Joint services spokesman Maj. Gen. Kohirin Suganda said the armed forces "as an institution" had never received donations from Freeport-McMoRan Co.

"But we have heard that Freeport provides support such as vehicles, fuel and meals directly to the units in the field," Suganda said. "That's the company's policy. It was not done because we requested it."

Suganda was responding to an article published Tuesday in The New York Times that detailed the New Orleans-based Freeport-McMoRan's payments of $20 million to military commanders in the area in the last seven years in exchange for protection of its facilities in the remote province.

Indonesia regularly ranks among the world's most corrupt countries in international surveys. The latest reports will do little to raise confidence in the army - considered one of the country's most graft-ridden institutions - or the government's pledge to eradicate official corruption.

Human rights groups have criticized direct payments by foreign mining and energy companies to the military, saying they were undermining efforts to bring the politically powerful armed forces under civilian command following the collapse in 1998 of the 32-year military dictatorship of former President Suharto.

Only one-third of the financing for Indonesia's armed forces comes from the state budget, while the rest is collected from non-transparent sources such as "protection payments," allowing the military brass to operate independently of the government's financial controls.

The revelations are potentially embarrassing for the Bush administration, which recently lifted a ban on ties with the Indonesian military imposed in 1999 by then-President Clinton following a rampage by Indonesian troops in East Timor that killed at least 1,500 people.

When asked about the payoff allegations, Indonesia's military commander Gen. Endriartono Sutarto would only say, "Please ask Freeport, not me."

Siddharta Moersjid, a spokesman for PT Freeport Indonesia, said dismissed the allegations as "old news."

"We have been transparent about our logistical support for the Indonesian security forces," Moersjid said. "Support for the government security institutions is provided pursuant to government requests for its legitimate requirements."

Reports that Freeport was paying off the military to protect the mine have circulated for years.

Last year, the international watchdog Global Witness reported that Maj. Gen. Mahidin Simbolon, the region's former military commander and currently inspector-general of the army, personally received $247,705 from Freeport from 2001 to 2003.

In 2003, Freeport acknowledged in a report to the U.S. Securities and Exchange Commission and to New York City authorities that it had paid millions of dollars to the army.

"We've been deployed to difficult areas, don't we deserve better supplies?" Simbolon was quoted as saying Thursday in The Jakarta Post.

He acknowledged that the military had received payments from Freeport, but denied he benefited personally, saying the money had been given to battalion commanders to pay for various expenses and daily allowances to the troops.

Freeport has been accused by international environmental groups of polluting Papua's hitherto pristine jungles by allowing large quantities of toxic waste to seep into surrounding groundwater.

In its SEC filings, Freeport said annual payments to the Indonesian security forces were included in its contract covering operations at the giant Grasberg mine in Papua, the Indonesian-occupied half of New Guinea island.

Washington backed Suharto when he incorporated West Papua into Indonesia in 1969 after a self-determination vote now viewed as a sham. Rights groups maintain that about 100,000 Papuans have died as a result of military action or other atrocities carried out by Indonesian troops.

Other U.S.-owned mining and energy companies have also drawn criticism for allegedly providing money and other services to the Indonesian armed forces, which are accused of having killed thousands of labor activists and other political opponents after a military coup in Jakarta in 1965.

Human rights groups have denounced Exxon Mobile for allegedly working closely with the military and paying it for security services in Aceh, where the company operates a large liquefied natural gas plant. An internationally supervised peace agreement that followed last year's tsunami ended that war.

Exxon Mobil spokeswoman Deva Rachman confirmed the payments, but said they had been managed by the government's Oil and Gas Regulatory Body and not by Exxon Mobil.

Suharto gained Western support following the 1965 coup by opening Indonesia's economy to foreign investment. The first company to take advantage of this was Freeport-McMoRan in 1969. Critics have long condemned Freeport for allegedly obtaining the rights to the mine through a direct deal with the dictator.

Source: Forbes