MAC: Mines and Communities

Kaltim Prima Report

Published by MAC on 2001-05-01

Minewatch Asia Pacific Report, July 1999

Kaltim Prima: a case study of the operations and impacts of Kaltim Prima Coal (KPC) in East Kalimantan, Indonesia

A changing climate?

Coal isn't good news for most environmentalists: its burning contribution to the "greenhouse effect" and acid rain generation is considered unacceptable - to the point that some NGO's (non-governmental organisations) have called for a global ban on coal mining, while at least one British high street bank (the Cooperative) refuses to accept investment from - or into - coal production companies, on "ethical" grounds.

But a planet expunged of coal (the most widely used fossil fuel in the world) would be one of abject poverty for millions of workers and their families who are dependent on the industry (collieries employ by far the largest workforces of any mines). Industrial output (including the production of items which meet human need, rather than satisfy vanity) would plummet across the globe. Some northern NGO's concerned about "climate change" seem oblivious to the consequences of their comfortable armchair calls against coal, made solely on environmental grounds. Unwittingly they may have contributed to pressures within the industry to concentrate on mining low-sulphur, high calorific, "hard" coals (as opposed to lignite or brown coal) - without, at the same time, evaluating the social or political consequences of the corporate penetration of new regions, notably Indigenous territory in Indonesia, Colombia and the US mid- and south- west. This myopia masks the reality of the rise of a set of powerful multinational enterprises - Rio Tinto, Glencore, Anglo American, and BHP among them - which are undertaking huge coal expansions in the service of over-developed, rather than impoverished nations. It also ignores the fact that it is these companies - at least as much as governments and Peoples in the South - who, with relative impunity, are implicated in deleterious global climate changes.

It is in this context especially that Rio Tinto's operation (along with 50% partner British Petroleum - or BP) of the Kaltim Prima coal mine in East Kalimantan becomes a case study with international ramifications: a project which more than doubled its design output within a few years, is now among the world's top ten coal exporters, but where management appears to be resisting mandatory "Indonesianisation" and where many of the local, original, inhabitants, of the vast open-cast site barely live above subsistence level. By marketing so-called "enviro coal", and subsidising a national park, the Kaltim Prima partners draw a sophisticated veil over their exploitation of Indonesian workers, their seizure of local land, and their use of one of the country's prime natural resources - primarily to supply rich overseas markets and leverage profits for their overseas shareholders.

Ranking Indonesia

Indonesia's potential to produce significant amounts of hard coal has been recognised for some time. (In 1994, estimated total reserves were 36 billion tonnes). By and large, the resources are "young, steaming coals...very low ash and sulphur, high-volatile, bituminous..." [Mining Engineering, September 1990]. Although the country has hosted operating coal mines for more than a hundred years, the industry was allowed to run down after independence, and only "stoked up" in the 1970's, as the regime feared it might have to become a net importer of oil, to meet growing demand for electricity [Financial Times May 25 1991].

In the late eighties (1987-1989) domestic coal output increased 300% (from around 3 million tonnes to 9 million tonnes) while exports expanded comparably (from one million to 3 million tonnes) [Mining Engineering Sept 1990]. Soon afterwards, demand from overseas buyers also escalated dramatically (18 million tonnes was exported in 1993) [Indonesian Coal Prospects to 2010, IEA Coal Research, London 1995].

Latest figures show that, in 1997, Indonesia delivered nearly 55 million tonnes (53.6 million) of which around 36 million tonnes went overseas [Mining Annual Review (MAR) 1998, Mining Journal Ltd, London], with the most significant production deriving from PT KALTIM PRIMA (KPC) (15.6 million tonnes), PT BUKIT ASAM (9.7 million tonnes) and PT ARUTMIN (7.2 million tonnes)[MAR 1998]. (PT Arutmin is owned by BHP of Australia which, in early 1999 was also granted two new COWs (contracts of work) to explore and mine coal in Central and East Kalimantan. [Jakarta Post April 20 1999]).

This output currently ranks Indonesia 15th among world producers, following China (one and a third billion tonnes a year), India, Germany, the Czech Republic, Ukraine and Greece (among others) [MAR 1998]. Strategically and economically, Indonesia has considerable advantages over some of its rivals: it is not only the closest source for many South East Asian markets, but considerably nearer to Europe than Australia (the world's third biggest coal producer and its biggest exporter). Domestic Indonesian output goes mainly towards power plants (into which a substantial proportion of new capital is being put) [Jakarta Post, April 1 1994] and - importantly - towards the cement industry.

Kalimantan and Sumatra

Most major coal deposits lie on the two big islands of Kalimantan (Indonesian Borneo - with some 30% of known reserves) and Sumatra (68%). Found in sedimentary basins, they are usually amenable to open- pit (open cast) exploitation. Although government-owned coal companies have been substantially increasing output (notably PT Bukit Asam in south Sumatra), and there are a number of smaller, private, operatives, the most substantial mines (apart from Bukit Asam's) are run by foreign contractors. And, of these, the most important are located in east and southeast Kalimantan.

