CHAPTER 12
The Ok Tedi in Papua New Guinea is a tributary of the 1000-kilometre Fly River system, which has a total catchment of 76,000 square kilometres. The Fly discharges between 3000 and 7000 cubic metres of water per second from the western high country into the Gulf of Papua. More than 50,000 people live along its banks and floodplains. It is now an environmental disaster area.
At a mine-closure workshop in 2006, the managing director of Ok Tedi Mining Limited (OTML), Keith Faulkner, said, ‘This region should have seen greater and more sustainable benefits than it has in the 25 years OTML has been in existence. Insufficient thought was given 25 years ago and since then to the effects of its social and environmental impact. But Ok Tedi was a tough project to get started in the first place 30 years ago.’ 1
It was indeed.
Ok Tedi is a misnomer; the mine is actually on Mt Fubilan in the Star Mountains, first penetrated by a Westerner, the Australian kiap (patrol officer) Des Fitzer, in 1963. Five years later, geologists working for the American miner Kennecott discovered copper and gold deposits in the mountain and for the next six years negotiated with the PNG administration during the transition to independence from Australia in September 1975.
The following year, the talks broke down and Kennecott withdrew. According to Richard T. Jackson, mining consultant and historian with continuing links to the project, ‘After a brief interregnum in which the government managed the project, BHP put together a consortium with Amoco and a mixture of [then West] German companies. BHP and Amoco each held 30 per cent of the shares in Ok Tedi Mining Limited, the Germans held 20 per cent and the PNG Government the remainder. From 1978, serious negotiations began over the future development of a mine on Mt Fubilan.’ 2
In 1977, Jackson, his associate Robert Welsh and economist Craig Emerson 3 were contracted by the PNG Government to report on the impact of the Ok Tedi project. ‘Unfortunately,’ Jackson says, ‘what should have been its companion volume, an environmental impact assessment, was not commissioned until after this date; it was eventually commissioned by OTML and issued in seven volumes in June 1982.’ 4
Meanwhile, BHP as the operator was under pressure from the PNG Government to begin mining and thus provide much-needed foreign exchange, since the only other comparable revenue source was the Panguna copper mine in Bougainville. The then BHP treasurer, Russ Fynmore, who was in charge of financing Ok Tedi, visited the mine several times. ‘The Papua New Guinea Government would have to share responsibility for what happened,’ he says. ‘Ok Tedi had a gold cap and the copper was underneath. The government was very concerned that we would just mine the gold cap and walk away, so they wrote the contract in such a way that we had to go on with the copper mine – which we always intended to do – but then when the environmental issues arose, they wouldn’t let us walk away because the copper was valuable and they wanted their royalties.’ 5
BHP was itself keen to start extracting the gold cap to secure its own returns on the project. It engaged the big American construction company Bechtel in combination with Morris Knudsen International (BMKI) to build the first stage in 37 months. Work began in June 1981 on a ‘fast track’ schedule that almost immediately ran into trouble. According to Jackson, ‘From April 1982 onwards, matters appear to have deteriorated.’ The Kyoten Maru sank off Townsville with US$1.3 million worth of cargo for the project. Heavy rains hampered road construction. And when the rains stopped, there was an almost unprecedented drought, and the Fly and Ok Tedi became unnavigable. ‘The low water flow was to last for six months,’ he said. ‘The project ran out of cement in July, and fuel and food supplies were low.’ 6
Cost overruns reached US$100 million. A proposed hydroelectricity plant was abandoned. By 1983, the project was eight months behind schedule. According to Jackson, the German shareholders pressed the OTML board to ask the PNG Government to allow them to dispense with a tailings dam. ‘Whilst the case for no tailings dam had been strongly argued by BHP in 1978–79,’ he said, ‘this was the first time since the project agreement’s signing that the issue had been raised.’
The PNG Government resisted. ‘From the start of the project, the PNG Government tried to take as firm an attitude as possible on the matter of tailings disposal,’ he said. ‘In 1979, during negotiations held at a stage when world metal prices made the whole project appear sub-marginal, the consortium proposed to dump all tailings into the river system. This provoked a vigorous response from government, which rejected it out of hand and, in return, imposed a wide variety of environmental conditions on the project. Fortunately, gold prices rose very substantially and the consortium felt able to accept the costs these environmental safeguards imposed. These included the tailings dam at Ok Ma.’ 7
Now, in the face of further cost overruns, OTML submitted new plans on 12 December 1983 that eliminated the dam. They demanded an immediate response. Three days later, the PNG Cabinet rejected it. Stalemate followed, but not for long. The dam was reinstated within two months but, when construction began, the operators were unaware that the mine was in a seismically unstable region. Minor tremors had caused some dislocation but work was able to proceed. On the night of 6 January 1984, however, something happened that would disfigure and deform the project for the rest of its life. Some say it was ‘one little tremor’, others that it was a ‘land slip’ caused by water drainage beneath the slope, and others that BMKI’s work at the site precipitated it. But whatever the cause, the effect of the massive avalanche that obliterated the work on the tailings dam would be devastating.
