The Overseas Private Investment Corporation (OPIC), a federal agency which provides insurance and financing to American companies doing business overseas, has canceled Freeport-McMoRan's political risk insurance in Indonesia. That means CEO Jim Bob Moffett and his company are big political risks. In Austin, the question now becomes who will provide the local political risk insurance for Freeport affiliate FM Properties? Who will take the political risk and lead the way in their continuing quest for a city sewer to their proposed Barton Creek PUD -- which, by the way, is located outside the city limits? Who will advocate entering into a contractual relationship with them?
In a three-page cancellation letter (see page18 for full text), OPIC Associate General Counsel Robert O'Sullivan wrote that the Freeport mining operations pose environmental and health dangers to local inhabitants and said the company has committed "material breaches" of its OPIC contract. Among the breaches, wrote O'Sullivan, was misrepresentation of the amount of tailings that would be generated by Freeport's mines. He said Freeport "represented" on their application that "the maximum ore throughput" would be "52,000 metric tons per day." OPIC monitoring found levels of over 100,000 tons per day, and Freeport plans called for an increase to 160,000. "This change in the scope of work," wrote Sullivan, led to severe environmental degradation.
Now, I ask, does this sound like the type of folks with whom the City of Austin should enter into a contract -- a contract involving millions of taxpayer dollars, with the future of Barton Springs dependent on their honor?
Freeport-McMoRan officials have, of course, maintained for many years that their activities are not polluting the rivers of West Papua or damaging the rain forests. Those who claimed otherwise -- West Papuan residents, human rights groups, environmental groups, and various journalists and publications -- were attacked as liars out to destroy a good and humane company. To the newspapers and magazines that scrutinized Freeport, the company wrote scathing letters laced with libel language.
We might soon expect to see an angry letter in the Los Angeles Times. That paper last week cast serious doubts upon the veracity of another long-time claim by Freeport officials, that the company is not involved in human rights abuses against opponents of the mine in West Papua.
The Times also reported on high-level Freeport efforts to save the insurance policy. The paper said Moffett dispatched Freeport board member Henry Kissinger on a lobbying mission to convince administration officials to help Freeport retain the policy, and that Moffett also enlisted the help of another business partner -- Indonesian dictator Suharto, a man whom The New York Times has reported is responsible for the deaths of around half a million people.
Suharto, whom Moffett has called a "compassionate man," was in the U.S. for United Nations anniversary festivities. He visited Washington, D.C., where Moffett hosted a dinner in his honor. The next morning Suharto met with President Bill Clinton. Administration officials told the LA Times that Suharto lobbied Clinton to continue Freeport's insurance. Clinton said the issue would be decided on its merits.
I ask again, is this the type of company on whose honor we want to risk one of our most precious natural resources and many millions of taxpayer dollars? Many of our city's leaders think the answer is yes. On the international stage, Moffett can dispatch Henry Kissinger into the corridors of power, he can impel the president of Indonesia to lobby the leader of the free world on his behalf. Here in Austin, the politicos aren't as grand, but Moffett can still count on the solid support of many leading politicians and power structure institutions. The Greater Austin Chamber of Commerce has been an enthusiastic PUD advocate from the very beginning in 1990. The Austin American-Statesman has tirelessly argued Moffett's case on both its editorial and news pages. The daily has mouthed Freeport's propaganda points, ignored central issues like the need for city sewer service, and aggressively attacked the company's local critics. On November 6, after the OPIC cancellation story had appeared in The New York Times, L.A. Times, and The Austin Chronicle, among other sources, the Statesman reported the story, but buried it on page A6.
Two consecutive city managers have dispatched cadres of high-priced lieutenants to try to forge a development agreement and sewer deal. These were to take place in the form of a 30-year contractual agreement which contained ill-defined financial commitments and exempted Freeport and their affiliate FM Properties from many laws that others have to follow. The contracts were all several inches thick with mountains of side agreements. City staff has repeatedly delivered them to the council and public only hours before they were to be approved. For example, the original 1990 PUD proposal was not delivered until after the council meeting began, and the proposal this February was released less than 48 hours before the council was to vote.
A string of councilmembers, both current and departed, have tried to win approval of these agreements, only to be thwarted by the citizenry and other councilmembers willing to scrutinize the deals. Current council carriers of the Freeport agenda are Mayor Bruce Todd, along with Councilmembers Ronney Reynolds and Eric Mitchell -- an insurance man himself. Reynolds and Todd have both made Freeport development agreement one of their top priorities since taking office in 1991. They have made it a dominant City Hall issue, all the while moaning that the council should move on to other issues.
