PT INCOS SOCIAL RESPONSIBILITY

Research Report PT INCOS SOCIAL RESPONSIBILITY

To Promote Economic, Social and Environmental Progress in Central Sulawesi Lian Gogali

First published by: INFID (International NGO Forum on Indonesian Development) PT INCOS Social Responsibility: to promote economic, social and environmental progress in central Sulawesi, Written by Lian Gogali, Published by INFID Jakarta, November 2012. Credit for cover image: Fajar online

Published by: INFID (International NGO Forum on Indonesian Development) Jl. Jati Padang Raya Kav. 3 No. 105 Pasar Minggu, Jakarta 12540 INDONESIA Email: infid@infid.org Website: www.infid.org Telp : +62 - 21- 7819734 Fax : +62-21-78844703

Table of contents

Executive Summary 1. Introduction 2. Research Methodology 3. Research Findings a. Morowali: Land of a Thousand Mines b. PT INCO in Morowali c. PT INCO and Citizens Protest at Bahodopi Block: An Insignificant Issue? d. Threat to Boycott and Reject PT INCO e. Community Development: PT INCOs Decoy 4. Analysis 5. Conclusion and Recommendation References

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EXECUTIVE SUMMARY

The research titled PT INCOs Social Responsibility to Promote Economic, Social and Environmental Progress in Central Sulawesi is intended to provide insight into the role of corporations, in this case PT International Nickel Indonesia, in building the capacity of the people of Central Sulawesi from the economic, social and environmental dimensions through community development programs or more popularnya known as CSR (corporate social responsibility). This research is a descriptive-analytical study that adopts the qualitative-empirical approach through literature review, focus group discussions and in-depth interviews. This study seeks to uncover answers to the following critical questions: 1) Does PT INCO investments in Central Sulawesi contribute to the economic, social and environmental progress in Central Sulawesi? 2) What role does PT INCO undertake in promoting economic, social and environmental advancements in Central Sulawesi? In general, this research has shown that PT INCO investments in Central Sulawesi have failed to contribute to the economic, social and environmental progress of the region, and neither do they promote the development of the local economy. Community development programs implemented through CSR do not lead to economic, social and environmental advancements. On the contrary, PT INCO has made use of community development programs to secure corporate profits for the smooth running of company operations, and to this end has opted to downplay economic and social impacts affecting local communities, quell public resistance and divert attention away from environmental, social and economic issues confronting local residents. Local communities have applied the proverb menarik benang dalam tepung (literally pulling the thread from a bowl of flour) to illustrate the companys political strategy in using community development programs to accumulate profits for their investment plans under the pretext of fulfilling their social responsibility, albeit through dishonest and insincere implementation. Through this research, it is also found that the paradigm which the provincial and local government have adopted with regard to CD funds is for the purpose of shifting government responsibility to improve the peoples welfare, among others by silencing the people from demanding for
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their rights in mining concession areas. The provision of CD funds should be a corporate obligation, comparable to a loan that must be repaid in return for profits earned and losses incurred. As such, the amount of CD funds should be accurately calculated by taking into account current and future economic, social, cultural and environmental losses that the people are forced to deal with. To ensure that PT INCOs business engagement in the region genuinely contributes to economic, social and environmental progress, a comprehense evaluation of PT INCOs mining presence is of utmost importance. The evaluation should meticulously take into consideration waste management plans in order to minimize the inevitable consequence of environmental degradation; and the need to accurately calculate locally-generated revenue against the risk of ecological destruction as well as social and cultural impacts arising from mining operations. An accurate and honest calculation without any form of manipulation shall help local and provincial government better understand about corporate profits in contrast to corporate obligations and taking into account disaster impacts due to environmental devastation and social and cultural disintegration. It is also essential to ensure long-term community development planning in villages situated within mining concession areas in order to prepare them for social, economic, cultural and environmental impacts associated with mining activities. Evaluation must be followed up by the renegotiation of PT INCOs Contract of Work. The renegotiation process should ensure that affected communities or the government are included as shareholders, thus significantly contribute to the improvement of peoples welfare and stimulate equitable economic growth.

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I. Introduction

Background he much-touted benefits of foreign investment include the many blessings that it brings to the people of Indonesia. These so-called blessings refer to the availability of manpower, transport and telecommunication facilities, and a modern existence that promises convenience and obviously expedites development. Investment is seen as a means to deliver prosperity to the people. Not surprisingly, calls for the inclusion of investment as one of the main sources of development financing have rung loud and clear. This is evident in the incorporation of foreign investment as a development component following Soehartos release of Law No. 1/1967 concerning Foreign Investment. The law gives foreigners the liberty to invest their money in Indonesia. This privilege enjoyed by foreign investors is further expanded with the introduction of the policy on mining rights in 2008, in which regions are conferred with the authority to independently issue mining concessions. This is increasingly reinforced with the enactment of Law No. 4/2009 on Minerals and Coal that grants absolute authority to district heads to issue mining permits. Given the push for greater regional autonomy, it was assumed that the emergence of these laws was spurred by the direct contribution of investment towards national development. The role of foreign direct investment (FDI) in development has been described by OECD (Organization for Economic and Co-operation Development) in a study report titled Foreign Direct Investment for Development - Maximising Benefits, Minimising Costs (2002) which states that:
The overall benefits of FDI for developing country economies are well documented. Given the appropriate host-country policies and a basic level of development, a preponderance of studies shows that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprises development. All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries. Moreover, beyond the strictly economic benefits, FDI may help improve environmental and social conditions in the host country by, for example, transferring cleaner technologies and leading to more socially responsible corporate policies. (OECD, 2002: 5)
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The report explicitly describes on FDIs significant contribution to economic development. Such benefits can be in the form of economic growth, global economic integration through trade and investment, technology transfer, human capital enhancement, business competitiveness in host countries and greater potential for enterprises development. OECD also specifically mentions on how FDI promotes corporate social responsibility institutionalized into policies. In reality however, investment has squeezed dry the resources of regions in developing countries only to be conveniently handed over to advanced countries, while leaving behind environmental destruction compounded with social and cultural disintegration. This has prompted sharp criticisms and vehement protests from environmental activists and the public at large. Fingers are pointed at foreign companies, perceived to be largely responsible for forest devastation and environmental degradation not only in exploited regions but impacts also to the rest of the world. Furthermore, workers must submissively accept meager wages, while shareholders, including consumers reap prodigious profits and are the ones to enjoy the fruits of development. This simply proves that instead of bringing blessings, investment on the contrary has caused misfortune for the people whose resources have been ruthlessly exploited. Such business practices, condemned by environmental activists and the general public, have been atoned for by companies through corporate social responsibility (CSR). CSR is seen as an effective tool to reconcile business interests with public and environmental concerns without the need for much broader government intervention. Social responsibility however has been reinterpreted and redefined over time. In Indonesia, Law No. 40/2007 on Corporations defines social responsibility as part of corporate obligation, and as such business entities must set aside the necessary funds. This means that the fulfillment of social responsibility should no longer be based on companys financial strength (whether it has adequate funds to meet the obligation), but from early on should earmark funds specifically for this purpose. This concept justifies budget allocation for social obligations at the top-management level, although it may not necessarily be approved. Under such circumstances, companies often legitimize corporate donations or involvement in financing development programs for local communities living in proximity with their exploitation areas. Legitimizing corporate involvement in development entails the channeling of CSR funds to the public through the provincial or district government, or directly to the village bureaucracy. This situation is evident in the district of Morowali in Central Sulawesi. Morowali, a newly formed district created from the territorial restructuring of Poso District in 1999, is an example of a region that believes in the notion that invest10 Lian Gogali

ment will bring abundant blessings to the people. Foreign investment becomes a guarantee for economic development, mainly for post-conflict communities and those untouched by national development. With this frame of mind, it comes as no surprise when the Morowali district head appears to be in a rush to issue mining permits. To date, some 183 mining licenses have been granted for a total area of 15,490.12 km2. One of these permits is held by PT INCO. The public had earlier condemned PT INCO for its ill treatment of the people, callously destroying their economic, social and cultural life. A similar sentiment, albeit somewhat reserved and for a different purpose, was also shown by the Morowali district government who urged for the re-assessment of PT INCOs intention to establish a nickel plant in Morowali. This was deemed crucial because since the signing of the Contract of Work (CoW) in 1968, PT INCO has yet to prove to the provincial and district government and nearby communities that it has brought them the much anticipated blessings of prosperity. The current situation instead has been the reverse. CSR funds allocated for communities near PT INCOs mining sites are considered as part of company goodwill to contribute to local development. OECD previously in a report has specifically mentioned that capital investment promotes corporate social responsibility manifested in policies. Does PT INCOs corporate social responsibility agenda contribute significantly to local economic development? This study seeks to probe into the extent to which PT INCOs social responsibility within its operating area has contributed to economic, social and environmental development. Research Purpose This research mainly intends to examine the role of corporations, in this case PT International Nickel Indonesia, towards Indonesias economic development, with reference to OECD guidelines. It specifically looks at the role of PT INCOs capital investment in developing the economic capacity of the people, particularly PT INCOs contribution to economic, social and environmental progress in Central Sulawesi, especially through the community development program.

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II. Research Methodology

his research adopts a qualitative methodology through in-depth field study. At the initial stage, a literature review was carried out by perusing reference material and documents from different sources. The second phase involved focus group discussions (FGDs) among prominent community figures and local government officials from villages identified as research location, as well as in-depth interviews with multiple parties. Interviews were conducted with relevant stakeholders representing corporations, local and provincial government and local communities in mining concession areas. The third stage focused on data analysis and report writing. Literature review covers two stages. The first phase looks at general information, while the second phase reviews documents directly available from the research location. General information is derived from the internet, particularly related to PT INCO policies on corporate social responsibility and mining production. Information is also collected from books, articles, position papers and journals related to PT INCO, foreign direct investment and corporate social responsibility. These literatures are obtained from local organizations largely from Tanah Merdeka Foundation and Central Sulawesi Mining Network or JATAM that provide facilitation to local communities in dealing with issues related to PT INCO. Several documents are acquired from consultation with researchers who have conducted studies on corporate social responsibility in other regions across Indonesia. The second stage concentrates on documents obtained from regions identified as research location, including from government offices at the village and district level in Morowali. Most documents gained from the village government are related to meetings held between the public, the company and district government, including agreements pertaining to the research topic. Statistical information on Morowali is derived directly from the district government, mainly from the local statistical bureau. An initial desk research informs the research team for the sharpening of research questions and research focus. This is followed by focus group discussions with representatives from the public and village government. Prior to FGDs, the researcher and research assistant will identify key figures from the respective village having direct involvement or who exert influence on the local community with regard to PT INCOs mining operations. These individuals were invited to participate in FGDs with other community representatives, including prominent women. The FGD is attended by 20 people from the village government (village head and secretary), prominent local figures, cultural observers, youths,
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women leaders and the general public from 9 villages. Discussions touched on PT INCOs different forms of social responsibility in each village along with the dynamics and polemics of the company's social responsibility agenda. FGD also discussed on the extent to which various forms of corporate social responsibility affect the economic, social and cultural development of communities residing near mining sites. FGD makes it easier for researchers to gain insight into responses and reactions toward PT INCOs attempts at fulfilling its social responsibility in its different forms in the respective village. For more thorough research, FGD is followed by in-depth interviews with various parties either directly or indirectly related to PT INCOs corporate social responsibility activities. They included recipients of PT INCOs CSR funds, including village government offices; CSR administrators; prominent community figures involved in the distribution and or negotiation of PT INCOs CSR commitment; and the general public (random) who are non-CSR recipients. Interviews are conducted with CSR fund recipients in 9 villages for different forms of CSR activities over time in order to gain information on the dynamics of PT INCOs CSR commitments. Interviewees also included administrators of PT INCOs CSR activities at the village, sub-district and provincial level, specifically Tadulako Universitys Research Institute. Community figures interviewed are those directly or indirectly involved in discussions and or negotiations on PT INCOs CSR commitments, including those who support and oppose PT INCO. Members of the general public who were interviewed are those who have never directly benefited from PT INCOs CSR agenda, particularly with regard to educational and health facilities, in the respective village. Researchers also interviewed environmental activists and advocates familiar with the history behind PT INCOs presence in Morowali and the dynamics of its CSR agenda. Researchers largely faced difficulty in interviewing PT INCO and the Morowali district government. Nevertheless, several district government officials and CSR administrators at the provincial level who represent PT INCOs CSR policies were willing to comment on PT INCOs mining operations. Research Variable Research variables are mainly drawn from OECD indicators on social responsibility associated with foreign direct investment. OECD (Organization for Economic and Co-operation Development) has studied on the role of foreign direct investment in development agendas. In a study report on Foreign Direct Investment for Development - Maximising Benefits, Minimising Costs (2002), OECD states:
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The overall benefits of FDI for developing country economies are well documented. Given the appropriate host-country policies and a basic level of development, a preponderance of studies shows that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprises development. All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries. Moreover, beyond the strictly economic benefits, FDI may help improve environmental and social conditions in the host country by, for example, transferring cleaner technologies and leading to more socially responsible corporate policies. (OECD, 2002: 5)

The report clearly sets forth FDIs significant contribution towards economic growth. The benefits of FDI can be in the form of economic growth, global economic integration through trade and investment, technology transfer, human capital enhancement, business competitiveness in host countries and greater potential for enterprises development. In the report, OECD specifically mentions on how FDI promotes corporate social responsibility manifested in policies. These indicators are laid out in the OECD document titled OECD Guidelines for Multinational Enterprises, mainly in the chapter on General Policies: 1. Contribute to economic, social and environmental progress with a view to achieving sustainable development 2. Respect the human rights of those affected by their activities consistent with the host governments international obligations and commitments 3. Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprises activities in domestic and foreign markets, consistent with the need for sound commercial practice 4. Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees 5. Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labor, taxation, financial incentives, or other issues 6. Support and uphold good corporate governance principles and develop and apply good corporate governance practices 7. Develop and apply effective self-regulatory practices and management systems that foster a relation of confidence and mutual trust between enterprises and the societies in which they operate 8. Promote employee awareness of, and compliance with, company policies through appropriate dissemination of these policies, including through
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training programmes 9. Refrain from discriminatory of disciplinary action against employees who make bona fide reports to managements or, as appropriate, to the competent public authorities, on practices that contravene the law, the guidelines or the enterprises policies 10. Encourage, where practicable, business partners, including suppliers and sub-contractors, to apply principles of corporate conduct compatible with the Guidelines 11. Abstain from any improper involvement in local political activities In reference to the foregoing general principles, this research shall focus on points one and three that underscore the need for corporate involvement in bolstering the local economy (FDI recipient countries). Furthermore, this research also refers to the European Unions general definition of corporate social responsibility: A concept where by companies decide voluntarily to contribute to a better society and a cleaner environment. A concept where by companies integrate social and environmental concerns in their business operation and in their interaction with their stakeholder on voluntary basis Analysis Unit The research analysis unit is PT International Nickel Indonesia (PT INCO). PT INCO was chosen because it is a transnational corporation (TNC) that constitutes part of the global corporate world, and engages in foreign direct investment. As a newly established region (separated from Poso District since 1999), the Morowali district government regards investment as an essential component for accelerating the development process. PT INCOs presence is therefore expected to bring down unemployment rates, among others by boosting local revenue. The availability of special funds known as Community Development funds for communities near mining concession areas is seen as being part of the direct benefits enjoyed by local communities generated from corporate investments. On the other hand, the public has imposed a slew of demands and mounted protests against PT INCOs mining operations. Disputes with local residents include cases on land compensation, social fund distribution, local ownership, and environmental destruction.

