by Daryl Slusher
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
This article appears in November 10 • 1995 and November 10 • 1995 (Cover).