Deposits are commonly located close to major waterways, where barges can load onto bigger vessels at anchorage. Recent and continued expansion of the industry therefore depends on the construction of major new port facilities, capable of serving ocean-going transport. From the late eighties onwards, several multilateral agencies (among them the World Bank and CIDA) made sizeable loans to Indonesia, in order to finance improved transport infrastructure (with the main benefits going to foreign contractors) [Carolyn Marr Digging Deep: the hidden costs of mining in Indonesia, Down to Earth and Minewatch, London 1993]. But it was the completion in 1991 of Kaltim Prima's dedicated marine facility near Sangatta, East Kalimantan, which, according to one commentator, signalled the country's "true a competitive supplier to all the world markets" [Mining Engineering Sept 1990]. (In mid-1998 Indonesian company PT Senong Corp announced plans to construct a US$500 million railroad network in East Kalimantan to transport coal and forest products "around the province" - the World Bank, Asia Development Bank and US investment brokers, Newman International Ltd, were mentioned as possible funders [Jakarta Post July 28 1998]).

Brits in first

The contractual engagement between Suharto's regime and Rio Tinto (formerly RTZ), the world's most powerful mining company, has just reached its twenty-second anniversary (a gold, diamond, coal and copper jubilee?). Signed in June 1977, the contract was the first between the government and a foreign mining company under the COW system (in this case the "third round" of COWs) [Wall Street Journal, 28 February 1977]. While the contract introduced new measures intended to buttress the regime's revenues (a 10% profit tax on exported unprocessed minerals, and a 60% windfall tax, when average returns on investment exceeded 15% over a three-year period), it also empowered the company to keep foreign exchange revenues in its own offshore account. This COW was designed specifically to facilitate Rio Tinto's exploration for copper and other base metals in North Sulawesi, and had a thirty-year life attached. However, it also specified that the company should offer 51% of its shares (in PT Rio Tinto Indonesia) to Indonesian nationals, within ten years of commencement of production - and it didn't include coal or uranium exploitation [Wall Street Journal, June 14 1977].

It took another five years (1982) before Rio Tinto signed its first (and so far only) coal contract in the country - to exploit the highest quality steam coal deposits known in Indonesia, centred on the Pinang dome within the Kutai Basin, along the river Sangatta. Apart from the intrinsic value of the coal, the deposits are close to the surface and - equally important - only 12.7km (by conveyor) from the loading facilities at the port of Tanjung Bara, on the coast of East Kalimantan [Engineering and Mining Journal, USA, May 1991]. Under the terms of the production-sharing agreement, the Indonesian government takes a 13.5% royalty - either in revenue or coal - and the companies pay tax at 35% for the first ten years. [Financial Times December 9 1998]. KPC also undertook to divest some of its holding to local interests after the first five years of production (i.e.1997) - offering the stake initially to the government. (In 1997 KPC had to transfer its coal agreement from PT Tambang Bambara Bukit Asam to the government itself). By the tenth year of production (2002), KPC was committed to divesting up to 51% of shares [Jakarta Post June 26 1998].

A joint British Petroleum (BP) - Rio Tinto mine, KPC remains an anomaly for the former company. In 1989 Rio Tinto bought up all BP's mining interests apart from some Canadian gold projects (later sold), but BP retained its 50% stake in Kaltim Prima. The company's evasive response to queries as to why it held on to its share was that it was "for local reasons" [Financial Times June 22 1989]: four years earlier, Britain's biggest company had announced that it wanted to expand oil production and petrochemicals in Indonesia, as well as exploit the Sulawesi natural gas fields [Financial Times October 25 1985].

But it is also perhaps relevant that, in the months before BP made this decision, Friends of the Earth had criticised the aspiring "green" benchmark company for entering into deals with "dirty" Rio Tinto [Roger Moody "BP and RTZ: an Unholy alliance" Tropical Rainforest Times, FOE-UK, Autumn 1989]. Apparently partly in response to this broadside, BP organised a swift audit of all its operations in tropical rainforest areas. When presenting the findings, one of the BP scientists admitted that the overburden dumps at Kaltim Prima had been "constructed upside down" - by which he meant that they had not been lined with HDPE (high density polyethylene) to prevent acid rock drainage from the bottom of the piles [personal communication from FOE-UK to Minewatch 1989]. It is tempting - though doubtless naive - to credit BP with remaining in management of the project, in order to ensure that its reputation did not suffer even more back home.

Export - and profit

Kaltim Prima's reserves are vast - originally calculated at just under a quarter of the entire coal found in Kalimantan [Mining Journal May 5 1989]. Even the "test" consignment, exported by KPC in May 1990 to the Netherlands, Germany, Taiwan and Japan [Financial Times August 7 1991, Mining Magazine October 1991] was - at 67,000 tonnes - the largest coal shipment ever to leave the country at that time [Engineering and Mining Journal, USA, October 1991]. The following year, KPC's first commercial sales were made to Hong Kong (China Power and Light) - causing "a considerable stir, since the delivery price was set well below contracted sales for Australian coal to Japan" [Mining Magazine Oct 1991]. By the end of 1992, output had exceeded the design specification of 7 million tonnes, and was well on the way to 9 million tonnes a year [Northern Miner, Toronto, May 31 1993]. Within two years it had risen to 11.5 million tonnes [SAML (Southeast Asia Mining Letter), London, October 11 1996]. 1998 output was 14.7 million tonnes, of which around 70% was sold on long term contracts and the remainder (30%) on spot contracts [Rio Tinto Annual Report and Accounts, London and Melbourne 1998]. Again, the biggest proportion (32%) went to Japan (primarily Chugoku power company) followed by Taiwan (24%) and Hong Kong (China Power and Light - 12%) [Australian Financial Review December 9 1998, and Financial Times December 9 1998]. The remainder was shipped to Europe of which 12% went primarily to Germany (Strom Meyer), to the Netherlands' (GKE) and Italy. US customers received 7% (one of these being Sprague Energy [International Coal Report, November 16 1998]. Other Asian buyers (including the Philippines) took 4%, and the remainder was retained in Indonesia itself. Noteworthy about these contracts is that Kaltim Prima - whatever its claims to be providing "enviro coal" (a name some company whizz-kid coined for it in the early 1990's) to power stations with high standards of pollution control in North America and Europe - seems to be failing less industrialised countries closer to "home". What has happened to Thailand for example, which signed a joint coal agreement with the Indonesian government a decade ago [Indonesian Development News May/June 1990], and whose exploited domestic coal resources consist of brown coal, rather than less environmentally damaging hard coal? This discrepancy was true even before the drop in Asian demand that followed the "crisis" caused by grotesque currency speculation and corrupt funding of mega-projects up to 1997 [Financial Times January 30 1998].

