MARCH 1996 · VOLUME 17 · NUMBER 3

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P A P U A    N E W    G U I N E A    B L U E S

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AUSTRALIA'S LARGEST COMPANY, BHP, has long conducted environmentally destructive mining operations near the Ok Tedi and Fly rivers in the remote Western Province of Papua New Guinea (PNG) with little public scrutiny. That suddenly changed in 1995, when the "Big Australian," as the company calls itself, helped draft a bill that eliminates the rights of PNG citizens adversely affected by the mine to seek compensation in court. Now BHP is paying a heavy price for its actions, as the outside world takes a hard look for the first time at the destructive effects of the company's mining operations on the people whose rights BHP sought to strip.

BHP's Ok Tedi copper and gold mine is located on Mount Fubilan in the Star Mountains adjacent to the West Papuan border. This remote and geologically unstable region receives about 10 meters of rainfall annually and is home to thousands of tribal residents. Ok Tedi is the third largest open-cut copper mine in the world, and accounts for 16 percent of the country's export earnings. The mine is owned by BHP (52 percent), the PNG government (30 percent) and Mettal Mining Corporation (a Canadian subsidiary of German Mettalgesellschaft) (18 percent). In the mid-1970s, BHP organized the consortium, Ok Tedi Mining Limited (OTML), which manages the mine. In 1987, BHP assumed total control over OTML's operations, which are expected to continue through 2010.

Thanks to recent increases in world copper prices, Ok Tedi generated $120 million in earnings last year, accounting for 13 percent of BHP's total profits and making Ok Tedi the fifth-largest source of BHP earnings. Although it has been a big money maker in its 11 years of operation, OTML did not pay any taxes to the PNG government until October 1995, when it made a $3.75 million payment.

Long, dangerous tail

The heightened international scrutiny of its operations that followed its effort to have legislation protecting the company has created a public relations problem for BHP, because it has operated the Ok Tedi mine in a fashion that would not be tolerated in Australia or any other industrialized country.

The mine dumps 80,000 tons of tailings (rock waste) containing copper, zinc, cadmium and lead into the Fly and Ok Tedi Rivers every day. Originally, the PNG government made OTML's operations conditional upon the construction of a tailings dam, which would have filtered out much of the waste now dumped in the rivers. But after the original tailings dam was destroyed by a landslide in 1984, OTML made a successful pitch to forge ahead without a tailings dam, exacting a predictable toll on a once-pristine river system.

This circumvention of PNG environmental laws and regulations is not an isolated event. Repeatedly, BHP has been able to shape the rules to meet its own operating needs, often enjoying exemptions from PNG's environmental regulations. A detailed report released by the Australian Conservation Foundation (ACF) in 1992 found that "There is no routine independent assessment of the compliance monitoring nor of the interpretation of data. This `in-house' approach means that OTML is not publicly accountable for its environmental performance in any meaningful manner."

In 1991, OTML's own reports revealed that fish stocks in the upper Ok Tedi had declined between 50 percent and 80 percent from pre-mine levels. ACF reported the next year that the first 70 kilometers of the river was "almost biologically dead and species diversity over the next 130 kilometers had been dramatically reduced. Fertile river bank subsistence gardens, plantations and approximately eight square kilometers of forest have been destroyed." ACF also found that the sediment flowing into the Fly River from the mine has elevated copper levels in fish and bottom sediment.

"We used to drink, wash and fish in the river," says Alex Maun, a spokesperson for Ok Tedi landowners. "But when the mining began in 1984, the river became polluted -- it is only caused by the mining." As a result, 30,000 landowners downstream from the mine are unable to earn any income from the sale of fish and garden produce.

In the process of damaging the area's agriculture, fishing and forest systems, the massive mine has inflicted social as well as ecological hardships. Since the mine opened, nearby villagers have seen their subsistence lifestyles enveloped by the cash economy, their communities demoralized through increased alcohol consumption, and river transport, upon which they have traditionally relied heavily, disrupted.

BHP counters that it has improved living standards by building schools and hospitals in the area. As a result, says BHP spokesperson Tony Wells, "there is clearly widespread support amongst local people for the project."

But locals say that while some residents of the area may have benefited from BHP-supported facilities, they are hardly a replacement for the clean water and intact forests that were central to their lives. Others dispute that BHP has made any significant contribution to the area. "There are no schools in my village, no hospital in my village," says Alex Maun. "In my village, we were given $3,000 a year to be shared by each person. This amounted to $20 a person."

