Written in Stone - Freeport-McMoRan in Indonesia
Written in Stone
September 23, 2005
By Robert Bryce, Austin Chronicle
UT's Jim Bob Moffett and Freeport-McMoRan ride a new wave of allegations of business as usual: exploitation, cronyism, and environmental devastation
Thanks to its close relationship with mining tycoon Jim Bob Moffett, the University of Texas now has a building on the Forty Acres named after a divorced couple: the Louise and James Robert Moffett Molecular Biology Building. The Moffetts split a few years ago in what was reportedly an acrimonious divorce.
On the Forty Acres at UT, there's a building named after one of the worst environmental desperadoes of the modern era. His name is James R. ("Jim Bob") Moffett and he's the chairman of New Orleans-based Freeport-McMoRan Copper & Gold Inc.
Although Moffett hasn't been in the local news much lately, he's familiar to many Austinites. Back in the 1990s, Moffett and Freeport engaged in a pitched battle against local environmentalists and the city of Austin over the company's plans to build a major real estate project on the banks of Barton Creek, about a dozen miles upstream of Barton Springs. At the time, Freeport was hampered by low commodity prices and was struggling to make money. It was also besieged by critics over environmental damage and numerous allegations of human rights abuses at its massive Grasberg copper and gold mine in West Papua (an Indonesian province formerly known as Irian Jaya). Near the height of these controversies, the UT board of regents, led by then Chancellor William Cunningham, agreed to name a building on campus after Moffett and his wife, Louise. In return, UT got a $1 million donation from the Moffetts.
Freeport has since spun off its real estate interests into the independent company now known as Stratus Properties, which owns large parcels of land along Southwest Parkway and adjacent to the Barton Creek Country Club, and which continues to be a major player in local real estate and politics. Among Stratus' current projects is the plan for Advanced Micro Devices to build facilities for some 2,000 employees on Stratus' Lantana site, along the Southwest Parkway, a project opposed by the Save Our Springs Alliance among other environmental and community organizations.
Today, the long-standing abuses at the Grasberg mine reportedly continue unabated, but the controversies have scarcely dented Freeport's financial prospects. Indeed, Freeport is riding high on the commodities boom, thanks to the fact that Grasberg is the world's richest gold and copper mine. Over the past four years or so, copper prices have doubled, gold prices have jumped by 70% (the highest level since 1988), and Freeport's stock price has quadrupled. Better still for profits, over the past 12 months the company's production costs have fallen by 75%, to just 11 cents per pound the lowest in the copper mining industry suggesting a corporate method to the mining madness at Grasberg.
Investors are taking notice. On Aug. 4, Goldman Sachs raised its rating on Freeport to "outperform," and Merrill Lynch has a "buy" rating on the stock. Moffett, a regular denizen of corporate America's most overpaid lists, is once again taking home enormous paychecks. According to Freeport's proxy statement, his salary and other perks amounted to $9.5 million in 2004, and during the past 12 months or so, Moffett has sold some $55 million worth of Freeport stock. There are other, apparently expensive changes: Moffett recently divorced his wife of several decades, Louise (who remains memorialized in the stone facade of the Louise and James Robert Moffett Molecular Biology Building, at Speedway and 26th); Jim Bob has remarried, and he and his new wife, Lauree, have built a $3 million home here in Austin, on Escala Drive, overlooking Barton Creek Country Club's Fazio Canyons golf course.
Jim Bob and Lauree's names first appeared together in print in the June 19, 2002, edition of Shelby Hodges' Houston Chronicle gossip column. The couple, whom Hodges identified as "special guests," were attending a party at the River Oaks home of Houston millionaire socialite Roy Cullen and his wife, Mary.
Yes, on the surface, everything appears to be just jim-dandy in Jim Bob's world. But below the surface there's plenty of friction, in the forms we're accustomed to seeing from Moffett: cronyism, environmental degradation, and lousy corporate governance. In other words, business as usual. Given the abundance of recent news items about Moffett and Freeport, we figured Chronicle readers would like an update.
In July, the London-based human rights group Global Witness issued a report alleging that Freeport has made direct payments to soldiers in the notoriously corrupt Indonesian military. "Between May 2001 and March 2003, a series of payments totalling US$247,705 appear to have been made by Freeport Indonesia to an Indonesian general named Mahidin Simbolon," says the report (www.globalwitness.org). Simbolon has been connected with the Indonesian government's brutal suppression of independence activists in East Timor. (That province won its independence from Indonesia in 2002.) Payments to Simbolon may be the tip of an iceberg; Global Witness also charges that "dozens of officers in West Papua, from the rank of general downwards, appear to have received payments from Freeport Indonesia." If these allegations are proven to be correct and the Indonesian government did not authorize them, Freeport could face charges under the U.S. Foreign Corrupt Practices Act, a federal law that prohibits bribery of foreign officials.
