The Overseas Private Investment Corporation has canceled $100 million in political risk insurance for a huge gold mining project in Indonesia that is operated by Freeport-McMoran Copper and Gold Inc.
The Federal agency, which provides insurance and financing to American companies doing business overseas, canceled the company's insurance, effective at midnight on Tuesday. Political-risk insurance is intended to compensate a company if it loses assets because of terrorism, sabotage, a coup or other political volatility.
The cancellation, which had been rumored for nearly two weeks, was confirmed yesterday by Allison Rosen, a spokeswoman for the Overseas Private Investment Corporation, which is known as OPIC. "I can't talk about the grounds of the termination," she said. Ruth R. Harkin, the agency's president and chief executive, has been out of the country this week, and Ms. Rosen said it was unlikely that Ms. Harkin would comment on the cancellation in any event.
Gregg Probst, a spokesman for Freeport McMoran, which is based in New Orleans and is a subsidiary of Freeport McMoran Inc., said the company was disturbed by the cancellation. "We believe OPIC lacks a legal basis for canceling the coverage," he said. "Therefore, we believe the coverage remains in effect, and we will operate on that basis pending a resolution of the dispute, which has been submitted to arbitration, as provided by our contract with OPIC."
People who have been following the issue say the insurance was canceled because of environmental problems at the Grasberg Mine, which contains the world's largest known gold deposit, an estimated 22 million ounces. The body of ore, in the mountains in the Indonesian province of Irian Jaya, on the western half of the island of New Guinea, also contains an estimated 15 billion pounds of copper and 37 million ounces of silver. The total value of the deposits is estimated at $50 billion.
In recent years, Freeport McMoran has pumped more than $2 billion into the mine, which employs about 17,000 people. Freeport McMoran is the largest single American investor in Indonesia.
Environmental groups in Indonesia and the United States that oppose Freeport's operation in the region say that the company has done little to contain tailings below the mine site and that runoff from the tailings has killed fish in nearby rivers. They also contend that local villagers can no longer drink water from the river. Freeport McMoran officials deny that the mine tailings are toxic.
The cancellation comes despite an intensive lobbying effort in Washington by Freeport McMoran directors and officials, including former Secretary of State Henry A. Kissinger, who sits on Freeport's board. The insurance issue was also reported to have been raised by President Suharto of Indonesia during a meeting with President Clinton last week at the White House.
The mine has been under increased scrutiny in recent months as a result of two reports contending that there had been several dozen instances of human-rights violations in and around the mine site. In April, the Australian Council for Overseas Aid reported that 22 civilians and 15 guerrillas had been killed or had disappeared in the region. The report also accused Freeport security personnel of having taken part in several of the killings.
Then, in August, the Roman Catholic church of Jayapura reported that it had found evidence to support many of the allegations in the Australian report. The church's report also included accusations of torture.
The company has repeatedly denied any involvement in the reported rights abuses.
The Overseas Private Investment Corporation would not comment on the allegations of rights abuses or whether the incidents led to the cancellation of the insurance.
Freeport McMoran executives have said that the company provides food, transportation and shelter to Indonesian military personnel at the mine. But the company said it did not "provide transportation or other assistance to military personnel involved in combat operations."
Steve Feld, an anthropologist and opponent of the Freeport operation who has spent two decades studying indigenous music and culture in neighboring Papua New Guinea, said the decision to cancel the company's insurance "confirms what many people have known and talked about for a long time." He added, "This is extremely important because OPIC's scientists are internationally recognized."
The decision appeared to have been guided by a 1979 executive order, which provides environmental guidelines for projects that OPIC insures or finances. The purpose of the order is to "insure that all significant environmental effects of its actions outside the United States are considered by OPIC in its review of proposed insurance and finance projects."
Neither the agency nor the company would comment on when arbitration might begin.
GRAPHIC: Map of Irian Jaya showing location of the Grasberg Mine.