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Sarah Rennie Australian Sidoarjo Assistance Project

Students Union Building Australian National University

helpsidoarjo@gmail.com Mr Stephen Gerlach Chairman Santos Ltd 60 Flinders Street Adelaide, South Australia 5001

15/4/2008

Dear Mr Gerlach,

Re: Sidoarjo Mud-flow Disaster

I write on behalf of the Australian Sidoarjo Assistance Project (ASAP), an organization formed

in response to the Sidoarjo mudflow disaster. The reason for this correspondence arises from

our deep concern over the continuing impact of the East Java mud flow on the communities of

Sidoarjo.

According to Santos's company literature, one of its goals in East Indonesia has been to

“improve the quality of life of local people through initiatives that boost health, education and

incomes.” We are concerned that Santos's response to the East Java mud-flow disaster

appears to fall far short of this commitment.

ASAP will be holding a public forum on the 29th of April 2008, at the Australian National

University to discuss the Sidoarjo Mud Flow disaster and what appropriate steps the Australian

community should take in addressing this issue. The forum will be attended by International

environmental, human rights and corporate law practitioners, academics and delegates from

national and international environmental advocacy bodies.

The purpose of this forum is not to engage in an attack on Santos's corporate image or

demand that Santos ceases exploration activities in countries like Indonesia. Instead, we

hope to achieve equitable solutions for the victims of the mud-flow disaster, which involve

Santos and take its interests into account.

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We feel that it is not too late for Santos, if necessary, to redress its approach to the mud-flow

disaster. In fact this represents an opportunity for Santos to demonstrate that Australian

corporations can act as business leaders in South East Asia, setting an example of ethical and

responsible corporate behaviour.

We have produced a statement of the facts surrounding the Sidoarjo incident including the

response taken by Santos. In addition to this statement we have outlined the impacts of this

disaster for those people living in the areas surrounding the site and what responsibilities fall

on Santos in this respect. This information has been compiled based on publicly available

resources from Australia and Indonesia.

We request that Santos:

1. Reviews our statement of facts to ensure that we have not made any

misrepresentations about the company or its activities

2. Demonstrates how it seeks to redress the difficulties faced by the residents of Sidoarjo

adversely affected by the mud-flow, and

3. Responds to the suggestions that we have put forward.

We request that you respond to the concerns and the proposals set out in this letter before the

29th of April, 2008, the date of the public forum.

We hope that Santos recognises that our common concern is not in the attribution of blame

but rather in alleviating the suffering of the Sidoarjo people. We keenly await your response

on the above issues and proposal and look forward to working in collaboration with you on this

matter in the future. Your time is greatly appreciated.

Yours sincerely,

Sarah Rennie

Australian Sidoarjo Assistance Project

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Statement of facts:

We invite Santos to affirm or clarify the facts in the following brief account of the Banjar Panji-1

incident and subsequent developments.

The mud-flow begun on the 28th of May, 2006 when a gas explosion occurred at the Banjar

Panji-1 exploration well in conjunction with drilling activities in the Brantas Production Sharing

Contract area of Sidoarjo. The explosion has caused huge quantities of mud to flow from the

earth at rates of approximately 150,000m3 a day.1

The company operating the drilling activities was Lapindo Brantas, a subsidiary of Energi

Mega Persada. Santos has an 18% non operative share in the venture, the other owners

being Energi Mega Persada (Indonesia): 50%, Medco Energi (Indonesia): 32%. While Santos

was not directly involved in the day to day operations, Lapindo Brantas has stated that Santos

was consulted by them about all drilling procedures and received frequent reports on progress

in the field. Lapindo Brantas has also reported that Santos had at least one of their officers on

the ground.2

There has been dispute as to whether the drilling activities of Lapindo Brantas caused the

explosion and subsequent mud-flow. On one hand, Lapindo Brantas has claimed that the

mud-flow was a natural disaster. On the other hand, there has been a high degree of

consensus between scientific observers that the explosion occurred as a consequence of PT

Lapindo Brantas’s failure to install a casing around the well to the levels required under

Indonesian mining regulations.3 The mud started seeping into the well at a depth of

approximately 1,800 metres and cement plugs were inserted to stop it. This led to the

pressurized mud forcing its way to the surface approximately 180m from the well. The first and

largest of the breakthrough mud-flows erupted 200m southwest of the well. Today, almost two

years later, this mud continues to flow. A second and then a third mud-flow appeared in the

following days to the northeast, but these were reported to have stopped flowing by June

2006.