The allegations against Freeport come at a time when there is more attention on the Foreign Corrupt Practices Act than at any other time in recent memory. In August, the Securities and Exchange Commission asked several U.S. oil companies, including Marathon Oil and Amerada Hess, for documents regarding alleged illegal payments made by company officials in the West African country of Equatorial Guinea. Devon Energy and Exxon Mobil are also being asked to produce documents.
In the Indonesian case, it's not simply a question of alleged bribery; these same Indonesian army officials allegedly have murdered civilians, and have been doing so for years in various provinces, including East Timor. Of the dozens of killings that have occurred in the regions near the mine or in the province of West Papua, two stand out: the shooting death of American teacher Rick Spier in 2002, and the 2001 murder of Theys Eluay, a tribal leader and advocate of West Papuan independence. In the Spier shooting, which occurred on the road that Freeport built between the mine and Timika, the Indonesian and American governments have indicted a Papuan, but local groups continue to charge that the shooting was done by soldiers in the Indonesian military. (Another American, Leon Burgon, and an Indonesian, Bambang Riwanto, were also killed with Spier.) In Eluay's murder, which occurred near the provincial capital of Jayapura, top officials in the Indonesian military are suspected of ordering his execution, yet only a handful of low-ranking soldiers were charged in the case, and all were given light sentences. The murders in the region are part of the decades-long repression of the native West Papuans by the Indonesian military and its special forces unit, KOPASSUS. Any West Papuan, like Eluay, who agitates too long or too loud for an independent West Papua may well end up with a bullet in his ear.
On Sept. 15, a bipartisan group of 35 U.S. Congress members wrote to Indonesian President Yudhoyono, describing numerous recent human rights violations and asking him to "immediately end the new military operations and to halt the military build-up in West Papua as a whole." Last month, the Indonesian government put an American gold mining executive, Richard Ness, an executive of Denver-based Newmont Mining, on criminal trial for violating that country's environmental laws. Ness' indictment listed 125 instances in which waste from a Newmont mine in northern Sulawesi allegedly exceeded Indonesian legal limits for heavy metals, including arsenic and mercury. If Ness is convicted, he faces as much as 10 years in prison and a $68,000 fine. The Indonesian government is also suing Newmont, seeking $133.6 million in damages. Newmont insists that it has disposed of its waste safely and that the mercury and arsenic levels near the mine are within acceptable limits. On Tuesday, a court rejected Newmont's motion to dismiss the case, and Newmont said it would appeal.
The prosecution of the Newmont executive could mean trouble for Freeport, which has long depended on its ability to cozy up to Indonesia's oligarchs and military. An American who spent a decade working in the Indonesian mining sector told me that every multinational natural resources company in Indonesia and Freeport in particular should be worried. "They should all be watching Newmont and getting ready because they're next," he said. (This source and others interviewed for this story believe the charges against Newmont are trumped up and that Indonesian prosecutors are using bad science and/or have falsified evidence, all in a thinly veiled effort to extract more money out of the mining company.)
Satellite photos readily available on Google Earth and Google Maps show that the massive tailings plume below the Grasberg mine (currently crushing about 220,000 metric tons of rock per day), now appears to be flowing into the Arafura Sea. According to Indonesian environmentalists, Freeport does not have a permit to dump tailings into the ocean. Further, the vast size of the Freeport tailings dump worries many mining engineers and environmentalists. Heavy metals mercury, cadmium, selenium, copper, and others abound in the mine waste, which covers dozens of square miles. Residents as well as outside observers fear that some of Freeport's tailings have, in mining parlance, "gone acid" that is, that those heavy metals are now leaching out of the tailings and mining overburden, and into the surrounding environment.
Ed McWilliams, who visited the Freeport mine site six years ago while working for the U.S. State Department on labor and human rights issues, viewed the current satellite photos and told me they confirm what he saw in June of 1999, although the effects of the tailings plume has worsened. "What is most interesting is the extension of the plume into the Arafura Sea," he commented via e-mail. "When I was there I spoke with Catholic priests and others who expressed concern that the tailings were (then) just beginning to reach the sea and that the tidal action could cause the tailing deposits to spread along the coast causing death of mangroves. This delta effect as anticipated in those interviews is particularly interesting and of course ominous as the death of the protective barrier provided by the mangroves will have devastating effect on the ecology and the way of life of the Kamoro, who are essentially a coastal people."
