INVESTIGATION: Fools' Gold in Indonesia

By Melody Kemp & M H Ahssan

In eastern Indonesia's litter of islands, the remote Lembata seems an unlikely site to for a public battle over mining, replete with paid assassins, black magic rituals and allegations of official bribery.

The bizarre confrontation is emblematic of Indonesia's ongoing mismatch between the desire to attract foreign investment, national regulations and the rights of people seemingly sentenced to environmental degradation in the name of economic development. It also indicates the enduring provincial influence of former president Suharto's close allies, despite the enactment of various decentralization reforms since his downfall in 1998.

When weighing the bullish claims against the independent geological evidence being made about Lembata's gold mining potential, there is reasonable cause to suspect that Indonesia's well-connected and colorful mining magnate, Jusuf Merukh, is bidding to attract foreign investment based on tenuous claims.

Critics and officials say his recent assertions that there are major gold deposits in the area are akin to those made during the 1997 Bre-X scandal, where a gold mine in Kalimantan in which Merukh had a stake was touted as potentially the world's largest, but after luring foreign investment from US mining giant Freeport McMoran, which was coaxed into taking an 85% stake in the venture, it came up dry.

The 70 million ounces reportedly found by geologists at the time is the same figure Merukh is now telling local journalists could be found in Lembata. Merukh's wholly owned companies, PT Pukuafu Indah and PT Merukh Copper, aim to mine lodes of gold from Lembata's rocks and sand in Indonesia's poor and dry eastern region. But the mining magnate's intention to start construction of processing plants in 2009 has raised a mounting outcry on the island.

In 2007, more than 400 people demonstrated against the mining project outside the area's provincial offices. Regular protests have also been staged this year and more are planned for 2009. "The bupati [or regent, the senior sub-provincial local government official] refused to meet with us. He doesn't want to hear our voices, but we will die before we allow Merukh to mine our island," said Hendrikus Hala, an elderly but still spry farmer.

"We have built a camp on the mountain and someone is there all the time with a mobile phone. If they come we will stop them. No one gets in without our agreement," Ahmad Nuturamun, a farmer from the area said, an overly large black Stetson shading his eyes.

Merukh has so far remained undaunted by the local resistance. In November, he reportedly sent a letter to the local regent and the head of the local Legislative Council requesting that 75,300 hectares be set aside for mines in a joint venture partnership between himself and 10 Chinese mining groups led by state-owned Yunnan Copper Group Ltd. A memorandum of understanding for the deal is scheduled to be signed with China's ambassador to Indonesia.

Yunnan Copper is at present embroiled in a major corruption scandal, whereby the company's former chief executive officer, Zou Shaolu, and two of his aides were arrested by the Yunnan Communist Party's disciplinary agency and will soon face a public trial for allegedly accepting 35 million yuan (US$5 million) in bribes related to various dealings. There is no evidence that any of these allegations relate to the Lembata deal, but the scandal has raised questions about the Chinese company's viability.

If Merukh presses ahead and the local government refuses to acknowledge the protesters' demands, some fear the situation could escalate towards violence. Villages are already invoking their deceased ancestors to protect them from the mine, reviving traditional rituals and ceremonies - where chickens' throats have been cut and old weapons stripped of rust - not performed for years. Island communities are seemingly unified in their opposition, even if they are not directly threatened. "We cannot eat gold," many villagers said in Lembata.

The local government, meanwhile, is doggedly in favor of the mine. Lembata is a parched island, and like many of its neighbors has little opportunity for more than subsistence livelihoods. Its major sources of income are copra, candle nut, cashews, seaweed and clams. So the promise of a windfall from mining has been hard for local officials to resist. Strangely, though, the local government has dismissed alternative development plans put forward by the communities, which include tourism and agricultural projects.

Indonesia is top heavy with a burdensome bureaucracy: each district replicates all national departments. Many are starved of operational funds, so a large mine offers hope of much-needed income. However, that impulse is checked by national regulations related to environmental protection and community consultation, which must be enacted before any mining activity goes ahead.

Golden claims
While Merukh insists that below Lembata's stony soil lies "the third-largest source of gold after Chile and Russia", those claims are not borne out by independent geological reports, which claim that, while significant, the lodes are mostly uneconomic.

Indonesian Department of Energy and Mineral Resources geologist Rudi Gunradi reported in 2007 that there were gold deposits around Balauring on the northwest coast, which he described as thin-soiled, fragile and unsuitable for agriculture. But he recommended that the deposits would be of benefit only to small-scale outfits, not the major operation promoted by Merukh.

Gundari's reports build on corporate history. At Merukh's proposed site, an Australian subsidiary of PT Nusa Lontar dug up to 350 200-meter bores and another 15 500-meter bores with results revealing a mere 2 grams per ton, a far cry from Merukh's more glowing reports for the same area. The results were poor enough to convince the foreign company to let its lease go as the global prices for minerals did not warrant the investment.

Another Australian mining company followed up on some initially promising findings in 1997, but later reported that the traces of copper and gold were insignificant and like the many other outfits that preceded it left the site. A senior spokesman for Newmont Mining Corporation, the world's largest gold producer, said categorically that Newmont would not be drawn into working in Lembata, despite having been in partnership with Merukh in the troubled but successful Batu Hijau mine on the eastern island of Sumbawa.

Merukh could not be reached for this article. In an interview with The South China Morning Post in 2007, Merukh reported that "most of the workers and middle managers [in Batu Hijau] were hired from the local community. Now they drive Mercedes, not horse carts ... and when I visit they say 'Our king is coming'."

That did not stop the Sumbawa mine from closing down when simmering community unrest over environmental destruction, unmet compensation demands and social issues eventually erupted, with local people burning down areas of the mining camp

It's still unclear if the Lembata project has substantial foreign backing. Critics note that all of the companies Merukh lists as potential partners are banks or processors rather than operational mining companies, except for Yunnan Copper. Chinese miners have in recent years earned a bad reputation in Indonesia due to their lack of due diligence over environmental matters.

Indonesia's Investor Daily magazine reported in August that Merukh claimed to have the support from German processing giants Kupferprodudke, Nordeusche Affinerie, IKB Deutsche Industriebank along with Asian companies Agape Mining Singapore, which supplies tools and drilling equipment, and Asian Mining Management in Hong Kong. Other foreign companies associated with Merukh Copper or PT Putuafu in the past are Germany's ThyssenKrupp Fordertechnik, Kupfer Produkte and Poland's KGHM Polska Miedz.

Nordeutsche Affinerie subsequently said in an interview that it had terminated its relationship with Merukh over a year ago. Deutsche Industriebank failed to respond to requests to confirm or deny willingness to invest with Merukh. The German bank is not a signatory to the so-called Equator Principle, and thus not bound by strictures that limit funding for environmentally and socially sensitive projects.

Former environment minister Sonny Keraf is from Lambata and was born in Lamalera, one of the world's few surviving traditional whaling villagers and a source of potential tourist income. "Lembata is a small island. A mine would not only cause a lot of damage to the environment, but to the lives of the people. Mining as it is practiced in Indonesia has no benefit for the people. It's all bad," he said.

Asked whether environmental impact studies (AMDAL), which are required by national regulations, had been carried out in Lembata, he said: "No. I have sent many requests to the current minister to ensure that an AMDAL is done. But sometimes the committee members try to follow the wishes of the investor and are not always objective."

"The investors promise good things for the people, housing wealth and other good things. But usually this does not happen," he said. "I know there is still a big question about whether there are minerals in Lembata. I think he [Merukh] says this just to get investment."

Other officials share a similar sentiment. Sembiring, the recently retired head of the Department of Minerals in Bandung, said: "There are no proven minerals in Lembata. But there are rumors of bribery."

"Mr Merukh has a bad reputation in mining circles, so I do not care what he says. The mine will not go ahead. I give you a guarantee. There will be no mine. The people have the last say and if they do agree there will be no mine. There is no contract of work [COW]. It would have to be issued by the national government to the investor. I know a COW has not been issued, nor will it be. Merukh is not being honest if he says it is going ahead."

Controversial tactics
Such hard commentary is rare about a man who was a close associate of former authoritarian leader Suharto and thought to have been a deliberate destabilizing influence on the major opposition Indonesian Democratic Party of Struggle (PDI-P), led by former president Megawati Sukarnoputri. Merukh had insisted in the past that more than 300 members of the PDI-P were communists, a heavy allegation in light of the anti-communist purges that left hundreds of thousands dead in the late 1960s.

Merukh insists that opposition to his proposed mining venture in Lembata has been manipulated by unnamed "US mining interests" or Catholic clergy afraid that the shower of wealth on the local population will undermine their power base. According to an interview he gave to Indonesia's Investor Daily, Merukh wants to excavate "at least 75% of the island's mass, maybe all of it", to find the gold, and in his words, "shift the domination of US mining".

If he has his way, the project would require relocating around 60,000 of the island's residents to nearby Flores island, where he promises to build apartments and schools for the community. When asked recently by a non-governmental activist, who requested anonymity, Merukh was neither clear about how he would procure the proposed site on Flores, which, like land on Lembata, is owned by traditional clans under nationally recognized ownership rules, nor what he proposed relocated fishermen and farmers would do for their livelihoods there.

Farmers in Lembata said in mid-October this year that they had not yet been approached by any company representatives requesting to buy their land. To transport the mined gold, Murkah plans to build a dedicated port in a six-hectare shallow area right next to a Japanese pearl farm. The pristine reef, which has a depth of 1.5 meters for over 500 meters, would need to be blasted to make a channel deep enough to carry deep-hulled ships.

His plans also include building a large international airport on the site of a Japanese-built World War II airstrip in Lembata. The runway would terminate at the base of Ile Api, the island's impressive guardian volcano, which is still active and emits a steady plume of white steam. Baru Tara, a volcanic island only 50 kilometers to the north, has recorded recent eruptions and the whole area is prone to continual tectonic burbling.

A traditional leader known locally as a kepala adat signaled that he wanted to speak at a village meeting at a church outside of Lembata's capital of Lewoleba. His face was framed by a wide-brimmed canvas hat and his trousers hung loose on his skinny frame. The old man's voice was weak in the large village space, but his message was strong. "Our ancestors have taken care of this land for us for thousands of years. We have all those things we need to live a peaceful life. Until the end of time we will defend our land."

Women in their bunched hand-woven sarongs, dyed in indigo and burgundy, murmured and nodded in agreement while a visiting priest from Indonesia's main island of Java gave a sermon that sounded as though it was written by a conservation foundation.

Bapak Abu, who hails from the hilly Balauring area believed to be the first area set for exploitation, has consistently opposed the mine. He and his family have become powerful symbols of local resistance. "Our mother Earth can only give birth to one world. We have to take care of it for our children and grandchildren." he said.

"When I went to talk to the bupati, he threatened me, saying that the company would bring in US troops to force us to agree. But I said that I am protected by Allah, the ancestors and Mother Nature. Even if they call 10,000 American soldiers I cannot agree. Even if they offer me three million dollars I will not agree." Another activist on the island related incidents of apparent official intimidation, including being followed, receiving death threats on their cell phones and having rocks thrown though their home windows.

Bapak Abu handed me an envelope stuffed full of 1 million rupiah (US$120) bank notes, a considerable sum by local standards. He said it was given to him as a gift from the bupati and that he was told it would be followed by 10 million rupiah more if he agreed to the mine. Lembata's bupati, Andreas Duli Manuk, did not respond to repeated calls and interviews for this article.

