Indonesian Politician Caught on Tape Shaking Down Freeport Mine

Indonesia’s political power structure may be set for an earthquake amid revelations that Setya Novanto, the Speaker of the House of Representatives, was caught on tape allegedly seeking to extort shares from the US-based mining giant Freeport McMoRan.

Sudirman Said, the Energy and Resources Minister, who is widely regarded as incorruptible, has launched charges against Setya in the House Ethics Council, alleging the lawmaker invoked the names of Indonesia’s President Joko Widodo and Vice President Jusuf Kalla without their knowledge to demand 20 percent of Freeport shares expected to go on the market as the company begins a forced divestment. The president is said to be outraged at Setya’s purported attempt to use his name during a meeting with Freeport.

Other powerful names being dragged into the allegations include coordinating security minister Luhut Panjaitan, who earlier in the year had a hand in negotiations with Freeport when he was the president's Chief of Staff but who has since been pushed out of the Freeport matter by Sudirman. In addition, power broker and shadowy businessman Muhammad Reza, a major figure in the oil trading business, was reportedly in the Freeport meeting and his name was raised by Sudirman in the ethics complaint. Luhut's name was raised by Setya during the meeting, according to a transcript leaked to the media.

The affair seems to expose deep rifts in the cabinet and is being taken by some as a sign of the president consolidating his power over traditional elites. Sudirman is felt to be among the most reform-minded officials in government. It is almost unheard for an Indonesian government official to raise such corruption charges publicly especially against a well-wired politician.

On Tuesday, Setya admitted meeting with Freeport executives but denied soliciting a bribe. He said he was acting on behalf of the president "for the good of the people."

According to sources in Jakarta, elements of the political establishment are angry with Jokowi, as the president is known, for personally negotiating a promise to renew the contract to allow Freeport to continue its operations in Papua past 2021.

The company operates the world’s biggest copper mine and second biggest gold mine in Papua and is poised to invest an additional $18 billion if it receives a contract extension until 2041. The deal promised Freeport in a recent letter seemingly cuts political operatives like Setya and others out of the chance to extort large amounts of money from the company or possibly grab a controlling interest in the mining asset. Only Jokowi, energy minister Sudirman and Freeport representatives were said to be in the room to negotiate the promised renewal.

For years, nationalist slogans have been deployed to paint Freeport, the country’s largest taxpayer, as a renegade company out to harm Indonesia.

Already out there

The ethically challenged Setya from the old-line Golkar Party was recently the focus of public criticism after meeting US presidential hopeful Donald Trump in New York in September. At the end of a speech, Trump briefly introduced Setya, asking him what Indonesians thought of him: “Do they like me in Indonesia?” Trump asked. The answer from Setya: “Yes, very much.”

Setya made his name as a successful businessman long before he started his career as lawmaker although not without controversy. In 1999, he was implicated in a scandal involving Bank Bali, which centered on the transfer of Rp546 billion from that bank to PT Era Giat Prima (EGP), a company he controlled, but a court quickly acquitted him of graft charges.

More recently, Setya has been implicated in a number of graft cases handled by the Corruption Eradication Commission (KPK), but his status in those cases has remained as a witness, although court testimonies have confirmed his roles in those cases.

In the latest flap, which grabbed headlines on Tuesday when a transcript of a recording documenting the alleged shakedown found its way into print, the legislator seemingly “requested 11 to 9 percent, saying he would give [11 percent] to the president and 9 percent to the vice president,” Sudirman charged. The bribe attempt reportedly took place over the course of three meetings between the legislator and Freeport executives in June.

Shakeup coming?

Other top politicians may also be dragged into the mess, a source said. That reportedly has triggered major behind-the-scenes movement in Indonesia’s political establishment as it seeks to cope with a new way of doing business. “This is a different day and these guys just don’t get it,” said a long-time foreign resident of Jakarta. “They can’t get away with this stuff anymore.”

Junimart Girsang, a deputy chairman of the House ethics council, confirmed that Sudirman filed the complaint, including submitting wiretapped phone conversations that purportedly quoted an unnamed lawmaker. Although neither the minister nor the House would reveal the identity of the legislator, the transcript was leaked to local media, which reported that it was Setya.

“We received concrete evidence in the form of a recorded conversation for us to examine,” Junimart told reporters. He added that Sudirman had said, “There are several people in the conversation including a very prominent Indonesian businessman.”

Widespread media reports quoted the taped conversation showing how the unnamed legislator approached Freeport officials on the pretext of representing the president and vice president.

Under government regulations pushed through in 2014 on mineral and coal-mining business activity, Freeport must divest 10.64 percent of its shares to the government to continue operating. After accepting the offer, the government has 90 days to negotiate with Freeport.

IPO for Freeport

Freeport Indonesia is expected to be allowed to conduct an initial public offering to comply with the mandatory divestment regulation imposed by the government. The company's spokesperson Riza Pratama said divesting shares through an IPO would be more transparent and accountable than handing over company stakes to insiders.

The Papua operation, chiefly the Grasberg Mine, is currently 90.64 percent owned by Freeport McMoRan of Phoenix, Arizona and 9.36 percent by the Indonesian government. To meet the government’s requirement, the company must eventually offer another 20.64 percent of its shares to Indonesian shareholders.

The mining company’s export permit expired in July. The permit is necessary for the company to continue shipping its partly processed copper concentrate despite the government’s implementation of a ban on raw mineral exports in January 2014. Due to a loosening of the export ban, export permits for raw minerals are now possible as long as the company in question shows a commitment to building a local smelter developments and pays an export tax.

The company currently produces approximately 2.5 million tons of copper concentrate per year.

Freeport Indonesia is currently under the spotlight following its attempt to seek certainty over its operation after the termination of its contract in 2021. Critics say the company cannot ask for an extension until 2019; Freeport argues that under its current contract an extension can be granted any time before expiry. Critics say the company has made little progress on smelter development.

The whole thing is a tangle of propaganda, conflicting interests and a history that dates back to the Suharto era. Environmentalists say the mine has ruined a once pristine landscape. The lucrative mine has long been seen as a potential takeover target by Indonesian businessmen whose reach likely exceeds their technical grasp of the industry.

The contract extension also has been backed by the US government and is widely seen as a litmus test of contract sanctity by foreign investors. The $18 billion potential investment to take Grasberg underground would be one of the largest foreign investments in Indonesia if it happens.

Indonesia’s coordinating Maritime Affairs Minister Rizal Ramli, who has some degree of oversight over mining, has said that Indonesia’s abundant mineral resources should not be controlled by foreigners. The argument resonates widely.

Despite the government’s binding promise to renew the company’s contract, Rizal has kept up a drumbeat of criticism, saying the deal is wrong. “People in Papua are very poor because Freeport pays only 1 percent in royalties for the gold it exploits. Across the world, gold royalties are around 6-7 percent,” Rizal Ramli has said.