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INCO in Indonesia: A Report for Canadian People

Jamie Kneen Communications and Outreach Coordinator responsible for: strategic research, social media, and public engagement; our Africa program, environmental assessment, and uranium mining.

What is INCO?

PT Inco produces raw nickel (80% of which is exported to Japan). The company mines ninety percent of the nickel produced in Indonesia. Inco large nickel reserves have averaged a production rate of 150 million pounds per year for the past 20 years. In 1996 there were 108 million tons of laterite nickelforous estimated to be lying inside the Soroako mining area. Another large amount of nickel reserves found in the Bahudopi Block (Central Sulawesi Province) are believed to reach 180 million tons of nickel, and perhaps more in the Pomalla Block (South Sulawesi Province).

The development of PT Inco's mining site in South Sulawesi began in 1973, and on March 31st, 1977 the mining operation was opened ceremonially by President Soeharto. Inco started its first commercial production in April 1978. The first profit was reported in 1987, and is believed to be approximately one million U.S. dollars. Since then the profit margin has grown considerably from 174 million dollars in 1988, to 182 million dollars in 1989 (Tempo March 24th, 1990). In the following years, Inco would continue to make profit, only the numbers were smaller. For example, in 1997 their profit was 24.3 million U.S. dollars and in 1998 it dropped to 6.2 million (Warta Ekonomi #40 February 22, 1998). In the first 3 months of 1999 Inco declared a deficit of 2.1 million U.S. dollars (Jakarta Post, 4/30/1999) The information below illustrates how Inco's profit margin is influenced by the declining price of nickel in the world market.

      Table 1. Price for Nickel on the World Market (in US$/pound)

            1985 - 1.87
            1988 - 6.60
            1989 - 8.00
            1990 - 5.04
            1994 - 2.02
            1996 - 3.40
            1998 - 2.00
            1999 - 2.20

      Source: Tempo (6/3/86, 8/27/98, 6/04/89), Republika (1/18/96), D&R (10/31/98), Kompas (4/1/99)

Inco Canada Ltd. owns the majority of PT Inco's shares (58.19%). Other stockholders include five Japanese companies: Sumitomo Metal Company (20.09%), Shimura Kako Co. Ltd. (0.54%), Nissho-iwa Ltd. (0.14%), Shoji Kiasha (0.14%), and Mitsui & CO Ltd. (.36%); finally, 20% of the shares are owned by the public. PT Inco decided to "go public" in 1990. No less than 80% of PT Inco is foreign owned.

In 1968 Inco Ltd. received a second contract of work from the Indonesian government to mine in Sulawesi for another 30 years. As a result of this, Inco then set up a legal agency to explore 6.6 million acres of land, which were systematically reduced to 218,000 acres (Marr 1993: 90). In the current work contract, Inco has 218.528.99 acres of land (Kompas 4/30/99) ranging through three different provinces. About 54.17% of the area is in the province of South Sulawesi, 16.76% is in Central Sulawesi, and the final 29.06% is in Southeast Sulawesi. The central mining activities are in Soroako, Luwa district, South Sulawesi.

On the 14th of November, 1994 when the Canadian Prime Minister Jean Chretien met with President Suharto to discuss economic relationships between the two countries: Inco was awarded with an extension of their contract from 2008 to 2025.

In the year 2000, PT Inco's production target is 68,000 tons of nickel. In order to improve production capacity, Inco built a new hydroelectric dam to supply energy. The new dam in Balambano has the capacity of 93 MW (megawatts). Inco built its first dam in Larona and this dam produces165 MW. To support the expansion of its mine, the development of the new dam, and continuity of production INCO is adding 620 million dollars to its investment, bringing the total of Inco's investments since 1968 in Soroako to $2,074 million U.S. (Kompas 30/4/1999).

Problems with INCO

Many independent and academic reports show that the existence of PT Inco has brought many problems to Sulawesi, Indonesia. According to Robinson (1986: 178-188) the process used to decide and record land ownership started a practice of land alienation of indigenous people from their traditional land. Some of the land disputes stem from the construction of a new road, and most from unfair (if any at all) compensation for traditional land lost.