OTML, now effectively controlled by BHP, returned to the PNG Government on 23 January with a request to ‘defer’ the tailings-dam construction for two years. Two days later, against the advice of some of its experts, the government acceded, thus saving up-front project costs of US$84 million. Gold mining started almost immediately. In May 1984, the first gold pours began at the mine site and the first tailings entered the river system. ‘The plan was to build a dam but the area was too volcanic and they could never get the dam to stay in place,’ Russ Fynmore says. ‘That’s why the decision was made to dump all the refuse in the river.’ 8
Soon after mining began, two environmental disasters occurred. On 14 June, a barge carrying 2700 drums of sodium cyanide, a key element in the gold-extraction process, capsized in the Fly River on the way to the mine. Only 117 were recovered. Five days later, there was a serious leak of cyanide solution from the mine into the Ok Tedi. The company said nothing about the accident for two weeks until piles of dead fish, snakes and crocodiles appeared on the riverbanks. A government report damned the mine’s ‘interim tailings scheme’. The government gave OTML one year to produce detailed plans for the copper-mining phase of the project to include construction of a permanent tailings dam.
Australian National University anthropologist Dr Colin Filer, who has worked in the region for two decades, said, ‘One year later, the other members of the consortium [aside from the government] declared that they were not prepared to invest in the facilities required for copper production and simultaneously undertake to build the dam.’ 9
The government’s response was to close down the mine for six weeks in February and March 1985 until the other partners changed their tune. Another year passed, the original tune was played again and this time the government’s opposition was muted. In February 1986, parliament ratified the Sixth Supplemental Agreement between the state and the mining company, allowing the latter to proceed with copper production despite the absence of a tailings dam, provided only that it undertook to study the effects of discharging waste materials into the river system and report back to the government by the end of 1988.
However, just as the deadline expired on 1 December 1988, events elsewhere conspired to produce the worst possible result for the villagers of the Ok Tedi region. Rebellion broke out in Bougainville and would soon close the Panguna copper mine, PNG’s only other major source of foreign exchange. And in the world’s commodity markets, copper prices began to recover.
OTML immediately responded by raising its output to 80,000 tonnes a day to take advantage of the higher prices but with a corresponding increase in the noxious waste pouring into the river system. And the cash-strapped PNG Government sat on its environmental hands for a further ten months. When it did respond, it released the company from its obligations provided it would ‘continue to study the feasibility of various waste-retention options, upgrade its own environmental monitoring program and take some steps to compensate the people living downstream of its operations’. 10
The need for ‘compensation’ had entered the equation following growing complaints from villagers downstream of dead fish and polluted water. The tailings sediment contained a toxic mix of sulphur and other chemicals from the ore body itself, plus the acid used in the separation process. The company secured the use of a vessel, Western Venturer, to monitor fish populations in the Fly River.
In late 1987, Glen F. Andrews, who joined Utah in 1970 and gained experience in copper mining at the Island Copper mine on Vancouver Island, was brought in from BHP’s San Francisco office as general manager. He ran Ok Tedi in 1988 and 1989. ‘I flew in with King Air – at that time they had an airstrip – and lived with my wife in a house on stilts at Tabubil, a nice little town site but it needed a lot of improvements,’ he says. ‘The mine was 6000 feet up the mountain and had been operated rather loosely. You couldn’t run that mine without impacting the river. The tailings dam had broken before I got there and we started a system of dredging to collect the sediment and keep it out of the Fly River.’ 11
Meanwhile, at BHP headquarters chief executive officer Brian Loton and his team fought off the Holmes à Court share raid, acquired the undeveloped Escondida copper mine in Chile and bought out its OTML partners, Amoco and two of the German investors, giving it a 60 per cent interest in Ok Tedi. 12 And by January 1988, the copper price hit a high of US$1.50 per pound, producing an end of year profit of K24.2 million, 13 42 per cent of PNG’s total exports. ‘With the release of these figures,’ Filer said, ‘OTML was able to portray itself as the prodigal son who had saved the economy when the loss of [Panguna’s] production had threatened devastation.’ 14
From that point on, the company’s senior executives displayed a growing confidence – perhaps even a touch of arrogance – in their capacity to match each report of escalating physical damage to the Fly River system with an even more impressive list of economic benefits to Papua New Guinea as a whole.
An American anthropologist, Stuart Kirsch, who surveyed the area from August 1987 to May 1989, reported that the lower Ok Tedi had been turned into ‘a 75-kilometre long sewage canal’; overflows of sediment in flood periods prevented crops from growing at all; and ‘the entire Ok Tedi river system has been destroyed’ to become ‘an environmental horror’. ‘What is at stake,’ he said, ‘is nothing less than the future of the entire Fly River and possibly parts of Papuan Gulf and Torres Straits as well.’ 15
He recommended that a compensation plan be devised for the people who lived and owned land along the Ok Tedi river system while scientists continued to investigate the effects of the discharge on the Fly River itself. Filer says, ‘The sad irony in Kirsch’s recommendation is that [they] should have been receiving fair and reasonable compensation according to the government’s own rules from the moment the government itself allowed OTML to begin mining operations without the tailings dam.’ 16
But even in 1989 the only people receiving compensation from OTML were the traditional owners of those areas that the government had leased out to the mining company back in 1981, at a time when all parties still thought that a tailings dam would be built.
In fact, these groups had received only K3 million in that period. Now, in June 1989, Ok Tedi landowners sought K13.5 million in compensation in a petition to the district office. ‘One may imagine,’ Filer says, ‘that the recipients of this petition did not regard it as the sort of document which deserved the attention of a mining warden in Port Moresby.’ 17
OTML responded with a proposal for a ‘Development Trust’ of K25 million via a levy paid to the government for each tonne of ore processed and waste mined. 18 The company’s contribution would return each of the 30,000 beneficiaries a mere K83 a year. Village leaders of the local Yonggom people resolved to petition the national government. At the same time, the international environmental community bestirred itself. The Papua New Guinea Council of Churches passed a resolution condemning the dumping of waste in the Ok Tedi; the German Council of Churches paid two scientists from the Starnberg Institute to visit the area and report; the International Water Tribunal and the Australian Conservation Foundation also produced damning reports.
BHP’s director of corporate affairs, Carol Austin, says she lobbied internally for a more active public strategy on Ok Tedi. ‘But there were tensions between what Corporate wanted to do and what was done. Ok Tedi came under minerals division and when you have autonomous business units they ultimately have the say.
‘I wanted to see regular flights taking half a dozen journalists up there to show them the mine, explain what was happening. The environmental people in the department that I dealt with expressed the view that this would cause disruption and that the long-term environmental damage was reversible. And that was the advice that was given to senior management.
‘Certainly, there was the question of the mining bringing to the surface the heavy metals – but this was put in terms of “this is what happens when you get internal disturbances”. The other side of it was the income that was being generated; but certainly the advice to the management at headquarters given by the environmental department was not that we are doing devastating damage to the environment and we need to cover it up. They maintained to me that they were comfortable about what BHP was doing at Ok Tedi.’ 19
However, in June 1992 the Yonggom community leaders travelled from the banks of the Ok Tedi to the Rio Earth Summit, where they attracted the interest of the world press. Their provincial leader Isidore Kaseng threatened to close the mine by any means available unless the government agreed to negotiate a better compensation package. Kaseng was briefly arrested. Protests threatened to disrupt the mine. The shadow of Bougainville – by now a shooting war – loomed ever larger. In May 1994, celebrating the tenth anniversary of the mine’s operation, BHP’s most senior Papua New Guinean representative, Kipling Uiari, called the environmental protests ‘not true, wrong and nonsense’ and regaled his audience with a list of the economic benefits the mine had delivered:
Clearly, there were two very different perspectives at play. Confrontation was inevitable; but when it occurred it took a totally unexpected form.
John Gordon, partner in the Australian law firm Slater & Gordon, later reflected on his company’s decision to challenge the might of BHP in a Victorian court. ‘If you asked a lawyer to devise a scenario for the case he or she would least want to embark upon,’ he said, ‘I suspect it would be something like this: your clients are impecunious; they live in another country whose government is opposed to their claim; they live in villages without phones, four hours by plane and many hours by boat from the capital; your opponent is the biggest company in Australia; they engage one of the country’s biggest law firms to act for them; the litigation is vigorously contested; and you have to fund it yourself.’ 20
That, he said, was the situation his company found itself in when it agreed to represent 30,000 landowners of the Ok Tedi in a multimillion-dollar claim for damages against BHP in 1994. In May and June, four test cases were issued in the Supreme Court of Victoria seeking injunctions to restrain the dumping of tailings into the river system and compensation for the damage caused.
BHP responded that they were ‘more than happy’ to fight the case. But if so they totally misread the situation. The publicity surrounding the incendiary legal battle would engage and intrigue Australia for the next two years. Television programs such as Four Corners and 60 Minutes would send crews up the Fly and over the mountains of Western Province to picture ‘Stone Age communities’ devastated by the greedy and unrepentant mining giant. Suddenly, ‘The Big Australian’ was a term of opprobrium. BHP had never known anything quite like it.
