KPK entering the mining scene – just progress.

KPK entering the mining scene – just progress.

Introduction.
There is widespread agreement that exploration and mining can bring significant improvements to the local and national living standards. For example, the recent news items about Freeport mention a 7-fold multiplier effect on employment, and an 8-fold multiplier effect on the Provincial economy. Mining involves trade off’s, with trees removed and the environment altered to recover minerals that are needed by our increasingly urbanized life style. Minimizing the negative environmental impacts, and managing the social and environmental impact has become increasingly important in a transparent and developing world. The recent entrance of the KPK into the Indonesian mining sector is a reflection of the trend towards a more responsible mining industry, and emphasizes the need for further emphases on environmental risk aversion. Risk aversion can start with the exploration program.
This article looks at the ongoing mutual development of the mining industry and environmental regulations.
Environmental Court Claims.
The Corruption Eradication Commission’s (KPK) first use of an audit of environmental losses bought a significant fine to a mining company in association with a corruption case between the mining company and the provincial governor. In this landmark case (Oct 2016) the KPK commissioner assigned Rp 3.4 trillion (US$269.5 million) in losses related to loss of drinking water sources and loss of protected forest. In another case (Nov 2016) the Supreme Court ruled a plantation company had incorrectly cleared too much forest, wherein the pulp and paper company was ordered to pay Rp 16 trillion (US$1.19 billion) for illegally clearing 1,873 Ha outside its concession with an associated value of Rp 4 trillion. In December 2016, the government is considering taking a Thailand based oil producer to the Central Jakarta District Court over alleged damage to fishing grounds in the Timor Sea, and is claiming A$ 200 million in damages due to a 2009 oil spill. More recently a number of NGO’s are claiming a cruise ship made some damage to a coral reef off Papua, and are claiming $18.6 million damages for a 13,532.6 square meter area of coral. These fines are significant when compared to estimated compensation of Rp 4.1 trillion for areas outside the mapped Lapindo area, paid out by the governments’ Sidarjo Mudflow Mitigation Agency (BPLS) over the 10 years since the 2006 Lapindo mud flow commenced.
This list of environmental fines shows a growing trend that claims for environmental damage are becoming more frequent, including smaller environmental impacts, growing in the monetary size of the claim, and can be brought through a number of legal avenues.
The Law.
In 2014, the Center for International Forestry Research (CIFOR) held a seminar in Bogor where it was recognized that valuing the environment involved a number of government agencies. Cross agency cooperation in the valuations are very complex, particularly in the context of court proceedings and liability for environmental damage. In the event of criminal acts in the forestry sector, the police will act as investigators who will build a criminal case. When it is found there may be state losses then the KPK may become involved and call upon the government auditor who would become part of the prosecution team. The ministry of finance may become involved, as it is responsible for conducting the valuation of all assets of the country. To complicate matters further, each agency may have a different definition of “valuation” and different methods of calculating environmental damage / loss. Furthermore, the perception of prosecutors and judges in interpreting such valuations needs to be improved. Environmental valuation can have a political nature in Indonesia, particularly where influential ministries and business interests may be involved.
In support of Law 32 / 2009 (article 90) the Ministry of Environment issued regulation 3/2013 about “Environmental Audit”, and is supported by regulation 7/2014 on “Damages Caused by Environmental Pollution and /or Environmental Damage”. This 2014 regulation provides guidance for the government’s environmental agencies to determine environmental damage and to calculated the associated losses. The losses may comprise several factors, including replacement costs or overall lowering of the quality of the environment etc. The calculation is to be undertaken by recognized experts that are required to follow the guidelines set out in this regulation. The calculated losses are considered to be a preliminary assessment in the Environmental Dispute Resolution process, that can be changed during the court / out of court process.
Regulation 3/2013 includes details on certification of competency for the auditors, the audit bodies, formal training, registration of audit service providers, transparency, along with audit procedures, documentation (including a statement of impartiality and independence), guidance, supervision and articles on financing for the audit.
The appendices of 7/2014 go into much detail on the implementation process, including the appointment of experts, verification of environmental damage, and in calculating the value of environmental damage. The regulation acknowledges there is generally a lack of base line environmental data concerning the quality of the environment before the human activity impacts on the environment. Courts need evidence through research to support the environmental dispute mechanism. This regulation allows the field investigation team to make assumptions based on National or International parallel environmental research. These appendices go into some detail. For example; setting out various technical parameters for trace elements in air and water, wherein each increment above the tolerable level of each compound is assigned a monetary value that is used with estimated volumes and time of impact in a formula to estimate an overall valuation. Other examples are given for land clearing, marine environment, community social disruption, loss of tourism (or potential tourism) etc.
Some personal criticism of this comparison approach is that some international research may need to be modified, as it is derived from high value economies and non-tropical countries. Another concern is the poor coordination amongst the various ministries over spatial planning. For example, a part of urban Batam was reassigned a forestry area, and in another case a coal mine in South Kalimantan, along with nearby paved roads, PLN lines, villages and farms were reassigned as forestry restricted areas.
PROPER.
In 1995 Indonesia launched an innovative program for public disclosure of environmental performance called “Program for Pollution Control, Evaluation and Rating (PROPER) across all industries. The purpose is to promote compliance with regulations and to reward and rate firm’s environmental performance. Ratings are Gold for excellent, Green for good, Blue for adequate, Red for poor and Black for very poor. The scheme is designed to encourage firms to improve their reputation, rather than have the state rely only on expensive prosecutions. The governments Environment Impact Management Agency (BAPEDAL) publishes the results.
In practice PROPER is very effective in changing the mindset of the company workers, wherein there is greater care of undertaking their daily tasks to minimize the impact on the environment. This attitude is often carried home to the village.