Only Inco Ltd. and the Indonesian government were involved in the negotiations to purchase the land, local landowners were left out completely. When Inco built the town of Soroako approximately 200 peasants were persuaded by the government to sell their land for a mere .02 cents per square metre [$200/hectare] (Aditjondro, 1982). To the present time, the land disputes have still not been completely settled. In February 1999 the citizens of Soroako held a demonstration. They demanded fair and just compensation for their land and delivery on several promises that Inco has not yet followed through on. These promises — such as education, health care, clean water and electricity for the community that would all be paid for by Inco — had been made as far back as 1969 by Hilter Singawinata, a top representative of Inco. None of these promises have been fulfilled (Sangaji).

According to Nggao's report of 1990, Inco's existence also brings waves of people to Soroako from outside the area. Many of these immigrants [with more economic purchasing power than the local indigenous people] purchase large tracts of land from local people, furthering the problem land alienation of locals. Massive, continuous flooding of mosques, farms, rice fields, and houses are the direct result of the development of Larona dam. It is important to note these problems are a direct result of Inco's presence in Sulawesi.

Another problem that Inco brought upon the area is the vast and rapid destruction of forest resources, primarily damar [a tree resin] and rattan [two of the most lucrative local trade items]. Foothills once used from time to time by locals for growing cassava, after being appropriated into Inco's mine for a period of time, are no longer fertile enough to support agricultural crops (Marr, 1993:95).

Other than the issues already mentioned above, the problem that stands out the most is the low revenue the government of Indonesia receives from Inco's mining activities. For example, the Indonesian government receives a royalty from Inco for renting them the land. This royalty is only 0.015% of the profit of every kilogram of nickel sold and one U.S. dollar for every hectare of land used. When Inco asked to extend their mining contract and land lease to 2025 the land rent was supposed to go up to one and a half-dollars per hectare, but until now the royalty has stayed the same. Not surprisingly, the head of the Department of Mining in Sulawesi, Amin Syam, tried to revoke Inco's contract because of this, yet, before he was able to do much, he was threatened to be sued in international courts by the President and CEO of PT Inco Rumengan Musu. The royalty has remained the same ever since.

This problem is deeply rooted in the original work contract, in which the government of Indonesia holds a very weak position. This contract was not written between Indonesia and a single clear investor, but with a number of investors. As a result, it is very difficult for the Indonesian government to change or revoke the contract because all investors must come together and agree on any changes before they can happen.

Aside from the low benefits to the Indonesian government, there is also an imbalance between the revenue of local government and state government. For example, from the royalties collected in 1995 Rp. 29,279,058 went to the central state government and only Rp. 6,986,204, or 24% went to local government. In 1997 the government received Rp. 63,480,443; but the local government only received Rp. 8,711,676 or 13% (Tegar, #13 October 13th,1998). Many hope that the distribution of wealth between the local government and the national government will improve with the creation of two new laws in1999: Act No. 22, known as the Local Government Act, and Act No. 25, the Money Balancing Act for Central and Local Government. Section six of Act No. 25 states that 20% of the royalties collected from mining will go to the central government and the remaining 80% will stay in the local government region where it was produced. Of this 80% sixteen percent will stay at the top level of local governance [in the province's capital], and the remaining 64% will be divided equally between the lower levels of district and city governments in the area.

PT INCO in Block Bahudopi, Central Sulawesi

In actuality Inco Ltd. has been in Sulawesi much longer than Inco has reported to the government of Indonesia. Villagers have informed researchers that Inco was doing exploratory boring for nickel in Sulawesi as far back as 1964. In 1969 it is believed that sample boring was conducted in the village of Bahumatefe, and again in 1974 and 1976.

Now, several serious problems are surfacing in Bahumatefe. First, there are many cases of Inco's concession land over-lapping with farmers' traditional farmland. Second, there is overlap with Inco's land and land marked for relocation of transmigrated farmers in the villages of One Pute Jaya (Bahumatefe district) and Bahomakmur (Bahudopi district). In cases of overlapping land titles the government has decided to relocate the people rather than ask Inco to move. The transmigrated people will be settled in a new location, possibly outside the province.

INCO in To Bungku and Bahumatefe

Bahumatefe is a village nestled in Central Bungku, Poso County (which later became Morowali Wildlife Reserve) Central Sulawesi Province. Bahumatefe lies approximately 567 kilometres from the capital of Central Sulawesi, Palu. The original people of Bahumatefe are the Bungku, but one also finds settlers there of the Mori Tololaki (Southeast Sulawesi), and Bugis and Toraja (South Sulawesi). This village consists of 117 households, or 661 people. The people live along the Tolo Gulf. Their livelihood consists primarily of farming (rice, chocolate, coconut, and fruit), but fish and forest products are also essential parts of their lives.