1 Mud Volcano In Java May Continue To Erupt For Months And Possibly Years. Science Daily (Jan 24 2007).

2 Energi calls on partners to share in mud costs, Andi Haswidi, The Jakarta Post, Jakarta, 1 February 2007.

3 Richard J. Davies, Richard E. Swarbrick, Robert J. Evans and Mads Huuse (February 2007). “Birth of a mud volcano: East Java, 29 May

2006". GSA Today 17 (2).

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East Java police initially carried out investigations. They claimed that they would press

charges against 13 individuals. However in March 2007, East Java Police chief Ins. Gen.

Herman S. Sumawiredja said the police would not carry out investigation against PT Lapindo

Brantas and all investigations have since been dropped. Official findings from the

investigations have not been released.

A civil action was filed by Indonesian environmental NGO Walhi against PT Lapindo Brantas,

Medco, Santos, the Indonesian president and several ministers. However in December 2007

the South Jakarta District court held that there was inadequate evidence to demonstrate that

the mud-flow was a man made disaster. Walhi has filed an appeal against this decision. In

the meantime no civil or criminal liability has been established against Lapindo Brantas.

Impacts for residents surrounding the site:

Eleven villages, extensive farmlands, several businesses, thirty factories and thirty three

schools have been destroyed by the mud-flow. The disaster has resulted in displacement of

entire villages and a serious unemployment problem. According to average estimations,

15,000 residents have been displaced; however other independent observers have cited

figures up to 50,000.4 Some of these residents have relocated with relatives; others have

found temporary rental accommodation and over two thousand live as refugees at the local

market place Pasar Porong. Those who shelter at Pasar Porong live under cramped

conditions in makeshift tents and vacant stalls.5 As well as physical hardships from the loss of

homes, jobs and community, many also suffer psychological health issues from the trauma of

the mud-flow.6

Some broader Impacts

It has been predicted that if the mud-flow is allowed to continue it will cover at least 10 km2 and

result in the permanent displacement of thousands more Sidoarjo residents.7 Local

infrastructure has been significantly damaged, including toll roads, power transmission

systems, gas pipelines and arterial roads. Further surrounding villages are vulnerable to

severe flooding as happened in January of this year when one of the containment walls

collapsed. The high salinity, high levels of H2S as well as metals, hydrocarbons and ammonia

place environmental and economic risk on the entire region, which is a major food producing

4 Bonner R (2006-10-06). New Indonesia Calamity: A Man-Made Mud Bath. New York Times.

5 Rennie S (2008-20-03), ‘Voices from the muddy void: Living with the Lapindo Disaster, Inside Indonesia,http://www.insideindonesia.org/

(retrieved 31/3/2008).

6 Ibid.

7 http://www.sciencedaily.com/releases/2007/01/070123181953.htm

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area.8 The impact of dumping unprocessed sludge into the sea threatens to devastate fish

stocks in Sidoarjo and surrounding coastal districts.9

8 John McLachlan-Karr (2006-10-09), Sidoarjo Mud Emergency Response Consultant Report: An Ecological Engineering Approach.

http://www.un.or.id/upload/lib/Consultant%20report%20-%20Ecological%20Engineering%20Approach%20-%20JM%20Karr.pdf.

9 Adnan Awad UNDP & Consultant – Marine Environment Affairs Ministry of Environment: Direct Discharge of Sidoarjo, Mud to the

Ocean? Overview of Risk Factors Associated with Disposal of Sidoarjo Mud at Sea, September 8 2006.

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Santos’ Response and suggestions for improvement

Response to date

Santos has given assurances that it would pay its share of the clean-up and compensation

when a settlement to the Indonesian law suit was reached.10 Santos has met the Brantas PSC

cash call of approximately US$28.5 million. It appears Brantas PSC has used such funds to

support the National Mud-flow Mitigation Team which was established by the Indonesian

Government, although precise contributions made by Brantas PSC remain undisclosed.

Santos has made a further provision of US $79 million to deal with the Mud-flow incident. It

appears these funds have been set aside for the possibility of future litigation rather than to

provide the Sidoarjo community any immediate assistance.

Aside from providing a financial contribution to the National Mud-flow Mitigation Team we have

no information that Santos has carried out any independent assessment of the disaster's

impact or established any independent relief efforts. From the community groups we have

engaged with, Santos has not conducted any direct consultation or engagement with affected

communities. Nor, to our knowledge, has it conducted an independent environmental impact

report. Further, there is no evidence to suggest that Santos has played a participatory role in

either devising or reviewing the measures taken by the National Mudflow Mitigation Team. We

seek clarification on all these statements.

Therefore, it appears that Santos' sole contribution has been the indirect provision of funding

to the projects of the National Mudflow Mitigation Team. It is then appropriate that we assess

Santos' response to the mud-flow disaster by evaluating the measures taken by the National

Mudflow Mitigation Team.

The solutions put forward by National Mudflow Mitigation Team have proved unsuccessful in

stemming the mud flow. Moreover, according to media reports these measures have often

proved ill-conceived, creating more damage than providing effective mitigation.11 These

solutions include the initial measures of building relief wells and using concrete balls hoping to

block the flow of mud. Both of these measures failed. The next major mitigation measure has

been the construction of high earth containment walls to dam the mud. These walls have

limited the area effected by the mud, however, as indicated in the United Nations Disaster

10 Energi calls on partners to share in mud costs, Andi Haswidi, The Jakarta Post, Jakarta, 1 February 2007.

11 Engineers abandon attempt to plug a gushing mud. The Jakarta Post. Retrieved on 2007-02-25.

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Assessment report, they are not a long term solution.12 This is because the walls are unstable

and pose significant dangers to surrounding villages. As the volume of mud continues to

increase the walls are vulnerable to collapse and in fact this has already taken place in

January 2008. A fourth measure taken by the National Mudflow Mitigation Team has been to

dispose of the mud via the Pasar Porong river.

However pumping of mud into the nearby river was largely ineffective and also resulted in

siltation as well as flooding in nearby villages. Current proposals under consideration include

channelling the mud into the Madura Strait. While there the mud is not thought to be toxic it

does have high levels of salinity, of h2s as well as metals, hydrocarbons and ammonia.13 As

such there are major concerns as to the viability and the environmental impacts of such

measures.14

To our knowledge Santos has not entered any direct negotiations to assist with the relocation

and housing of mud-flow victims. There has also been no comprehensive plan put forward by

Lapindo Brantas. The latest position from Santos and Lapindo Brantas seems to be that the

Indonesian government should be solely responsible for devising a solution. Previously, under

an informal arrangement, provision was made by Lapindo Brantas for two years rent

assistance payed to some affected families. According to mud-flow victims, prior to the recent

court decision, there were also informal promises to compensate made by Lapindo Brantas

representatives. Community members have little faith that these promises will be fulfilled and

have reported levels of disillusion with negotiation processes.15 Residents at the Pasar

Porong refugee camp reported that the only long term housing solution they had been offered

was the government's suggestion that they join a transmigration program to become palm oil

plantation workers in Kalimantan.16

From available information, Santos has not made any direct contributions to providing other

forms of aid to mud-flow victims. At the same time, neither Lapindo Brantas nor the National

Mudflow Mitigation Team has provided substantial aid to mud-flow victims with respect to

basic living necessities. The refugees living at Pasar Porong, for example, are not provided

12 Final Technical Report: United Nations Disaster Assessment and Coordination mission in June & July 2006 and Follow-up mission in

July 2006, Environmental Assessment Hot Mud Flow: East Java, Indonesia, 2006.

13 John McLachlan-Karr (2006-10-09), Sidoarjo Mud Emergency Response Consultant Report: An Ecological Engineering Approach.

http://www.un.or.id/upload/lib/Consultant%20report%20-%20Ecological%20Engineering%20Approach%20-%20JM%20Karr.pdf.

14 Adnan Awad UNDP & Consultant – Marine Environment Affairs Ministry of Environment

Direct Discharge of Sidoarjo, Mud to the Ocean? Overview of Risk Factors Associated with Disposal of Sidoarjo Mud at Sea,

September 8 2006.

15 Rennie S (2008-20-03), ‘Voices from the muddy void: Living with the Lapindo Disaster, Inside Indonesia, http://www.insideindonesia.org/ (retrieved 31/3/2008).

16 Ibid.

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with safe drinking water and do not have access to adequate medical services. They do not

receive an allowance for food or clothing but did receive meal packages from the Lapindo

funded Centre for Food Aid. However these food packages were intended for consumption

under emergency situations and as of March 2008 the provision came to an end leaving many

disaster victims hungry.17 Most of the benefits that Pasar Porong residents have received have

come via private donors and non-government organizations. Yet few in the wider community

believe that the mud-flow was a natural disaster. Rather they believe that Lapindo Brantas was

responsible and should provide assistance accordingly. Because of this, donations to mud-

flow victims have not been forthcoming. This is in contrast to the victims of other disasters who

often receive international assistance, which puts the mud-flow victims in a very difficult

situation.