Several weeks earlier, two young would-be assassins had confessed their mission to kill Bapak Abu over his resistance to the mine. Their fee, they said, was a paltry 250,000 rupiah each. "I do not know who asked them to kill me, nor do I care," Bapak Abu said, his somnolent face grizzled and lined. "The police called me to sign a report, but I wouldn't do it. The report was too political."

He said the regional army, divisional police and intelligence agencies were all involved with threats and intimidation to people opposed to the mine, and that a neighbor who refused to sign his land over was recently found dead in his bed.

"He would not sign. They called him to Lewoleba. We thought he was asleep, but he did not get up to eat. He had a broken jaw and neck. We don't know what happened."

Ritual opposition
The only local legislative member opposed to the mine is Alwi Murih. He presented many probing questions about the project: "How can they build a mine if they haven't talked to any of the people about land? What is the deal between the regent and Merukh? Why is he pushing so hard for something the people just don't want?"

Ibu Anastasia Gea Atawolo, 51, is among the disaffected locals. Her serious face was lined and anxiety crossed her eyes like cobwebs. In a patriarchal culture, she is the sole woman village head and her Lamadale village is one of those slated to become a hole in the ground if the mine goes through.

She sat and watched as dignified old men and women danced in lock step, their arms linked tightly as they called on their ancestors to protect their land. Gradually the drumming speeded up and the dust rose around their feet. The crowd fell silent watching them.

Ibu Anasatasi pointed to her smooth-skinned 81-year-old mother. "She has lived here all her life. She cannot move. She does not want to move. She, like all of us, wants to be buried here. This is where we belong." She gestured towards the dancers. "They are concentrating the energy of five villages to preserve our life and the old ways."

"We have no future anywhere else. Five villages have joined with us in going to see the bupati, but he refused to argue with us. He would not even come out to meet us. He hid inside.

"The usual thing is for the government to come and talk to us: tell us what is happening and seek our participation, to negotiate and see what impact it would have on our lives. We are told instead that they will start to mine in 2009, some say as early as December this year. But we have not been asked or consulted. We have seen no offers for land, but we would not sell," she said.

Some hope for a democratic resolution to the conflict. Bediona Philippus is running to replace Andreas Duli Manuk as Lembata's regent at the 2009 regional elections. A university-educated man who has worked for major donor-funded projects in Jakarta, Philippus is serious about his island's future and now heads the local NGO forum.

"Merukh invited me to visit Sumbawa to see the mine, but I was convinced that he would orchestrate an accident, so I didn't go."

Philippus agrees that outside geological reports conflict with Merukh's claims. "But the bupati has passed three decrees which pave the way for exploration, so the process is unstoppable. He is really pushing. We don't know why. But if they go ahead, there will be war."

A marine park is being planned for the same area, which has some of Indonesia's last remaining intact coral reefs and pristine marine resources, believed to be some of the best scuba diving in the world. The location and proposed extent of the mine would make it difficult if not impossible to build containment walls to prevent the tailings from polluting the clear blue waters.

The seas here are also globally important breeding grounds for migratory whales: if the mine used submarine tailings disposal, as some suspect, the noise and debris could spell an end to whales visiting in the area and to the culture of traditional whaling in Lamalera.

It seems unlikely that the local officials who ardently support the mine are unaware of the geological reports contesting the existence of deep gold stores. Merukh, who is bidding to bring in international investors to finance the project, has so far chosen to ignore the widespread skepticism and resistance.

It is still possible that Merukh, who is now in his seventies, will be curbed through a combination of grassroots resistance and the global economic downturn, which has hit global commodity prices hard, though gold prices remain buoyant. It's also possible the situation spirals towards violence, as in former controversial ventures.

To the isolated people of Lembata, the world outside of their island is of little consequence. They are so poor that they are essentially external to the global economic crisis and are at risk of losing their modest traditional livelihoods. As NGO coordinator and electoral hopeful Philippus said: "The people are more afraid of adat [tradition] than they are of guns."