All of the above -- the Statesman, the Chamber, the bureaucrats and the politicians -- have not only pushed for a contract with Freeport, but have bought Freeport's propaganda line and tried to sell it to the public. Just one example is Freeport's contention that they don't need the city in order to develop, a claim promoted faithfully by the pro-Freeport cadres. The company has made this claim for five years, yet they keep returning to City Hall, presumably because they care so much about Austin, the city that chairman Moffett has threatened to "bankrupt with lawsuits."
As most who have followed this drama know, the reason Freeport keeps returning to the city is that they want city sewer service for their development. Moffett himself testified at the federal trial in May that commercial development was needed to make the residential portions work financially. Theoretically, they might get wastewater service through state-authorized municipal utility districts (MUDs), which the Legislature later approved, but Freeport still lacks a discharge permit to handle the level of wastewater that would be generated by commercial and industrial developments. These types of projects are unlikely to be built with septic tanks or irrigation -- even on the slim chance that Freeport could win authority to irrigate sewage at that level.
Moffett also acknowledged that Tokyo Electron considered purchasing a development site at the PUD, but backed out due to the lack of sewage service and the political situation. Nonetheless, city management, the Freeport bloc on the council, the Statesman, and the Chamber all continue to accept the line that Freeport and FM Properties don't need the city. Will Freeport's cancelled insurance cause them to change their minds? Maybe, but probably not.
Another reason not to enter into a contract with FM Properties is that they are a company in trouble. They face a $74 million balloon debt payment in July, and are not generating anywhere near the revenues needed to make the payment. In fact, FM Properties is losing money. Parent company Freeport-McMoRan backs the note, but having to pay it could cause problems with stockholders, as well as with other partners like those in the Indonesian mining operation. The original deadline was January, 1996, but the company won a six-month extension to next July.
What FM Properties actually seems to need is a refinancing of their debt. That will be very difficult, if not impossible, without approval of a city sewer that would make commercial and industrial development possible. Note that July is after June, which is when the winners in next year's council elections take office. That will likely be FM Properties' last stand, although it will be a stand made as far behind the scenes as possible with politicians out front making arguments about dealing with this issue and moving on to other more important matters.
The clearest indication of FMP's problems is the continuing decline in the value of their stock. Trading at over $6 a share as recently as the third quarter of 1993 during the development agreement negotiations, it has now dropped to below $2. The plunge in value has continued through a series of FMP "victories" over the last year:
* A Hays County jury struck down the Save Our Springs (SOS) water quality ordinance and the city council subsequently repealed SOS even while the verdict is on appeal.
* FMP was granted a 10(A) permit by the U.S. Fish & Wildlife Service, freeing them from the constraints of the federal Endangered Species Act.
* At the Texas Legislature this session, Freeport forces won approval of special laws designed to free them from all city regulations and punish the City of Austin for their arrogance in attempting to regulate growth around Austin.
* FMP won a federal lawsuit charging the city with "arbitrary and capricious" conduct concerning 25 acres of their land. The company was awarded only $113,000 of the $75 million they asked for -- falling somewhat short of Moffett's 1992 boast that he would "bankrupt the city."
* They have won several zoning cases at the council, and approval of a special water deal for their Lantana development in which the company will build its own water transmission facilities, then be reimbursed by the city at over a million dollars a year for three years. The Lantana deal was made possible when Councilmembers Jackie Goodman and Gus Garcia broke from the "environmental majority" and joined Todd, Reynolds, and Mitchell in favor of the deal.
Despite all of this, their stock keeps dropping.
The only thing that might send the stock price back up is city sewer service at Barton Creek. As it stands now, even a vote for a city sewer might not make the development possible. It would, however, make refinancing more likely and increase the sale value of the property. Anyone on the city council who votes to grant Freeport a deal will have the burden of explaining why their vote is not just a vote to help bail out FMP financially.
The Freeport voting bloc on the council could save us all a lot of trouble. The council, including the current FMP bloc, could announce that they will not, under any circumstances, vote to enter into a contract with this company. That would leave Freeport to fend for themselves, and it would derail the issue now -- and probably in next year's council election. Then the city would be freed from this issue and we could devote more time to other critical issues, just like everyone agrees we should.
All the damage that Freeport has done to West Papua was done so that they can mine more gold and copper. That's what they're doing here, too. We're just another outpost from which to mine wealth. They care no more about our creeks and rivers, or our economy, than they do about those of West Papua. Perhaps that is their right as a private company, but the citizens here must look out for Austin. Especially, our city government should look out for the interests of Austin. The City of Austin shouldn't be an insurance company for Jim Bob Moffett. n