After Bahumatefe, To Bungku is the next largest town. People here still follow their traditional shifting agricultural practices. When a piece of land is first cleared of forest the Bungku call it keu daa. Keu daa land is shared in common among the Bungku people. When keu daa is tilled and crops are planted, the land, now called uma (farm), becomes the property of whoever sowed the seeds. When the land is left to regenerate to forest and replenish its nutrients it becomes kura ate, yet is recognized as the property of the person who just farmed it. Since the beginning of Inco's presence in this area they have occasioned many disputes with the people of To Bungku. The largest conflicts have been over Inco's use of kura ate land and boring near peoples' farms (uma).

Inco's mining activities expanded in 1994. Inco created a based camp of 9 kilometres. Problems with To Bungku began to arise. Keu daa, kura ate and uma lands were appropriated to make a "sample" as well as to build a road for transporting heavy equipment. Here and there, near To Bungku, one can find holes 50x50 metres and 20 metres deep. Many of these holes have been found in the fruit fields of farmers. According to the villagers, Inco took 50,000 tons of materials from those holes to Soroako in 1996.

Road construction and boring began in the area without any discussion with the villagers. From Inco's point of view there was no need to speak to the villagers because in their eyes that land belongs to Inco now, not the people of To Bungku. Inco has completely ignored the fact that its designated area is polka-dotted with farms of the local people.

Protest from the Bungku people was initiated by the village head as well as by the district head of safety. The local leaders gathered to push for the compensation they had been promised for their lost property. Inco had promised Rp. 35,000 for each fruit tree destroyed. Instead most farmers received Rp. 7,500; others as little as Rp. 4,000 per tree [at this time one U.S. dollar was equal to approximately. Rp. 3,500].

Many strange things occurred during the villagers attempts to get just compensation for appropriated land. Villagers were given a receipt for "freeing their lands" rather than "land compensation." It believed that the head of the Department of Safety had a hand in this change in the land agreements. Several families refused to receive such receipts. In the end officials from the Safety Department came out to the villages and coerced them to accept this new agreement.

Besides Bahumatefe and To Bungku, Inco has negatively impacted several other villages in the area. These villages include: Lele, Dampala, Siumbatu, Lalampu and Bahudopi.

During the time span of 1997 to 1999 Alwi Hani, the village head of Bahumatefe and several other important local leaders have brought countless records of civil and human rights violations to the DPRD in Central Sulawesi and Jakarta, as well as HAM [the largest Indonesian human rights organization].

Movement of Transmigrants and INCO

Bahumatefe has been a transmigration site since 1991 (UPT Bahumatefe) and Bahudopi was from 1992 until 1994. The transmigrants originate from the south-eastern portion of west Indonesia, West Java, Central Java, East Java, and Bali. The total number of people moved thus far is approximately 4000. In 1995, a plan was drafted to move the people again to Saembawalati-Tomata, Mori District, Poso County. This change of location was the result of the overlap of the transmigrant original land with Inco's mining concession (Media Indonesia, 8 March, 1995 & Kompas, November 2, 1995). According to the mass media, the cost of moving these people was between 7 and 10 million Indonesian rupiah and PT Inco was to cover the entire costs. (Kompas November 2, 1995; Surya October 10, 1996; Mercusuar November 15, 1996; Surya, November 15, 1996; Bisnis Indonesia November 26, 1996, and Surya November 23, 1997). The problem that transmigrants are facing is relocation without compensation. Each time the transmigrants are moved to a new location - usually by force - they have to begin again at ground zero, repeating the struggle they suffered when they first arrived in Sulawesi several years ago and had to start cultivating their new fields from scratch. Knowing these consequences, villagers have refused to leave.

Many transmigrants have gone to Saembawali [the place they are being encouraged to relocate to] to see for themselves what the land is like there. According to them the land is too swampy to support agriculture, and clearly impossible for them to live on. The government claims that it will drain the land before the transmigrants move there, such as what was done in Mercusuar (September 9, 1997). In this area, 9500 hectares were reclaimed in order to move transmigrants there. After many attempts to reclaim the land the project still has not been successful. In the rainy season the land still becomes very wet and over-saturated. Many workers who have worked there for more than a year say that it is nearly impossible to reclaim the land because it lies at the same level and right next to the mouth of Lake Temui. When it rains the lake spills over onto the land.

