By Pratap Chatterjee
SAN FRANCISCO, Sep 22 1996 (IPS)

Gold mine operators on the island of New Guinea in the South Pacific have cancelled two major political risk insurance policies in a move intended as a show of confidence in the Indonesian government, analysts say.

Reports circulated in mining circles early last week that Freeport McMoRan had cancelled a political risk insurance policy signed in 1990 with the World Bank’s Multilateral Investment Guarantee Agency (MIGA). Then came news that the company had called off similar coverage with the U.S. government’s Overseas Private Investment Corporation (OPIC).

The New Orleans-based company operates its mine in the central mountains of Irian Jaya, the name given to the western half of New Guinea when it was taken over by Indonesia in the 1960s.

OPIC spokeswoman Alison May Rosen said that the agency had received a letter from Freeport saying it would no longer require insurance against political risks after Sep. 30.

Newspaper reports quoted Freeport’s spokesman Bill Collier as saying that “The reason (for the cancellation) is the stability that the government of Indonesia has shown over a 30-year period and the unprecedented record of economic growth during that same time-frame.”

Mining analysts on Wall Street indicated they were not worried about Freeport’s actions.

“Political risk insurance protects the company against the government,” Chuck Bradford, a mining analyst at the Union Bank of Switzerland said. “If the company is confident about the government, then they don’t need insurance.”

Yet the policy cancellations follow major unrest in the country. Major riots against Freeport in March resulted in several million dollars of property damage. Protestors also took to the streets in late July, accusing President Suharto of forcing opposition party leader Megawati Sukarnoputri out of her job, with the help of a breakaway faction.

Suharto, an army general, came to power in 1965 by ousting Sukarno, Megawati’s father. The accompanying bloodbath left half-a- million dead. Two years later, Freeport became the first major foreign investor in the country, and it remains the largest foreign taxpayer.

“What the local people do makes no difference,” Bradford stressed. “If the whole town was blown up and burnt to the ground, the company does not get a penny. Only if Suharto takes away their property can they make a claim, and that’s not about to happen, because Freeport has some very good contacts.”

Investors are also downplaying recent upheaval in Indonesia.

“We have no worries about the political climate in Indonesia,” said Andrew O’Connor of C.J. Lawrence, an investment firm in Manhattan. Though he declined to comment on the Freeport action, he indicated that the company “Newmont Mining is about to plunk down one billion dollars for a gold mine in Indonesia.”

The gold mine on the western half of New Guinea is the largest in the world and brings in 1.5 billion dollars in revenue for Freeport McMoRan. But Freeport itself reports that copper and gold extraction at the mine results in the dumping of more than 120,000 tonnes of waste into local rivers every day.

The insurance policies to be cancelled include a 50-million dollar contract with MIGA and a 100-million-dollar contract with OPIC. OPIC had cancelled its policy last November on environmental grounds but re-instated it in April until the end of 1996.

In a letter to Freeport at the time, OPIC lawyer Robert O’Sullivan cited environmental problems associated with acid mine drainage, toxic metals, and “the mismanagement of solid and hazardous wastes at the site”.

MIGA had been preparing to conduct its own investigation into the mine and was to send a three-member team to Irian Jaya. No date had yet been set for the trip.

Excerpt: