Extracts from "Ok Tedi - Evolution of a Third World Mining Project", William S Pintz, Mining Journal Books, 1984

• About Pintz
• The Environmental Investigations
• The Negotiating Issues - The Environment

Between January 1977 and September 1980, I served with the PNG Department of Minerals and Energy's Policy and Planning Division and participated in both the technical and operating committee (OPCOM) meetings that supervised the preparation of the Ok Tedi feasibility study. After September 1980, I was retained as a consultant by the Minerals and Energy Department. In this capacity I travelled to PNG on five occasions and regularly received internal government documents as well as major studies and papers presented to the government by the consortium. As a result of this professional and personal contact with the project, it has been possible to draw on information not normally available for public or academic review. Likewise, the information and impressions available to me, for the period January 1977 through to mid-1982, have unquestionably been influenced by my involvement as a public official and consultant. For obvious reasons, I have not had access to either the inner councils of the investor consortium nor to their policy correspondence. As a result, I cannot claim that the analysis contained in this book is representative of the consor-tiurn's perspective of events. However, to the degree that the text of this book has been reviewed by other members of the government's negotiating team, as well as by the principal financial and technical consultants on the project, I believe that the text reflects a composite view of the events and issues as perceived from the government's side of the negotiating table.

Deriving chiefly from my access to internal documents, certain pieces of information have been omitted deliberately from the book. In my view the omission of this information is in no sense critical to the major topics or themes addressed in the book. For the most part the omission of specific information falls into three general categories: financial or management data that are proprietary or confidential to the consortium partners; government policy decisions taken about pending or future Ok Tedi policy questions; and strategic decisions about the direction of government policy toward future mining projects.

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Almost from the inception of the original BHP negotiations, it was clear that environmental studies would be a problem for the feasibility assessment. Quite legitimately, the mining consortium was reluctant to commit large sums of money to environmental work until the project proved viable. For the government, the approval-of-proposals system meant that environmen-tal approvals must be given as part of an overall endorsement if the project was to proceed quickly. In addition, basic environmental issues were over-laid by the sensitivity among PNG politicians to the environmental conse-quences of the Bougainville mine, where mine tailings had been dumped directly into the Jaba River and had seriously disrupted both subsistence fishing and the natural ecology of the river.

Although the initial environmental contacts between government offi-cials and project engineers were amiable and co-operative, it became evi-dent quickly that the budget ceiling negotiated for the feasibility assessment would never be adequate to address the fundamental environmental ques-tions. Indeed, the negotiated budget was so modest that it virtually pre-cluded substantial environmental fieldwork. As a result, the environmental conclusions that were incorporated eventually into the feasibility study were based chiefly on inferred evidence and professional opinion rather than on extensive environmental field surveys. Not surprisingly, the government found such conclusions unconvincing and, in the final analysis, was forced to undertake its own environmental programme.

Following the June 1978 meetings, the government became concerned at the apparent lack of empirical data to support environmental conclusions and, in early 1979, PNG commissioned its own environmental investigation into the effects that mine sediments might have on the Ok Tedi River. The government investigations eventually were undertaken at several times the cost of the consortium studies and involved extensive field surveys and computer modelling based on the effects of the Bougainville mine. The work was undertaken by a team of hydrologists and computer specialists from the Australian National University who had extensive experience in PNG. The results of the government-sponsored studies raised substantial questions about the effects of mine waste dumping in the Ok Tedi River on downstream residents and subsistence life-styles. As a consequence of the government-initiated environmental fieldwork and the rigid self-imposed budget on consortium studies, the government had the tactical initiative on environment issues in the postfeasibility negotiations.

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The political sensitivity on questions of river sedimentation limited narrowly the government negotiators' mandate on this issue. It was clear from the beginning that the proposed strategy of dumping mine waste into the river had little or no chance of acceptance without convincing field data. Although understandable within the context of an unproven project, the reticence of the consortium to spend environmental funds reinforced the stereotype picture of environmentally abusive multinational mining com-panies and led to questions about the sincerity of the consortium's environ-mental commitment. This position was further reinforced by the proposed waste disposal strategy that allowed for early waste rock to be dumped into tributaries of the Ok Tedi River. From its point of view, the consortium had technical concerns about the character of the early waste rocks and profes-sional opinions which stated that the hydrology of the Ok Tedi-Fly River system could accommodate the additional sediment with little adverse environmental effect.

In its brief to the negotiating team, the PNG Cabinet noted specifically the ecological consequences of the consortium's waste rock (e.g., leached capping) proposals and directed that, on the basis of evidence before the government, the river disposal scheme was not acceptable. Although the cabinet did not direct the negotiators to pursue a particular alternative, it clearly sought limitations on disposal quantities or alternative schemes for dealing with the mine waste problem. The political importance of the sedimentation issue was underlined by inclusion of the environmental direc-tive as one of eight negotiating principles frorn the cabinet.

In its February 1 response letter, the cabinet position was put to the consortium as follows:

(a) on the basis of advice given to us by our environmental consultants the State is not currently prepared to endorse the proposal to dispose of the waste rock from the leached capping in the three valleys known as the 'southern dumps.''

Thus, although the government's general position was set out prior to the actual negotiations, no alternative dumping strategies were offered nor was the consortium provided with the report of the government's environmental investigations until the first day of the actual negotiations. This hesitancy reflected the government team's uncertainty of exactly how the sedimenta-tion problem should be addressed. An outright rejection (without an alter-native strategy) of the waste rock proposals would have thrown the issue back for further technical study and called into question the entire financial analysis of the project. On the other hand, the government's own consul-tants suggested that the consequences of river disposal could be detrimental to subsistence villagers living along the upper Ok Tedi River. Indeed, the Australian National University (ANU) analysis stated that the Ok Tedi stream bed could rise by nearly 10 m as a result of the mine. Such river aggradation would have flooded riverbank gardens and possibly inundated whole villages.

In his opening presentation, the Minerals and Energy Secretary, Nigel Agonia, followed the government's tactical game plan by merging the sedimentation and resource utilisation issues while beginning to sketch out an alternative dumping strategy. The alternative suggested by Agonia was that a variance would be required by the state in the event that more than 60 million tons of weak waste rock were disposed into the river system. The tactical implications of this proposal can be summarised as follows:

Since the state knew that weak rock would be substantially in excess of 100 million tons, a 60 million ton limitation would force detailed consideration of technical alternatives without delaying negotiations or construction.

Since it was well understood that preproduction development would not be possible without some river disposal of the weak waste rock, early mine development could proceed as planned.

Since the government felt its own technical scenario (the Behre Dolbear strategy) would reduce but never eliminate weak waste rock, the door was left open for presentation of its own resource utilisation alternative without undue restriction on the scale of processing operation.

The obvious weakness in this whole approach (as quickly pointed out by the consortium negotiators) was that the 60 million ton variance limit had no ecological or scientific basis. It was, in fact, an environmental number selected for non-environmental reasons. Tile government freely admitted that the figure had little or no scientific basis and, at one point, even invited the Consortium to justify some other figure.

Fortunately for the government side, the second stage of Agonia's introduction dealing with the resource-use issue drew most of the consor-tium's attention and, as a result, the 60 million ton limit was slipped quietly into the negotiations. But when the topic again emerged three days later, the leader of the BHP team, Colin Kaiser, described the disposal limit as a ,central point.' Obviously, Kaiser had perused the ANU report carefully and found that at no point was a disposal limit of 60 million tons suggested, nor could it be inferred. The government countered that although the limit was admittedly arbitrary, the only alternative to its adoption was further environmental study that all parties concurred would probably be inconclu-sive. For the moment, the river sedimentation problem was laid to rest. The simple reason for the early resolution of such a far reaching issue was that both sides feared the delay and inconclusiveness of attempting scientifically to set a waste disposal limit more than they feared the increased costs and environmental risks of an arbitrary standard.

Although the sedimentation problem was acknowledged by both sides as the major environmental concern, other related issues required resolu-tlon. These subordinate issues were: cyanide destruction, tailing dam design, the leaching of copper from waste dumps, transport of chemicals, and main-tenance of the tailing darn at the mine closure. In addition, the government sought agreement on institutional arrangements to facilitate environmental compensation and monitoring.

The tailing dam design, chemical transport, and copper leachate ques-tions simply were attempts by the government to ensure an ultimate review power when final designs and procedures were established. After extended discussions, these issues were agreed upon, as were arrangements for the establishment of a tailing clam maintenance fund that would receive pay-ments beginning at the end of the investment recovery period or ill the tenth year after production commencement, whichever came first. The payments are to be made annually and adjusted by ,ill agreed index of inflation. The aim of the fund is to accumulate a capital sum so that interest is sufficient to meet the costs of tailing dam maintenance after the mine is closed.

The cyallidation issue was more difficult. Basically, the consortium maintained that the cyanide released with mine tailings from gold processing either would be relatively harmless if complexed with other minerals or would quickly break down due to natural conditions. On the recommenda-tions of its technical consultants, the government argued that the cyanide case advanced ill the feasibility study was simply not adequate and that chemical destruction facilities were necessary due to high cyanide toxicity. The resulting discussions quickly showed that the consortium's real concern was with the operating, not capital, cost of cyanide destruction. Eventually, an accommodation was reached where the destruction facilities would be constructed, but operation would not be necessary if the company could " . . demonstrate to the State's reasonable satisfaction that un-neutralised cyanide poses no significant environmental risks".

Regarding the questions of environmental monitoring and compensa-tion, the consortium rejected proposals by the government for an indepen-dent monitoring authority that might settle compensation claims based on field evidence without resorting to the PNG courts or to the mining warden systems.

Under the government proposal, claims would have been settled from a company-funded, but independently administered, environmental compen-sation fund. The consortium argued that the mere existence of the fund would encourage claims; that citizens still would have recourse in court; and that since the consortium was paying all monitoring costs, it wanted to control the monitoring system directly. As the government had put forward the institutional suggestions partly to avoid problems encountered at the Bougainville mine, the consortium's rejection of the monitoring and com-pensation issues led to an eventual withdrawal of the proposals. It is argu-able whether the consortium's interests were really served by their unwil-lingness to consider institutionalisation of the politically sensitive environ-mental issue. Go Back to Contents