Further, there is a problem with the amount of housing that can be created in the area. At this time there are already 250 houses built for the transmigrants from One Pute Jaya. "It will be impossible to extend the number of houses to 700 units," the Governor of Central Sulawesi to the Department of Transmigration told transmigrating citizens in Palu May 17, 1999.

In an attempt to get out of these problems, the Department of Transmigration tried to work with the National Agricultural Department (PTPN) XIV and the palm oil company Kurnia Luwuk Sejati (KLS) to relocate some of the transmigrants on their lands to become coconut farmers. However, the area KLS was planning to farm had recently become part of the Morowali Nature Reserve. The Agricultural Department also wanted to give the transmigrants land that already was being used by locals as hatching grounds for their poultry.

After several failed attempts by the government to solve this problem the transmigrants of One Pute Jaya became angry and hard to negotiate with. In their meeting with the Governor on May 17, 1999 they said they would only move again if they were compensated with 40 million rupiah each and land ready for rice farming. Until these two conditions were met they absolutely refused to move. The citizens also demanded that they receive official land certificates. Normally a certificate is given at the moment that the transmigrants first arrive at their new home site. They had not been given certificates even though they had already been living in One Pute Jaya for awhile and it had become a definite town in 1997.

In the end the Governor explained that he did not have any money to give the villagers to compensate them for their land. Seven billion rupiah - all of the funding given to him by Inco (given to him in the form of a loan, which was considered a portion of Indonesia's royalties until 2003) - had been spent on trying to reclaim the land at Saembawalati. He used the first part of this loan (three billion rupiah) to start the project, and then when the head of the municipal government came out to see the project he begged for another four billion which was quickly spent dealing with technical difficulties and social issues.

Faced with a populace that refused to move the Governor offered a compromise. He said that any villager who could prove their land didn't lie over the nickel bed could stay. He also said that he would try to meet and negotiate with the executives of PT Inco. Regardless of the governor's words it was soon clear that the decision to move the villagers was final.

In early December the Governor, Major-General H. Banjela Paliuju, met with Inco in Makassar South Sulawesi to discuss this issue. This time Inco offered another 17 billion rupiah to move the people (this time the money would not come out of the royalties going to the Indonesian government but rather from the funds earmarked for social expenses). This of course was not enough money to compensate the transmigrants, but the governor accepted it anyway. The local of government of Central Sulawesi has truly been shaken by this issue. But at this point they don't know what else to do. The manager of public relations at PT Inco, S. Koencoro, has already threatened to terminate its contract if these problems are not dealt with by the Governor (Formasi, December 1999).

Recommendations

Since the very beginning of Inco's business dealings in Indonesia, neither the general populace nor the Indonesian government have ever been in a position that benefits them. The most victimised have been the everyday people.

At this point, the following actions are recommended by the author:

   1. The government of Indonesia needs to revoke the contract it gave PT Inco to extend its work until 2025.
   2. Future contracts for mining nickel need to be made between the central government and the three local governments, PT Inco, or another investors, and the local populace.
   3. No investor should be allowed to own more than 50% of the profits generated and the local people and government must receive at least 50% of the profits.

Bibliography

Aditjondro, GJ, 1982, Dapatkah Soroako dan Tembagapura Menjadi Pusat Perkembangan Daerah?, Prisma, No, 8, Agustus, Tahun XI.
——————-, 1993, The Media as Development "Textbook": A Case Study on Information
Distortion in the Debate about the Social Impact of an Indonesian Dam, A Dissertation Presented to Faculty of the Graduate School of Cornell University.
Frangky, YL, 1997, Laporan Investigasi Kasus PT Inco (Pertambangan Nikel).
Marr, Carolyn, 1993, Digging Deep, the hidden cost of mining in Indonesia, DTE & Minewatch, Penang.
Masindo, 1999, Mining Contacts Handbook of Indonesia 1999/2000, Jakarta.
Nggao, Ferdi, 1990, PT Inco di Soroako, Berkah atau Laknat, ANDAL, No,8.
Robinson, Kathryn M, 1986, Stepchildren of Progress, the Political Economy of Development in an Indonesia Mining Town, State University of New York.
Sangadji, Arianto, 1999, INCO: Menghitung Masalah dari Bahumatefe ke
Soroako, Laporan Intern.
——————- & Lahmudin Yoto, 1995, Posisi Rakyat dalam Usaha Pertambangan: Beberapa Pengalaman di Sulawesi Tengah, Makalah pada Lokakarya Pertambangan yang dilakukan oleh WALHI, Banjarmasin.