Inside the courtroom, Slater & Gordon had secured the services of Julian Burnside QC, whose involvement in the case would not only bring him high national regard but also affect his own attitude towards society’s worthier causes. His advocacy on behalf of the ‘subsistence lifestyle’ of the Yonggom would become a textbook source in the field. BHP’s team claimed that because the villagers were subsistence dwellers who did not use money as a means of exchange theirs was simply a loss of amenity; accordingly, ‘there can have been no economic loss and hence no monetary damages could be awarded’.
Burnside responded, ‘The reason economic-loss cases involve money is because money is what we use for our economy. The lifestyle of the Papua New Guinea natives in gathering food, fishing and [hunting] game and using it to eat and sell is no less an economic activity because it is not translated through the medium of money.’ 21
The judge agreed. BHP then challenged the jurisdiction of the Supreme Court of Victoria and attempted to settle the claims directly with the local landowners. This too was unsuccessful. The company worked with the PNG Government to develop legislation 22 that would prohibit legal proceedings, or giving evidence in legal proceedings. ‘But it didn’t end there,’ John Gordon said. ‘In the event that BHP and OTML were ordered to build a tailings dam, they would be entitled to reduce [any] compensation payable dollar for dollar. Given that the cost of a tailings dam would far exceed the total amount of compensation payable over the life of the mine, this would effectively end all payments of compensation.’ 23
But then, in an extraordinary provision, the agreement provided that, even if a tailings dam were ordered and BHP/OTML reduced their compensation commitments accordingly, they could elect, apparently in their absolute discretion, not to proceed with construction of the dam as ordered.
The Bill enshrining the agreement incorporated draconian punishments for anyone seeking to take legal action against it, including a fine of K100,000 plus K10,000 a day for each day the offence continued. ‘As if all that was not enough,’ Gordon said, ‘the agreement then provided that if someone was able to successfully obtain a judgment for damages against BHP or OTML, BHP could then sue to recover the amount, no doubt at the same time as criminal proceedings were brought against [the defendant] and their lawyers for having dared commit such a heinous offence.’
When the proposed legislation was revealed, Gordon & Slater applied to have BHP punished for contempt of court. And as word spread, 1800 shareholders inside BHP’s September 1995 AGM in Melbourne and a crowd of placard-wielding protesters outside demanded answers. Chief executive John Prescott refused to accept responsibility for the PNG legislation. ‘In the final analysis, it is the sovereign government of Papua New Guinea that has the accountability and responsibility for this matter,’ he said. 24
In the legal wrangle that followed, a new agreement was drafted removing the offending passages and in June 1996 the parties reached an out-of-court settlement. BHP agreed to implement a ‘feasible tailings containment system’, to pay K40 million to villagers in the worst affected areas on the Ok Tedi and a further K110 million to all affected persons.
For Gordon & Slater, it was a great victory. However, four years later BHP was back in the courts facing claims of breach of contract over the settlement. These proceedings would further despoil the company’s environmental reputation.
The prevailing view at BHP headquarters seems to have alternated between confusion and outrage. Graham Evans, the head of public-relations damage control, says, ‘You have on the one hand the company paying taxes and royalties and compensation for environmental damage in Ok Tedi – and having invested significantly in the social and economic infrastructure of the Western Province – and yet [we] were attracting very adverse newspaper headlines.
‘The issue was coming up in a pretty ugly way at AGMs, and senior management was appearing in Federal Court. They and the board found it very hard to reconcile the two.’ 25
Evans argued that the company should acknowledge and deal with the environmental problem. He also authorised assistance to OTML to engage an outside public-relations firm, Offor Sharp, in 1999. The contract, signed by Evans’s employee, Michael Spencer, would keep Offor Sharp well rewarded until 2007. ‘We delivered a tightly controlled and highly strategic public release to diverse and often aggressive stakeholders in PNG, Australia and the US,’ Tim Offor said. ‘Media coverage was limited because direct engagement over the complexity of the issues meant few critics were prepared to provide media comment. As a result of the release strategy, there was no civil unrest in PNG and [OTML’s] two listed shareholders contained potentially damaging media coverage.’ 26
In fact, since the 1996 judgment, BHP’s ‘feasible tailings containment system’ had become the dredging program in the Ok Tedi at an annual cost of $30 million. It was ineffective. The pollution was poisoning the river ever further downstream. After a thorough investigation, the World Bank had told the company on 20 January 2000, ‘The Ok Tedi mine needs to be moving toward closure as soon as possible. Preparations for closure should be initiated without delay given the traditionally long lead time associated with social impact mitigation measures.’ 27
The major stakeholders would soon agree, some more enthusiastically than others. Unfortunately for BHP, there was still a series of shoals and reefs to be negotiated before clear water could be glimpsed; and nor were they the only lurking threat to the company’s carefully nurtured reputation.