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The History of PT Freeport Indonesia Partnership Fund Management by PWT2 – LPM IRJA – LPMAK

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The presence of multinational and private companies, especially PT. Freeport Indonesia, successfully accelerates economic growth in Mimika Regency. With the increasing production level, which means more sales and income, PTFI then feels morally obligated and responsible to take care of the local community whose ulayat (land) rights is being used for the activity of the company.In response to the social obligation, PTFI since the early 90s has been providing the community with a huge fund. PTFI decided that for ten years, one percent of its annual sales to be allocated for this purpose. PTFI then requires people with the right capabilities to well-manage the fund.

In 1996, the fund was put under the management of PWT2 Team, which was chaired by The Head of the Bappeda (Badan Perencanaan Pembangunan Daerah/Regional Development Planning Body) of Irian Jaya Province. The management of the fund was transferred to LPMI (Lembaga Pengembangan Masyarakat Irian Jaya/Irian Jaya Community Development Organization) which was chaired by Mimika Regent in 1999. And since 2002 to this date, LPMAK is being entrusted to manage this fund. Within all those organizations, there are always an involvement of representatives from the Local Government, Local Parliament, Churches, Tribal People and PT Freeport Indonesia. It means that the management of this fund has been successful in keeping the initial commitment for a development program which accommodates so many interests to work together for the advancement of the community and the area for people’s welfare.

Freeport as the Donor is very keen to see the fund being managed in a good way. So far, Freeport has only been taking supervisory and counter parting roles to make sure that the fund is being well spent for the people’s welfare. One of the supervisory roles is in form of an external financial audit, which has been done continuously each year to this date. The evolution and implementation of community development programs of each of the three organizations are as follow:

I. PWT2 (Program Pengembangan Masyarakat Timika Terpadu/Integrated Timika Community Development Program), July 96 – August 98

Through the first two years until June 1998, PTFI with the Provincial Government, and PWT2 as the implementation arm, own a very good community development concept. Unfortunately, the implementation stage did not conform to the initial concept. The result of the social audit which was conducted by CODE Indonesia recommends that the management of the fund must be restructured and for the meantime, the disbursement of the fund must be stopped until there is a good organization to manage the program and the fund from PTFI.

Based on the audit, PTFI with the support of Mimika Government, made some approaches to the Provincial Government to gain legitimate support in conducting an improvement to the community development program and the management of the One Percent Fund. The Provincial Government then provided the authority to the Mimika Regent to coordinate FFIJD (Freeport Fund for Irian Jaya Development) management to be conducted in an effective and efficient way. The Mimika Regency Government followed up the decision by constructing an FFIJD Transitional Team which was consisted of representatives from the local government, PTFI, Amungme and Kamoro Tribal Councils, and the Churches. The task of the team is to find a long term solution to improve the mechanism of the FFIJD fund management, as well as to develop an organization to manage it. LPM-IRJA was born out of that process.

II. LPM-IRJA (Lembaga Pengembangan Masyarakat Irian Jaya/Irian Jaya Community Development Organization), January 99 – November 2001

When LPM-IRJA was born, PTFI released a letter which explained to the community about The FFIJD Fund, of whom and why PTFI placed the fund for. Regrettably, the explanation made no success in removing the wrong perception of the community about the fund. LPM-IRJA was commencing its programs in an unfavorable condition. There were some physical and social pressures. Mostly, the pressure came from the community members who wanted to be served right away as program participants while they had a wrong perception of what the fund was for. The result of Arthur Andersen external audit upon LPM-IRJA was “no opinion”, which generally outlined that the auditor was unable to find enough evidence to finalize their audit.
Based on that condition, Board of Directors of LPM-IRJA suggested a review upon the MoU no. 99022 about FFIJD fund management and to ask for a reposition of LPM-IRJA. PTFI agreed on the suggestion. That is why there was an LPM-IRJA Reposition Team assembled from representatives of local government, churches, tribal councils, community leaders and PTFI. The outcome of the team who work for almost a year and a half was the creation of LPMAK.

III. LPMAK (Lembaga Pengembangan Masyarakat Amungme dan Kamoro), October 2002 – present.

Jimmy Wangke S.H. released a legal document number 4A, dated 18 October 2002 as the legal basis for LPMAK. Few months later after the establishment of LPMAK, PTFI released a letter about Partnership Fund Donor Guidance, in which includes PTFI statement to take the role as the main Donor of LPMAK until 2006. LPMAK is a non-profit organization, which consisted of three main bodies, Board of Commissioners (Badan Musyawarah), Board of Directors (Badan Pengurus) and Executive Secretariat (which consisted of the Executive Secretary, PTFI technical advisor, Treasurer and the Bureaus)

LPMAK implements its programs based on the Donor Guidance and LPMAK general policy. To this day, LPMAK has been able to develop and run the organization with organization management tools which has been approved by LPMAK BoC and BoD, such as Program Implementation, HR, Finance and Accounting system and procedures; Strategic Plan and other organization management tools.

Along these years, Freeport asks Ernst and Young to conduct an external financial audit upon LPMAK and so far LPMAK has been able to produce best audit opinion.
In a BoC meeting at 7 to 9 March 2006, PTFI announced that they will continue their funding for LPMAK programs through the Partnership Fund for the next five years after the commitment ended in 2006.