Above the law?

Seeking to discipline a company that has operated with a virtual exemption from numerous PNG environmental laws, the Melbourne, Australia-based law firm of Slater and Gordon, acting on behalf of Rex Dagi and 30,000 villager landholders in the Fly River basin, sued BHP in Australian and PNG courts in 1994. In a writ filed in the Victorian Supreme Court in Australia and in 900 writs in the National Court of PNG, the plaintiffs claim that environmental damage from the Ok Tedi mine has polluted rivers and damaged their way of life. They are seeking unspecified damages for loss of amenity (quality of life) and ability to derive existence from the land polluted by the Ok Tedi mining operations. On November 19, 1995, overcoming the first procedural hurdle for the landowners, the Victorian Supreme Court ruled that it had jurisdiction to hear these claims. The trial, now awaiting the hearing of an appeal over the court's jurisdiction over the landowners' claim, may take place in late 1996 or early 1997.

In an unprecedented response to this suit, in August 1995, BHP drafted legislation for the PNG Parliament that subjected anyone who sued BHP to fines of up to $75,000. Even more remarkably, the bill also applied the same fines to anyone who attempted to challenge the constitutional validity of the proposed law in PNG courts. The bill made it an offense to commence compensation proceedings against BHP, to assist a person to do so or to give evidence at compensation proceedings.

In an attempt to seduce the landowners, BHP offered to establish an $82 million fund to pay out compensation and benefits to plaintiffs over the life of the mine. This package would provide $180 per landowner per year over the mine's remaining 15-year life.

In September 1995, BHP was found in contempt of the Victorian Supreme Court for its part in drafting the legislation, but this decision was later overturned by the Victorian Court of Appeal on a technicality. The state attorney-general is now considering whether to bring new contempt of court charges against BHP for the incident.

The company also struck out in the court of public opinion in Australia, where activist groups and citizens alike expressed outrage at the Big Australian's attempt to circumvent the court system. BHP's actions "fl[y] in the face of common law and Australia's human rights obligations," says Jeremy Hobbs, executive director of Community Aid Abroad, Oxfam's Australian affiliate.

PNG citizens were also furious at the BHP attempt to strip away landowner rights. "If Papua New Guinea is to survive, then land holders must be allowed to access the courts using general principles of the law of tort and damages," says Brian Brunton, a former PNG judge who is now a lawyer with the PNG-based Individual and Community Rights Advocacy Forum. "To take these rights away from landholders is to subsidize foreign mining and resource companies at the expense of landholders. We believe that such a move would lead to long-term instability in PNG."

While acknowledging it played some role in the legislative process, BHP refuses to accept any blame for its actions. "BHP has had discussions with the PNG government about the legislation," says company spokesperson Tony Wells. But, he notes, "any legislation is ultimately the responsibility of the PNG government."

The immense outcry partially defeated the Big Australian's attempt to rewrite PNG laws in accordance with its own interests. In December, the PNG parliament passed a version of the legislation that was cleansed of the offending criminal sanctions. The legislation gives landowners six months to decide between pursuing legal action in Victoria or accepting government compensation for damage to gardens and crops from the mine. The compensation package remains at the original figure of $82 million for 30,000 landowners. An important provision of the legislation is a stipulation that the compensation is reduced or eliminated altogether if BHP is forced by the government to build any waste containment facilities. In other words, the landowners themselves will pay for any tailings dam BHP might construct.

"We support the PNG government's compensation package and will implement that," says BHP's Wells. "This is a general compensation package which recognizes the impact of the mining operations on the Ok Tedi landowners. It is separate from any claims from economic loss such as those in the Victorian Supreme Court."

The compensation package was not the PNG government's only response to the Ok Tedi landowners' legal actions. In December, the PNG parliament also passed the Compensation (Prohibition of Foreign Legal Proceedings) Act. This Act makes it illegal for landowners affected by any resource project in PNG to pursue any future legal action for compensation in a foreign country. The government is currently delaying proclamation of the Act due to Australian Foreign Minister Senator Gareth Evans' protestations that it breaches various trade and commercial agreements between Australia and PNG.

It is clear that while BHP and the PNG government have been forced to back down a little bit in the current case, they are determined not to allow a repeat performance of the Ok Tedi debacle.

Despite attempts to distance itself from the Ok Tedi controversy, the Australian government did play a role, if only by default. Australia does not regulate the activities of BHP and other Australian-based companies in developing countries to restrain them from converting their economic clout into improper leverage over foreign governments. In light of the Ok Tedi experience, Australian environmental groups are calling on the Australian government to require Australian companies to comply with Australian environmental regulations when operating abroad.

The Australian public and the media have widely condemned BHP's actions. The company is responding to a barrage of negative publicity with a multi-million dollar media campaign in Australia and PNG. At BHP's annual meeting in Melbourne in September 1995, BHP management, faced with 1,800 shareholders with questions inside and more than 100 protesters outside, tried to justify its lead role in the controversy. Toeing the company line, Managing Director John Prescott refused to accept responsibility for the PNG legislation, claiming, "In the final analysis, it is the sovereign government of Papua New Guinea that has the accountability and responsibility in this matter." BHP has also emphasized its claims that revenues from Ok Tedi have funded substantial infrastructure and local employment, in addition to generating 20 percent of the country's foreign exchange.

BHP's behavior in PNG is an extreme example of what can happen when powerful corporations are given free rein in developing countries desperate for foreign capital. Too often, environmental standards and human and civil rights get traded away. n

BHP's Double Standard

BHP REACTED ANGRILY to a recent letter from U.S. Senator Alfonse D'amato to the company's chair, Brian Loton, asserting that a Pakistan-Iran pipeline deal the company is involved in could draw sanctions if legislation now pending before the U.S. Congress passes. The legislation would impose penalties in the United States on foreign companies that do business with Iran, by limiting their access to U.S. capital markets.

BHP denied reports that the deal was close to being signed, but BHP managing director John Prescott told the Australian Financial Review, "If the U.S. has a law which affects our operations we will respect that law." BHP's maintains substantial U.S. holdings, including the recently acquired Magma Copper, purchased for US$3.2 billion.

The company's main point of contention with the anti-Iran legislation was its international application. BHP said it "strongly opposed" extra-territorial laws, with Prescott stating, "As a matter of principle we [BHP] don't think countries should pass laws for international application."

Prescott's comments appeared to flatly contradict BHP's active support and involvement in drafting Papua New Guinea's new extra-territorial law restricting PNG citizens' right of redress in foreign courts. Prescott himself admitted during contempt proceedings against BHP in Australia that the company's lawyers worked on preliminary drafts of PNG's new extra-territorial law. -- Ned Daly

Inside the Mind of BHP

MULTINATIONAL MONITOR GAINED A RARE INSIGHT into corporate damage control efforts in the wake of the magazine's most recent prior coverage of BHP. An internal company memorandum reveals the company's efforts to counteract negative coverage in the Monitor, and provides an interesting perspective on the company's attitude to media attention and citizen protests. As international attention has increasingly focused on BHP and its behavior in Papua New Guinea (PNG), the company has cranked up its public relations machine. When Multinational Monitor named BHP as one of the ten worst corporations of 1995 [see "Shameless: 1995's Ten Worst Corporations," Multinational Monitor, December 1995], BHP was ready to respond. The Monitor story generated at least one reporter call to BHP, from James Kennedy, a reporter for the Washington, D.C.-based Daily Environment Report. Kennedy spoke with BHP public relations representatives Roger Nelson and Bob Wunder. Nelson and Browder summarized their conversation with Kennedy in another conversation, with BHP consultant Joe Browder, who formerly worked for Friends of the Earth. The Nelson-Wunder-Browder discussion is recounted in a January 4, 1996 memorandum that was obtained by Multinational Monitor. Much of the memorandum describes an amusing attempt by the parties to figure out exactly what Multinational Monitor is, and to determine its relationship with consumer advocate Ralph Nader, who has criticized BHP for its activities in PNG. (Nader founded Multinational Monitor, but the magazine operates independently of him.) Some portion of the memorandum describes BHP's substantive responses to the claims made in the December Monitor article, concerning BHP's pollution of the Ok Tedi River and the company's efforts to influence the PNG legislature. "In the conversation, I think, Bob, we could say that we largely let him [Kennedy] lead," Nelson says in the memorandum. "You made a fairly crisp packaged statement, and then he responded with some further questions." Nelson stated that he told reporter James Kennedy that BHP had in fact drafted language similar to that which appeared in the PNG legislation restricting PNG citizens' right to sue foreign companies abroad or to sue BHP in PNG courts, but not the actual language of the legislation. After explaining that much of the language BHP had drafted was for contractual, not legislative purposes, Nelson admitted that the company had at least begun efforts to draft legislative language to limit PNG landholder rights. "It happens that some of our technical level lawyers were drafting language along those lines," he says in the memorandum, but "the draft language document was suspended immediately upon it coming to the attention of management as to how the document would impact the people." The BHP representatives also apparently told Kennedy that BHP's mine is not causing serious environmental damage in PNG. "Bob explained the sedimentation and how that leads to the overbank flooding and how this rainfall will eventually flush the material down," Nelson says in the memorandum. "Bob, you talked about how [the rock waste is] physical and it's not toxic, that it's not toxic material at all. ..." More interesting than the corporate flacks self-congratulatory description of their efforts at spinning reporter Kennedy is their subsequent discussion of the public relations strategy of U.S. mining company Freeport McMoran. Freeport operates a huge gold mine in Irian Jaya, the western, Indonesian-controlled portion of the island which makes up most of Papua New Guinea. Freeport has come under heavy attack from citizen activists in recent years for its operations in Irian Jaya, and has responded with an unusually hysterical and high-profile campaign. Freeport's campaign reached feverish pitch after activists succeeded in convincing the Overseas Private Investment Corporation to withdraw insurance coverage of Freeport because of its dismal environmental record in Irian Jaya. Freeport has taken out numerous full-page newspaper advertisements, the company has withdrawn support from Loyola University in response to student protests there, and company chief executive Jim Bob Moffett has responded in harsh terms to personal attacks on him. The BHP memorandum expresses dismay at Freeport's overly aggressive response to criticism, and worries that Freeport's behavior may affect popular perceptions of BHP, another mining company doing business on the same island. Consultant Joe Browder describes how BHP might function as an intermediary with government officials to help defuse some of the pressure on Freeport: "[I]f it looks like BHP has the kind of across-the-border collegial relations with Freeport folks to be able to offer any kind of discreet, quiet help in dealing with the professionals who run AID [U.S. Agency for International Development] programs and that sort of thing, so Freeport is understood not to be quite the monster that it's being portrayed to be, too, that's something that if you all decided was in the company's interest we might be able to offer as a way of lowering the temperature of the whole issue." Importantly, Browder says in the memorandum, "And if Freeport comes to think that maybe the government isn't out to destroy it after all and stops this huge campaign, I think that's very much in our interest." He adds, "If they make this a big issue, it's only going to spill over onto us and have us having to do clean-up work at a minimum." -- Robert Weissman

A Tailings Tall Tale?

BHP has always claimed that it discarded plans to build a tailings dam at Ok Tedi only after its initial effort at dam-building was destroyed by a landslide, demonstrating that it was infeasible to construct a dam in the area. Engineer Bill Townsend, who worked for the Papua New Guinea (PNG) government corporation Mineral Resources Development Corporation from 1981 to 1984, the period during which the Ok Tedi mine project was planned and constructed, disputes this claim. Townsend claims the evidence strongly suggests that BHP and its joint venture partners at Ok Tedi (operating through the consortium Ok Tedi Mining Limited, OTML) were never serious about building a tailings dam. It is true, Townsend acknowledges, that OTML did begin construction of a dam, though mostly access roads rather than the dam itself. But construction, he says, began even though dam design had not been completed and geological features of the dam site had not been mapped. Nor had OTML presented a design plan to the government for approval and revision. The landslide which provided OTML's alibi for abandoning the dam was in fact caused by the consortium's initial construction work, Townsend says. It would have been possible, Townsend believes, to have safely constructed a dam within a few hundred meters of the original dam site. The constructor of the dam, Bechtel, stated immediately after the landslide that the dam could have been built on the same site, just 200 meters upstream, he says, an assessment shared by other experts who analyzed the issue after the landslide. "BHP has a huge number of people at work on public relations and legal aspects," of the Ok Tedi project, says Townsend. "They would rather spend $10 million a year on legal jeremiahs than on environmental protection." -- Robert Weissman