MAC: Mines and Communities


Published by MAC on 2001-05-01
Source: Mineral Policy Institute


Extractive industries are unsustainable because they depend on the exploitation of non-renewable resources. While being promoted as a big contributor to the Indonesian government’s revenue, the industries hide their negative impacts on sources of livelihood and on the continuity of livelihoods of millions of Indonesian peoples, including the next generation.

Economic globalisation has made third world countries (on the ‘periphery’) the source of raw materials to supply the industry in the north (in the ‘center’). The exploitation has been done at a massive rate and most of the time involves violence conducted by state and corporation’s security aparatus.

Extractive industries are a capital intensive, concentrated and integrated vertically. The sector is dominated by only a few big transnational corporations some of them have bigger revenue than countries. In order to facilitate exploitation, the transnational corporations maintain close relationship with the power elites in the countries where they operate. Transnational corporations are devastating the lives of millions of people while at the same time maximizing their profits. The following are only some examples of the many kinds of violations of basic human rights and the right to live in dignity.of local communities and indigenous peoples.

Extractive Industries are Irrespectful to Indigenous Peoples’ Rights

When transnational companies came to remote areas in the Indonesian archipelago to conduct mining operations, they came to the lands of indigenous peoples and local communites. Most of the time this has created conflicts as the companies never have respect for the principle of prior informed consent and for the existing local and traditional laws. In most cases, the locals and indigenous peoples were evicted from their lands. According to Amungme people, the indigenous people at the Freeport-Rio Tinto Grasberg mine site in West Papua, the company refuses to acknowledge their presence there as tribal people and their traditional rights, the integral ties between the Amungme people and all the resources there - the mountains, valleys, and rivers. Their sacred lands have been defiled and destroyed, their lands seized and taken over. The discrimination against the peoples has meant humiliation, especially as regards to job opportunities, education and the provision of scholarships and impoverishment in their lands of plenty. Dayak peoples in Kutai, East Kalimantan has to be forcefully removed from their traditional mining areas, and they were forced to shift to other way of life, alien to them before PT. Kelian Equatorial Mining (90% owned by Rio Tinto) came to their lands. Similar things have been experienced by peoples and communities of Dayak Siang, Murung, and Bekumpai in Central Kalimantan when PT. Indo Muro Kencana occupied their lands (PT Indo Muro Kencana is owned by Archipelago Resources and previously by Aurora Gold, both from Australia).

Extractive Industries Create Environmental Catastrophes

Extractive industries are environmentally destructive. Throughout Indonesia, mining and exploitation of oil and gas create destruction and pollution of the environment. Cheap production costs hailed in corporations’ annual reports are achieved at the expense of environmental catastrophe. Many extractive industries just use natural ‘containment’ or ‘dilution’ to deal with the voluminous waste created from their operations. Mining operations, for example, dump hundreds of thousands of tons of tailing and waste rock per day to river bodies, sea, lakes, etc. This has resulted in huge damage to the natural environment.

Take as an example the impact of tailings alone, which result from ore processing operations. The ore processing mills release waste to the environment in the form of tailings amounting to approximately 97% of material processed. Usually the tailings will be channeled through pipelines and dumped in rivers, valleys, and into the sea. In the joint Freeport McMoRan-Rio Tinto operation in West Papua, more than 200,000 tons of tailings are being dumped in the Aghawagon river every day, which is then carried away to the Otomona river, Ajkwa river and that which does not settle out to smother the river valleys is eventually carried to the Arafura sea. WALHI’s study using images Landsat-TM found that by the year 2000, the mine operations had contaminated a land area as broad as 35,820 hectares, while the Arafura sea can be seen to be contaminated to an extent of more than 84,158 hectares. In Rio Tinto’s Kelian operation in East Kalimantan, 356.2 hectares of the Namuk river valley has been filled with 77.4 million tons of tailings created by the corporation that dumps 780 tons of tailings per hour. Newmont’s gold mining operations in Minahasa (North Sulawesi) and Sumbawa dump their tailings into the sea. This practice has been found unacceptable due to huge impacts ranging from sea contamination to community health problems.