Divestment - but not yet

In March 1998, the Association of Indonesian Mining Professionals (Perhapi) told the regime not to insist on an unthinking and mandatory divestment of shares from foreign ownership to Indonesians, but allow coal companies to choose their own future partners. The Director General of Mining wanted to sell KPC 's allotted 23% privatisation stake to Bukit Asam, PT Aroda, PT Pakarti Trimitra, and the military, through its own foundation, Yayasan Markas Basar ABRI [Jakarta Post March 16 1998]. Perhapi protested that some of these companies were strapped for cash, while ABRI had no experience in coal mining. Three months later, KPC offered this "public" share to PT Bukit Asam, PT Aneka Tambang (ANTAM) and PT Tambang Timah [Jakarta Post June 26 1998].

But Bukit Asam and ANTAM dropped out of the bidding and it was not until March 1999 that the world's biggest tin miner, Indonesia's 65% state-owned PT Tambang Timah, announced that it would purchase a 30% stake in KPC, hoping to finalise the deal by this summer. Back in 1996, when it secured nearly 18,000 square kilometres of territory for exploration in Kalimantan, Timah said it aimed to become a major diamond, gold and coal producer by the turn of the century [Mining Journal April 5 1996]. There is little doubt that the company has the money and capacity to do so. The Indonesian government has also reportedly lately been "toying with merging Timah with troubled state-owned mining company, Bukit Asam" [Financial Times April 6 1999] Since its primary sales are made in dollars, Tambang Timah's profits have actually risen despite (rather, because of) the "Asian crisis" (up 102% in 1997) [Mining Journal May 22 1998, Jakarta Post March 11 1999].

Although the Indonesian government announced last year that more of Timah's shares would soon be privatised, the offloading of state assets seems to have lost momentum [Andrew Marshall "Indonesian privatisation losing its way" Reuters, August 18 1998]. Tambang Timah has also disputed the price demanded for a stake in KPC. The current asking figure has not been revealed, but KPC hung a US$176 million tag on the 23% initial offering [Jakarta Post April 19 1999], amidst accusations that it was deliberately set high, in order to deter Indonesian bids [Jakarta Post April 19 1999].

Theft by any other name: the community impacts of KPC

Even before KPC was officially opened, allegations had been made by members of a transmigration study team, that site construction was causing considerable problems for the local people. This was occurring notably through the attraction and recruitment of labour from outside the region; the appropriation of local (Kutai) peoples' land and other resources; and a deterioration in the quality of water. "Drunkenness, prostitution and conflict between local people and newcomers have already reached a delicate state," warned the leader of the study team."Large numbers of contractors have been associated with the mine and an oil lease [Pertamina's] across the river [Sangatta]. Workers get taken on for limited periods, however. They get high wages, but prices [of food and necessities] go up. When they quit, they rarely return to agriculture and in any case much of the good farmland has been lost to plantations and now the mine… We're seeing the birth of a floating, aimless, unskilled population with few prospects. And it's the indigenous people who bear the brunt of it" [quoted in Roger Moody Amazonian battle-front reaches Indonesia, Gemini News Service, 1989].

A representative of the company admitted in 1991 that "KPC does not yet have a sufficient understanding of [these] dynamic new communities to make fully informed decisions about how best to develop good and lasting relationships with both local government and new local communities" [Alan Irving Coal Mining and the environment: an East Kalimantan Study, paper delivered at the International Conference on Mining and the Environment, Bandung, July 1991]. Alan Irving, KPC's senior environmental engineer, was referring to the thousands of people who had settled in the Sangatta area, because of the mine and, to a lesser extent, because of the Pertamina oil exploitation on the south side of the Sangatta river. In 1988, the total population of Kecamatan Sangatta was put at 8,400; by 1991 the figure had almost doubled (to 17,816). Irving's statement is revealing for several reasons. First, his typifying the in-migrants to Sangatta as "dynamic" - without apparently knowing much about them - suggests that this is how the company wanted the newcomers to behave: as go-getters, a ready pool of labour, eager to support KPC's construction (the mine was to open the following year, ahead of schedule), but who would move on, when the need for their labour was no longer there.