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III. Research Findings

a. Morowali: Land of a Thousand Mines orowali is an autonomous district established based on Law No. 51/1999 concerning the Establishment of the Districts of Buol, Morowali, and Banggai Islands. The name Morowali originates from the Wana tribal dialect that means a thunderous sound. The Wana ethnic group is an inland community who dwells along the Bongka River and its tributaries to the north of Morowali and later became the designated name of the region. Morowali was previously under the district of Poso that stretches from the southeast to the west, and across the northern part of the region. Morowali district geographically extends across 45,453 km from which 15,490.12 km constitutes land and 29,962.88 km covers territorial waters. According to data from the Central Sulawesi Bureau of Statistics for 2007, the district is inhabited by 173,266 people with a population density of 725/village. Around 1,576,112 hectares of territorial land cover protected areas, forestry and non-forestry cultivation zones, including the hilly/mountain range surrounding the Morowali nature reserve. Total critical land area reaches 20,260.92 hectares. (Source: Sub-local forest rehabilitation office, from land inventory and GIS analysis, 2007) By 2009, Morowali consists of 13 kecamatans (sub-districts) and 240 villages. Its largest land area is Kecamatan Mori Atas covering 2,557.74 km2 or 16.51 percent of Morowalis total land area, while the smallest land area is Kecamatan Menui Islands at 223.63 km2 or 1.44 percent from total land area. Based on its topography, Morowali comprises of 169 flat-land villages and 71 hilly villages. The capital city of Morowali district was initially situated at Kolonodale. Following a lengthy debate, the capital city was then relocated to Bungku on 2 May 2006 (http://www.palu.bpk.go.id/?page_id=6490). With regards to etno-linguistics, Morowali is divided into three main ethnicities: To Bungku, who mostly populate Bungku Tengah, Bumi Raya and Bungku Selatan; To Mori who mainly inhabit Petasia and right across to Mori Atas; and the indigenous tribe of Tau Taa Wana found to the north of the Mamosalato mountainous area and extending across Baturube. In addition to these three main ethnicities, Morowali is also home to other ethnic groups that have long migrated to the district, namely Buton, Ternate, Bugis and Toraja, as well as transmigrants from Java, Lombok and Bali. Teluk Tolo in particular is mainly
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inhabited by the To Bajo ethnic group. Based on an analysis of Gross Regional Domestic Product (GRDP) for 2007, Morowalis economy pivots around the agricultural sector that contributes 46.32 percent to total GRDP at current prices, followed by other related sectors such as plantation, fishery, forestry and food crops, each contributing 25.93 percent, 7.04 percent, 6.17 percent and 5.89 percent respectively. Food crops such as rice and secondary crops that have been cultivated for generations only experienced a slight increase in production. This is due to a shift in land use from food crops to plantation crops considered to generate higher income. Investment in the plantation sector for coconut, oil palm and cocoa, and in the mining industry has significantly led to intensified land conversions. The mining industry has long been a significant part of Morowali. Mineral exploration and exploitation has been an economic activity since earlier times albeit at a limited scale. In the 1600s, the Mori Kingdom traded copper with the Luwu Empire and Dutch merchants at Kolonedale seaport. It is understood that armaments of war for the Luwu Kingdom were largely crafted from copper supplied by the Mori Empire. Mineral deposits were traditionally extracted for producing pieces of equipment to protect communal areas and the kingdom, or weaponry for war, such as spearheads, swords and other armaments made of copper. This is made possible due to the iron-casting skills of the local people. The concept of capital extraction however is unknown to mining practices of the past. Morowalis mining industry of today is being exploited massively and recklessly. The local government has persistently pushed for land conversions and transformations of the local landscape simply for the sake of blindly pursuing economic growth. Since 2008, the concept of regional autonomy was implemented by conferring local governments with the power to issue mining permits. This autonomy is further reinforced by the introduction of a new mining policy, Law No. 4/2009 concerning Minerals and Coal that grants absolute authority to district heads to issue mining licenses. Since its formation into a fullfledged district in 1999 until today, Morowali has issued 183 mining permits. This is the accumulated total from two previous leaderships of Morowali district government. Most mining permits were issued during the tenure of Morowalis ad interim district head, Datlin Tamalagi. At least 120 permits were granted to 70 companies. Under the leadership of Anwar Hafid, an additional 83 mining permits were issued. There are currently 83 companies holding mining permits for the extraction of nickel, chromite and coal. From these companies, 29 of them are granted general mining survey permits, 47 companies with mining exploration licenses and 7 with mining exploitation rights. Contracts of Work are issued by the central
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government to 2 transnational corporations: PT INCO and RIO TINTO for designated areas under agreed contracts. Other companies have concession rights across 13 sub-districts. At Kecamatan Bahodopi, 10 companies have permits for total concession area of 39,736 hectares; Kecamatan Witaponda for 5 companies for a total of 58,791 hectares; Kecamatan Bungku Utara for 10 companies for a total of 44,018 hectares; Kecamatan Mamosalato for 15 companies for a total of 96,602 hectares; Kecamatan Bungku Barat for 9 companies with a reserve area of 39,207 hectares; Kecamatan Petasia for 8 companies for a total area of 51,460 hectares; Kecamatan Bungku Tengah for 9 companies for a total area of 55,646 hectares; Kecamatan Bungku Selatan for 5 companies for a total area of 37,009 hectares; Kecamatan Lembo for 9 companies for a total area of 51,321 hectares; Kecamatan Mori Atas for 5 companies for a total area of 28,106 hectares; Kecamatan Menui Islands for 3 companies for a total area of 15,773 hectares; and Kecamatan Bumi Raya for one company with a total area of 2,746 hectares. Nevertheless, from this large number of license holders, by 2011 only 15 of them are actually operating in the region, one of which is PT INCO Tbk. b. PT INCO in Morowali PT International Nickel Indonesia Tbk or better known as INCO Limited, since 3 January 2007 has changed its name to CVRD INCO Ltd. This name change is in line with increased share ownership of Companhia Vale do Rio Doce (CVRD) towards INCO Ltd at 87.78 percent. As of 31 December 2010, the share ownership composition of PT INCO is as follows: Main Shareholder Vale Canada Limited Sumimiti Metal Mining Co., Ltd Public Vale Japan Limited Mitsui & Co.,Ltd Sumitomo Corporation Percentage 58.73 20.09 20.14 0.55 0.35 0.14

The composition of PT INCO shares owned by the Board of Commissioners and Board of Directors (included under public share ownership listed above) is provided in the table below: Shareholder Ciho D. Bangun
Source: INCO Annual Report, 2010
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Number of Shares 2,080

Percentage -

In July 1968, the government of Indonesia signed a Contract of Work with PT INCO. The agreement was entered into following the enactment of Law No. 11/1967 on Capital Investment. The agreed duration for the CoW is 30 years which expires in 1998. Based on the contract, PT INCO is entitled to operate in 218,528 hectares of land area stretched across three provinces: Central Sulawesi, Southeast Sulawesi and South Sulawesi. The Bahodopi Block is located at Central Sulawesi and covers 36,000 hectares. As part of PT INCOs business expansion, plans are underway for the construction of several infrastructure facilities such as roads, seaport, smelting plant, screening center, dryer, refinery, airport and other facilities needed by the public. A nickel processing plant is also in the pipeline to produce pure nickel ore at the production capacity of 35,000 tons/year. For this purpose, PT INCO and PT Pan China International (PCI) have signed a Memorandum of Understanding for the establishment of the processing plant for investment worth US$ 30 million to US$ 40 million. Construction will be preceded by the development of facilities and infrastructure, including an 80-kilometer road connecting Sorowako, South Sulawesi to Bahodopi Block in Morowali, Central Sulawesi. In its 2010 annual report, PT INCO informs that in Indonesia the company produces nickel matte, an intermediate product of laterite ores from its integrated mining and processing facility in Sorowako. Mining products are sold based on a longterm contract denominated in US dollars to refinery plants in Japan. Prior to contract expiration, a renegotiation was conducted between PT INCO and the government of Indonesia, resulting in the extension of PT INCOs Contract of Work based on approval from President Soeharto through a letter dated 29 December 1995 and followed by consultation with DPR-RI (Indonesian House of Representatives) from which it was agreed that the expiry date shall fall on 31 April 2008. Renegotiation terms and condition between the government of Indonesia and PT INCO are set forth in the letter dated 25 December 1995 No. B-745/Pres/12/1995 concerning Approval for Changes and Extension to PT INCO Contract of Work. The letter states that the government may approve the proposed changes and extension of the Contract of Work entered into between the government of Indonesia and PT International Nickel Indonesia. This means that the contract can be modified and extended. The possibility of a renegotiation is also laid down in PT INCOs Contract of Work that contains key principles put forth in Presidential Instruction No. 18/1968 on Tax Allowances for Foreign Direct Investment in General Mining which facilitates PT INCOs tax payment process justified in the fact that the company operates in isolated areas. Government facilitation of PT INCOs investment process in Indonesia may
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probably be driven by the companys ambitious development plans. For the business world in general, PT INCOs grand plans to build plants and facilities with substantial investment value is indeed an enticing offer. On 29 January 2009, through its Director and Senior VP for Corporate Affairs and General Counsel, Nurman Djumiri, the company sent out Letter No. 039/Bupati_Morowali2009/I/ND/SWT to the district government requesting for permission to develop a nickel plant and supporting infrastructure on the planned project location in Bahodopi, and also to conduct a site feasibility study. The land required for plant construction lies within PT INCOs concession area as agreed in the Contract of Work at the Bahodopi Block situated along the coast of Teluk Tolo from point zero to roughly 10.0 km from the shoreline directly adjacent to the former One Pute Jaya transmigration area that has now developed into a village in its own right along with other human settlements, including plantations, rice fields and forest areas. The CoW model adopted by the mining industry in Indonesia is advantageous only for transnational mining corporations. Foreign mining companies have majority share ownership that is unlimited in nature over their business operation in Indonesia. As evident in the share ownership table provided above, foreign entities have control over 80% of PT INCO shares. As a consequence, all profits generated from PT INCOs mining operations are shifted out of Indonesia. PT INCO profits are even more phenomenal with Indonesias low mineral tax rates. Based on existing policy, PT INCO is only obligated to pay royalty to the government of Indonesia at 0.015 percent from the price of every kilogram of nickel, while annual mining lease is at US$ 1 per hectare. Corporate taxes at 45% annually are paid to the government of Indonesia. Based on PT INCOs Contract of Work that shall expire in 2025, annual rent of mining lease per hectare is increased to US$ 1.5, whereas royalty fees remain unchanged. The foregoing data illustrates on how the government of Indonesia only receives an insignificant amount of revenue compared to the profits transferred out by PT INCO. Furthermore, a larger portion of PT INCOs obligatory payments is made to the central government, while local governments only receive much lesser amounts. Revenue disparities from corporate mandatory payments have been rectified following the enactment of Law No. 22/1999 on Local Government and Law No. 25/1999 on Fiscal Balance between Central and Local Governments. Article 6 of Law No. 25/1999 stipulates that 20 percent of profits earned from resource management shall be handed over to the central government, while the remaining 80% to be transferred to the local government from which 16% is allocated to the provincial government and 32% each to the producing district government and other district governments. Such inequitable split of profits for the local government derived from PT
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INCO mining operations has led to local demands for a re-assessment of the Contract of Work in the past 4 years. Since the introduction of the law on fiscal balance, three governors in Sulawesi (South Sulawesi, Central Sulawesi and Southeast Sulawesi) whose territory is part of PT INCOs mining zone have urged for the reconsideration of the companys Contract of Work. In response to this demand, Rumengan Musu, PT INCO President and CEO, threatened to bring this matter to the international tribunal should the government insists on re-evaluating the Contract of Work. Such threats were made during a dialogue with members of the Central Sulawesi provincial parliament (DPRD) on 13 February 2002. In its 2010 annual report, PT INCO announces on plans to develop the Bahodopi mining site for the extraction of saprolitic nickel ores. Minerals extracted from the Bahodopi Block will be combined with nickel ores from Sorowako to feed into the pyrometallurgy processing facility in Sorowako. Although a number of supporting studies and research on the plant construction have been conducted, such plans have yet to be realized to this day. On 24 March 2009, PT INCO applied for the borrow-to-use land permit to the Morowali district head through Letter No. 139/Bupati_Morowali-2009/III/ND/ SWT, signed by its Director, Senior VP Corporate Affairs and General Counsel, Nurman Djumiril. With the borrow-to-use permit, PT INCO intends to make use of 25,200 ha of forest area. Based on PT INCOs Contract of Work in 1990, land area at the Bahodopi Block covers 32,123 ha in which 4.89 ha lies beyond the mining block. Details on PT INCOs land demand are provided in the following table: No 1. 2. 3. 4. Proposed Land Use Active open pit mines Permanent supporting facilities and infrastructure Temporary supporting facilities and infrastructure Buffer zone Land Coverage Approx. 14,500 ha Approx. 60 ha Approx. 300 ha Approx. 9,800 ha