Oil and gas industries are the biggest contributors to the global increase of greenhouse gases and global warming. From US$ 15.7 billion investments by the World Bank Group in extractive industries sector, only US$ 1 billion is invested in energy efficiency projects. The Chad-Cameroon pipeline project is predicted to release 446.4 million tons of carbon dioxide that further will induce global warming and climate change.

Extractive Industries Devastating Local Peoples’ Sources of Livelihood

At the Newmont Minahasa Raya gold mine in North Sulawesi six villages have been impacted from Newmont’s operations. In Ratatotok, there are approximately 300 families that have lost their productive lands. In Buyat and several other nearby fishing villages, communities have lost a huge source of their livelihoods from the pollution in the bay. When PT. Inco started its operations in South Sulawesi, 750 families of the indigenous community of Orang Dongi and Orang Soroako were evicted from their ancestrial and productive lands. Many of them have been forced to live in houses built over the waters of Lake Matano Soroako. In PT.Inco’s operations in Central Sulawesi, tens of thousands of people living in 5 villages have been threatened that they are to be evicted from their lands and have their sources of livelihoods taken away.

Rio Tinto in Central Sulawesi is planning a gold mine in the mountains of Poboya and around Lore Lindu National Park area. These efforts will put the lives of local farmers and the sustainability of water source for hundreds of thousands of Palu citizen at risk. This location is also adjacent to the Bay of Palu, to which pollution from the operations would be channeled and potentially create negative impacts to thousands of fisher peoples and small-holder entrepreneurs depending on the Palu Bay’s sustainable environment.

The activities of an oil company, PT. Exspan Tomori Sulawesi, in the district of Banggai in Central Sulawesi have triggered land appropriations, and caused destruction of community fisheries along the shore of Peleng Strait and agricultural lands. The same corporation is responsible for the deterioration of Tiaka reef, a large fish spawning habitat. This has further caused the decrease of small-scale fisher peoples catch around Tomori Bay.

Extractive Industries Increase Corruption

The World Bank’s own internal reports have made clear the many failures of investment in extractive industries as a means of poverty alleviation, due in large part to the connection between extractive industries and corruption. The following quotes are drawn from World Bank Group Operations Evaluation Department Draft Report: “Evaluation Of The World Bank Group’s Activities In The Extractive Industries” January 21, 2003. OED cites research showing that “resource abundance is strongly associated with poor economic performance, while resource booms do not lead to sustained economic growth. Poor countries with abundant resources have grown more slowly than poor countries without.” (Pg 2)

“Where there is systemic corruption, government officials may not negotiate the best agreements for their country to begin with. When the revenues from projects begin to flow, they may not reach the Treasury, or they may be lifted right out again. The government of oil-rich Nigeria was finally compelled to settle for only $1 billion of the $4 billion that former President Sani Abacha and his family looted during his four and a half year presidency.” (Pg 4) In the light of this revelation, it is relevant to note that the OED report cites a Transparency International finding that Indonesia is ranked among the most corrupt countries in the world, in the same category as Nigeria. (Pg 5).

Oil, mining, and gas investments actually increase corruption

The OED report cites research indicating that “the presence of a strong EI sector can have an impact on the quality of governance.” They cite studies showing that “natural resources increase corruption”, and that “when governments have access to wealth that citizens cannot control, they are less accountable” (pg. 6). “In short, when governance is poor, resources are a development ‘curse.’ Unable to control corruption and manage revenues wisely, the government is unable to capture the benefits. Without the rule of law, the government is unable to implement legal, regulatory, and policy solutions that would allow it to control the costs and risks. There does not seem to be much of an argument in favor of developing or expanding the EI sector in such environments.” Pg 7

Risks and Costs Associated with Extractive Industries

Risks and costs of an extractive industry economic strategy, according to the World Bank review, include “long-term environmental damage with accompanying health consequences, the destruction of the traditional (and more sustainable) economic foundations of local communities, involuntary displacement and property takings, economic dependence on such revenues and increased economic volatility, increased corruption, violence and civil war” (pg 1)