Second, Irving admits that Kaltim Prima had got beyond all preliminary stages - and to within an ace of opening - without the company having a coherent vision of what these families and their affinitive groups wanted from the project: any concept of their being "stakeholders" didn't enter KPC's calculations. Third, KPC apparently didn't at the time even have a mutual working relationship with the local administration. It is hard not to resist the conclusion that KPC's strategy was to pile-drive its project into operation, cutting corners wherever possible. It would rely on its own corporate "dynamism" (arrogance? munificence?) to smooth out social problems, which were bound to arise as increasing numbers of people, from very different ethnic groups, poured into an area where local government, services and the eco-sphere, were ill-suited to settling them.

By 1986 the newcomers were edging towards 30,000 (26,600). Two years later (1998) their numbers had soared close to 50,000 (47,140) [Andrew Vickerman, head of external affairs at Rio Tinto, to Carolyn Marr, Down to Earth, London, April 22 1998]. Workers at the mine and in ancillary trade or in service industries had, by then, expressed their own disquiet at conditions and pay (see below). But equally - if not more - important has been KPC's failure to countenance, prevent or compensate adequately for the upheavals, losses of land and livelihood, caused by its operations on the original inhabitants of Sangatta - those who made a living from farming and fishing before the company's arrival.

In 1997 KPC claimed that there "are no indigenous people living in the [Kaltim Prima] mining area, nor were there any indigenous people using the area for hunting, gathering or any other purpose." [Down to Earth No. 23, London May 1997]. Unless the company was being quite disingenuous in the use of the term "mining area", this is an inaccurate and high-handed statement, to say the least (This statement was strikingly similar to that issued by Rio Tinto at the same time, to defend its investment in Freeport McMoran's hugely damaging Grasberg mine in West Papua). KPC didn't carry out anything approaching a proper social impact study before moving onto the site (it only signalled its intention to do so in mid-1991) [Alan Irving Coal Mining and the Environment]. Its definition "Indigenous" is - by the tone and language of this statement - clearly coloured by primitive anthropological images of half- naked Dayaks sitting in 19th century longhouses, only to venture out with bows and arrows, when the spirit seized them.

The company gave a more accurate picture in 1998, in response to criticisms of its operations from Down to Earth, the Campaign for Ecological Justice in Indonesia, based in England [Andrew Vickerman to Carolyn Marr, op cit]. Drawing on studies it had by then commissioned, KPC judged that the population of Kecamatan Sangatta in 1985 was 6,870, the majority being Buginese (50%) followed by Banjarese (30%) and Javanese, with local Kutai people and "others" comprising around 10%.

While the number of Kutai people appears not to have dramatically changed since then, obviously the proportion has. Of course this in no way acquits the company, and government, for what has happened to them. On the contrary, the huge influx of new groups into a relatively limited cultural, economic and geographical, space - combined with the expansion of the mine and policing of food gathering, hunting and agricultural activities within the boundaries of the Kutai National Park (see below) - has created new perceptions of comparative deprivation (no less real for that) and discrimination, among those who were there first.

The majority of original (Kutai) Peoples in Sangatta live in the two villages of Sekrat and Sekurai [information from villagers to author, March 1999]. They are currently represented in negotiations" with local government and KPC by six village elders. At a meeting called for my benefit their committee recounted their six main current demands:

1) to go onto the land within KPC's lease from which they were removed (a demand which KPC has rejected);

2) that KPC construct two village roads, one on each side of the River Sangatta;

3) proper and full compensation for the loss of their former agricultural land;

4) free clean water provided by KPC;

5) a halt to blasting operations in areas close to fauna habitation, where birds and animals have "fled because of the use of explosives";

6) adequate control of acid drainage along the Sangatta river (for further discussion of this issue, see below).

In 1986, 73 Kutai heads of family worked more than one hundred hectares, centred around what became the mining township of Sangatta Baru. However, according to the committee, KPC declared them to be "squatters" on government land and, in 1988, only three million rupiahs compensation was offered to twenty families. (KPC disputes this figure - claiming that 9.5 million rupiahs compensation was paid to just six people on January 8 1990) [KPC Allegations by NGOs, February

1997]. KPC maintains that the other 67 people were not entitled to compensation "because it was shown [by a government-led team] that they had only moved to plant the land very recently, a direct result of their hearing that the land was to be acquired by KPC". Nonetheless, "sympathetic funds" were offered by the company, at the rate of 300,000 rupiahs each in 1992.

Fifteen Kutai refused to accept this pay-off. Currently they include Haji Hamsyah, whose status as a negotiator the company has called into question [KPC Allegations, op cit]. Although further negotiations have been mooted for some time, backed by the Indonesian Human Rights Commission (Komnas-HAM) - a delegation from Sekerat visited Jakarta in 1997 along with Pak Pius (the Dayak community leader heading negotiations with Rio Tinto over damage caused by its Kelian gold mine) - there is still, says the village committee, no satisfactory resolution: "nothing has changed!"

Labour costs and sacrifices

The KPC mine was to provide jobs and help with infrastructure (roads, electricity) and social facilities, specifically for transmigrants [information from a socio-economic and agricultural study on transmigration, carried out by the University of Samarinda, 1989]. The majority of KPC's Indonesian workforce has in-migrated from Java, Sulawesi and elsewhere in Kalimantan - mainly from the Pertamina oil fields in the Sangatta area - attracted by the relatively high wages offered by KPC. "Relative" is the key word: in mid 1997 the basic wage for a KPC worker was Rp 400,000 (just over US$100 at the time) per month - more than three times the provincial minimum wage. Following strike action in late 1997 (see below) - the basic wage rose to around one million rupiahs a month, according to a report by ICEM, the International Chemical, Energy and Mineworkers Union [Report of the ICEM mission to Kalimantan December 6-9 1998, Brussels].

However, much of the apparent gain was wiped out by the dramatic collapse of the rupiah during this period. In any case, KPC workers (as of March 1999) were collecting only just over half the wages paid by PT INCO for comparable work at its Soroako operations in South Sulawesi [see Minewatch Asia-Pacific case study on PT Inco, London and Baguio, May 1999.] (According to Australian research, in 1998 average labour costs at US coal mines were US$3,580 on month compared with only US$540 a month in Indonesian coal mines. This is clearly still considerably more than what the majority of Indonesian miners receive in take-home pay and is presumably calculated on gross expenditure on employment, including services, benefits; and for all classes of the workforce [see AME Mineral Economics, Coal Industry Operating Costs to 2003 Sydney 1998])

During my field trip to Kaltim Prima in March 1999, local (Kutai) residents complained that KPC management was actively discriminating in favour of migrant/settler workers, despite the fact that the company had originally promised them a specific allocation of jobs. Ostensibly this discrimination was based on their lack of secondary or higher education and engineering qualifications. However, one young man, who held a certificate in mechanical engineering, told me that, although he had appropriate training and been given a company test, KPC had rejected his application - in his view unfairly.

From the outset, the mine's management was intent on reducing unit costs, both of production and labour, even though the high value of the best of KPC's coal, as well as its easy accessibility, allowed the company to boast that it is among the cheapest on the world market. The AME Mineral Economics group in 1998 put Indonesia's production costs at the world's lowest, if measured in terms of tonnage (US$20/tonne) and second lowest in terms of energy output (US$0.79 per Giga Joule, as distinct from South Africa's US$0.77/GJ) [AME Mineral Economics, op cit]. In a candid statement in 1993 - just after the mine's first full year of production - KPC's managing director John Slater announced that expansion was solely dependent on "put[ting] in more trucks and shovels and maybe an extra crusher" - but not employing more staff. "We are not going to lift staff numbers for expansion. We expect to see expansion come through efficiency gains". And a key strategy for doing this would be by reducing the number of "costly" expatriates, replacing them with Indonesians (to be cut from 125 to 65 before 1995, with a local "production " workforce of 2,000 nationals) [Papua New Guinea Post Courier, March 22 1993]. In fact, according to ICEM, around one hundred expatriates are still directly employed by KPC, and another 100 in other functions: in April 1998 the company said it employed directly 2,411 Indonesians [Andrew Vickerman to Carolyn Marr, DTE, op cit].

(The role of expatriates and local training programmes is worth examining in more detail than this case study allows. KPC promised - as companies blithely do - to "Indonesianise" its staff as quickly as possible after the mine came on stream. Yet by 1997, David Klinger - then managing director of KPC - was complaining that the company would have to advertise for even more expatriates, since Indonesians weren't being attracted to work at the mine: presumably he meant to key management positions, rather than operating trucks and shovels. Expatriates at Kaltim Prima live in a purpose built township on the coast, 15 kms from the site, in conditions which the ICEM describe as "extremely good...significantly superior to that enjoyed by mineworkers in company mining towns in Australia" [ICEM report ibid]. It is hard not to avoid the impression that recruitment at the white collar level is virtually self-fulfilling: because the work is well paid, the benefits considerable, Australians in particular like working there and can be wooed from troublesome mine sites back home (see below). The costs involved in training Indonesians to effectively break this implicit racial zoning are not regarded by the company as a political necessity: the workforce has so far not mobilised sufficiently to demand an end to such "apartheid". And, at the bottom of the pile, languish the Indigenous inhabitants of the area - considered at best a small pool for the services sector, and at worst a bloody thorn in the company's side).


In late 1997, almost the entire workforce came out on strike at KPC, demanding a 50% increase in wages, subsidies for water and electricity, and an end to computerised surveillance of the mining operation. Two thousand workers staged a sit-in at a large field within the KPC mining concession, shouting slogans such as "You get paid in dollars but we get paid in rupiahs!" - referring to the disparity between foreign exchange payments for upper echelon workers housed within the KPC company township, and that of ordinary workers, who had to contend with a rapidly depressing Indonesian rupiah. After five days the strikers returned to work on promises of negotiations; the company shortly afterwards agreed to subsidise water and electricity, but refused to increase its offer of a 12% increase in pay. Tools were laid down again in November the same year - and workers were forced back to the pits under threats of dismissal without compensation [Surya July 29 1997; Manuntung October 10 1997, 23/10/97, 25/12/97; ICEM Report, op cit]. At a later point wages were increased by 25% [ICEM report op cit].

ICEM saw, but didn't quite conquer...

