Freeport explains about security expenses

Following is a statement sent by PT Freeport Indonesia to Petromindo.Com in response to the controversy over the company?s security expenses:

Consistent with our Contract of Work, corporate responsibility and the Voluntary Principles on Human Rights and Security as well as our company's duty to protect its employees and property, PT Freeport Indonesia has taken appropriate steps to provide a safe and secure working environment. As part of its security program, the company maintains its own internal security department, which performs functions such as protecting company facilities, monitoring the shipment of company goods through the airport and terminal, assisting in traffic control and aiding rescue operations. PT Freeport Indonesia's civilian security employees (numbering about 680) are unarmed and perform duties consistent with their internal security role. For 2002, the total costs for its internal civilian security department was $9.6 million ($7.7 million net to PT Freeport Indonesia) and, for 2001, $8.4 million ($6.8 million net to PT Freeport Indonesia). The security department receives human rights training and each member is required to certify his compliance with our human rights policy, as discussed above.

PT Freeport Indonesia, on the same basis as all businesses and residents of Indonesia, relies on the Government of Indonesia for the provision of public order, upholding the rule of law and protection of personnel and property. The Grasberg mine has been designated by the Government of Indonesia as one of Indonesia's vital national assets. This designation results in the military's playing a significant role in protecting the area of company operations. Since PT Freeport Indonesia began operations in Papua, the Indonesian military, along with the police, has had a presence in the Contract of Work area to provide law enforcement and to protect the mining operations area.

The Government of Indonesia is responsible for employing military and police personnel and funding and directing their operations. From the outset, of PT Freeport Indonesia?s operations, the Indonesian Government has looked to the company to provide logistical and infrastructure support and supplemental funding for these necessary services, because of the limited resources of the Government, and the remote location and lack of development in Papua. The need for this type of support is not unique to the company nor is it limited to the security arena in Indonesia.

Prior to the previously reported civil disturbance incident in Tembagapura in 1996, there was limited and inadequate infrastructure for Government of Indonesia security personnel. Following the company's discussions with the Government in the aftermath of the civil disturbance, the Government conducted a complete review of the operations and subsequently implemented a new comprehensive approach to security in the area. The number of Government security personnel grew from 200 to over 2,000, including, among other units, Coast Guard at the portsite, Air Force at the airport, riot control personnel to deal with civil disturbances, and both perimeter and on-site security at the mine and the mill.

PT Freeport Indonesia acted to enhance transparency and increase professionalism among the assigned personnel by creating a greater degree of separation between Government of Indonesia security and PT Freeport Indonesia infrastructure, which involved the construction of separate housing and offices to accommodate Government security personnel. Independent contractors built the separate offices, barracks, and other facilities, and PT Freeport Indonesia funded approximately $35 million of costs of these facilities over several years.

The support and assistance for the military and police in Papua includes mitigating living costs and the hardship elements of posting in Papua, better ensuring that legitimate security needs are provided to the company. Oversight of support requests is provided to ensure that only appropriate and legitimate requests are granted. This support for the Government of Indonesia security institutions assigned to the company's area of operations represents a prudent response by our company to protect its workforce and property, especially considering the expectations imposed by the government on companies conducting business in remote areas of Indonesia, such as Papua. In addition, the provision of support is consistent with the company's obligations under the Contract of Work and reflect our philosophy of responsible corporate citizenship. It is also in keeping with our commitment to pursue practices to promote human rights, as reflected in the company's endorsement of the joint U.S. State Department-British Foreign Office Voluntary Principles on Human Rights and Security.

For 2002 and 2001, the total expenses associated with support for Government-provided security for the operations were $7 million ($5.6 million net to PT Freeport Indonesia) and $5.8 million ($4.7 million net to PT Freeport Indonesia), respectively. The support consists of costs of infrastructure, catered food and dining hall costs, housing, fuel, travel, vehicle repairs, allowances to cover incidental and administrative costs, and community assistance programs conducted by the military and police. The total capital costs for associated infrastructure for 2002 and 2001 was $0.5 million ($0.4 million net to PT Freeport Indonesia) and $0.6 million ($0.5 million net to PT Freeport Indonesia), respectively. (*)

Siddharta Moersjid, Sr. Mgr. Corporate Communications PT Freeport Indonesia