Source: (Compiled from various sources, 2010), excerpted from Seputar Rakyat 2nd edition, 2010

Table PT INCO land demand at Bahodopi Block

PT INCO investments have turned the company into the largest nickel exporter in Indonesia. PT INCO is now considered to be at the peak of success marked by substantial profit-takings with an impressive production rate despite declining profits in 2007 at roughly 5% (see, Inco Annual Report 2009). On 30
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September 2011, PT INCO managed to record US $319.9 million in total net profits. This amount is 3 percent lower compared to the same period in 2010 at US $328.5 million. Net profits earned by PT INCO amounted to US $81.7 million on the third quarter of 2011 (US $0.008 per share). This denotes a declining profit trend compared to the second quarter in 2011 to the amount of US $126.3 million (US $0.013 per share). Table Profits per 30 September 2011 No 1. 2 3. 4. 5. Description Nickel production/metric ton Income tax expense/US$ million Net working capital/US$ million Profit before income taxes/pounds Net profit/pounds 2009 67,329 66,287 542,274 236,704 170,417

Source: (Compiled from PT INCO press release, 2011)

According to PT INCO, such profit fluctuations are mainly due to low sales volume and low average realization price. Upon further analysis however, there has not been a significant drop in profit except for corrections to less that pronounced declining figures as average corporate losses. To avoid accusations of monopolizing mining production, PT INCO has applied several mining mechanisms, such as the sub-contracting of ongoing projects to other companies. An overview of PT INCOs sub contractors is available in the table below.

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Table PT INCO Sub-contractors No Name of Company 1. CV. Megah Jasa Pratama Type of Work 1. Road construction at SebaSeba block 2. Ore collection (pure nickel mixed with soil) The company supplies workers for PT INCO or through outsourcing 1. Road construction at One Pute Sorowako corridor 2. Road construction at Sorowako Ul ulere corridor Road widening that connects Sorowako and Bungku for project value of Rp 250 billion. Implement research project on the socio-economic impact of PT INCOs plant construction plans.

2. CV. Bumi Tama

3. PT. Duta Graha 4. PT Enviromental Resources Management (PT ERM)

Source: (Compiled from various sources, 2010, excerpted according to the original text from Seputar Rakyat 2nd edition, 2010)

Employing sub-contractors from local companies is normally preferred by large corporations as a mechanism for averting direct confrontation with the local community, particularly when local citizens have mounted protests and mass actions as was the case for PT INCO. PT INCO in Morowali has long had to deal with a barrage of protests and mass actions. c. PT INCO and Citizens Protest at Bahodopi Block: An Insignificant Issue? PT INCO conducted an initial survey of Bahodopi Block in December 1969 precisely at the village of Lalampu (Bahontula) Bahodopi. After a nine-month survey, PT INCO moved to Dampala Village, focusing on the area until 1971 and establishing fly camp posts in forest areas within its research location. In 1973, the company relocated to the village of Bahomotefe, setting up office and barracks on communal land on which the local people have voluntarily grown coconut trees without having to pay rent. PT INCO even established an airfield for light planes on communal land to link the city of Malili and Bahomotefe. By the end of 1976, PT INCO left Bahomotefe, returning all employees and
24 Lian Gogali

equipment back to Malili, Sorowako. This signifies the complete cessation of PT INCO operations. When exiting from Bahodopi Block, PT INCO had never submitted any form of report or made any attempt to inform the government and the public on the limited nature of its mining activities. PT INCO left behind test pits excavated in forest areas where soil samples are drawn at a depth of 20-30 meters, obviously endangering the safety of local communities who rely on the forest for their livelihoods. It was only after the local government through its Forestry Office complained to PT INCO about the exposed pits, did the company then appointed CV Awal Putra, a Sorowako-based contractor, to cover the abandoned test pits. Approaching the year 1980, PT INCO suffered from a recession, laying off thousands of employees and even offering early retirement. At the time, the internal turmoil was only centered at Sorowako and Malili. Since then, mining activities in Central Sulawesi were no longer of interest to others and mining work came to a standstill. In 1980, in line with the five-year national development plan (REPELITA), mining sites abandoned by PT INCO were considered idle land. The Poso district government (at the time still merged with Morowali district) then granted several companies permission to work on these abandoned sites. PT Gunung Huma Group is one of the companies allowed by the government to convert 30,000 hectares of land at Ululere, Bahomoahi, Bahomotefe, Siumbatu, Lalampu and Bahadopi into plantations. Another business enterprise, PT Handy Cahaya Timber took over the management of forest products in PT INCOs former survey sites extending across 125,000 hectares. Apart from granting permits to other companies, the local government also showed support to the national transmigration program where settlers were relocated to Bahomoahi and Bahometefe on 28 July 1984 following a negotiation process with the natives of Bahomotefe. The indigenous community agreed to accept transmigrants into their land. In 1991 1992, some 100 families consisting of 468 people from West Nusa Tenggara, East Java and Bali, including APPDT transmigrants were relocated. In 1993, the government sent over an additional 396 families comprising of 1,639 people from Central Java and West Nusa Tenggara, and another 110 households consisting 445 people were transferred to new settlements known as the Transmigration Settlement Unit. In 1997, the Unit then became a full-fledged village named One Pute Jaya. On 4 April 1989, PT INCO drew up a map of their concession area based on an aerial map over 32,000 hectares of land. Areas included in PT INCOs concession map cover 2 sub-districts, namely Kecamatan Bahodopi at the villages of Bahodopi and Bahomakmur, and Kecamatan Bungku Tengah at the villages of Lalampu, Siumbata, Dampala and Lele. Affected local communities were not
Research Report PT INCO 25

informed of PT INCOs concession area mapping process. In 2004, PT INCO staked out the land area, marking the boundaries of their concession zones. The local people only knew that their farmland, houses, cattle farms, rice fields, school buildings and places of worship were part of PT INCOs concession area in 1993 when the company officially issued a ban on land use. The ban was primarily directed at the people of One Pute Jaya and Bahomotefe, and was followed by boring and drilling (test pits) activities on settlement areas in 1996. On 24 September 1997, at the behest of PT INCO, the head of Kecamatan Bungku Tengah also issued a ban where local villagers in Bahomotefe are to immediately cease all manner of house construction and land division. Figure 1: PT INCO Concession Area According to Contract of Work

Source: Environmental Baseline Study for PT INCO Bahodopi Project

The local people have accused PT INCO of taking over their land, while the company blamed the government for wrongly placing transmigrants in the concession zone. The decision to relocate local communities to other regions was a compromise reached between the government and PT INCO. The villagers refused to move to Saembalawati, a village in Kecamatan Mori Atas considered unsuitable for farming. Moreover, the government could only provide 250 houses from the promised 700 units. PT INCO on the other hand allocated Rp 2.6 billion for relocation plans. A wave of protests was mounted by local residents in villages situated within PT INCOs operating area in fierce resistance against their relocation. Each vil26 Lian Gogali

lage has expressed different sets of demand but they however collectively insisted that PT INCO cease operations at Bahodopi Block, mainly due to the following reasons: Overlapping tenurial rights and living with uncertainty Each transmigrant household relocated to the Transmigrant Settlement Unit (now the villages of One Pute Jaya and Lele, and some families transferred to Bahodopi) is entitled to 2 parcels of land: a five-acre land for house construction and yard, and one-hectare of agricultural land. Nevertheless, the ban against land use imposed by PT INCO and government relocation plans as the solution to overlapping land rights have rendered villagers of One Pute Jaya powerless to peacefully lead their own lives. Since their move to the village, the settlers were unable to fully cultivate their land, and neither could they erect permanent houses for fear of being driven away at any time. Makali, a resident of One Pute Jaya grieved about PT INCOs presence that has not only been neglectful towards the people but also robbed them of their livelihoods which they have long depended on. Just look at transmigrants in other regions in Central Sulawesi. All of them are now successful. The own rice fields, farmlands and houses, and their children can go to school. People like us here live with uncertainty. There is no certainty in life. Just imagine on how we have lived with uncertainty for so many years, said Makali.

Figure 2. Protest sign from the people of One Pute Jaya seen upon entering the village (courtesy:personal)

This uncertainty is compounded with the fact that land certificates have not been handed over to local residents. Although it has become a full-fledged village in 1997, only a handful of its residents are in possession of title deeds. After
Research Report PT INCO 27

different desperate measures were taken in protest of the situation, including mass actions, only 612 certificates were finally issued by the BPN (National Land Agency) office in Morowali out of the expected 1412 deeds for 503 households. However, having the land certificates in their possession still failed to abate public outcry against PT INCOs demands for their relocation, aggravated by the companys failure to settle compensation for agricultural land that settlers were not allowed to cultivate for many years. This overlap in land use is not only evident in transmigrant settlements, but also in nearly every village in Kecamatan Bungku Tengah and Kecamatan Bahodopi where PT INCO had staked out land without the peoples knowledge. At Kecamatan Bungku Tengah for example, PT INCO has marked their territorial claim over the villages of Ululere (plantations and peoples yards) and Bahomotefe (rice fields, coconut plantations), thus also leading to an overlap in land use. This is also the situation for Kecamatan Bahodopi where PT INCOs territorial markers are found at the villages of Lele (rice fields), Siumbatu and Lalampu (coconut plantations), while at the villages of Bahodopi, Bahomakmur and Lalampu the company has even placed boundary markers in several hamlets. The villagers of Bahomotefe, Bahomoahi and One Pute Jaya strongly reacted to the situation by making a joint declaration known as the One Pute Jaya Declaration in 2001 following the LMND/LMD meeting and inter-village dialogue convened on 6 May 2001. The declaration was in protest against all forms of PT INCO activities and rejection of plans to relocate One Pute Jaya residents. It also shows the firm support of Bahomotefe and Bahomoahi residents toward the people of One Pute Jaya in claiming their rights to title deeds, demanding PT INCO to remove all boundary markers and once again asserting that One Pute Jaya is part of customary land designated by the Ministry of Transmigration for use by the transmigrant community. The people insisted that PT INCO remove their land markers as since 1989 there has never been a formal land acquisition process between the people and PT INCO. At the time this research was conducted, disputes over land use not only occurred between PT INCO and the local people, but also between PT INCO and other companies that came in later to the scene particularly around Bahodopi Block, such as Sulawesi Resource and Bintang Delapan Mineral. Entry of these latter companies into PT INCOs concession area was done upon knowledge from the local government and local people who granted their permission after these companies duly paid compensation. Land Compensation: An Appropriation Tactic The overlapping use of land that resulted in the inability to cultivate agricultural land, including rice fields, is further exacerbated by the companys failure
28 Lian Gogali

to award compensation to the local people. Local villagers demanded for three types of compensation: cash compensation over the agreed PT INCOs concession area at the replacement value of Rp 150 million/ha; crop compensation, and compensation of land situated within company concession areas that could not be cultivated for dozens of years. PT INCOs excavation of test pits in communal farmland at Bahomotefe had damaged tree crops, such as cashew nuts and mango, leading to demands for due compensation. Following protests and pressures from the people, the company agreed to pay replacement cost at Rp 25,000 30,000 for each tree crop. PT INCO however later reneged on the agreement, paying a mere Rp 3,000 7,500 per tree. The company even gave a receipt of payment stating the peoples relinquishment of their land rights. Local residents also demanded for land compensation because PT INCOs presence had denied them of the opportunity to improve their living standards for years as they were prohibited from tilling land for almost 15 years.

Figure 3: Citizens protest at Bahodopi Block demanding for land certificates and compensation (courtesy: YTM)

The protracted process in compensation payment not only led to accusations that PT INCO had deceived the public, but had also prompted other companies to stake claims over their land. Sulawesi Resource had set up operations within PT INCOs concession area after paying compensation to local residents at Rp 35 million/ha and Rp 150,000/tree crop. One of the local villagers who asked to
Research Report PT INCO 29

remain anonymous said, We are the landowners and so have the right to give permission to anyone who wish to use our land providing they pay compensation. PT INCO has made our land idle and unproductive, so if Sulawesi Resource intends to start production why shouldnt we let them? Uncertain Production The main reason cited by most villagers for their initial willingness to accept PT INCOs presence was the hope that company operations would open up employment opportunities with the planned establishment of a production plant in Bahodopi Block, and foreseeing a more comfortable life with promises of providing adequate facilities for the village. When nothing materialized at Bahodopi Block, neither mining operations nor plant construction, not only was it considered as a neglectful act for abandoning land that should have been put to productive use by the local people, but also decried as ruthlessly deceptive for making false promises. This also compelled the people to hand over their land for use (with compensation) by other business enterprises viewed to be more fruitful for them as business operations commenced.