The ICEM delegation to KPC in November 1999 concluded that, despite the formation of the "reformasi" FSPSI union (an attempt to take workers out from under the umbrella of the old government-controlled FSPSI and KORPRI), it was "too early...for [the unions in Indonesia] to be a vehicle for effective support of ICEM union networking in multinational mining companies" [ICEM report op cit]. This was a disappointing - even quixotic - conclusion, given that the workforce had already demonstrated its resilience in the face of management intransigence (not to mention the Suharto regime) in 1997; and that ICEM had, early the previous year, precisely set up an international network for workers, communities, and NGOs affected by Rio Tinto [see Tainted Titan, ICEM, op cit]. It is to be hoped that, following this June's elections ICEM may organise another visit to the coal sector in Indonesia, offering more direct assistance where requested.

Acid attack

Since 1990, local Kutai have been angered at the increasing congestion of the river Sangatta (inevitable, given the huge influx of workers, equipment and "services" to the area) and mounting turbidity of its waters [Plunder! Partizans, London, 1991]. Since the mine opened, they have reported considerable deterioration in the quality of a source on which they traditionally depended for all personal and household purposes - citing its putrescent smell and the fact that the skin tends to itch after use. Fresh water supplies by KPC, they say, are "completely inadequate" [DTE, letter to Rio Tinto, March 1998], while the state-owned water company only supplies "wealthy homes and businesses in Sangatta" [ibid].

In March 1998, DTE asked "what measures have been taken to prevent contamination of the River Sangatta and its tributaries by metal ions as a result of acid rock drainage from the PT KPC site", pointing out that "... the 1996 Rio Tinto Health, Safety and Environmental Report does not present any information about this..." Neither does the 1997 HSE report – nor presumably will this year's (as of mid-June it had still not been published by Rio Tinto). KPC is not counted as a Rio Tinto Group operation, although BP and Rio Tinto share management responsibility. [Rio Tinto Annual Report and Accounts 1998, London and Melbourne, 1999].

The company's response was delegated to its newly appointed Head of External Affairs, the urbane Andrew Vickerman. He claimed in April 1988 that potable water supplies had been increased from 80,000 litres a day in mid-1997 to 200,000 litres and that the company had agreed with the Indonesian regime to "subsidise the cost of installation of a piped water distribution network to all of Teluk Lingga and Sangatta". Whether or not this was efficiently operating by March 1999, the scarcity of water still required Kutai people in south Sangatta to use the contaminated river for bathing and washing clothes. The committee told me Kutai people have to pay 1,000 rupiahs for 20 litres of clean water.

And here's the problem: not only has the quality of water in the Sangatta allegedly gone down since mining began, but the river is clogged with lime used to neutralise acidity. The Kutai village committee informed me that, effectively, people are no longer able to fish in the Sangatta; when it rains "the fish will die". Clean, potable water, say the villagers, is only made available by the company to worker's houses on the other side of the river.

KPC is fairly open about the amount and degree of acid rock drainage from its vast, sprawling site. But it glosses over the fact that, while 60% of the dumped overburden at Kaltim Prima is allegedly "non acid-forming" (and therefore left exposed by the company to air and water), "only 14 per cent of material [is] highly acid forming" [Vickerman to Marr, ibid] - leaving 26% unaccounted for - which presumably consists of medium or low acid -forming rock unaccounted for.

"Occasionally" says the company "...acid-forming materials are exposed to the atmosphere and rain for limited duration. Where this occurs acid water is collected [using portable water treatment plants] and treated with lime" [Vickerman-Marr ibid]. The cosy picture of small piles of overburden, leapt upon by zealous technicians who siphon off the acidic discharges and neatly dispose of them, is betrayed by the pools of water which rapidly form close to the dumps and seem to be ignored; also by a large lagoon, adjacent to one waste dump, which is allowed to flow regularly into a tributary of the Sangatta river. This stream is used by families who have constructed rickety shacks along its banks and who (I was informed) rely on the lime-glutted water as their only source. Dead trees stood as forlorn, mute, witnesses to the inaccuracy of the company's claim that all in this particular garden was lovely.

(N.B. The considerable potential for contamination due to unauthorised discharges from the coal washing plant and tailings dam near the port terminal could not be examined in this study, for lack of time. The company claims to have installed systems, including settling ponds and recycling of fresh water, which effectively protect the coastal region and the river Sangatta. This author is not aware of recent accusations of widespread damage having been made about this aspect of the plant's operations, but points out that those most likely to have experience of them are the residents of Tanjung Bara, who are primarily well-paid higher echelon employees of the company - and not likely to bite too vociferously the hand that feeds them.)

Rehabilitation or procrastination?

In 1990 an Indonesian parliamentary commission concluded that KPC was the only one of eighteen domestic coal producers to have "concrete plans" for site rehabilitation [Jakarta Post October 9 1990 and Digging Deep, op cit]. This wasn't saying much: although the initial contracted "life" of KPC was set at thirty years and current output is twice that originally envisaged, further exploration will probably uncover massive new resources. The crucial questions are: to what degree are the endemic problems of acid rock drainage likely to get worse in the long term? To what extent has reseeding taken place on stripped sites? Above all, to what extent (if any) is it possible to mitigate the impacts of current operations on land (quantitatively and qualitatively); air quality (mainly through dust emissions) worker's health; and water quality for the people in Sangatta, on both sides of the river?

