MAC: Mines and Communities

Part 1: Power at a price

Published by MAC on 2001-05-01

Part 1: Power at a price

The Larona river falls a stupendous 1,000 feet from Lake Towuti, along a forty kilometre stretch into Usu Bay, in southern Sulawesi. Set almost dead centre in the island, it is the kind of stamping-ground for which today's eco-tour operators would give their eye-teeth. Twenty-four years ago, however, PT Inco - 58% - owned by the world's single biggest nickel producer, Inco of Toronto - got to Larona first. When the price of oil started soaring as a result of OPEC's global price hikes, the Canadian company switched to hydro, in order to power its nickel smelter complex at Soroako. It struck a deal with the now-disgraced Soeharto regime, which has given the company captive power ever since, in return for a small tax. "Inco and the government have always been in collusion," a long-term resident of Soroako told me. "Although it supplies its workforce with subsidised power, it sells a surplus to the national grid," claimed an employee. Soeharto opened the Soroako mine with great fanfare in 1977 (1). Mike Sopko, chair and CEO of Inco in Canada, embraced the ageing dictator in 1996, when Inco negotiated a major 25-year extension to its existing contract.

There's a whiff of corruption in such observations that are difficult to pin down. PT Inco strenuously denies any dirty dealings and its apologists point to an incident in 1976, three years after mine and other plant construction began. PT Inco managing director Philip C Jessop had tried to sack a grafting Jakarta lawyer - only to be hammered with a libel suit by the offended party. When the presiding judge solicited Inco for a bribe in return for dropping the charges, the company enlisted ambassadors from the US, Canada and Australia in its refusal to pay. The case eventually collapsed. (2)

However, it stretches credulity a little too far to believe that Inco has completely avoided kickbacks and sweeteners, during the three decades that it has built up the second biggest foreign mining enclave in the world's fourth most populous state. Only the vast Grasberg copper-gold mine in West Papua ("Irian Jaya"), controlled by Freeport of the US and Rio Tinto of Britain, can boast such high grades of ore and consistent long-term profits - although PT Inco's balance sheet only began showing profits from 1987. In the past twelve months, prompted by an international campaign and the mounting discontent of West Papua's Indigenous population, strong evidence is emerging of lucrative pay-offs by Freeport to Soeharto's cronies during the early nineties. In April 1999, further claims were made that oil companies had issued "blank" shares to Indonesian affiliates of the US oil companies, Arco and Mobil, in order to gain contracts (3).

Indonesians with whom I talked find it difficult to believe that PT Inco wasn't involved in similar payouts. And the respected legal rights organisation, ELSAM, with which I held discussions in Jakarta, is demanding that all "contracts of work" signed under the discredited regime with foreign mining companies, should now be unearthed, investigated and re-negotiated.

Whatever the truth about bribery and backhanders, it's less important than the glaring fact that Inco has sapped Larona's vital energies (4) through a secretive, backdoor, process (or rather lack of it) which wouldn't have passed first post back home in Canada. When, in 1994, Inco announced that, under a new contract with the government, output from Soroako would be increased by 50% before 1999, and two new hydro plants would be constructed on the river, there was no public review process, no published environmental or social impact assessment, and certainly no meaningful consultation between the company and local people. According to one researcher, the Larona dam initially flooded the ricefields, coconut plantations and a mosque, belonging to villagers who lived around lake Towuti; it also prevented the migration of native eels (5).

Then, in 1998, when the headwaters of the Larona ran precariously low, causing a drop in hydro-power and reducing this year's expected nickel output by about 4% on 1998's (6), Inco blamed the impacts on "El Nino" and promptly set about dredging the river bed (7). Whatever the long term deleterious ecological effects of such drastic action, once again they didn't get publicly scrutinised in Indonesia.

Now the company is constructing its second towering dam on the Larona, a few kilometres downstream from the first, and preparing the ground for yet a third. I couldn't get very close to either of the first two hydro schemes - requests for access made to Inco management, and supported by a local community representative, were flatly turned down: "We don't want journalists involved". (In fact, I'd been monitored by the company ever since my arrival in the area a week before. On stepping out of my vehicle to eat at a local restaurant, a snow-white Inco security jeep pulled up dramatically alongside, the florid, moustachioed driver fixing me with a distinctly unfriendly stare. And, within minutes of returning to my hotel, another security team arrived to position itself outside. The following morning, one of my travelling companions overheard an Indonesian in the hotel lobby calling someone - presumably Inco management - on a mobile phone, informing them that nosey journalists were in town).

But two colleagues from Yayasan Tanah Merdeka (YTM), a regional social and environmental action group based in Palu, and I did locate the site of the third phase of this massive assault on the Larona valley. Curiously, it was deserted at the time, and the access gate left unlocked. One of the Soroakons in our party remembered roaming this area as a child, but hadn't returned since - and was shocked: "I've never known the river so low, the current so erratic and the waters so discoloured". Hardly surprising, I remarked, since the company had offloaded thousands of tonnes of aggregates along one side of the densely wooded valley, and poured enough concrete to fill a football pitch, down a sheared-off cliff along the other bank. Dust, slurry, mud and cement from further upstream mixed in with the flow beneath our feet.

I couldn't find many settlers in the expansion area who seemed as concerned as my friends from Palu, about the long-term effects of messing with Larona. The majority of residents in PT Inco's quarter-million hectare concession zone work for, or are reliant on the company's largesse (and of course its electricity). No-one now needs to fish for survival in the local fresh waters. The few people I met at Karebbe, the only significant settlement between the new dams and Inco's port at Malili on Usu Bay, shrugged when I asked whether they'd noticed a difference in water quality: most of their needs were apparently being served by springs across the PT Inco road.

Ironically, Inco prides itself on the pristine nature of Lake Matano, which lies north of Towuti. Matano is smaller in surface area but, at depths of up to 2,000 feet, is Indonesia's deepest lake. Even here, I found silting near the banks while the recently built construction camp for Thiess, one of the expansion scheme's main sub-contractors, was perched right at the water's edge. Nonetheless, Inco seems to have done a fair job of preventing Soroako's population dumping its domestic wastes into Matano, which was an undoubted problem in the early years (8), and it is proud to be promoting Matano as a site for skiing, sailing and other water sports. But this is small compensation for loss of access to Larona and the permanent scarring of what once was one of southern Sulawesi's most magical locales.

It is in these terms, I suggest, that the final calculations of the benefits and deficits of Inco's incursions must be made. Twenty years ago, when only the hardiest travellers ventured to this area, the income to be gained from tourism must have seemed a bagatelle compared with the lateritic riches lying just beneath the soil.

Even at that time, thumbnail calculations based on Inco's contract with the Indonesian government showed that people at large would gain precious little from the massive venture, while the main beneficiaries of its early years - and again today - would be the overseas construction companies, like Bechtel, Dravo, Thiess and the Swiss giant ABB (9). PT Inco's nickel matte all goes offshore (mainly to Japan, one of whose biggest conglomerates, Sumitomo, has a 20% share in PT Inco) along with the added value of processing and manufacture. Jamie Swift of Toronto's Development Education Centre predicted in 1977 that "national revenues [from the project] after thirty years will be barely equal to the initial capital cost of the Soroako complex" (10) and his predictions have proved well-founded.

It's true that, in 1996, Inco was finally persuaded by the Indonesians to commit to spending an additional C$1,500 million in the country over the next dozen years, as a condition of remaining until 2025 (11). It is also true that PT Inco has been told to sell 20% of its stock on the Indonesian exchanges, as a gesture towards "Indonesianisation" of foreign-owned enterprises. However, much of this will end up in the hands of cronies of the old regime - like the Lippo Bank - closely associated with President Habibie, which is now rumoured to be buying Inco shares on behalf of a clique of South Korean businessmen (12).

In thirty years from now - and more likely a long time before - Soroako will probably be a ghost town, its wastes only partially re-contoured and vegetated, its workforce long disbanded, many of its local businesses collapsed, and the hydro scheme possibly fallen into disrepair. Perhaps then, a new generation will glance over what is left of the Larona valley and reflect that the opportunity to use it sustainably, and share its wonders with an increasingly footloose but eco-conscious world has been irretrievably lost.


(1) PT Inco publicity material, 1990 et seq. and Warta Ekonomi April 22 1991.

(2) Jamie Swift and the Development Education Centre "The Big Nickel: Inco at home and abroad" Between the Lines, Toronto 1977

(3) Asia Pulse, March 22 1999

(4) Lateritic ores, such as those at Soroako, Bahomotefe and Pomalaa - in PT Inco's contract area - are typically very moist, due to high tropical rainfall. They therefore require "huge amounts of energy to dry and refine compared with sulphide nickel deposits such as found in Sudbury Ontario, and at the Voisey's Bay nickel deposit in Labrador" (Allan Robinson "Nickel giants hunting for cheaper way to dig" Toronto Globe and Mail April 30 1998)

(5) George Adkitjondro "Can Soroako and Tembagapura become regional centres for development?" in Prisma, Jakarta, August 1982. Tembagapura is the mining town constructed by Freeport McMoran and Rio Tinto (main shareholders in Freeport Indonesia) in West Papua., to serve the massive Grasberg mine. At the time George Aditjkondro was writing, it serviced the Ertzberg mine in the same region.

(6) Inco shareholder information, obtained from internet, February 1999and Jakarta Post, February 13 1999

(7) Information from Mick Lowe, Sudbury, February 1999 (by e-mail)

(8) Swift, op cit.

(9) In October 1998, ABB (Asea Brown Boveri) received one of the heaviest fines (£50 million or US$ 80 million) ever meted out by the European Commission, for its role in a price-fixing cartel for the supply of steel heating pipes. The European Union competition commissioner, Karel van Miert, said it was "...difficult to imagine a worse cartel...The main producers tried to bankrupt the only producer who was prepared to take them on......they continued the violation nine months after Commission investigators caught them red-handed" (Financial Times, London, October 22 1998).It is not known whether this violation by ABB had any direct bearing on its role as a contractor to the Soroako Expansion project.

(10) Swift, op cit

(11) South East Asia Mining Letter, London January 26 1996

(12) The Lippo Bank was among those which the Indonesian government in February 1999 scheduled for "re-capitalisation" - a move which drew criticism, considering the connections between it and Habibie (Financial Times, London, February 3 1999)

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