Figure 4: Protest banner put up by local residents against PT INCOs business uncertainties (courtesy: personal)

All three reasons mentioned above emerged concomitantly with devastating environmental impacts besetting nearby communities where exploratory pits were left exposed without any reclamation effort. Cavities the size of more than 100 cm x 170 cm at 30-50 meters deep are scattered across Kecamatan Bahodopi. There were fears that the gaping holes would result in fatalities or accidents as experienced by residents of Ganda-ganda in Kecamatan Petasia. In addition,
30 Lian Gogali

failure to provide work for the local people at PT INCO had also incited dissatisfaction towards the companys presence. Not to mention the occurrence of frequent floodings at Kecamatan Bahodopi stemming from mining explorations that denuded forest lands. During the second extension period of PT INCOs Contract of Work in 1996, public protests against PT INCO have at least occurred in three key phases: Demand for Land Ownership Demands for the right to land ownership in the form of certificates for former transmigrants were the first round of public protest at Bahodopi Block mounted against PT INCO. Joined under Aliansi Rakyat Menggugat (Alliance for Peoples Demands), local residents demanded that BPN (National Land Agency) immediately hand over land certificates to the people of One Pute Jaya. This was particularly pressing as the Governor of Central Sulawesi had earlier instructed BPN to abort plans to issue land certificates to the people of One Pute Jaya in 2001. In response to this, on 30 April 2001 more than 100 villagers appeared at the gubernatorial office to state their demands for land certificates and reject being relocated to Saembalawati Mori Atas, a government policy intended to resolve tenurial disputes. After failing to meet the governor, the group turned up at the provincial DRPD (Local House of Representatives) and held a sit-in to fight for their rights. The long and arduous struggle to claim land ownership was only responded to by the local government in 2005 when an integrated team was finally established. Following various public actions launched by local villagers, the Central Sulawesi Governor finally issued a decree for the formation of an integrated team to find a solution to tenurial disputes on the overlapping use of PT INCOs concession area with land occupied by settlers in Bahomotefe, Lele and Bahodopi of Morowali District. Alas, local villagers are not directly represented in the integrated team. The team instead comprises of government representatives from local departments such as mining, transmigration and kecamatan offices with only one village representative. The team is assigned to collect data on the local population dwelling within PT INCOs concession area; measure and demarcate agricultural land at One Pute Jaya; conduct a spatial analysis for the development of PT INCO mining location and restructure human settlements in Bungku Tengah and Bahodopi; and build awareness on the teams work. The formation of the integrated team was even followed by a meeting facilitated by PT INCO in Makassar convened on 8 August 2005, but unfortunately was only attended by provincial, district and kecamatan-level departments, with no village representative in sight. The meeting which should have discussed on overlapping tenurial rights inResearch Report PT INCO 31

stead focused on community development as a strategy to appease mounting public antagonism against PT INCO. The company on the other hand decided to adopt the enclave method to solve tenurial disputes. PT INCOs enclave method allows transmigrants to remain in their settlements that overlap with the companys concession area, but must be prepared to the relocated once PT INCO decides to use the land for mining operations . Demand for Re-evaluation of PT INCOs Presence Failure to provide a viable way out for the settlers has further aggravated the situation with PT INCO. To make matters worse, the provincial and district government have not paid serious attention to the problem. At this juncture, local residents further consolidated to intensify discussions, including with provincial and district members of parliament on their fate and how it is affected by PT INCOs presence. Discussions this time did not only touch on tenurial rights but also on PT INCOs presence that has not brought any benefit to the government and the community. Citizens from 17 villages located within the Bahodopi mining zone met on 6 December 2007 with facilitation from HMPTBB (Himpunan Mahasiswa Peduli Tambang Blok Bahodopi or Students Association for the Bahodopi Mining Block) and laid out their demands on PT INCO. Local citizens subsequently sent a letter demanding that PT INCO inform and explain to the public on company plans for the next 40 years at Bahodopi Block from its first Contract of Work in 1968 to the recently extended agreement commencing April 2008 until its expiry in 2025. Local residents also delivered a letter to the provincial and district government to re-evaluate PT INCOs presence in the area. At the meeting held on 17 January 2008 through facilitation from the provincial government and attended by PT INCO representatives, the public had put forward 11 demands to address company-related issues. Apart from the peoples demand for land certificates that remains unfulfilled, the public also insisted that PT INCO remove its boundary markers in 10 villages and pay yearly land compensation for the imposition of a land-use ban that continued for 15 years. They also questioned PT INCOs community development agenda as part of its corporate obligation. d. Threat to Boycott and Reject PT INCO Disregarding public demands to re-evaluate PT INCOs presence, the entrance of other companies considered to be more capable of managing mining sites at Bahodopi Block, and public pessimism over plant construction plans all of which have shaped public perception that PT INCO is responsible for years of hardship have indubitably inflamed public anger. Since 2008, follow32 Lian Gogali

ing PT INCOs contract extension, resistance over PT INCOs presence at Bahodopi Block further intensified. Resistance initially was not outwardly shown as it was accompanied with demands for PT INCOs immediate operations and plant construction at Bahodopi Block. Demands for the start of company operations intensified in 2009. In a mass action launched by Gelita (Gerakan Rakyat Lingkar Tambang, Movement of Communities Near Mining Zones) in February 2009, hundreds of people blamed PT INCO for causing an unending poverty cycle and starvation in communities living close to its mining sites. Prior to the mass action held in front of the Morowali District Head office, the crowd of protesters set fire to PT INCOs representative office, burning facilities and documents. They also demanded that the company makes real its commitment to construct a nearby plant with the supporting facilities. They insisted that PT INCO draw up the construction plan, mainly in regions within PT INCOs mining zone, and urged for transparency in the management of community development funds, and the renegotiation of its Contract of Work. Should the company refuse to do so, they had threatened to boycott all PT INCO activities. In February 2010, through another mass action, Gelita succeeded in pressing PT INCO at the time represented by Paraulian Marpaung, Bahodopi CoW Project Manager and H. Rahim Said, External and Government Relations Manager, to convene a joint meeting between the local government, PT INCO and affected communities with facilitation from the Morowali district government. Held at the Lele village hall, the meeting was attended by representatives from the Morowali district government, PT INCO management executives and local residents from 11 villagers situated within the Bahodopi Block. During the meeting it was agreed that PT INCO should honor its contract commitments and proceed with the planned construction of a plant and road network connecting Central Sulawesi and South Sulawesi no later than April 2010. Should PT INCO reneged on the foregoing agreement, it must instantly release all rights to the concession area in Bahodopi Block that spans across 36,000 ha. The company must also pay compensation to local communities for losses incurred throughout the time PT INCO was not in operations. It was also agreed that the company would distribute community development funds to 11 affected villages at the Bahodopi Block no later than 20 days after the meeting. By June 2010, the company failed to comply with resolutions reached during the meeting. On 12 June 2010, residents from 11 villages made their way to PT INCOs field office at Lele village. They closed up the office, withheld field equipment and evicted employees still inside the building. The peoples vehement protest and dissatisfaction towards PT INCO was not seriously dealt with, and this further festered feelings of distrust among local citizens.
Research Report PT INCO 33

Figure 5: Closure of PT INCO field office at Lele village (courtesy: YTM)

Following the delivery of a letter to PT INCO demanding that the company withdraw all company assets, in March 2011 the people of Bahomotefe, Dampala, Lele, Bahomoahi and Ululere took matters into their own hands and reclaimed part of the land area in Morowali controlled by the company. On this particular section of land, several company assets still remained from its exploration activities, including mining camps. The local people took over land area located at kilometer nine of Bahodopi Block by tilling and planting annual crops such as guava. They organized themselves into 13 groups each comprising of 30 people, where each member is entitled to two hectares of land.

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Figure 6: Protest banner in rejection of PT INCO hung out at the entrance to Lele village (courtesy: personal)

Local authorities likewise threatened to boycott and drive PT INCO out of Morowali. On a different tone, the provincial and district government also asserted that they will force PT INCO out of Central Sulawesi. Paliudju, the Governor of Central Sulawesi issued an ultimatum to the company to immediately commence operations no later than 1 March 2011. If by March 1st there is still no sign of activity, the government will not take responsibility for any public reaction towards the nickel mining company, stressed Paliudju. The ultimatum was necessary as PT INCOs broken promises had brought about substantial losses to Central Sulawesi. This is largely related to governments inability to proceed with plans to open up investment opportunities in Central Sulawesi because PT INCO had claimed ownership rights over potential mining locations. As a consequence, the local government is deprived of much needed income. For Morowali district government, primarily following its separation from Poso district, locally-generated revenue is mostly derived from investment-related taxes and profit-sharing schemes. Chaerudin, former Secretary of Morowali district government in 2007, admitted that he had personally tried to maintain PT INCOs presence as it had promised to build a plant in 2010, even managing to conduct a survey of prospective locations for a seaport and plant. When by the end of 2010 PT INCO had still not carried out its plans, Chaerudin agreed that the Central Sulawesi Governors ultimatum was indeed a correct response. He said that PT INCOs failure to begin operations had left the region stuck at a disadvantaged position. Investment opportunities at the 32,123.01 ha Bahodopi Block and the 4,512.35 ha Kolonodale Block were closed off to other business enterprises, resulting in no income for the government (Media Alkhairat, 26 February 2011). In December 2011, the Central Sulawesi Governor further condemned PT INCOs lack of response by sending a letter to Jero Wacik, Minister of Energy and Mineral Resources, to drive out PT INCO from Morowali. The reason for this outright denunciation is because even until the end of this year the foreign mining corporation has still failed to commence exploration work at the concession area. In an MP3EI (Indonesia Master Plan for Economic Acceleration and Development) meeting with the Minister of Marine Affairs, Sharif Cicip Sutardjo in Jakarta, Governor Longki interjected when the minister informed on PT INCO and Sinosteels plans to erect shelters at Morowali. Speaking before the minister, Longki Djanggola asserted that neither PT INCO nor Sinosteel had ever taken any action, including the supposed construction of shelters (Mercusuar, 23 December 2011).
Research Report PT INCO 35

Similar displeasure was also shown by the Morowali district government. Anwar Hafid, Morowali district head not only threatened PT INCO that the government would bring the matter to court, but also that it would mobilize a public protest through village heads and local farmers organizations. In response to the ultimatum issued by the Morowali district government, Hamdin, the director of YTM, an organization that facilitates local communities residing in Bahodopi Block, considered the ultimatum to be ill-timed. The government should have first conducted a renegotiation that demands for the inclusion of nearby communities or local governments as shareholders. Public or government participation as shareholders will greatly determine the production-sharing scheme for mining activities. Otherwise, all proceeds from mining projects will be brought out of the country. The amount of tax payments, royalty and community development funds received by regions on the other hand is not proportional to the risks involved with regard to ecological destruction and a worsening poverty situation. Andika, Research and Campaign Manager for Jatam (Jaringan Advokasi Tambang or Mining Advocacy Network) of Central Sulawesi sees the expulsion threat simply as a farce it is because the power to impose such action lies only with the central government, and not the local government. He added however that an attempt to force the company out could indeed materialize due to the likely entrance of other companies. In other words, new entrants would capitalize on PT INCOs perilous position to urge the provincial and district government to expel the mining company. An investigation conducted by several anti-mining activists among others revealed that the Morowali district head is backed by a group of Chinese corporations, one of which is PT PAN China. News later circulated that PT INCO has plans to hand over the ferronickel plant construction project to PT PAN China. The wave of protests and actions mounted by local communities around Bahodopi Block, including by the district and provincial government seems to have fallen on PT INCOs deaf ears. This is evident in its annual report that mentioned on PT INCOs intention to look into fresh opportunities that include plans to apply for business license in compliance with the procedure laid down in Law No. 4 on Minerals and Coal. Despite having succeeded in renewing its Contract of Work on 1996, PT INCO understands that the new law will allow for greater corporate leeway, hence justifying company decision to shelve plant construction plans and ignore the demands made by the district government and the people of Morowali (see, PT INCO annual report 2010). This turn of events has been predicted by many observers who contended that the Minerals and Coal Law will instead restore mining monopoly because legal provisions stipulate that mining production activities should be supported by downstream
36 Lian Gogali

operational facilities, including ferronickel plants. Given the substantial amount of capital injection required for plant construction it would be impossible for local companies to undertake such projects. The introduction of the Minerals and Coal Law instead resulted in the liquidation of business enterprises with small capital, pushing them out of the mining industrys competitive arena. PT INCO was fully aware that the provincial and district government was simply capable of making empty threats. Knowing this, vehement protests from the people therefore did not prompt PT INCO to make good on its production commitments, but the company instead hurled back a retaliatory threat, asserting that it would withdraw from Sulawesi and bring the Morowali district government to the international court of arbitration. One of PT INCOs commissioners, Prof. A.A Amirudin, threatened to leave Palu because he believed that the deposits have little prospective value. PT INCO also responded by handing over the ferronickel plant construction project to PT PAN China. A pull-out strategy that only seeks to avert direct confrontation with the people, making years of public protest an utterly futile effort. PT INCOs corporate social responsibility agenda through its community development programs is another manipulative tactic to render the people powerless. e. Community Development: PT INCOs Decoy As a transnational corporation (TNC), PT INCO is part of the global corporate community categorized under foreign direct investment (FDI). To make real its corporate vision of becoming the leading natural resource company worldwide, PT INCO expressly mentions cooperation with local communities as one of the keys to success. With this in mind, community empowerment programs become an important strategy in bringing the company closer to the people and strengthening its position, as envisaged by PT INCO . In its official website, PT INCO informs that with regard to their community development program, the company envisions growing together with local communities and building self-reliance in order to support corporate operations through the utilization of local resources. Its corporate mission for community development on the other hand seeks to facilitate social transformations by fostering mutually beneficial, reciprocal relationships through technical assistance, information exchange and public discussions on capacity building, and the sustainable application of research outcomes. The companys community development programs are focused on health, education, citizenship, arts and culture and sports. These programs are intended to improve living standards and the well-being of local communities, among others by building sustainable economic foundations to ensure smooth transition following the completion of PT INCOs mining activities.
Research Report PT INCO 37