More bad publicity for Freeport looms. The New York Times has begun delving into the company, working on a print and broadcast package in conjunction with PBS's Frontline. Jane Perlez, the Times' Southeast Asia bureau chief in Jakarta, has written several stories about the Newmont prosecutions, and she's digging deep into Freeport's record. No air date has been set.
The continued unpleasantness at Freeport's Grasberg mine provides yet another chapter in the ongoing controversy over Moffett's ties to UT. In 1994, William Cunningham, while serving a paid position on Freeport's board of directors, solicited a donation from Moffett and his wife. They agreed, and pledged $1 million. In return, Cunningham and the board of regents agreed to name a new building, completed in 1997, as the Louise and James Robert Moffett Molecular Biology Building.
Moffett's close ties to the university were highly controversial back in the mid-Nineties when Freeport and its real estate subsidiary, FM Properties, were locked in litigation with the city of Austin over the future of its land development plans on the shores of Barton Creek, west of Austin. Not coincidentally, Freeport's environmental practices in Indonesia were also major news items. In October 1995, the Overseas Private Investment Corporation, a U.S. government-backed export credit agency, had canceled a $100 million risk insurance policy it carried on Freeport's Grasberg mine, due to environmental damage caused by the project. In a letter to Freeport, OPIC said the mine has "severely degraded the rainforests surrounding the Ajkwa and Minajerwi Rivers" and "has created and continues to pose unreasonable or major environmental, health, or safety hazards with respect to the rivers that are being impacted by the tailings, the surrounding terrestrial ecosystem and the local inhabitants." It was the first and remains the only time OPIC has canceled an insurance policy due to environmental concerns.
In the 10 years since a federal agency cancelled its political risk insurance, Freeport-McMoRan Copper & Gold Inc. has dumped the equivalent of 190 Astrodomes full of tailings into the local river system. These tailings which cover a stretch of river some 30 miles long may be releasing heavy metals such as mercury, cadmium, and selenium. However, no known independent testing of the tailings has been done.
Since that OPIC cancellation, Freeport has adopted a policy that might be called "hunker down and go," and has been expanding its operations with little or no oversight from environmental regulators in Indonesia or elsewhere. Brigham Golden, a Ph.D. anthropology student at Columbia University and a member of the Council on Foreign Relations, Indonesia Commission, who has been visiting the region near the Grasberg mine for several years, says that for Freeport, the political situation in Indonesia has "changed dramatically. Jim Bob used to be able to fly to Jakarta and make a deal." But he says "Jakarta isn't making all the rules any more. Freeport is stuck in the old order way of things. It's a much more insecure terrain."
Part of that insecurity stems from Freeport's own environmental practices. Since OPIC cancelled the company's insurance, Freeport has continued dumping untreated tailings into the local river system. Indeed, since the OPIC cancellation, the company nearly doubled capacity, and it now crushes 220,000 metric tons of rock per day enough material to fill the Astrodome every 14 days.
Potential Environmental Disaster
Since the OPIC cancellation in 1995, Freeport's mine has dumped about 650 million metric tons of untreated tailings into the local river system an amount that would fill the Astrodome about 190 times. Of course, any mining activity has an environmental impact. But copper and gold mining are particularly messy. The same rocks that contain those valuable metals also tend to contain nasty ones like mercury, cadmium, and selenium, often liberated during the mining process, thanks to acid rock drainage, a naturally occurring process that afflicts gold mining operations around the world.
Two sources indicate that Freeport has acid rock drainage problems. A 1995 report by EnviroSearch International, obtained by the Chronicle under the Freedom of Information Act, says that its "inspection revealed what appeared to be obvious signs of ARD already occurring on the southeast flank of the Grasberg mine." And Ed McWilliams says that he, too, saw evidence of acid rock drainage at the mine. McWilliams, who worked for the State Department for 27 years before retiring in 2001, recalls that during his 1999 visit, the tailings were "obviously producing acid rock drainage into the local groundwater. There was concern in 1999 that it was beginning to pollute the groundwater in the Timika area." Timika is the town that lies below the Grasberg mine. McWilliams also says that the tailings plume from the mine was reaching the ocean back in 1999, and that tidal action was causing the tailings to be swept all along the coast.
The key issues regarding the tailings: How much acid are they generating? And if the entire tailings plume goes acid, what type of heavy metals, and how much, will they release? Unfortunately, there has been no independent monitoring of the environment around the mine to ascertain the seriousness of the ARD problem, but judging from the size of the waste plume (see photo), the potential environmental threat is enormous.
