at most, called on the disputing parties to resolve their disagreement through dialog mediated by the local government.

That was what the government did when striking workers blockaded KPC's coal mine and Vico's operations in East Kalimantan or when villagers attacked Caltex's operations in Riau in the second half of the year.

KPC was forced to halt its operations several times and declare force majeur on its coal sale-purchase contracts with buyers after its workers, grouped in the SBSI labor union, occupied its production facilities in July and August, to demand for higher salaries.

The workers ended their strike following negotiations between the company, SBSI and the local government.

Meanwhile, the protests by workers of Vico's contractor, who are demanding higher salaries and permanent jobs at Vico, are reportedly still continuing.

Caltex is also struggling to resolve a dispute with thousands of workers of its contractors, who are demanding better wages and permanent jobs in the joint venture projects of American oil and gas companies Chevron and Texaco.

Aside from the labor protests, Caltex, which accounts for more than half of the country's 1.3 million barrels per day oil output, was also hit by several violent protests by villagers this year.

In one of the protests, a group of farmers, who claimed to have received very low land compensation from Caltex, set ablaze four oil wells belonging to the company in November.


Former minister of mines and energy Susilo Bambang Yudhoyono, who is now coordinating minister for social, political and security affairs, blamed the rising conflicts in the oil and mining industries on an international conspiracy which sought to close down all major mining operations in the country.

He said the international movement used old land disputes, and environmental and wage issues to provoke workers into carrying out hostile actions against mining operations across the country.

"There is a suspicion that an international antimining movement is behind the growing conflicts in mining operations," he said.

He refused to name the antimining group.

But, Irwan and Coutrier said the conflicts mainly stemmed from the decades of frustration of the local people over the unfair distribution of revenues from the development of their natural resources.

"The protesters are actually demanding justice. But, unfortunately, some of them have taken improper steps, like blockades and arson, to push for their demands," Irwan said.

Both Irwan and Coutrier shared the optimism that the conflicts pitting mining investors against local communities could be on the wane after the decentralization program begins next year with the implementation of Autonomy Law No. 22/1999 and the Intergovernmental Fiscal Balance Law No. 25/1999.

Under both laws, which are to be implemented on Jan.1, 2001, regional administrations will manage their natural resources and receive a greater share of the government's revenue from the development of the natural resources.

Under the laws, regional administrations will get 15 percent of the government's oil revenue, 30 percent of its gas revenue, and 80 percent of the mining royalties payable by contractors to the government.

"People in the regions will for sure turn friendly to the oil and mining investors in their areas once they are able to benefit from the rise in their regions' revenue, thanks to the decentralization program.

"What all stakeholders in the industries have to do now is to make sure the decentralization program succeeds," Coutrier said.

He said he believed unruly labor protests, which were rampant this year, could also decrease next year as workers would realize that such actions would only hurt their companies and they could lose their jobs because of it.

Irwan said in order to make the decentralization program succeed, regional administrations should introduce bylaws which ensured fair distribution of revenue to the people.

"If that happens, I am sure the situation in the country's oil and mining industries will be better next year," Irwan said.