The review goes on to observe that “benefits and risks are not evenly distributed. Local communities benefit from whatever temporary employment and infrastructure improvements such projects bring, but they also bear the brunt of accompanying environmental damage, health risks, … and changes to traditional life and culture.”(pg 1)

“Should progress in attracting investment outstrip progress in establishing the governance prerequisites for good development outcomes, the Bank risks facilitating the wastage of the country’s non-renewable resources, as well as contributing to environmental damage, violence, and weakening of the quality of governance itself. Moreover, when investment is increased in a poor governance environment, subsequent reforms are likely to become even more difficult. Actors develop vested interests in non-transparent revenue management or lax environmental regulation. … There is also the possibility that the level of corruption will determine what kind of foreign investors come to the sector. Investors whose success strategies depend on co-opting government officials in return for favored treatment may not be interested in subsequent good governance reforms either.” (Pg 13)

Extractive Industries Induce Violence and Injustices Against Women

Women are the most susceptible group in the communities that bear the biggest impacts of extractive industries. In many cases, women have become the victims of sexual harassments and abuses of the corporations’ personnel. Part of the impact on local economies is that women are often deprived of their previous sources of livelihood. This in many cases forces them to be caught up in prostitution. Other impacts include domestic violence, further increasing the burden on women. Due to environmental pollution resulting from extractive industry operations, women living in affected areas also can experience problems with their reproductive system.

During the period of 1987 to 1997, women living near the operations of Rio Tinto’s Kelian mine suffered from sexual harassment and abuse, both physically and psychologically. Some of them were the employees of the company. They were threatened to be fired by the high rank expatriates if they spoke out about what they experienced. Most of the women were still underage at that time (less than 16 years old). The case was investigated by KOMNAS HAM, Indonesia’s Human Rights Commission, which found that the human rights abuses were connected with the mining company’s operations.

Mama Yosepha of the Amungme peoples endured detention in a steel shipping container belonging to Freeport for weeks as punishment for allegedly protecting one of the Papuan Liberation Movement leaders. Her Amungme sisters were killed and tortured for working in their lands that have been claimed by the corporation as its own.

Extractive Industries Trigger Human Rights Abuses and Increase Militarism

In many locations of extractive industry operations in Indonesia, the involvement of military and police in securing companies’ operations is very obvious. In conflicts arising between corporations and local communities, the community always emerges the victim. So many cases in Indonesia have shown how military and police can be bought and used by the corporations to make way for profits at the expense of communities rights. Human rights abuses and violations are an inseparable part of extractive industries in Indonesia. This ranges from intimidation, torture, kidnapping and detention to rape and killings.

The recent scandal of Freeport McMoRan’s payments to the Indonesian military to safeguard their operations area has confirmed long-time suspicion of corrupt relationship between transnational corporations and the military and police. Freeport was forced by shareholder resolution to reveal the payments, which amounted to a US$ 5.6 million ‘donation’ to Indonesian military in year 2002 and US$ 5.8 million in 2001. The donation has never been gone through the state’s formal financial system, instead it goes directly to the pockets of military elites and personnel in for securing Freeport’s operations in the area. Freeport provides local soldiers with a monthly salary bonus of about Rp400,000. The company is also alleged to have made individual payments of millions of dollars to top-ranking military officials.

Well-documented human rights abuses in the area around Freeport include:
· Torture, rape, indiscriminate and extrajudicial killings, disappearances, arbitrary detention, surveillance and intimidation, employment discrimination, and severe restrictions on freedom of movement;
· Interference with access to legal representation;
· Violation of subsistence and livelihood rights resulting from seizureand destruction of thousands of acres of rainforest, including community hunting grounds and forest gardens, and contamination of water supplies and fishing grounds;
· Violation of cultural rights, including destruction of a mountain and other spiritually significant sites held sacred by the Amungme;
· Forced resettlement of communities and destruction of housing, churches, and other shelters.