Community development (hereinafter referred to as CD) programs are introduced to communities living in proximity to mining locations. CD funds however were only channeled to local citizens when company presence at Morowali was being seriously questioned leading to demands for a re-assessment of its mining operations. Before funds were disbursed, PT INCO announced on the list of villages within the mining zone eligible to be included as CD recipients. These villages under the patronage of PT INCO are Lele, Dampala, Lalampu, Simbatu, Keurea, Bahomotefe, Bahomoahi, Kolono, Ululere, Geresa, Keu-rea and One Pute Jaya. There are actually 17 villages within PT INCOs concession area, but according to local citizens only 13 received corporate assistance. The villages of Haroue, Nambo and Lahuafu are expected to be included in the list of CD recipients for the next round of assistance, albeit without a certain commencement date. From information provided by Yus Mangun who was interviewed by Andi Mizwar from YTM (Yayasan Tanah Merdeka, Tanah Merdeka Foundation) of Palu , PT INCOs CD funds are doled out in several installments. In 2001/2002, proposed CD funds were included in APBD (regional budget) to the tune of Rp 5.7 billion at which time PT INCO had not paid a cent. The company however later paid only Rp 2 billion to the local government from the expected amount of Rp 17.5 billion. And even this is divided between the provincial and district government of Morowali. PT INCO came up with the excuse that they were facing financial difficulties. Based on the latest revision to the Contract of Work, PT INCO in fact should have paid CD funds worth Rp 17.5 billion. By early 2011, PT INCOs CD funds channeled through the local government were disbursed in 2 stages: in 2000 and 2009. Company CD funds in 2000 amounted to Rp 3 billion and shared between Central Sulawesi province (Rp 1 billion) and Morowali district (Rp 2 billion). In 2009, disbursed funds reached Rp 3 billion paid directly to the Morowali district government. These funds were then distributed in stages to villages under the patronage of PT INCO. From focus group discussions also attended by village government officials, it was revealed that CD funds were distributed since 2007 except for the village of One Pute Jaya who received in-kind assistance in 2001 in the form of diesel engines. The CD fund distribution mechanism underwent several changes following public protest concerning its effectiveness and transparency. The mechanism also impacts on the degree to which funds are effectively utilized by the people, and influences public perception towards PT INCOs presence within the community.

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Tender Process of CD Funds In 2000, CD funds were initially distributed through a tender process. Funds were previously handed over to the Central Sulawesi provincial government and Morowali district government. At the Morowali district government, CD funds were incorporated into APBD. The district government then opens a tender process for local companies and also village-level business entities. At the initial stage, priority in fund allocation was given to goods procurements and facility construction, such as nursery schools, educational institutions and village halls. According to local citizens, CD funds were not only managed by tender winners but occasionally by PT INCO public relations unit who personally makes the necessary purchases for distribution to villages without any accountability. Andi Syamsu, a prominent community figure who has been extremely vocal of his rejection towards PT INCO, asserted that due to the existing mechanism the actual amount of funds received and utilized for community purposes was only 50 60% of committed funds. Local citizens have previously protested against the fund distribution mechanism in which village government officials are compelled to sign fictitious receipts. According to Andi Syamsu, it is hard for these village bureaucrats to decline from signing the receipts even though they disapprove of the distribution method because the companys public relations unit had threatened village officials that they will no longer receive CD funds for the next round if they refuse to put their signatures . The distribution of CD funds was initially focused on the provision of educational, health and agricultural facilities, including the following: Village One Pute Jaya Bahomotefe Bahomoahi Bahomakmur Geresa Ululere Bahodopi
*Compiled from various sources

Facilities Fertilizer, nursery school, tractor, diesel engine Nursery school, ambulance, local health clinic, engine, tractor, rice huller, village field Fertilizer and pesticide, machine and power cable, tractor Nursery school 6 boat engines, tractor, opening up road net works for production process Nursery school, multipurpose hall, fertilizer, micro-hydro power plant Nursery school, tractor, threshing machine

This distribution mechanism has not only been a disappointment to the pubResearch Report PT INCO 39

lic, but adversely affected the community as it incites hostilities among village residents. At One Pute Jaya for example, the three bags of fertilizer distributed to each household are of inferior quality. Farmers are forced to discard the fertilizer. Several farmers however have no other option but to use the fertilizer and eventually suffer from harvest failure because crops were not bearing fruit. Dieselpowered generators allocated to each village were inadequately supplied. The same generator capacity and model is provided to all villages, regardless of the population size, and citizens must bear the operating cost. At the village of Bahomoahi for example, local inhabitants must pay Rp 25,000 each month to the village committee for the operating cost of diesel generators to keep them running and not left to rust. The development of educational facilities such as nursery schools and puskesmas (community health centers) is fraught with corrupt practices, leading to friction between local citizens and tender winners, and even with village government officials. At One Pute Jaya for example, due to construction delays, there was suspicion that funds worth Rp 250 million for the establishment of a nursery school were misappropriated through price mark-ups. Furthermore, swings that should have been installed at the nursery school were nowhere in sight. The local community blamed the development committee headed by the village chief of misappropriating funds. When questioned about the issue, the village head explained that funds had indeed been earmarked for the swings but were inadequate. There is no clear information on who is responsible for managing the initial funds. In a different case, the village head had bought 6 tractors without informing the public. This has raised suspicion and even resentment among citizens.

Figure 7: Nursery school at One Pute Jaya established with CD funds

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Fund disbursement through the tender process also tends to be unfinished business, leaving behind a host of problems. An example is the construction of a community health center at Bahomotefe village for Rp 2.2 billion. According to Andi Syamsu, with that amount of money the puskesmas should be on par with other similar facilities established in several sub-districts in Sorowako, South Sulawesi. On the contrary, the new puskesmas was not equipped with the necessary medical facilities and equipment, including inadequate medicine supplies. Instead of supplying the health center with much needed medical facilities, PT INCO chose to purchase 34 motorcycles for puskesmas employees. The purchases were made by a motorcycle dealer appointed by the local government office alleged to have close ties with the Morowali district head. The motorbikes were purchased on credit at Palopo. To date, motorcycle ownership papers and other necessary documents remain uncertain, while credit installments are long overdue. Even until the time this study was conducted, there is no public accountability on alleged corrupt practices related to the construction of the community health clinic.

Figure 8 : Community health center established through CD funds

In PT INCOs annual report, CD funds are also allocated for scholarships awarded to underprivileged university students and those who excel academically. Scholarships originally meant for students from Bahodopi were in fact given to those from villages outside of the mining block.

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Village: Direct Distribution Public protest against PT INCOs CD fund distribution mechanism had prompted changes to the system for the second disbursement stage. In 2009, based on agreement among local residents, CD funds amounting to Rp 3 billion for Morowali district were to be distributed equitably whereby each village is entitled to an annual aid of Rp 150 million. Each village then issued their own set of policies regarding CD funds. Bahomoahi for example prefers to distribute cash to some 120 households, each receiving Rp 820,000. According to Mohamad Nasir, the village secretary, the decision to distribute cash was based on mutual agreement among local citizens. In the village of Uelere on the other hand, CD funds are managed by agricultural organizations for the purchase of fertilizer and spraying tanks. Based on information from Burhan, a local resident also an activist strongly in opposition of PT INCO, CD funds allocated for Bahodopi are utilized for the construction of toilets for the local community. It was however an unfinished project due to mass action launched by the people of Bahodopi demanding that they be hired as workers and compensated for land used by PT INCO. - Family Empowerment Program In line with intensified resistance from local communities within Bahodopi Block against PT INCOs presence, among others is manifested in the forced closure of company office at Lele Village, in 2011 CD funds were managed by LEMLIT-UNTAD (Lembaga Penelitian Universitas Tadulako or Tadulako University Research Institute). LEMLIT-UNTAD is an implementing agency under Tadulako University assigned to forge cooperative ties with state bodies, the private sector, and the community in order to optimize research resources to further develop the university and improve the quality of academic services. Tadulako Research Institute has coined the term Posdaya (Pos Pemberdayaan Keluarga or Family Empowerment Program) in reference to the management of community development funds. In a phone interview with Hassan Muhamad , the respondent spoke on how the Posdaya initiative arose from his earlier visit for a field research to the Posdaya Unit under the Bogor Institute of Agriculture (IPB). The research also involved the Central Sulawesi provincial government, PKK (Family Welfare Program) team, and representatives from the kecamatan and kelurahan (villagelevel administrative unit) office. Posdaya was spearheaded by Harsono Suyono, former chairman of BKKBN (National Family Planning Coordination Agency) during Soehartos leadership, and was later developed by IPB. Since 2005, IPB has developed Posdaya into a concept that seeks to ensure community self-reliance starting from the family unit and serves as a medium for the people to work
42 Lian Gogali

towards improving their welfare. As follow-up to the visit, Tadulako University under its KKN (community service) program then developed the Posdaya concept in Central Sulawesi. Tadulako Universitys version of Posdaya covers 6 core programs: education, health, entrepreneurship, the environment, socio-culture and religion, and applied technology. The two latter programs were additional agendas introduced by Tadulako University. The adoption of the Posdaya concept for the distribution of PT INCOs CD funds was initiated when corporate executives from PT INCO contacted and personally met with Hassan Muhammad. According to Hassan Muhammad, during the meeting, PT INCO grieved that CD funds granted to local communities in Bahodopi Block had failed to generate the expected outcome or desired impact. PT INCO had expected such funds to produce positive, tangible impacts. Hassan Muhammad then proposed for the adoption of Posdaya for a more participatory and effective mechanism for CD fund distribution. I told them (PT INCO) that a program will fail firstly because it is managed by parties other than the program target audience, while communities at the program location are merely implementers and beneficiaries. And when external parties are involved, they will surely later leave the village. If you (PT INCO) wish, you can adopt the Posdaya concept that begins with training on participatory planning, recounted Hassan Muhamad. PT INCO eventually accepted the concept and was willing to implement it in villages situated within the Bahodopi mining block. The company had earlier announced that the distribution of CD funds will not affect annual routine funds worth Rp 250 million provided to each village under PT INCOs patronage. LEMLIT-UNTADs decision and willingness to work with PT INCO at the time facing resistance from local communities at Bahodopi Block and even the Central Sulawesi provincial government was made based on academic reasons. This was clarified by Hassan Muhamad: We know that a mining presence would undoubtedly lead to profound environmental impacts. There are several perspectives related to the environment, such as eco-fascism or eco-populism. The Tadulako University Research Institute is deeply concerned over issues related to peoples welfare, and the Posdaya program is one of its manifestations. It is also a social preparedness agenda to help communities deal with environmental impacts. We also provide information on mining-related environmental issues, if the public enquires about them.

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Figure 9 : The name Tadulako University Research Institute is displayed at Posdaya Secretariat

According to the village government, they were not informed of changes made to the CD fund distribution mechanism. LEMLIT-UNTAD had only requested the village government to assign 3 representatives to participate in a facilitator training program in which information will be provided on Posdaya. Without knowledge of training details, the village government agreed to send its representatives. One Pute Jaya and Bahomotefe however rejected the offer to participate in the event upon learning that the training program was associated with PT INCO. LEMLIT-UNTAD responded to the rejection by personally approaching Sunusi, a leading community figure in Bahomotefe known for his support of PT INCO. Sunusi later appointed a villager from outside of Bahomotefe to represent the village. The Bahomotefe village head was not informed of this appointment. In a focus group discussion with researchers, Aprilyanto, the village chief of Bahomotefe, commented, I have decided not to become part of any activity facilitated by PT INCO. If there is a representative acting on behalf of Bahomotefe village, then it is not to my knowledge. The person then is clearly not representing the village. Sunusi who was interviewed by a researcher explained that he had initially appointed a young man with potential from Bahomotefe to participate in the training program but as he disapproves of PT INCOs presence, Sunusi had no other choice but to appoint an external party. This is to ensure that funds already set aside for the village can be disbursed. If we dont have a representative, we will not get any money. During the training program for Posdaya facilitators that also aims to raise public awareness, participants were directly appointed as village and kecamatan facilitators. These facilitators are responsible for facilitating village needs to be
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informed to LEMLIT-UNTAD, such as opening a bank account for fund disbursement purposes. To carry out assigned duties, village facilitators are paid Rp 1.5 million each month, while kecamatan facilitators receive Rp 2 million. Hasan Muhamad explained that the honorarium is part of operating costs incurred throughout the implementation of Posdaya. Participants who have followed through the five-day facilitator training and are better informed about Posdaya are then appointed as village facilitators who shall return to their respective village to explore initiatives. According to Aswad, a training participant assigned as village facilitator for Kolono, participants were asked to return to their respective village and for five days engaged in discussions on potential activities or economic enterprises that can be developed in the village, and facilitated the formation of village-level economic groups based on the type of proposed activity. These groups are then asked to prepare a proposal with assistance from the village facilitator to be submitted to the kecamatan facilitator also appointed by LEMLIT-UNTAD. The Research Institute will examine incoming proposals submitted through the kecamatan facilitator before deciding to disburse funds also channeled through the kecamatan facilitator. Every proposal shall go through a business analysis and field check process to ensure that fund allocation remains consistent with group needs. Submission of proposed activity and budget: Group Village Facilitator Kecamatan Facilitator LEMLIT UNTAD

Fund disbursement: LEMLIT UNTAD Posdaya bank account through village facilitator Group

At present, Posdaya programs have been introduced to help empower different groups in the respective village:

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Village
Tamainusi, Kecamatan Sayojaya Ganda-Ganda, Kecamatan Petasia Geresa, Kecamatan East Bungku Kolono

Posdaya Group
Posdaya Siamaseang: 1. Motorcycle repair shop 2. Sago processing Posdaya Uswatun Hasanah 1. Goat rearing Posdaya Karya Baru 1. Rebana (traditional tambourine) making 2. Banana chips production Posdaya Mekar: 1. Chips production 2. Mattress production 3. Fishing net making 4. Beach seine net making Posdaya Toramengkena 1. Vegetable farming, 3 groups 2. Poultry breeding Posdaya Tepeasa 1. Vegetable farming, Laro Angga 2. Vegetable farming, Baho Sampea 3. Goat rearing