Compared with other coal mines in East Kalimantan, KPC's environmental programme at least shows effort and some concern. (On one trip along the River Mahakam, to the south of Sangatta, I rested briefly at a village which had grown up around a local coal mine and landing stage for the Mahakam ferry. This was the least prepossessing settlement I came across in Indonesia, the main road thick with dust, the community impoverished and dissolute. Neither I nor my Indonesian companions wanted to stay a moment longer than necessary; it was here that I witnessed the distressing and uncharacteristic baiting, and brief sexual assault, of a young man with learning disability, by a group of other young men - a show apparently put on for our dubious "benefit". But the comparison between KPC and other mines is misleading, since the latter are very much smaller, thus the cumulative damage is considerably less. KPC may not send over-loaded lorries careering dangerously along precarious public highways, or ply barges up the rivers, with the attendant risk of an accident causing sediment overload and contamination. But its operations cover a vast area and, as already pointed out, the Sangatta River is far from protected.

The company claims to rehabilitate some 200 hectares of "disturbed land" each year, with a commitment to "replant areas larger than that disturbed" - by seeding land stripped or degraded before the company arrived [Australian Financial Review, March 29 1993]. It also claims to propagate over 90 species of rainforest trees, compared with "only seven non-local species" and that the planting of ground in the company lease adjoining the Kutai National Park "has resulted in fauna returning to rehabilitation areas"[Vickerman to Marr, op cit]. These claims do not stand up to visual check [see photos]: at best the regeneration programme is clearly only in a precarious infancy, and may have encountered problems (of soil acidity or lack of nutrients in stored topsoil?) which KPC is not divulging to critics.

A park for the Kutai - or for KPC?

All visitors to KPC - except those privileged to fly in at the company's expense, or resourceful enough to approach by sea through the Makassar Strait - motor through the Tasman Nasional Kutai (Kutai National Park) for a distance of about 75 kms, before reaching Sangatta township, which lies within the original boundaries of the park, on the southern bank of the river Sangatta. It is another four kilometres due north to the settlement village of Teluk Lingga and a short two kilometres to Sangatta Baru, the modern mining township. The coal pits and waste dumps straddle the majority of the COW, hugging its boundaries to the south and east (although one small piece of the lease's south eastern corner actually overlaps with the park).

The Park authorities claim that it possesses the largest area of lowland dipterocarp rainforest and ironwood forests in Kalimantan and probably Indonesia. It is managed by a consortium of international and national organisations, including the World Wide Fund for Nature (WWF). A management plan was written in 1985 but never implemented [Alan Irving, Coal Mining and the environment: an East Kalimantan study PT KPC, paper delivered to the International Conference on Mining and the Environment, Bandung, July 1991].

In a second development plan for Tasman Nasional Kutai, set out in 1991 and sponsored by KPC, full credit was given to the company for being aware that "...its large-scale mining operations during many years to come could entail certain risks to the conservation of flora and fauna of the park". In response KPC "wants to do more...than just being a good neighbour" and promised "moral and material support to the park", making Kutai "exemplary for protected area management" [Ministry of Forestry Indonesia, Directorate of Forest Protection and Nature Conservation, Kutai National Park Indonesia: Developmental Plan 1952-1996; Operating Plan 1992 Framework for Management]. The study identified a number of endemic problems, including poor existing management, industrial threats (but not, of course including those from KPC!), poaching, illegal settlements within the park, and the Bontang-Sangatta road, which started construction in 1990 and is part of the Trans-Kalimantan highway; in particular threats to the orang-utan population were identified.

The most controversial recommendation of the developmental plan was that a protective buffer zone should be created, south of KPC's lease, from Sangatta Baru in the northwest, along the line of the coal conveyor to Tanjung Baru in the east, and with a western border stretching north to south, which is outside KPC's Sangatta-Linnga industrial development area, and follows the Sangatta River down to the coast at Tanjung Sangatta. This zone would be managed by KPC itself.

There is a savage irony in the fact that a company which has caused considerable destruction to tropical rainforest by its mine operations (whatever its dubious claims to be replicating that forest) should be entrusted to manage a considerable area of land, in order at least partly to mitigate its deleterious impacts on an adjacent National Park. The importance of the Sangatta catchment area to the Park's viability was noted in the developmental plan: the first priority in protecting its quality and availability should surely have been to ban any industrial activity which might impact it.

However, Rio Tinto and BP are experts at creating dependency among their putative critics. Cynics might judge that KPC's sponsorship of the development and protection of the Kutai National Park bears the hallmarks of a classic "recuperation" exercise. Judging by WWF-Indonesia's failure to say anything critical of the mining operation (and Rio Tinto's successful head-hunting of WWF personnel to join its eponymous Foundation in Indonesia), would those critics be far wrong?

The relevance of KPC to Rio Tinto

Cheap the coal from Kaltim may be - and it's certainly profitable to mine (even though, in 1997-98 KPC's returns on assets fell, reducing Rio Tinto's income from the mine by nearly one third (19% to 13%) [Rio Tinto: Tainted Titan - The Stakeholders Report 1997, ICEM and others, Brussels 1998]. One critical question - with considerable political and economic ramifications - is whether KPC will expand its output even further (not simply its "life") by sealing new contracts. The domestic share of production could rise, once Tambang Timah confirms its substantial stake in the company. Is the mine likely to make new deals with customers in Southeast Asia (for example Malaysia), or substitute for existing contracts (to Europe or Japan) concluded with Australian mines? During 1997-1998, as the CFMEU - the main coal miners union in Australia - fought a major battle with Rio Tinto to retain union control over pits in the Hunter Valley (New South Wales), so the company began hinting that it could fulfil future contracts from outside the country. Rio Tinto has already become one of the world's most prominent private suppliers of coal (through aggressive expansion in the USA in particular).

Perhaps its closest industry rival is BHP - Australia's biggest "natural resource" company which, earlier this year, was granted two third generation COWs to exploit coal in Kalimantan [Jakarta Post April 20 1999]. The two companies nonetheless co-operate closely elsewhere – sharing in output from the world's biggest single copper mine (Escondida, Chile), and being currently (June 1999) on the brink of an agreement to merge their vast iron ore mines in Australia [Mining Journal June 18 1999, Australian Financial Review, June 11 1999]. Ironically, one of the hesitations expressed by BHP over this merger is that its unionised workforce would come out on strike, in protest at being forced to join with Rio Tinto's largely de-unionised workforces in Australia. Although currently quite hypothetical (both the Indonesian government and BP might strongly object), such an alliance would comprise the world's biggest single private coal producer.

Although KPC's COW has another thirteen years to run, any further expansion from now on should - at the very least - attract a new contract which will partly redress the balance between profits that go offshore and value that should remain within Indonesia. It is not the purpose of this paper to debate what proportion of royalties should accrue to district or provincial administrations, as distinct from the central government (a debate which is being conducted with some force inside

Indonesia and is overlaid by calls for autonomy, and even independence, within some provinces, including East Kalimantan) Arguably this has become a vapid and irrelevant discussion for some communities, such as those in Sangatta, whose habitation preceded mine construction, and which have suffered most since, from discrimination, deprivation and derisory compensation. But at the very least, the original KPC COW should be hauled out, pored over, and renegotiated.

Equally important, I suggest, is for Indonesia's democratic, pro-Indigenous, Indigenous and ecological associations and NGOs, to determine a cohesive policy on the role that coal extraction could now play in the re-shaping of local economies, on the whole nature of industrialisation, and on empowerment (in both a literal and figurative sense) of the villages. While the total estimated reserves of Indonesia (at 36 billion tonnes) sound impressive, they constitute just fifteen times global coal use in 1997 [MAR op cit] - which met 27% of world energy demand that year. And, if the most recent industry estimates can be credited, these reserves comprise only one fifth of predicted global demand (an estimated 7.3 billion tonnes) in the year 2015 [Coal-Use Technology in a Changing Climate Financial Times Energy publications, London, 1999].

At the same time, the Financial Times predicts that global carbon emissions from coal, between 1999 and 2015 will grow to a massive 2.7 billion tonnes a year. As the world's fifteenth biggest coal producer, Indonesia's contribution to deleterious climate change is already significant. Rapid expansion of the country's coal - and of course oil production - will increase this contribution alarmingly. Moreover, according to a recent report on global coal prospects, Indonesian mines in particular are faced with higher stripping ratios - which means increased ecological costs at the "front end" of the production process (particularly in the dumping and treatment of overburden) [AME Mineral Economics, Coal operating costs to 2003 Sydney 1998].

So long as foreign companies are the main hewers of the coal, and the beneficiaries of its sales, the moral responsibility for adding to this global damage lies squarely with them. It cannot be assuaged merely by the sponsoring of a national park, or the planting of a few thousand – or hundred thousand - trees as a minor "carbon sink" (see footnote* below). Certainly the claim that they are blessing the world with an "enviro" product is fraudulent.

Roger Moody, Minewatch Asia-Pacific (MWAP) July 1999

* Footnote: The simplistic "payoff", between mining and industrial activity which inevitably increases global carbon dioxide loads - and using plantations as carbon absorbers, has recently been challenged by several authorities. The World Watch Institute in Washington DC points out that, though newly-planted or "young" forests appear to be more effective "sinks" than old-growth trees, the total amount of stored carbon in older, natural, forests is usually greater because of the larger trees and richer soils [World Watch Institute quoted in Financial Times special supplement on "World Energy and Energy Efficiency" April 15 1999]. The US journal Science last October suggested that, despite the fact that US trees alone may currently be sucking up almost all the world's carbon dioxide, these comprise comparatively young plantations (secondary growth), which - when mature - may become net emitters of CO2. As the world gets warmer, so the ability of trees to absorb carbon may suffer dramatically. Research by Edinburgh's NERC Institute of Terrestrial Ecology suggests that, after 2050, global vegetation and soil could be releasing around two billion tonnes of carbon into the atmosphere - more than two thirds that predicted to be emitted by the world's coal industry over the next 15 years [Financial Times special supplement, April 15 1999].

[Note: My thanks to JATAM (and in particular Dedi and Ramli) for their assistance in bringing me to Sangatta and to local Kutai people for taking me around the minesite. Thanks also to PLASMA for its unfailing hospitality, to Down to Earth (Liz and Carolyn) for providing invaluable background information and to my colleagues in Minewatch Asia-Pacific for their continued support.]

Further copies of this paper are available from:

Minewatch Asia Pacific, Agpaoa Compound, 111 Upper General Luna Road, Baguio City, Philippines

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or Philippine Indigenous Peoples Links, 111 Faringdon Road, Stanford in the Vale, Oxfordshire SN7 8LD, England Tel: +44 1367 718889, Fax: +44 1367 718568, E-mail:

or Partizans/Nostromo Research, 41a Thornhill Square, London N1 1BE, England

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