The above list is taken from a recent report from the respected Robert F. Kennedy Memorial Center for Human Rights, which goes on to explain that “some of these violations -such as those caused by environmental destruction- are the direct by-products of Freeport's mining operations. Others -such as physical attacks- are the result of the illegal, indiscriminate, and/or disproportionate use of force against civilians by the Indonesian military and police providing security for and funded by Freeport.”

Papua province’s extractive industry, both present and prospective, are considered to be the main motivation behind Indonesia’s contested claim of sovereignty over Papua, and resulting human rights abuses. Indonesian military staff stationed in Papua have just been convicted for the November 2001 killing of Papuan pro-independence leader Theys Eluay. The military is also strongly suspected as being behind the August 2002 murders of three teachers from Freeport’s international school, including two Americans.

This is only an indication or a portrait of how huge an influence the extractive industries have in Indonesia. The military and police, that are supposed to be the state’s apparatus have become corporations’ watchdogs. Corrupt practices are not only found in military or the police, it has also become deeply rooted in the bureaucratic systems of the state. Below is a summary of the ‘symbiosis’ between corporations and the military/police apparatus.

No. Companies’ Name States’ Security Time Period (Years) Pattern of Action Location 1 PT. Kaltim Prima Coal (50% owned by Rio Tinto and 50% owned by Brtish Petroleum/BP) Army, Police 1998 - 2003 Forceful eviction from land East Kalimantan
2 PT UNOCAL Police/Mobile Brigade 2000 Shooting, torture, destruction of fishing boats (primary source of livelihood) East Kalimantan
3 PT TotalFinaElf E&P Indonesia Police 2002 Borrowing company’s bus for the police to use to arrest community members East Kalimantan
4 PT Kideco Jaya Agung Police 2000 Intimidation, torture East Kalimantan
5 PT Kelian Equatorial Mining (subsidiaryof Rio Tinto plc) Police/Mobil Brigade 1989 - 1991 Torture, land appropriation East Kalimantan
6 PT Indo Muro Kencana (subsidiary of Aurora Gold) Police/Mobile Brigade 2000 - 2001 Torture, shootings, intimidation Central Kalimantan
7 PT. Expans Tomori Sulawesi (subsidiary of Medco Energy) Army and Police 2002 Detentions, eviction Central Sulawesi
8 PT Newmont Nusa Tenggara Police, Army, Para-military 1997 - 2002 Law enforcement officers stand by while violence is committed by hired thugs upon the community and activists; threatening and intimidating the community to sell their land West Nusa Tenggara
9 PT Freeport Indonesia (subsidiary of Freeport McMoRan Inc. in which Rio Tinto has 18% of shares) Military 1994-1995 Killings, kidnapping Papua
10 PT Newcrest Halmahera Military 1999 - 2000 Borrowing company’s helicopter to bring army and its weaponry to the disputed parties in Maluku. Maluku
11 Exxon Mobil Military-Building   30 military’s posts, borrowing company’s heavy equipment to dig the killing fields. Death of activist researching Exxon Mobil human rights and environmental violations; hugely increased militarization in the area of the operation. Aceh

Note: compiled from several sources

World Bank Group: Investing in Bloody Business

Most of the extractive industry operations are funded by public financial institutions, like the World Bank Group and Export Credit Agencies. Since 1992, the bank has invested US$ 15.7 billion in oil, mining, and gas sectors. Despite its mission to alleviate poverty, the bank has allocated approximately 30% of their investments in destructive projects that cause deprivation to the most marginalized peoples in the marginalized countries.

World Bank Group through MIGA (Multilateral Investment Guarantee Agency) has once guaranteed the operations of Freeport McMoRan in West Papua. In September of 1996, OPIC cancelled Freeport McMoRan's risk insurance, citing environmental problems. The company then hired James Woolsey, the former head of the CIA, to overturn OPIC's decision. OPIC re-instated their coverage two weeks prior to Freeport's annual shareholder meeting but indicated that the coverage would end at the end of the calendar year and would not be renewed. When MIGA expressed concerns about Freeport's environmental record and indicated plans to send an inspection team to the mining site as a results of concerns raised by local communities and NGOs about human rights violation and abuses conducted by military on behalf of the company, the company cancelled its MIGA political risk insurance.