Funds
30,900,000

34,500,000

17,400,000 3,045,000 1,879,000 2,430,000 18,494,898 7,090,000 10,455,000

Ululere, Kecamatan East Bungku Bahomoahi, Kecamatan East Bungku Bahomotefe

2,225,000 2,650,000 11,710,000

Posdaya Mandiri 31,640,000 Plans to set up a motorcycle repair shop, but currently at the stage of purchasing supplies and equipment Posdaya Tepeasa 1. Goat farming group 1 2. Goat farming group 2 3. Fishing Posdaya Polewali 1. Goat farming 2. Chips 3. Fishing 4. Handicraft Posdaya Samaturu 1. Establishment of a children activity center and empower the teachers 2. Establishment of nursery school 3. Coconut oil production 4. Non-staple food shop 5. Goat rearing group 11,700,000 11,075,000 17,075,000 8,600,000 6,334, 000 7,650,000 3,295,000 2,225,000 13,205,000 4,900,000 3,302,500 11,292,000

Lele, Kecamatan Bahodopi

Dampala, Kecamatan Bahodopi

Siumbatu, Kecamatan Bahodopi

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Lalampu, Kecamatan Bahodopi Bahodopi, Kecamatan Bahodopi Keurea, Kecamatan Bahodopi

Posdaya Harapan Jaya 1. Early childhood education (PAUD) 2. Fishing Posdaya Sehati 1. Goat farming 2. Duck farming 3. Fish cage Posdaya Cendana 1. Coconut oil production 2. Food stall 3. Fishing 4. Planting of 1000 mangrove trees

20,725,000 13,925,000 10,000,000 6,000,000 21,000,000 5,890,000 2,195,000 17,075,000 4,000,000 19,800,000 3,000,000

B a h o m a k m u r , Posdaya Sumber Merta Kecamatan Baho- 1. Goat farming group 2 dopi 2. Rehabilitation of Posdaya Secretariat Source: Institute for Research and Communty Service-UNTAD, 2010

In overall there are 41 type of business ventures, mainly productive economic enterprises as well as in the field of education, health, socio-culture and religion, environment and applied technology, involving some 258 members. Disbursed CD funds amount to Rp 488,780,398 from a total of more than Rp 700 million budgeted by PT INCO.

Figure 10 : Self-managed duck farming at the village of Bahodopi.

Hasan is convinced that the Posdaya mechanism can help communities emResearch Report PT INCO 47

power themselves and improve their well-being. In a Posdaya progress report, several successful groups were specifically mentioned. The making of the rebana (traditional tambourine) does not simply suggest a production process, but it is more of an act intended to preserve a traditional culture. Several sets of rebanas are already in production. One set consists of four rebanas that can fetch a price of Rp 3,000,000. This rebana-making group also trains local youths to play the musical instrument every Sunday and Wednesday night. Young individuals are taught how to produce rebana beats as accompaniment music for weddings or qasidah (singing of religious melodies). Vegetable farming carried out by a group in Ululere has even forayed into the phone credit business. In Siumbatu village, a group initially interested in setting up a shop selling agricultural produce has now succeeded in creating a small marketplace. A farming group in Ululere that previously submitted a proposal for vegetable farming, has been successful in establishing a kiosk for selling phone credit. Groups established to obtain CD funds are newly-formed village groups originating from the initiative exploration exercise carried out with village facilitators. Only a few however have been established earlier. An example is the Kolono farmers group headed by Mansur. Originally from a village outside of Kolono, Mansur became a vegetable farmer after borrowing a 30-acre land. Before he was eligible for CD funds, Mansur had Rp 1 million as seed capital. Upon receiving CD funds, group members increased to 4 people working on a larger expanse of farmland and rice fields by investing Rp 2,175,000 in capital. They borrowed ha of land to grow vegetables. Unfortunately, as Mansur later informed, the CD funds were insufficient to purchase fertilizer and water pumps much needed during the dry season. As newly established groups specifically formed to ensure CD fund disbursement, these groups face a different set of problems, particularly for individuals joining the group. Funding requirements to finance both group needs and individual business ventures have made it hard to maintain the groups original structure. Mrs. Nurman who has joined the vegetable farming group in Bahomoahi for example already owns a vegetable farm. In order to be eligible to obtain CD funds, she joined the local group established by the village facilitator. PT INCOs CD funds had been beneficial for expanding her vegetable farm in which she later chose to work alone on her plot of land after splitting proceeds . This is because marketing activities and financial management are handed over to the group often without prior knowledge on why the group was formed and for what purpose. A similar pattern is also evident in the management of the goat farming group in Bahomakmur. Once the group is established, every member has their own goats to rear and must be responsible for managing their own goat farming
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business. Mrs Made, a goat farmer who at the time of the interview was feeding her goats, showed the goat enclosure shared with other group members that are sectioned off according to animal ownership. The goat shed was established independently by the group. PT INCOs CD funds were used for buying 10 goats, and members must manage their own herd of goats, explained Khairuddin, a facilitator from Kecamatan Bahodopi . Through email correspondence with the researcher, Hassan Muhamad said that the core element behind the distribution of CD funds within the Posdaya mechanism is the group itself. Hence, all matters are discussed within the group, including the rules of the game. Administrators must be held accountable for finances to group members. To ensure effective monitoring and evaluation, all group members must be kept informed and the amount of funding disbursed is displayed at the Posdaya Secretariat.

Figure 11 : Posdaya Sumber Merta at the village of Bahomakmur, with its goat farming enterprise

Since the time CD funds were disbursed through the Posdaya-based mechanism, One Pute Jaya was the only village that chose not to utilize the money. After previously refusing to be involved in any activities financed by PT INCO, the village later agreed to establish Posdaya. Bahomotefe on the other hand, whose facilitator comes from a different village, did not establish its group according to Posdaya procedure. The village proposed that funds be utilized to erect a mosque. According to Sunusi, the proposal however was denied by LEMLITUNTAD who preferred local citizens to set up a motorcycle repair shop. The Posdaya program was piloted in the first stage of implementation. Hassan Muhamad said that funds provided to groups are stimulus funds and their usage is subject to evaluation. If in the first phase, the group manages to successfully develop its business, it can proceed to the next stage. Based on experience obtained from the first implementation phase, changing peoples mindset long
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accustomed to receiving aid but now encouraged to empower themselves, according to Muhamad has been extremely difficult and requires hard work. With regard to the subsequent phase, LEMLIT-UNTAD is currently still looking into the matter and has proposed for a five-year implementation period. Local citizens of Bahodopi Block initially had huge expectations on PT INCO, thinking that its presence in the region would open up employment opportunities. This was also the expectation of the Morowali district government given its priority agenda to boost the economy of this relatively new district. Two indicators that serve as research variables are laid out in the OECD Guidelines for Multinational Enterprises under the General Policies chapter. Based on these indicators, companies should: 1). Contribute to economic, social and environmental progress with a view to achieving sustainable development; 2). Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprises activities in domestic and foreign markets, consistent with the need for sound commercial practice. With regards to this, economic development through the availability of job opportunities becomes of utmost importance. Unfortunately, 40 years on since the companys presence in Bahodopi Block has led to a much different situation. In the early years since its arrival at Morowali, local youths were hired as workers in the company. This however was short-lived as the company laid off most of its workers. By the end of 2009, PT INCO had 3,319 employees based in Sorowako, Makassar, Jakarta, and other locations around Sulawesi. The company later laid off 291 employees from a total of 5,610 workers in 2009. Local labor working at PT INCO mining sites were the ones mostly laid off, primarily contract-based workers. These contract-based workers, mainly stationed at test pits situated at Bahodopi Block were disillusioned with corporate promises of providing them with some form of job certainty. They labor through 10 working hours each day to earn a meager wage of Rp. 42,000. For every hour of overtime, they will be compensated with Rp. 5,500 which then allows them to earn a daily average income of Rp. 72,000. Earnings are accumulated and paid on a monthly basis. The amount of salary excludes deductions often imposed by employment agencies (Seputar Rakyat, 2nd edition, 2010). Contract-based workers are mostly untrained, relying only on their hammers and mallets to seek out spots that contain nickel deposits. They are not equipped with safety gear, making them vulnerable to occupational accidents that at times can lead to their untimely deaths. According to a contract-based worker still hired by PT INCO, At the workplace, we can never be ourselves, and never get to enjoy life. It is only after we return to our village, lying on our own beds that we feel comfortable and liberated. The company does not take criticisms well and neither are they concerned over our
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grievances and hardships. They forget that each day we are the ones who make money for them. It is unacceptable for contract-based workers to protest or criticize against PT INCO. The company can arbitrarily lay off workers even for the pettiest reasons. A worker who protested against company-provided meals was instantly removed. For the local women, employment opportunities at PT INCO are only confined to the position of cooks and kitchen helpers. Job opportunities promised and expected were instead far from what is anticipated from the company. Dreams of living a decent life for families and communities remain unfulfilled as local citizens are only hired as manual labor, particularly because they lack the necessary skills to work in a mining company. Thus far, PT INCO has never demonstrated the goodwill to involve the local community in company operations. This is evident from lack of efforts to provide training or courses related to the employment needs of the company. The sole reason for the peoples willingness to accept PT INCO into their immediate environment is the possibility of employment which they desperately need to improve their economic situation.

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IV. Analysis

Corporate Social Responsibility: An Attempt to Conceal a Ruthless Faade enunciations and harsh criticisms toward company operations and their social, economic, cultural and environment impacts have increasingly intensified. Corporations are often blamed for forest destruction and environmental degradation worldwide. In developing countries, natural resources are plundered, while profits brought over to rich countries, leaving local communities with nothing to scrape by. Furthermore, local workers are paid paltry wages, while shareholders, including consumers enjoy prodigious profits and economic advancements. These criticisms are countered by business entities through Corporate Social Responsibility (CSR). CSR is intended to help companies strike a balance between business interests, and that of communities and the environment without the need for greater government intervention. Activists from non-governmental organizations (NGOs) contended that if CSR is not honestly implemented, it will only become an instrument to legitimize corporate practices of multinational companies that cause environmental destruction and social disintegration. They also asserted:Whilst we would prefer to see the text strengthened further, the key test of guidelines is their implementation. If adhering Governments fail to implement the Guidelines vigorously, transparently and effectively and publicly oppose the Guidelines In Indonesia, corporate social responsibility is governed in seven laws and a government regulation: Law No.40/2007 on Corporations, Law No. 23/1997 on Environmental Management, Law No.20/2001 on Corruption, Law No. 19/2003 on State-Owned Enterprises, Law No.13/2003 on Manpower and Law No. 25/2007 on Capital Investment, as well as Ministerial Regulation No. 236/2003 on Partnership Programs. Law No. 40/2007 on Corporations in Chapter V concerning Social and Environmental Responsibility, specifically Article 74 stipulates on the obligation of companies involved in natural resource extraction to fulfill their social and environmental responsibility. Such responsibilities as set forth in the provision refers to company obligation to ensure that they are implemented according to the principles of fairness and reasonableness. Companies that fail to carry out this obligation are liable to sanction according to prevailing laws and regulations.
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Aspects related to corporate social responsibility are as follows: Social: Education, training, health, housing, institutional strengthening (internally, including employee welfare), social welfare, sports, youth affairs, women issues, religion, culture and others. Economic: Entrepreneurship, collective business group/micro, small and medium enterprises, agribusiness, employment opportunities, economic infrastructure, and other productive activities. Environment: greening, land reclamation, environmental management and conservation, ecotourism, environmental sanitation, pollution control, as well as efficient use of production capacity and energy. Based on WALHI research on companies operating in Kalimantan, the incorporation of CSR into legislation as made it binding in nature, thus leading to a shift in CSR status from being a charitable to obligatory act. As a consequence, companies are obligated to address social, economic, cultural, and environmental impacts toward local communities living within their operating areas, and incorporating this into their business operations. In addition, sanctions imposed as a consequence of companys failure to conduct CSR indicate that CSR is funded by other than company investments. This creates the impression that CSR will only be implemented when a company runs into problems with the local community. This perception is not without its valid reason as clearly indicated in the concept developed by Indonesia Business Link (IBL). Dedicated to the promotion of CSR, IBL has conducted a specific study on why CSR is necessary for companies by taking into account corporate profits and losses. According to IBL, CSR implementation will minimize social costs as illustrated in the following matrix:

Direct Business Impact * Reduce threat levels reducing cost to * Protecting company asset Financial Driver * Securing business continuity * Human & intellectual capital: easier to get competent employee (hence reduce cost)
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Indirect Business Impact * Reduce security cost * Additional asset value * Reduce cost of money financial institution good reputation -> higher share price

54

* Appealing to Green Consumer * Higher stock value, due to higher brand value * Reduce cost through corporate governance * Social acceptability particular in remote area Social Driver

* Multiplier effect to the whole region * Sustainable Investment

* Reduce dependency

* Create social buffer around Corporate Citi- * Community underthe operation zenship stand more about * Happy Community * A feel good product * Community part of us; create sense of belonging * Reduce social cost water treatment vs. non application * Operation efficiency : better emission * Financial incentives : climate development (Kyoto Protocol) * Resource conservation * Improve environment condition * Prevent social conflict by promoting ecolabeling * Debt swap for nature Becoming role model clean production Take role in global climate reduction Foster Good Public company operation

