Citing Pollution Overseas, U.S. Cuts Firm’s Insurance

In an unprecedented action against environmental abuse by an American company overseas, the Clinton Administration on Wednesday cut off $100 million in federal insurance to a U.S. company whose gold and copper mining in Indonesia was said to be damaging tropical rain forests and rivers.

The Overseas Private Investment Corp., the federal agency that provides insurance for U.S. firms operating abroad, officially terminated its guarantees for the Indonesian operations of Freeport-McMoran Copper & Gold Inc., a New Orleans-based firm.

It was the first time OPIC has cut off insurance to any American company for environmental or human rights reasons. The action--coupled with the White House’s recent decision to oppose Export-Import Bank financing for U.S. firms bidding on China’s Three Gorges Dam project--shows that the Clinton Administration is trying to make sure U.S. export-promotion programs do not operate in ways that harm the environment.

The action also served notice that the Administration is prepared to withdraw insurance from other U.S. companies that seriously damage the environment in countries where they operate.

OPIC is an extremely important insurer for American companies trying to do business in less-developed countries.

The insurance against political risks that OPIC provides is often hard to obtain from private insurers, such as Lloyd’s of London.

American businesses trying to launch operations in new areas--such as Vietnam at the moment--often say they need OPIC insurance more than any other help from the U.S. government.

The insurance protects a company against the possibility that its assets overseas will be damaged or seized as a result of political upheavals.

On Friday, President Clinton turned aside an appeal from Indonesian President Suharto, who visited the White House and urged the Administration to preserve the OPIC guarantees for Freeport-McMoran.

The American company owns 80% of the Indonesian mining venture, the Indonesian government holds 9% and private investors in Indonesia control the remaining 11%.

In a written statement released late Wednesday, Freeport-McMoran said it was “disturbed” by OPIC’s action.

“We believe OPIC lacks a legal basis for canceling the coverage. 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,” the company said.

Freeport’s mines are located in the Indonesian province of Irian Jaya on the island of New Guinea.

The Grasberg mine, located amid mountains that rise to 15,000 feet, has one of the largest copper and gold reserves in the world. Freeport is the largest single U.S. investor in Indonesia.

Over the past few years, the American company has rapidly expanded its mining operations.

It noted in a statement to analysts on Wall Street in December that its drilling in Indonesia had turned up “exceptional” new copper and gold deposits.

But the Indonesian Forum for the Environment, known by its Indonesian acronym WALHI, complained that in the process of expanding, Freeport dumped toxic tailings from its mining operations into local waters, damaging rivers and a wide swath of rain forest.

A federal law requires OPIC to refuse to reinsure any American investment overseas if the project “will pose a major or unreasonable environmental, health or safety standard.”

In terminating Freeport’s insurance, OPIC said the expansion of the mining operations in Irian Jaya was harming the Indonesian environment.

In response, the company said in its statement Wednesday: “We are committed to the highest environmental standards in our mining operations. We are in compliance with Indonesian environmental regulations and have received all necessary environmental approvals from the government of Indonesia after detailed reviews of our operations.”

WALHI receives funds from the Ford Foundation and the U.S. Agency for International Development.

Two months ago, Freeport’s Indonesian subsidiary formally asked the U.S. government to cut off funds to the environmental group.

A Freeport official complained that the Indonesian organization “has openly affiliated itself with radical international [groups] such as Earth First, Friends of the Earth, Global Response and Greenpeace.”

AID, which is affiliated with the State Department, has provided about $1.1 million to the Indonesian environmental organization over the past 11 years as part of its effort to promote a civil society and a growing middle class in Indonesia.

U.S. officials recently turned down Freeport’s request to cut off the Indonesian group’s funding, instead agreeing to supply WALHI with an additional $250,000 over the next two years.