World Bank Groups’ Extractive Industries Review: Our critique of the process

Many organizations, including some of those involved in the preparation of this document, are so disappointed in the form and process of the World Bank Groups’ Extractive Industries Review that they have decided to boycott the WBEIR, ie to not be formally involved in the review process. This document must therefore not be construed as tacit approval of, or involvement in the WBG’s review process, rather it is simply a public means of setting out concerns both with World Bank policy and review process.

We question the objectives of the review as stated in the Terms of Reference (TOR). If the WBG still considers its future role in the extractive industries will promote sustainable economic development and poverty alleviation, as stated in the TOR, then the review will go nowhere since it is very obvious that this industry is not sustainable, not least because it depends on non-renewable resources.

Frustration, disappointment and concerns regarding the WBEIR process are shared by a number of NGOs and have been conveyed to the bank in letters signed by many NGOS and as early as October 2001. The disappointment includes the failure of the bank to build on the widely respected and participative process followed by the World Comission on Dams, with the bank instead adopting an undemocratic “eminent person” model. The concerns include the lack of independence, control over final outcomes and insufficient recources made available to the eminent person, Mr Emil Salim. Frustrations arise from clear evidence that the World Bank is not keeping an open mind about the outcomes of the process, nor keeping open the option demanded by the majority of NGOs who work directly with affected communities, ie that the world bank cease all support for the extractive industries. Anger and frustration also arose when the EIR Secretariat posted a "Compilation of Consultation Inputs” (Compilation) after the OED report on the EIR had been drafted. The draft working paper purports to be a “compilation” of inputs, but fails to reflect the full spectrum of views presented at the regional workshops and wholly ignores civil society positions clearly articulated at each of the consultations to date. Rather than document the perspectives of all stakeholders, the Compilation draws the following conclusions:
· The World Bank Group should remain involved in the extractive industries
· Oil, mining, and gas projects can be a tool for poverty alleviation
· The WBG can be a leader in tackling the environmental and social issues associated with extractive industries that the World Bank’s extractives industries activities are an effective tool for poverty alleviation, and that the Bank should therefore continue or expand these operations.

These conclusions reflect a bias toward industry and directly contradict clearly documented civil society assertions and assertions made in the World Bank's own OED evaluation of Extractive Industry finance.

Not only do the conclusions and recommendations contained in the Compilation indicate an inaccurate characterization of the results of the consultations, but they are premature: two regional consultation workshops and the Indigenous Peoples' workshop had not yet taken place, commissioned research had not yet been completed, and additional site visits had not yet been carried out. This complete disregard for the EIR terms of reference seriously undermined our confidence in this process and our hope that the EIR would ultimately produce a strong report that objectively evaluates the World Bank Group’s involvement in these sectors.

In addition, we find the way in which the Compilation became public to be unjust. Discussions were held with World Bank staff and industry representatives before the draft was made available to civil society, and even, we are told, before the Eminent Person had a chance to review it. Regardless of the reasons for these various missteps, this disparate treatment of different stakeholders raises serious concerns about the independence, credibility, and integrity of the EIR process.

Furthermore, we are deeply dismayed that the Compilation so completely ignores (or fundamentally misperceives) civil society’s perspective on the most critical issues of the Review. At a minimum, the Compilation demonstrates that the EIR’s process for receiving, recording, and considering civil society input is deeply, perhaps fatally, flawed. But it also raises profound concerns about the integrity of the process and the EIR team. The fact that the EIR seems to have already formulated its primary recommendations before all inputs have been received has fueled a growing skepticism of the wisdom or efficacy of continuing involvement in this process, particularly among those who are considering participating in the upcoming Asia/Pacific and Middle East/North Africa consultations.