Source: IBL 2006

The aforementioned concept illustrates on how CSR as included into clauses set forth in laws and regulations along with the corresponding provisions on sanction, is no longer implemented in an honest and sincere manner. On the contrary, it is an alternative route to reap profits either directly or indirectly from the implementation of CSR. In other words, CSR has become a new corporate strategy in running business operations and in dealing with opposition, criticisms, and protests from local communities, and a strategy to accumulate wealth and profit. This frame of mind is evident in corporate annual reports and information published at official corporate websites, patting themselves on the back for having succeeded
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in improving the lives of people through social and environmental responsibility programs, in addition to the inclusion of various success stories. Nevertheless, such information makes no mention of environmental consequences arising from company operations that have incited the peoples wrath. The awarding of appreciation for corporations considered to have contributed to environmental conservation that in reality have brought about devastating environmental impacts is part of corporate strategy to gain as much benefit possible from CSR programs in order to boost their ratings and stock value in the eyes of the business community. Tamam Acha, a member of parliamentary commission III even stated that: CSR is a moral and ethical concept with universal characteristics and as such, at the practical level it should be translated into concrete programs. CSR among others can be actualized through community development programs. Companies are predisposed to initiate these programs due to inherent traits and perceptions related to philanthropy. Companies in general possess this philanthropic bent that arises from two motives: altruism and self-interest. Altruism unfortunately has yet to be adopted by mainstream corporations. Most corporate decision-makers view corporate philanthropy as part of enlightened self-interest. Self-interest is indeed unavoidable in corporate giving. Motives for corporate philanthropy are often not entirely based on moral obligation, but more on the grounds of charitable purpose, image building, tax facility, security-prosperity or even money laundering. For the business community, Article 74 of the Law on Corporations is regarded as a corporate burden. In light of this, a petition for its judicial review has been filed to the Constitutional Court to reach a compromise with the government in the formulation of the law. CSR as part of corporate obligation that business actors consider as a burden, by other companies is regarded as an effective strategy to quell public resistance. Ironically, the government of Indonesia has taken an imploring stance when it comes to CSR implementation. This is evident in President Susilo Bambang Yudoyonos official address delivered prior to the announcement on fuel price hikes: .....amid this dire situation, I hereby appeal that CSR funds be used to aid those in need, including workers hired by your companies and help ease their burden due to food price escalations. This statement reflects on government perception concerning efforts to improve peoples welfare. First, the government has been neglectful in meeting its responsibility to raise the peoples standard of living as it appears to eliminate government role in ensuring the well-being of citizens. Second, the government seems to hand over this role to companies by facilitating business license applications through legislation in return for their CSR commitments. This fundamentally means that the state has taken on
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a similar role to that played by corporations. Government role in fact can never be equated to that of business entities that in principle are driven by profit. In contrast, if the country were to regulate business enterprises through legislation for the purpose of bringing prosperity for the people not only through the enactment of policies but also their rigorous implementation the state would be carrying out its responsibility of protecting the people, while making sure it does not abandon its duty of improving the peoples welfare. In addition, corporations would refrain from acting at will toward local communities living within the vicinity of their operating zones, in which it has long been the case in this country that corporations are protected by security forces and the law (read: state). Events that unfolded at Bahodopi Block of Morowali in Central Sulawesi with regard to PT INCOs CSR agenda are one of the examples. PT INCO Community Development Agenda: Shedding Responsibilities If CSR implementation seeks to find a balance between impacts that arise from company operations with business interests, then the situation at Bahodopi Block reflects a dishonest practice that deviates from the true purpose of corporate social responsibility. Since signing the Contract of Work in 1968, PT INCO has failed to contribute however small to the economic, social and environmental advancement of Central Sulawesi. PT INCOs presence on the contrary has led to the systematic povertization of communities residing near mining zones. Since the entry into force of Law No. 40/2007 on Corporations, CD funds from PT INCO have all been in vain as they were not intended to promote economic, social and environmental progress in Central Sulawesi. These funds instead are manipulated to become PT INCOs political strategy for negotiating its position with the government and the people. In other words, CSR implementation has been an act of deception as illustrated by OECD. Disaster Cover-Up The type and amount of CD funds channeled to affected communities at Bahodopi Block is not proportional to the economic, social, and environmental losses that local communities must bear for many years since PT INCOs arrival in 1968. The villages of One Pute Jaya, Bahomakmur, Le-Le, and Dampala are only some examples of affected communities who must endure harmful consequences, even before PT INCO started its mining operation. PT INCOs ban on land use has denied local communities, particularly transmigrants from the islands of Java, East Nusa Tenggara, and Bali who have settled in Sulawesi, the opportunity to live out their dreams. They are denied the right to build permanent housing and to work on their own farmland or rice field for
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at least 16 long years. Due to such hardships, several groups of people from the transmigration location at Unit 3 have opted to move to another place or enlist in the relocation program at Saembalawati Mori Atas. From 501 households who relocated to the transmigration settlement now developed into a full-fledged village named One Pute Jaya, only 162 families remained. The majority of transmigrants from Unit 2 prefer to stay on and cultivate land covering 70 75 acres. If we were to build permanent housing, we fear that it will only be torn down once PT INCO arrives. Instead of aluminum roofing, we must make do with a thatched roof. I had once tried to clear some land but was later chased away by PT INCO. We are not allowed to till our land for many years. If we had cultivated the land since long before, we would now be prosperous and have no need for CD funds to improve our lives explained Makali, a resident of One Pute Jaya . A relatively similar situation also took place at the Lele transmigration village. Plots of land previously allocated for settlers could not be utilized because they are located within PT INCOs concession area. Under such circumstances, local citizens can only find work as casual laborers, kitchen helpers, street vendors, or farmhands at neighboring villages. In the village of Bahomakmur, from the initial 477 households, only 3 families have continued to tend to their rice fields, following frequent floodings within the area due to deforestation by the mining company. The inability to cultivate their own land has brought about severe economic implications for local communities. If the ban was not imposed, the people of Lele, Dampala, and Bahomakmur could cultivate on 1 hectare of land for rice fields and an additional 70-75 hectares for farmland. Based on discussions with local citizens, the harvesting of crops from 70-75 ha of land can be done twice in a year, producing 60-70 bags of rice. One-hectare of rice fields on the other hand, would have yielded 100-120 bags of rice yearly. The prohibition to cultivate land was imposed in 1993, lasting almost 18 years (until the end of 2011). If farmers can manage to produce 120 bags in a year, then for 18 years each farmer would have generated 2,160 bags. If the average price of a rice bag is Rp. 300,000, total earnings which each family would have received for 18 years would amount to Rp. 300,000 x 2,160 bags = Rp. 648,000,000 (Six hundred and forty eight million rupiah). This amount of money will undoubtedly be enough to meet their daily needs, construct permanent houses and put their children to school. If a similar calculation is also applied to farmers in One Pute Jaya who planned to turn a one-hectare land into cocoa plantation, it would produce much higher estimates. A cocoa plantation can be harvested after four years. Hence, if they were allowed to cultivate their land, the people of One Pute Jaya would have had 4-5 harvest cycles. If each harvest on the one-hectare land yields 100 kg of cocoa and the price of each kilogram is Rp 17,000, farmers would reap substan58 Lian Gogali

tial profits. If these earnings are added to proceeds from rice fields, it would be more than enough to elevate the economic status of families and even the entire village. These calculations only illustrate the economic potential of transmigrant villages that have suffered from lost production opportunities for 18 years since 1992. More substantial losses are estimated for other villages where PT INCO has had business interests in since 1968, almost 40 years ago. CD funds worth Rp 150 million allocated annually to villages for the development of facilities and the formation of economic groups therefore cannot be considered as part of PT INCOs fulfillment of its social responsibility. Neither is it an attempt to cover losses borne by the local people. PT INCOs provision of CD funds is incomparable to potential earnings that local communities could have generated if PT INCO had not set up operations in the area. PT INCO had also left the local people in the lurch when they were denied employment. The foregoing calculations are excluding environmental impacts most certain to affect communities close to mining sites. By referring to mining-related environmental issues identified by the United Nations Environment Programme (UNEP, 1999), each mining zone will trigger the following after-effects: habitat destruction and biodiversity loss in mining locations; ecosystem/ habitat/ biodiversity change around mining sites; landscape/visual impact/loss of land use; site stabilization and rehabilitation; mine waste and tailings disposal; accidents/ failure of tailings facilities; abandoned equipment; solid waste; household waste; air emissions; dust; climate change; energy consumption; siltation and changes in river flow; effluent discharges and acid drainage; groundwater alteration and contamination; toxic and hazardous wastes and chemical agents; handling of chemical substances, safety and exposure to chemical agents at the workplace; noise; radiation; public safety and health, and human settlement; metals toxicity; cultural heritage and archeological sites; and public health and human settlements near mining sites. These environmental impacts will inevitably affect the people of Bahodopi Block. Adverse effects endured by communities close to the mining operations of PT. Mulia Pacific Resources whose concession area lies adjacent to PT INCOs mining zone, are in fact simply the tip of an impending calamity that will in turn bring about economic implications for the people. Hiding behind the pretext of social responsibility, PT INCOs CD funds are instead akin to the distribution of candies, functioning simply as a sweetener to conceal its harmful social, economic and environmental impacts caused by PT INCO and its mining operations. With full awareness on potential environmental impacts as experienced by other nearby communities, in a focus group discussion held by the village government, several village heads have repeatedly asserted: They are clearly candies offered by PT INCO to persuade us to accept the company. Its very
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clear. PT INCO is only giving out candies. A discussion participant even exclaimed, This region will definitely turn into another Freeport like the one in Papua. Conflict Suppression, Reducing Peoples Resistance Considered simply as sweet treats, CD funds have indeed managed to entice local communities into thinking that they will soon profit from the community development program. It has instead incited friction among local citizens due to social resentment. As admitted by several citizens, only important people in the village were contacted for access to CD funds. Those normally prioritized for such access are village government officials or individuals critical towards the company. Such privileged access to CD funds will unmistakably influence behavior and shape opinion, leading people to accept PT INCO and allow access to natural resources. Ironically, Morowali district government officials are fully aware of this as expressed during a meeting held in Makassar among integrated team members on finding a solution to the dispute over tenurial rights between local communities and PT INCO. During discussions, it was revealed that for local bureaucrats the distribution of CD funds is intended to build closer ties between the people and PT INCO. CD funds can even serve as an instrument to suppress tension in society. As mentioned by the head of the Central Sulawesi provincial mining office, I believe that there will be no turmoil if the people can genuinely benefit from company operations through the CD program. The implementation of CD programs should therefore concentrate on villages near exploration areas. Instead of being critical against PT INCO and impacts arising from its operations, the Morowali district government has supported efforts to suppress conflict involving the local communities. The One Pute Jaya village government for example, previously known for being censorious of PT INCO has now begun to show signs of relenting following the steady stream of CD funds channeled to villages under the direct management of the village government. If it had previously rejected any activity associated with PT INCO, upon being contacted personally by the companys public relations unit moments before this interview, the local government is now willing to consider establishing Posdaya. As a consequence, different stances emerged, with the people fiercely against PT INCO, in contrast to the local government beginning to yield. The establishment of the Posdaya group at the village level also contributed to friction within the local population as not everyone was involved
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in the program. As Posdaya was meant primarily for the poor, this has led to dissatisfaction from the rest of the population. They argued that because everyone must live with the adverse effects arising from company operations, then why must assistance be provided only to certain people? Not surprisingly, those given access to CD funds will willingly commend PT INCO as the provider of beneficial funds, and the reverse for citizens denied of such privilege. This polarization of society is part of PT INCOs strategy to gain the support of the government and a portion of the community without genuinely seeking to fulfill its social responsibility. In every village, through its CD funds, PT INCO is therefore sowing the seeds for strategic alliances. The involvement of LEMLIT-UNTAD is also a crucial part of efforts to quell peoples resistance. The research institutes involvement amid intensified resistance from the people reflects PT INCOs strategy to solicit the services of more formal entities in order to gain legitimacy from the public. LEMLIT-UNTAD as the arm of PT INCO in meeting its social responsibility is in fact a cowardly approach. As an educational institution, LEMLIT-UNTAD provides legitimacy with regard to community service and building trust towards CD fund distribution mechanisms. The research institute is in charge of implementing the Posdaya project, while PT INCO will not only gain legitimacy of its CD funds in company reports but also generate the added value of having worked with a reputable university in Central Sulawesi. This also reflects a subtler corporate strategy of gaining public sympathy from affected communities to counter opposition against its mining presence. Diverting attention from real issues The provision of CD funds as part of corporate obligation functions as an instrument to divert attention from issues on social, economic, cultural, and environmental impacts brought forth by company operations. It manages to shift the attention of affected communities and the local government. Criticisms against social, economic, cultural, and environmental impacts are effectively diverted as local residents are either preoccupied with implementing CD programs or squabbling over the amount of funds received and who should be the eligible recipients, ultimately escalating into social tension due to resentment among local citizens. This is evident in every mass action where issues on CD funds have consistently become a contentious debate. As a consequence, this leads to the perception that the peoples rejection of PT INCO is due to dissatisfaction over the distribution
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and management of CD funds. This attempt at shifting attention from real issues is even more evident among provincial and district government officials. It is reflected in discussions among integrated team members on resolving disputes over tenurial rights with PT INCO. In the minutes of meeting, it is clearly evident that prior to the start of discussions, an agreement has been reached on the issue at hand by adopting the enclave concept. Discussions that should have questioned the enclave concept to ensure solutions more favorable towards affected communities were instead engrossed in issues related CD funds distribution. Apart from the provincial and district government, Morowali district government officials attending the discussion also argued over CD fund allocation, questioning on whom should best manage the funds. Should it be the local mining office as the lead agency or the local government itself? Bureaucrats have undoubtedly overlooked the main issue of serving the purpose for establishing the integrated team, and instead have shown their loyalty towards the company. The head of BPN regional office for example stated: BPN is concerned over issues related to PT INCO as indicated in the withholding of 3,728 land certificates for 1,246 households. If possible we need to get hold of a map that can show PT INCOs territorial claim because normally surveys should also involve BPN. The introduction of CD programs has also diverted public attention away from environmental issues such as forest destruction, water pollution, waste and massive flooding that occur each year and appear to have worsened overtime. Environmental impacts are simply seen as an ecological issue. Land compensation is mainly the cause of concern later resolved through CD programs. The distribution of CD funds has clearly benefited PT INCO, particularly for diverting issues related to social, economic, cultural, and environmental impacts, losses suffered by citizens as well as the obligation to improve the economic growth of Central Sulawesi, mainly in areas where PT INCO has set up operations. At the surface, CD funds merely function as a pacifier to cover up major issues confronting local communities and conceal the reality of failure to promote economic growth and advancement. Additional burden for the sake of boosting corporate image The implementation method and types of community development programs have created an additional burden for the local people. The provision of diesel engines for villages at Bahodopi Block at a glance appears to have been effective in meeting the peoples need for power supply. However, such programs were not consulted with local residents and as a consequence have imposed a financial burden on local citizens. In order to operate the diesel engines local residents must pay for the monthly operating cost from their own pockets. Simi62 Lian Gogali

