FREEPORT PURSUES "NO TALL TREES" STRATEGY IN ARMY

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 001185

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/26/2016
TAGS: ECON EMIN ENIV ID
SUBJECT: FREEPORT PURSUES "NO TALL TREES" STRATEGY IN ARMY
PAYMENTS PROBE


JAKARTA 00001185 001.2 OF 002


Classified By: Energy and Mineral Resources Officer Kurt van der Walde,
Reason:1.5 (b) and (d).


1. (C/NF) Summary. A senior executive from the U.S. mining
giant Freeport McMoRan Copper & Gold told us on January 25
that his company will avoid the media spotlight while
cooperating fully with GOI inquiries regarding the legality
of the mining giant's payments to Indonesian security forces
in Papua. He added that the company will flood selected
prominent political opponents with detailed records showing
Freeport's contribution to the Indonesian economy and
treasury and to local communities where Freeport operates.
Separately, Defense Minister Juwono Sudarsono said on 25
January that he has ordered an inquiry into the allegations
raised by last month,s New York Times report detailing
nearly USD 20 million in payments to military and police
officials from 1998 through 2004. The Freeport executive
also alleged that Saudi Wahabi extremists, who wish to drive
American companies out of Indonesia and topple President
Susilo Bambang Yudhoyono (SBY) from power, have made common
cause with and are funding many of the environmental and
political organizations causing problems for Freeport.
However, he did not provide evidence to substantiate this
allegation. End Summary.


2. (C/NF) Freeport-Indonesia's Senior Vice President Dan
Bowman told us on 25 January that the U.S. mining company
will keep a low profile in rebutting the charges from last
month,s New York Times report detailing almost USD 20
million in payments to police and military security forces in
Papua from 1998 through 2004. Bowman said local
environmental groups and other political opponents of the
company have seized on the Times article as a means to
shutter the company's Papua operations and drive them and
other American companies out of Indonesia. In response, he
said that the company will pursue a "No Tall Trees" strategy
so as not to stand out and draw attention to itself. The
company is confident that they enjoy support at the highest
levels of the Indonesian executive branch, according to
Bowman, and that pursuing a high profile public relations
strategy to rebut the myriad spurious allegations and
exaggerations against the company would risk winning battles
only to lose the war. Nonetheless, he said Freeport expects
a tough road ahead with little overt public support from SBY
or Vice President Jusuf Kalla.

Seeking out Amien Rice and Other Opponents
--------------


3. (C/NF) Meanwhile, Bowman said Freeport will seek out
prominent vocal political opponents like former People,s
Consultative Assembly Speaker Amien Rais, who recently
strongly supported calls by environmental groups to close
Freeport,s Papua mine operation. Rais said in press
interviews on January 20 that Freeport had committed "a
crime," not just violations of environmental and financial
regulations. Rais also said that Freeport paid few taxes and
the Indonesian people got little from the company,s
presence. Bowman said that Freeport,s Indonesian President
Director met with Rais on January 25 to provide him detailed
copies of Freeport,s Indonesian tax returns back to 1995,
detailing the annual tax and royalty payments to the GOI,
which totaled USD 1.1 billion in 2005, according to Bowman.
He said that Freeport spent USD 51 million in community
development programs in Papua last year. In addition he said
high mineral prices will probably boost the value of the
Papua mine,s output to an amount equivalent to 3.5-4 percent
of Indonesia,s 2005 GDP. (Note: Indonesia,s estimated
2005 GDP was USD 270 billion. Company financial statements
report USD 4.18 billion in 2005 revenue, or about 1.5 percent
of Indonesian GDP.) Bowman was philosophical about swaying
critics with facts, however. "They want to topple SBY, and
we,re a good means through which to attack him and hopefully
get a piece of the mine for their own pockets," he said.


4. (C/NF) Bowman said the company is still preparing
detailed responses to each of the allegations raised in the
December New York Times article. He said they will not
likely make the report public but will provide it to the GOI
when completed. He said the main allegations about direct
payments by the company to military and police officials are
true but misleading and resulted from the chaotic nature of
Indonesian military and police finances. Bowman said that
the military and police did not have institutional bank
accounts into which Freeport could deposit funds, so they

JAKARTA 00001185 002.2 OF 002


were forced to make payments directly to the commanding
officers responsible for security at the mine. Bowman added
that the company widely publicized to the GOI and to ordinary
soldiers and police officers at the mine exactly how much was
given to their commanding officers to avoid that money being
stolen by the individuals receiving the money.

Allegation of Saudi Wahabist Involvement
--------------


5. (C/NF) Bowman offered no proof, but said he was growing
increasingly confident that Saudi Wahabist extremists are
funneling money through Yemen to the relatively large
Indonesian-Yemeni community to support a broad range of
anti-SBY and anti-U.S. business groups, all of whom have
separate agendas and might not even be aware of their shared
funding sources. He said the Indonesian environmental NGO
Walhi that is leading the charge against Newmont and Freeport
is funded by these individuals. He noted that the charity
Medical Emergency Relief Charity (Mer-C) is making a big push
into Papua, courtesy of Saudi funding, and said he doubted
their altruistic motives. Bowman described a sophisticated
and subtle campaign by un-named Saudis to influence public
opinion in Indonesia away from its moderate form of Islam
toward the Saudi,s more fundamentalist version. He said the
Saudi-backed Indonesian-Yemenis have quietly bought
controlling interests in Sulawesi newspapers or suborned
editors to begin to change their coverage to be more
sympathetic to the Saudi's stricter form of Islam and an
eventual Islamic republic in the archipelago.


6. (C/NF) Comment. The broad outlines of Freeport,s
payments to the military and police were public knowledge in
Indonesia before the New York Times story broke.
Nonetheless, the article has sparked a modest wave of press
coverage in Jakarta, as well as critical statements by Rais
and the Environment Minister. However, we see no rush to
judgment by the GOI--we are aware of no statements on the
issue to date by SBY, Vice President Kalla, or Coordinating
Minister Boediono. We have been picking up rumors of Saudi
perfidy since 2002-2003, but have yet to see concrete proof
of this connection. End Comment
PASCOE