event Published at: 2018-01-02

The agreement –or in Freeport’s words: “an understanding on a framework”, between the Government of Indonesia (GoI) and Freeport-McMoRan Inc. (FCX) to extend PT Freeport Indonesia’s (PTFI) operation, possibly, until 2041 has left an important issue untouched. PT Freeport’s workers who seem to be still in the middle of industrial relations dispute is a case in point.

The agreement itself provided a relief to both parties after a long and protracted negotiation. Fundamental terms as prerequisites for the company to resume its operations after 2021 include converting the contract of work (CoW) into Special Mining License (IUPK), build a smelter within the next five years, and divest 51% of the company shares to national entities.

The outcome of the negotiation shows that the industrial relations dispute –recently turned into violence at around the Mozes Kilangin Airport in Timika, is not a worthy-to-address side-effect of the contractual disagreement.

Looking back, the quarrel between GoI and PTFI arose when the government revised its mining rules early this year that require, among other, mining companies to convert their license to Special Mining License (IUPK). As part of the enforcement, the GoI ceased Freeport’s permit to export its copper concentrates on January 12.

On the other hand, PTFI threatened to cut its production and slash local workforce if they did not have the necessary export permit. This was no bluff because in February, Freeport let go as much as 2,000 employee in a company efficiency program. It should be noted that Freeport offered early retirement packages and furloughs.

 In March 2017, a member of House of Representatives floated the idea to give domestic mining companies such as PT Aneka Tambang, the opportunity to manage the world’s biggest gold and second-largest copper mine in Grasberg. Although meaningful response from the general public was nowhere to be found, the proposition can certainly be seen as part of the tug war between the GoI and the mining giant.

Regardless of the early retirement packages and furloughs, PTFI’s workers seem to discontent with the company efficiency program. This is proven by the workers’ strike in May in which they protested the laid off of around 10 percent of the company’s workforce. News outlets reported the strike that involved around 6,000 people was prolonged after it was originally scheduled for a month. The company did not response to this strike lightly as they laid off a further 4,000 employees after the workers union and the company failed to find a resolution.

The GoI responded this matter with a swift warning to PTFI to follow the guideline and laws on industrial relations in Indonesia. Additionally, albeit through an inconventional channel: National Commission on Human Rights, the government launched another offense by claiming that the company has violated the rights of indigenous people during its 50year operation in Papua. At the height of the conflict, Freeport threatened to bring the matter to an arbitration processes.

It is notable that PTFI workers realized that their predicament was –at least partially, caused by the disagreements about the future of their employer contractual arrangements with the GoI. Jakarta Post reported that a group of people claiming to be PTFI’s employees travelled from Papua to the capital city and urged GoI to immediately resolve its dispute with the company. Similar plea was also made in March by the All Indonesia Labor Union’s (SPSI) local unit for PTFI which represents around 12,000 PTFI workers.

The worsened industrial relations issue was then aggravated by the lack of insufficient attention from both the government and the company. As a result, we witnessed the unrest escalated in August as a mob of striking employees invaded a security post at Check Point 28.

Despite the clear linkages between the workers’ strike and the contractual dispute between GoI and PTFI, no one tried to attach this problem as an additional agenda in the negotiation between GoI and PTFI. Therefore, the recently concluded negotiation failed to address a serious side-effect that it has created along the negotiation processes.

It has long been noted that extractive industries, including mining is a high technology and capital intensive sector whereby only companies with certain capacity can take part. As a consequence, there is a high return of investment to make if a company succeed in the business.

Furthermore, it attracts high quality workforce who find that the industry could provide an above average remuneration compared to other sectors in the economy. Hence, the industry has an important position in the employment market.

For a foreign company, PTFI understood very well their power over their employee and the workforce’s indispensability as an asset to the company. Not only as an asset in a sense that they are making the company work on a day-to-day basis but also as an asset that can “be used” in a different way when difficult times come.

For this reason, it may be wise for the government to place the crisis between PTFI and its workers beyond the traditional industrial relations dispute. Moreover, it is hard to argue that this crisis is not inextricably linked to the contractual dispute between GoI and PTFI.

A discourse that was played out by the government throughout the contract negotiation with Freeport is the need to increase national benefit from the natural resource extraction processes in Papua. This is a sentiment that was used quite extensively. Nonetheless, the fate of the Indonesian workers in PTFI seems to still far from certain even after the principal terms in the negotiation has been concluded in mid September 2017.

Perhaps after the exhausting negotiation, GoI and more importantly PTFI will have more time and energy to settle the industrial problem in the company. All the more, the details of the principal agreement is still need to be carved out by both parties. But this may only be possible if both parties acknowledge that the industrial dispute is one of the side-effects of the contractual commotion and hence, it deserves a space in the negotiation table.


Muhammad Djindan

Program Manager of Resource Governance in Asia Pacific (RegINA)