Freeport has, thus far, set aside $29 million to remediate the tailings from the Grasberg mine, and has pledged a total of $100 million toward restoration projects when Grasberg is played out. But that's not likely to be enough to adequately remediate the damage caused by the tailings, which have destroyed the rivers below the mine (see photos).
For Indonesian environmental groups like WALHI (Friends of the Earth Indonesia), which has been targeting Freeport for years, the prosecution of Newmont provides a new opportunity to confront the New Orleans-based mining giant. A WALHI spokesman, who asked that his name not be used, told me that "many of the same clauses in the Environment Act" that are being used against Newmont ... could be applied to Freeport's operations." He added that Freeport is among the "biggest polluters worldwide by volume of waste and by area of land contaminated."
Indeed, the dead zone created by Freeport's tailings are easily seen by anyone with access to the Web. Google Maps shows a satellite image of the tailings plume (www.tinylink.com/?U2nk65prt2), which appears as a violet north-south scar in the middle of the page. Satellite images show that the tailings plume now stretches for some 30 miles and all of those tailings may be releasing heavy metals. Satellite images also clearly show the razor-straight, miles-long levees that Freeport has built in an attempt to control the river of tailings that have flowed through their enormous rock crushers. In a recent report, Freeport estimated that those levees contain 31.1 million cubic meters of earth the equivalent of another 15 or so Astrodomes. Lastly, the satellite images show that tailings are also being dumped into rivers to the west, which are apparently outside Freeport's contract of work area.
The Price of Security
The environmental problems at the Freeport mine have long walked hand in hand with years of ruthless human rights abuses. Thousands of natives of the island province have been killed by the Indonesian military an organization that McWilliams calls "utterly corrupt." Indeed, for natives of West Papua, the Global Witness report goes far beyond questions of bribery. Octo Mote, a member of the Ekari tribe, was born just a few kilometers north of the Grasberg mine, and is now a visiting scholar in the genocide studies program at Yale University. Mote says, "All West Papuans want accountability from Freeport about these payments [to the military]. ... We don't want Freeport to give money to our enemy so they can kill our leaders. That's why we are so concerned about these relationships."
Freeport has not commented publicly on these charges, but on its Web site, www.fcx.com, the company says that it has "made strong unequivocal commitments to human rights," and that this policy has been adopted by the board of directors and by all contractors who work for Freeport. With regard to the Indonesian military, the company says the mine has been "designated by the Government as one of Indonesia's vital national assets. This designation results in the military's playing a significant role in protecting the area of Company operations. The Government is responsible for employing police and military personnel and funding and directing their operations. From the outset of PT Freeport Indonesia's operations, the Government has looked to the Company to provide logistical and infrastructure support, a prudent response by our Company to protect its workforce and property."
In 2003, Freeport notified the Securities Exchange Commission that in 2001 and 2002 it had paid $10.3 million for "government-provided security" at the mine. That's on top of some $35 million Freeport spent building housing and offices for Indonesian soldiers after civil unrest hit the mine in 1996.
The New Crony Network
Back in the Nineties, when Freeport and Moffett were battling the city of Austin, the company was on the offensive, buying full-page ads in The New York Times and in this paper, defending itself against any and all critics. In 1996, Freeport bought an eight-page $162,000 ad in Texas Monthly, spurring its voluble publisher, Mike Levy, to send out a personal letter on Freeport's behalf, praising the company's wonderful character and good intentions. Freeport's challenge, Levy told his correspondents, "is to mine responsibly so that the environmental effect is minimized and the economic benefits for the surrounding communities are maximized." At about that same time, Freeport's PR team, led by former (and now current again) New Orleans WWL-TV anchor Garland Robinette, released a video claiming the company's massive mining operation was "exactly what Mother Nature is doing in Indonesia." For his part, Moffett told one news outlet that the environmental effect of the mine was "the equivalent of me pissing in the Arafura Sea."
Today, Freeport's PR campaign resembles that of the Bush administration: ignore critics, ignore the press, and refuse to release any information that might be damaging. Freeport has issued no response to the accusations made by Global Witness. No reporters are being allowed into the mine, especially not reporters from The New York Times. Freeport's PR team led by former Austin American-Statesman environmental reporter Bill Collier is saying nothing. (In 1992, a few months after visiting Freeport's mine for the Statesman, Collier took a job at Freeport and later moved to New Orleans). Collier, Freeport's vice president of communications, did not respond to interview requests from the Chronicle (requests made long before Hurricane Katrina).