larly, the establishment of business groups that aims to ensure the disbursement of CD funds has instead created a different set of problems for the local people as they are not provided with the necessary assistance and training according to their line of businesses. The formation of groups in Bahomotefe for setting up motorcycle repair shops was not accompanied with skills, management, and marketing training. Hence, information provided by PT INCO in its annual report with details on the project even before its actual implementation is indeed simply lip service because in reality the people are the ones to bear the burden only for the sake of corporate success, image, and reputation. PT INCO CD Funds: Small Change for the Land of Thousand Mines In 2010, PT INCOs net income registered at US $437.4 million. This is a 157% upsurge compared to US $174.4 million in 2009. Based on the companys latest Contract of Work, the provincial and district government shall be entitled to CD funds worth Rp 17.5 billion. In practice however, PT INCO has provided the funds through installments which only amounted to Rp. 3 billion to be shared with the provincial and local government. This has undoubtedly brought about protests and criticisms from the local and district government. These criticisms however, were only confined to the issue on CD fund disbursement delays. Simply comparing the amount of PT INCOs CD funds with corporate profits will never sufficiently capture injustices endured by the communities living close to mining locations. Not to mention losses due to environmental destruction, socio-cultural degradation and structural povertization that the people of Bahodopi Block must deal with. Even before a large-scale operation is underway, local communities have already suffered from tremendous losses, particularly if the company chooses to fully utilize the 36,000 ha land. CD funds worth Rp 17.5 billion therefore are merely small change that is surely unacceptable. Mining contractors must meet 12 different obligations: fixed fees (calculated per hectare), royalty (per unit weight or cubication of product), additional royalty when mining products are exported without further processing, corporate taxes, personal taxes, purchase taxes, stamp duty, import duty, land and building taxes, regional levies where related legislation is approved by the central government, levies on public facilities and motor vehicle taxes. In the Law on Explanations to APBD Revision for Budget Year 2008 of the Morowali District Government, primarily in the mining sector, revenue earned from granting mining licenses for general exploration are calculated as follows: 300,000 ha x Rp. 500 X 20 % X 30,000,000 u 1 year @181,767,005, exploration permit for 200,000 ha x Rp. 2,000 x 20 % 1 year @80,000,000 and exploration
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license for 100,000 ha x Rp. 8,000 x 20% 1 year @160,000,000 . If these figures include PT INCOs monetary contributions, they would reflect the companys (and other mining corporations) negligible contribution for the management of natural resources in Morowali, when in fact it has caused widespread implications. Unprecedented forest destruction and floodings are only an insignificant part of the overall tangible impacts suffered by local communities that the local government must immediately deal with. Furthermore, the situation is exacerbated by the fact that PT INCO has been present in the district for the past 40 years. Ironically, when questioned on PT INCOs income contribution since the establishment of the district, Jalil, former head of Morowali district mining office mentioned that only Rp. 2 billion worth of CD funds have been incorporated into APBD . There must also be a paradigm shift within the provincial and local government concerning CD funds that should no longer be intended to silence affected communities as mentioned by the head of BPN regional office and neither should it prompt the government to shrug off its obligations to improve peoples welfare. CD funds must indeed be provided as part of corporate obligation, comparable to a loan that must be paid in return for profits earned and losses incurred. Nevertheless, the amount of CD funds must be accurately estimated based on current and future economic, socio-cultural and environmental losses which the people must deal with. Failure to do so would once again mean that CD funds are merely worthless small change compared to the profits earned by the company. Pressures from the Morowali district government demanding that PT INCO immediately commence operations in Bahodopi Block should have been accompanied with careful thought on balancing benefits and yields which the people and government will enjoy. CD funds should not become a convenient instrument for shifting state responsibility to create a prosperous society. This obligation still lies with the Morowali district government. PT INCO has indeed caused tremendous losses to the State, but government responsibility to guarantee that the people of Indonesia are kept out of harms way and can lead a decent life cannot simply be eliminated or ignored. Ensuring that the people prosper and do not suffer losses arising from PT INCO mining operations is the duty and responsibility of the state, and can never be replaced by corporations, not even through CD funds that are clearly insignificant in value. Moreover, CD funds are incapable of genuinely reconciling business interests with the resultant losses and impacts endured by local communities, but instead are merely small change to be doled out as bait to ensure the smooth running of company operations. *********
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The foregoing section illustrates on how the implementation of community development programs in order to reach a compromise between business interests and the resultant impact on local communities has become a convenient way out for PT INCO to strengthen its position before the business community, particularly when the company has squeezed all profits and benefits from its community development programs. In its annual report, PT INCO proudly informs that they have effectively carried out their corporate social responsibility and even succeeded in earning the Aditama Award from the Ministry of Energy and Mineral Resources in September 2010 for being among the best mining company in environmental management and compliance. The company then collected a blue rating from the State Ministry of Forestry for its environmental compliance assessment program. The proverb menarik benang dalam tepung (literally pulling the thread in the bowl of flour) best describes the companys political strategy in introducing its own community development programs. This saying implies that PT INCO has devised the tactical approach of accumulating profits for its investment plans, that somehow reflects the insincere implementation of corporate social responsibility programs. The proverb was expressed by the village head of Bahomotefe, Aprilyanto, during a focus group discussion. It also suggests that the company has gained prodigious profits concealed from public scrutiny while local communities suffer crippling losses and adverse impacts. With regard to this, PT INCOs contribution towards advancing the local economy, strengthening the social and cultural sector, and protecting the environment at Bahodopi Block must be oriented towards community engagement in the management of natural resources.

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V. Conclusion and Recommendation

his research found that community development programs initiated by PT INCO have failed to promote economic, social and environmental advancements in Central Sulawesi in general and Morowali district in particular. On the other hand, PT INCO relies on these programs to bring benefits for the smooth operations of the company, mainly by covering up economic and social impacts affecting local communities; reducing community resistance and using such programs to divert attention from environmental, social and economic impacts. Ironically, the local government had even made use of community development programs as a convenient path that leads to prosperity. As a consequence, state responsibility to improve peoples welfare is handed over to corporations. Making available educational and health facilities, such as nursery and primary schools and community health centers should be the obligation of the government and part of long-term development planning. In the end, the company succeeds in striking an alliance with the state through the local government. This state-corporation alliance imposes an already heavy burden on the people causing structural povertization where the company is protected by the state either through security forces or legislation. Threats from the local and provincial government to expel PT INCO as part of a strategy to collaborate with other companies providing they (corporations) allocate the necessary funds (albeit small change) only prove on the need for the people themselves to fight for their own rights in order to protect themselves and improve their lives. The evaluation and renegotiation of Contract of Work is therefore of utmost urgency. Evaluation If community development programs fail to achieve the objective of pushing for economic, social, and environmental progress, and neither can they lead to the betterment of the people in Central Sulawesi, specifically in Morowali district, a comprehensive evaluation of PT INCOs Contract of Work therefore becomes an imperative. If the initial purpose of granting the mining license is based on the noble ambition of improving the welfare of communities living near

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areas where natural resources are being exploited, a thorough evaluation of PT INCOs Contract of Work should be seriously taken into consideration: Meticulous planning of waste management to minimize environmental destruction. Accurately estimate locally-generated revenue against the risk of ecological destruction as well as social and cultural impacts arising from mining activities. An accurate and honest calculation without any form of manipulation shall help local and provincial government understand about corporate profits in contrast to corporate obligations and taking into account disaster impacts due to environmental degradation and social and cultural disintegration. Long-term community development planning in villages situated within mining concession areas in order to prepare them for social, economic, cultural and environmental impact associated with mining activities. Evaluation becomes a crucial part of community development program implementation in order to ensure balance between business interests, public safety and environmental conservation as intended in the OECD document. Renegotiation Evaluation must be followed up by the renegotiation of PT INCOs Contract of Work. Affected communities living within the vicinity of the mining zone as well as the local and provincial government must demand that the central government renegotiate the companys Contract of Work. The renegotiation process should ensure that affected communities or the government are included as shareholders. Only by making them shareholders can the people and/or government become a deciding factor in the division of mining yields. Contract renegotiations of this manner will significantly contribute to the improvement of peoples welfare and stimulate equitable economic growth. The renegotiation process will likely create fierce resistance because the renewed Contract of Work contains clauses that stipulate on dispute settlement between the government of Indonesia and PT INCO which should go through the international arbitration mechanism in compliance with the United Nations Commission on International Trade Law (UNCITRAL). If however the local government is genuinely willing to fight for the peoples interests and work with the people, while urging the central government (and that the central government adopts a paradigm in favor of the people with regard to national resource management) to act accordingly, the well-being of the people will therefore be guaranteed, not through PT INCOs insignificant amount of CD funds but from the fair and just management of natural resources. Only under such circumtanc68 Lian Gogali

es will the people hold the rights to natural resource management.

Notes
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

14.

15. 16. 17.

18. 19.

See: Poelinggomang, Edward L., pg. 28-29 INCO Annual Report, 2010. Document of meeting outcomes held at Quality Hotel, Makasar PT INCO Annual Report, 2010 Seputar Rakyat 1st edition, Year II, 2003. Interview on 9 November 2011, at the village of Kolono. Phone interview on 27 January 2012 In a focus group discussion held in One Pute Jaya on 10 November 2012. Interview on 11 November 2012 Interview on 9 November 2012 Interview with a PT INCO employee, also a local resident of Bahometefe, 2010 NGO statement on OECD Multinational Enterprise Guidelines. http://globalpolicy.igc.org/ reform/business/2005/0101bizstrategy.pdf . Indonesia Business Link (IBL), Corporate Citizenship: Corporate Social/Environment Responsibility. Paper presented at the annual meeting of Ford Foundation grantees at Ciawi, 29 31 March 2004, excerpted from the book Mempertanyakan Tanggung Jawab Sosial Perusahaan Walhi, 2008. B. Tamam Acha, Konteks Sosiologis Perkembangan Corporate Social Responsibility (CSR) dan Implementasinya di Indonesia. Paper presented at the National Seminar: A Promise of Gold Rating: Sustainable CSR, 23 August 2006, excerpted from the book Mempertanyakan Tanggung Jawab Sosial Perusahaan Walhi, 2008. Interview on 7 November 2012 Source: Balkau F. and Parsons A., 1999 In Kolonedale, the location for PT MPR nickel ore exploitation, some 200 local citizens comprising of children, women and housewives suffered from skin diseases that cause itching. In addition to skin ailments, the local people also no longer have access to clean water. During the wet season, piped-in water is contaminated with lateritic soil. When the dry season arrives, dust particles from extraction activities at the mountain top are blown by on-shore winds swirling into nearby houses. Communities that reside merely 100 meters from the mining location must cover their water tanks tightly from floating dust particles that have made the roof of their homes turn yellow. Furthermore, since 2011, the fishing community of Bahoue could only manage to bring in much less fishing yields, particularly since PT MPR disposes its tailings out to the Tolo Kolonedale Bay. Local communities would normally engage in fishing activities, earning fairly considerable income. In a day they can bring in Rp 90,000 in earnings, or a monthly income of Rp 2,900,000. Their fishing zone has now shrunk considerably due to mining activities. They are denied of their main livelihoods due to irresponsible waste disposal and frequent passage of barges, while their settlements and farmlands have been excavated extensively by PT MPR nickel extraction activities. Based on Andikas observation presented in the draft position paper onProduksi Ruang Ekstraktif di Morowali, n.d. Minutes of meeting for the integrated team on the resolution of tenurial disputes in PT INCO concession area and transmigration land in Bungku Tengah of Morowali Central Sulawesi at Quality Hotel, Makassar, 8 August 2005. Idem
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20. Regulation on Explanation to Changes in APBD for Budget Year 2008 of Morowali District Government 21. Interview on 7 November 2011

References

Andika, Produksi Ruang Ekstraktif di Morowali, Kertas Posisi II, Yayasan Tanah Merdeka, 2012 Balkau F. and Parsons A. , Emerging Environmental Issues For Mining In The Pecc Region;United Nations Environment Programme, 1999 Dinas Kehutanan, Subdin Rehabilitasi Hutan dari hasil inventarisir lahan dan analisis GIS, 2007 INCO, Annual Report, 2010 INCO, Environmental Baseline Study for PT Inco Bahodopi Project, Jakarta, 2007 Kasim, Ikbal. Draft Laporan Hasil Investigasi Tambang, Hutan dan Perkebunan di Kabupaten Morowali, PBHR, 2008 Poelinggomang, Edward L, Kerajaan Mori : Sejarah dari Sulawesi Tengah, Komunitas Bambu, 2008 Seputar Rakyat, 1st Edition, Year II, 2003. Seputar Rakyat, 2nd Edition, 2011 WALHI, Mempertanyakan Tanggung jawab Sosial Perusahaan, Jakarta, 2008

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About the author

Lian Gogali obtained master degree from Sanata Dharma University Yogyakarta in 2006. She has been working with various not for profit organisations such as Dian/Interfidei and Poso Center. Her area of interest includes human rights, feminism, anti violance and women in development.

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