Environmental Baseline Studies.
There is a long-standing practice of undertaking environmental base line studies at an early stage of a project to identify and mitigate potential environmental and social impacts for the exploration and development of a mine. The earlier this is started, the more beneficial it can be to the project. In many cases the geological team can capture useful environmental and social data that can be used to plan the environmental base line surveys. Some examples of the exploration data that may help define the base line survey;
• In some East Kalimantan coal projects it may not be possible to construct a river port due to the restrictions around mangroves, there by the alternative coal haulage can impact on the projects direction and viability.
• Stream geochemical studies to explore for minerals have identified anomalous heavy metals (lead etc) immediately downstream of villages, due to their discarded batteries corroding in the river.
• Various rivers throughout Indonesia have excessive mercury levels due to illegal gold mining and processing.
The environment base line survey is usually undertaken once the deposit has been identified. This base line data can be used to monitor the various environmental and socio-economic parameters during the subsequent development of the project.
There may be a temptation for some claimants, NGO’s and environmental experts to make assumptions / estimations based on a worst-case scenario, and thereby inflate the expected compensation claim. Environmental base line studies that include public data from the local department of industry, bureau of statistics etc, may help to minimize this risk of over-the-top assumptions leading to excessive compensation claims.
All Indonesian projects need a formal AMDAL (environmental impact assessment and plan) before a mine can be developed. The more detailed the AMDAL studies are, the more accurate the assessment of the parameters will be. Typically, the well regarded AMDAL process shall measure water and air quality, noise, plants & animals, cultural and socio-economic features etc. The government recognizes that many smaller mines did not prepare a suitably thorough AMDAL, and is seeking to address this issue. The benefits of a good environmental study provide reassurance to the public, government, financiers and the company that key environment and social issues will be addressed and managed, thereby better defining or reducing project risk.
The financing for many of the larger projects are governed by the international Equator Principals (EP’s) and the International Finance Corporation Performance Standards. The EP’s are designed to be a risk management framework. These standards include concerns for 1) assessment and management of environmental and social risk and impacts, 2) resource efficiency and pollution prevention, 3) community health, safety, and security, 4) biodiversity conservation and sustainable management of living natural resources, 5) indigenous people, 6) cultural heritage.
Evolving Together.
The history of Freeport, as shown in the book “The Politics of Power – Freeport in Suharto’s Indonesia” by Denise Leith is a wonderful read wherein the past mining companies felt their role was to mine, and the government’s role was to govern. The history of this project shows that the government and the mining company learnt from each other in developing a responsible outlook and programs for the environment and the community. Community Social Responsibility (SCR), NGO’s and government regulations did not simply appear, but evolved with Freeport as one of the industry leaders.
Between 1996 and 2003 PT. Newmont Minahasa Raya operated a gold mine in North Sulawesi. Some 40 million tons of waste rock was dumped in an offshore undersea tailing operation. In 2006 the Indonesian environment group WALHI made a name for itself by suing the company for alleged pollution. The ensuing 21-month legal trial for A$ 543 million damages was dismissed, and the director of Newmont released from house arrest. Newmont provided a $30 million good will agreement with the government to provide for 10 years of environmental monitoring and community development aid. This case highlighted the technical weakness of the local police as the investigating agency. Today the new environment ministry regulation 7/2014 requires suitable experts to gather such environmental data.
Some environmental cases are clearly positive for the mining companies. In the book “The Politics of Environment in South East Asia – resource and resistance” the development of the PT. Kaltim Prima Coal (KPC) mine in East Kalimantan is reviewed. Statements include “Teluk Linggans have greater confidence in the capacity of KPC to solve their problems, and they value good relations with the company and company personnel more highly than they do their links with the local government authorities”.
The Trend
Today the computer and interconnected world has led to people seeking a greater instant response and gratification. The Ministry of Environment regulation 7/2014 application for lost land use would seem to be a somewhat debatable component. I recall seeing a skeleton of a small excavator beside a main road in Sulawesi. It was apparent this equipment was abandoned during the construction of the road many years before. The vines and grasses of the jungle had nearly “reclaimed” this excavator. I have explored forest areas wherein the logging tracks are completely impassable by new growth, just a few years after their abandonment. Even in the heart of some of our cities, I see trees growing out of cracks in old buildings, and see squirrels crossing main roads via the overhead telephone cables. Indonesia is a place where abandoned Dutch gold mines, and even earlier large cities have disappeared completely under the jungle. Why rush out and pay large sums for some environmental damage, when nature may simply take care of itself in its own time.
The KPK is entering the mining industry from a number of directions. The most obvious is where the ESDM notifies the KPK that exploration and mining companies have not paid their fees and taxes on time. The EITI transparency initiative may also notify the KPK where there is a discrepancy between claimed taxes paid and government receipts, or where the government does not properly disburse such funds. The KPK is a respected and strong institution, wherein we may expect exploration and mining companies to become more compliant in paying their fees and taxes.
Conclusion;
The AMDAL is typically prepared as a table of positive and negative impacts on the environment about the mine site and associated infrastructure. The recent KPK entrance into the mining sector suggests that companies should also measure their environmental risk in terms of potential compensation in line with the concepts within the ministry of environments 7/2014 regulation.
The ministry of environments regulation 7/2014 has the potential to further quantifying the mining industries environmental risk factors.
The recent environmental losses claim for mining companies is a new direction for the KPK. The uncertainty over some local regulatory changes in spatial planning (local, district, national), contribute to an “X” factor for responsible exploration and mining companies. This may lead to some smaller “start-up” exploration companies (local & international) to see the project risk and compliance hurdles as too high, returning the industry to the trend of the 70’s and 80’s where exploration was undertaken mainly by only a few major companies.