At the moment, instead of waging their own public relations war, Freeport and Moffett are relying on a few hired guns. The company has reportedly retained New York City-based lawyer and power broker Stanley Arkin to defend it against any potential criminal charges. Arkin did not respond to an interview request from the Chronicle.
Moffett and Freeport are also relying on Stapleton Roy, the former U.S. ambassador to Indonesia, who now works as a managing director at Kissinger Associates. Roy's partner there is former Secretary of State Henry Kissinger, who has long served as Moffett's chief consultant on international issues. Whatever their contributions on such international niceties as, for example, the company's relationship with the Indonesian government and its military, the two men are prospering right along with their corporate client. Kissinger served on Freeport's board from 1995 to 2001 and is now a "director emeritus." He receives $40,000 annually for sitting on the Freeport board as an "advisory director." In addition, according to Freeport's proxy, Kissinger Associates "receives an annual fee of $200,000, additional consulting fees based on the services rendered, and reimbursement of reasonable out-of-pocket expenses." Roy's fortunes have also risen with the company's. Since Jan. 1, according to SEC filings, Roy has sold about $400,000 worth of Freeport stock. Roy did not respond to an interview request from the Chronicle.
The company payroll also includes Gabrielle McDonald, a lawyer who now works as an arbitrator on the Iran-United States Claims Tribunal in the Hague. (Before her current gig, McDonald served on the International War Crimes Tribunal). McDonald sits on Freeport's board as an advisory director, and serves as its "special counsel" on human rights. A company report on social and environmental issues says that McDonald "reports regularly" to the board on "human rights issues and developments." According to SEC filings, since Jan. 1 of this year McDonald has sold about $6.3 million dollars worth of Freeport stock. One has to wonder if her advice on human rights at the Grasberg mine is colored in any way by her large financial interest in the company's bottom line.
Jim Bob Moffett said that the environmental effect of the Grasberg mine was "the equivalent of me pissing in the Arafura Sea."
Photo by Alan Pogue
Beyond McDonald's personal stock transactions, she also has an outside consulting arrangement with Freeport. According to the company's proxy statement, "McDonald receives an annual fee of $265,000, plus reimbursement of reasonable out-of-pocket expenses" for her work as boardmember and special counsel. (McDonald also served several lucrative years as a director for another Moffett-controlled company, McMoRan Exploration.) McDonald did not respond to an interview request from the Chronicle.
Freeport has 11 people on its board of directors. Of the ten independent directors, four of them Roy, McDonald, former U.S. Senator J. Bennett Johnston, and longtime Moffett crony B.M. Rankin have outside consulting contracts with the company, effectively placing them on both sides of a contractual relationship. Johnston's consulting deal paid him $265,000 last year. Rankin's consulting deal paid him $490,000. "There's no doubt that it's a conflict of interest for these four to have consulting contracts with the company. It compromises their independence," says Harold Mathis, a Richmond-based investor and longtime agitator for better corporate governance practices. Over the past decade, he has presented shareholder resolutions at more than a dozen publicly traded companies, including Freeport.
While cronyism continues to thrive on Freeport's board, some UT alums and faculty are still smoldering about the brand of cronyism Moffett and Cunningham brought to the Forty Acres. Sanford Levinson, a professor at the UT Law School, and the author of Written in Stone: Public Monuments in Changing Societies, a book that addresses the controversies that spring up around statues and other public edifices, says the fact that Moffett is now divorced from the woman who shares billing with him on the microbiology building, probably won't rile UT boosters. "If you aren't troubled by Jim Bob's business practices, then I don't think you'd be troubled by discovering that his marriage didn't last," said Levinson.
What sticks in Levinson's craw is that the building naming was arranged by Cunningham while he was serving on Freeport's board. "Cunningham was in a patent conflict of interest. If he was going to sell a big building, then he should have really gotten a huge pot of money. Instead he only got $1 million." And therein, says Levinson, is the cynical heart of the UT/Moffett building controversy: "If you are going to sell out, at least sell out for enough money." (On Sept. 14, UT bestowed upon Cunningham a Presidential Citation an award created in 1979 "to recognize the extraordinary contributions of individuals who personify the university's commitment to the task of transforming lives [and] to salute those whose service exemplifies the values shared by The University of Texas at Austin community.")
Speaking of money, in late August, copper hit an all-time high on the London Metal Exchange of $3,670 per ton. Those prices are good news for Freeport's shareholders: On Sept. 30, owners of Freeport stock will be paid a special dividend of 50 cents per share. Moffett's 1.5 million shares mean he'll get a check for $750,000.
Extra information: Freeport & Grasberg: A Chronology
Extra information: Freeport at Grasberg: 'Devastated the river system'