Apart from the voices of communities affected by publicly subsidised extractive industries, The World Bank has been given a wake-up call from within, in the form of several internal reports on the World Bank’s performance on poverty alleviation and environment protection, culminating in the most recent World Bank Group Operations Evaluation Department Draft Report: “Evaluation Of The World Bank Group’s Activities In The Extractive Industries” January 21, 2003. If the WBG still thinks of its role in sustainable economic development and poverty alleviation within the framework of extractive industries then we can not expect much will come up from the review. If the WBG really has the goodwill to honestly review its role in sustainable development and poverty alleviation, it must first shift its paradigm and free itself from such an unsustainable framework of thinking.

We believe that extractive industries do not have a future role in promoting sustainable economic development and poverty alleviation. On the contrary, the industry is declining as easily accessible resources are depleted. It also creates enclaves in which most local economic activities are centered and depend on their operation. There are many cases from around the world of extractive industries leaving behind ghost towns after operations cease, not to mention environmental pollution and deterioration, and major contributions to greenhouse gases. From this point of view it must be realized by the World Bank Group that oil, mining, and gas industries are not the answer for the future.

What developing countries need to sustain social development and alleviate poverty is to reverse their new dependency on unsustainable economies such as extractive industries. Developing countries also should be given room to develop alternative solutions for their economy that are sustainable for the long run. This means that developing countries must drop their dependency on extractive industries as a major source of income.

Our Demands

At this Extractive Industries Review forum, we take the opportunity to challenge the bank and stakeholders to show their commitment for a decent and sustainable livelihood for the world’s population, directed to various stakeholders as follows:

A. To the World Bank: Get Out of Oil, Mining, and Gas

We, Indonesian and Australian NGOs call upon the World Bank to stop financing and giving/borrowing other forms of support for extractive industries such as mining, oil and gas.

The time has come for the World Bank Group to prove to the global communities that what they do is in line with the whole aim of theirs, which is to promote sustainable development and alleviate poverty in its member countries. For this, the bank should be held accountable for not doing its works towards the above mentioned aims.

B. To the Industry: Stop encroaching on the Earth and depriving people of their livelihoods

· Stop all extractive industry activity including exploration, in protected areas such as protected forests, nature reserves, national parks, world heritage areas and similar.
· Stop disposing of wastes into rivers and seas (riverine tailings disposal and submarine tailings disposal)
· Stop using dangerous chemicals and processes such as cyanide leaching of gold ore
· Stop all extractive industry activity including exploration on indigenous lands where traditional ownership is not recognised or where indigenous communities are opposed

The industry’s attempts to further encroach into the last frontier of ecosystems in developing countries to feed the industries in wealthy developed countries must be stopped. Years of suffering experienced by millions of peoples in the developing world must not be continued. We demand extractive industries corporation be held accountable and liable for all previous and ongoing misdeeds against communities and the environment.

C. To the Indonesian Government: Reform Genuinely

All the mess created to Indonesian peoples are due to the bad policies made and implemented by the government. The following are our demands for a more just and sustainable livelihood:
· A moratorium on new permits for extractive industries
· Conduct a comprehensive evaluation of the mining contract of work system and review the existing mining contract of works
· Conduct a comprehensive evaluation of all existing extractive industries projects, including economic, social, environmental, and human rights aspects
· Shift to more just and sustainable energy sources
· Develop alternatives to oil, mining, and gas extraction economies

D. To the International Community: Consume Less

The massive encroachment due to extraction of raw materials from developing nations (on the periphery) is a direct impact of the ever increasing consumption level of developed nations (at the center). This outcome is also imposed by the existing global trade regime that forces developing countries to choose exploitative and unsustainable development strategies. We believe that there needs to be a concerted effort both in developed and developing countries to not continue the existing pattern of development. No action at the demand side will inevitably mean continuation of destruction, violence, and deprivation.


Igor O'Neill, Mineral Policy Institute
Phone +62 81 286 12 286 Fax +62 21 791 816 83

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