Suggestions for improvement:

We appreciate that Santos has been forthcoming in providing some support to the government

bodies responsible for managing the disaster. However, given the degree of mismanagement

by these relevant bodies, Santos can not reasonably claim that it has fulfilled its

responsibilities with respect to the communities of Sidoarjo. We assert that these

responsibilities exist regardless of legal determinations.

In the next decade, Santos aspires to become one of the leading energy corporations

operating in South East Asia. Through its size and reputation as a high-performing energy

corporation Santos has won the right to exploration of natural resources throughout East

Indonesia. These rights, however, should entail certain responsibilities. An Australian

company operating in the third world should be adopting at least as high an ethical standard

as it would at home. Santos acknowledges these moral responsibilities in its publications

claiming that Santos works to embrace a citizenship role in the communities to which it

belongs. Santos also prides itself as a company which seeks to engage and consult with the

community and states environmental and community sustainability as one of its underlying

values.

Upholding moral ethics requires a certain level of alertness and vigilance. As such Santos

must not be ignorant of the countries in which it carries out its operations. Indonesia is a

nation riddled with corruption, one of the lowest performers on the Transparency International

17 Rohman Taufiq , ‘Lapindo Victims are Starving’ TEMPO Interactive, Jakarta, Tuesday, 04 March, 2008.

http://www.tempointeraktif.com/hg/nasional/2008/03/04/brk,20080304-118544,uk.html (retrieved 2/4/2008).

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corruption perception index.18 Not only government institutions but also the judiciary have

been found to be plagued with corrupt practices.19 In such an environment, Santos should

make an independent assessment of the impacts of its operations and the best way to

address the consequences of these impacts.

Santos is no doubt aware that a high degree of supervision and care is necessary when a

company is undertaking risky operations in densely populated areas, such as exploring for gas

or oil in East Java. When co-operating with other companies and government authorities in

such operations Santos has an interest in obtaining all the relevant facts to make responsible

company decisions. We would hope that Santos does not turn a blind eye to social injustice

taking place in the environment in which it operates. Instead we would hope that it might use

its influence to uphold standards of moral conduct which Australia would expect of its

corporate citizens conducting business in the third world.

This month the United Nations is conducting a periodic review of human rights issues in

Indonesia. It would be unfortunate if Santos became embroiled in claims of an international

human rights or environmental law violations. To avoid such a situation we propose that

Santos put together a committee to adopt a viable relief and mitigation plan for Sidoarjo.

Santos states that one of its fundamental values is that of discovery: “by opening our minds to

new possibilities, thinking creatively and having the courage to learn from successes and

failures, take on new challenges, capture opportunities and resolve problems.” Accordingly we

ask that Santos put its own values into practice and take on a new approach to dealing with

the mud-flow incident. This approach should aim to engage and consult with the mud-flow

victims and relevant community organizations in devising an adequate response plan. Urgent

steps must be taken to guarantee the livelihood of the victims- particularly those living in

refugee areas. Long term steps are required for the rehabilitation of environmental damage.

18 Indonesia rates 143 in the Transparency International, 2007 Corruption Perceptions Index, Regional Highlights: Asia Pacific Region,

http://www.transparency.org/content/download/23975/358245.

19 Civil and Political Rights, Including Questions of Independence of the Judiciary, Administration of Justice, Report of the Special

Rapporteur on the Independence of Judges and Lawyers Dato' Param Cumaraswamy, Submitted in accordance with the commission on Human

Rights Resolution 2002/43 REPORT ON THE MISSION TO INDONESIA*, 15-24 July 2002.

From: Eames, Martyn <Martyn.Eames@santos.com>

To: Australian Sidoarjo Assistance Project ASAP <helpsidoarjo@gmail.com>

Date: Mon, Oct 20, 2008 at 1:31 PM

Subject: RE: Correspondence from Australian Sidoarjo Assistance Project

Mailed-by santos.com

Dear Sarah

Thank you for your email and I can confirm that Santos has received your recent letter.

I have asked Christian Bennett, our Group Executive for Government, Media and Indigenous Affairs, and who has

been involved in Santos’ response to the incident since 2006, to contact you in order to identify a time when he

could meet with you in Canberra during his next visit.

I think such a discussion would provide a useful further opportunity for ASAP and Santos to engage and discuss the

mudflow incident.

Regards

Martyn Eames

Martyn Eames

VP Corporate & People

Santos Limited

60 Flinders Street

Adelaide SA 5000