Corporate Social Responsibility (CSR) and Sustainable Community Development in

Mining Sector: Case Study in Central Konawe and North Konawe Regency
Southeast Sulawesi, Indonesia
Patta Hindi Asis1Muh. Nato Al Haq2 Muh. Nur Afiat3

Abstract

During the last decade Konawe comes up as an icon of mining industry in Southeast Sulawesi
which before was well-known as a buffer zone of agriculture, in particular nickel industry.
For this reason, this area is quite inviting for many corporates. Currently, however,
severalmining industrstriesfall in the heap and decided to stop as a result of a new
miningpolicy, actNo. 4 in 2009,obligating raw materials process before export. Only few can
still survive while they have to implement CSR according to the policy No. 40 in 2007about
Industry. However the implementation is not often suitable to community’s expectation.
Ongoing process of smelter and focus on production are reasons why CSR is not running
well. Therefore, it is important to research CSR practice and development in Konawe and
South Konawe. This study is a qualitative research with case study method from stakeholders
in which thedata was collected by survey, interviews and documentation, thenwas analyzedby
descriptive method. The result shows that (1) CSR in Konawe and North Konawe is
distributed by compensation system, (2) there is lack of synergy between the company and
stakeholders that could affectfuture relationships between companies and their surrounding
communities.
Keywords: CSR, Mining Industry, Konawe, North Konawe, Community Empowerment.

Introduction

Today the company's development is not only directed to financial profit but is
emphasized to caring for the environment and society. This form of concern is run through
Corporate Social Responsibility so-called CSR or Comdev Program. CSR policy serves as a
form of corporate’s commitment to not only authorities, consumers and investors, but also to
workers and communities(Fontaine, 2013).In Indonesia, CSR policy has been regulated in
Law No. 25 and 40 in 2007 regarding investmenr and Company Liability (PT). The
regulation explains social and environmental responsibility of company to participate in
sustainable economic development in order to improve the quality of life and the beneficial
environment, both for the company itself and the local community (Kadir, 2011).
The development of CSR is currently experiencing dynamics progress based
onphilanthropic, donating and empowering (community development) CSR. This is
conducted by the principle of sustainable development. The variety of methods undertaken by
companies on behalf of social commitment pushes a variety of issues such as measures of
success, empowerment substance, transparency of fund management, misappropriation of
funds and the impact of CSR on communities surrounding. Some of these issues are then

1
Lecturer at Social and Political Science Faculty University of Muhammadiyah Kendari
2
Lecturer at Social and Political Science Faculty University of Muhammadiyah Kendari
3
Lecturer at Business and Economic Faculty University Haluoleo
required for comprehensive research. The CSR commitment is needed to reduce conflicts,
thereby minimizes the risks and costs (Carroll &Shabana, 2010). As a result of this
commitment, nickel mining in Konawe and North Konawe is working to implement CSR
activities. Donating and assistance such as facilities and infrastructures as well as
reforestation program are done to improve the socio-economic life of the community.
However, the implementation of CSR program does not provide a considerable
impact for the welfare. A study by Fiat et al (Afiat& et al, 2014) on the impact of mining in
Konawe found that the benefits the community gained in the mining sector were
insignificant. This happens because the management of CSR is not in accordance with the
needs of the community. As a result, the existence of the mine does not have a significant
impact on the socio-economic life.

The Approach of SCR

CSRis a very diverse term. If we google this keyword "CSR",more than 111 millions
reading sources will appear on your recommended search. But for the purposes of this study,
researchers only take several approaches appropriate to the research problem.
CSR itself developed widely before the second world war. Its development can be traced
back to the period 1945-1960 in the early years of the cold war era. Throughout the year 1950
was started a discussion about CSR relating to the business itself. The main focus was the
responsibility of a business to the community and community participation (Carroll
&Shabana, 2010). In general, CSR tends to meanresponsibility welfare of society. According
to International Organization for Standardization (ISO), agreement on CSR is set within the
scope and definition that:
“Responsibility of an organization for the impacts of its decisions and activities on
society and the environment, through transparent and ethical behaviour that
contributes to sustainable development, health and the welfare of society; takes into
account the expectations of stakeholders; is in compliance with applicable law and
consistent with international norms of behaviour; and is integrated throughout the
organization and practiced in its relationships.” (ISO, 2010. ISO 26000 Guidance on
Social Responsibility) (csrindonesia, 2015)
CSR becomes a company's need, in the future global competition all companies are
directed to certification standards of business entities, CSR standards and products. This
standard is used as a corporate image for competition. The CSR approach differs in each
region. Fontaine (2013) noted from P. Mahajan (2011) said that European countries have a
different approach with Anglo Saxon in applying CSR. One of approaches is community-
based where cooperation will work well. The second approach is philanthropy which is done
by donating to the community. Another approach is to approvean integrated CSR program to
an organization (Fontaine, 2013).

Pros and cons About CSR Program

The opponents of CSR assumes that the company is money-oriented and takes
advantages from society. Milton Friedman is one who rejects CSR (Carroll &Shabana, 2010).
He thinks the company is only pursuing profit by putting aside social concerns and problems
in society that must be solved in the free market. Furthermore, in company or business there
is no necessity to handle community activities (Carrol&Shabana, 2010). The third argument
that CSR opponents opposed by Carrol and Shabana is that the existence of business CSR
will not achieve its original purpose (keutungan).Company has spent all its strength on the
company's activities “why should need to drain energy to other places such as strengthening
the community by which focusing on CSR will make the company uncompetitive
(Carrol&Shabana, 2010).
Based on Carrol and Shabana's explanations in the context of CSR implementation
in Konawe and Konawe Utara does not provide great benefit because the company only
conducts CSR programs in order to incur obligations. The company is only doing a charitable
effort without empowering its people. As a result, the community does not feel the significant
impact of the existence of companies.Some suggests that in reciprocal relationship the
company hasto receive benefits if doing CSR program well. If a multinational company
committed to the community, it will get added value on financial (Fontaine, 2013, Broomhill,
2007). A study by Fontaine in 2010 results that there is a positive correlation between firm’s
financial improvement and CSR (Fontaine , 2013).

CSR Framework

The practice framework plays a role in guiding companies in implementing CSR.

CSR work practices can be seen by some elements of Sturbuckscompanies such as ethic
sources, community engagement, and the environment. Sturbucks focuses on renewable
energy. In 2005 Sturbuck is prioritized climate change to respond to environmental threats.
There are three things to do in that activity: (i) buying renewable energy, (ii) focusing on
energy management (iii) education and promotion of collaboration (CERES 2008 in
(Fontaine, 2013).
CSR programs conducted by Sturbucks are more directed to environment and energy
mitigation programs. This program connects the environment, society and economy whose
success standerd isthe balance economic development, social integration, and environmental
responsibility. Furthermore, it can be done with transformation and innovation. For example
by giving innovation to public facilities, putting the community as a center of purpose,
providing an expansion of economic opportunities to the community (Amato, Handerson, &
Florence, 2009).
Another framework is the need for regulatory engagement in this case the
government as a corporate license. Research conducted by Broomhill claims that the program
runs well if involving the government. As representatives state,governments play a role in
oversight, intervention, and prevention. (Broomhill, 2007).
As explained,the author provides a formulation on a contextual framework of palm
oil and nickel mining companies in Konawe. The framework starts with the involvement of
three elements in the CSR program. First, local governments acting as overseers and
regulators, both companies as providers of CSR programs including funding and other
programs. Third is the community that acts as the implementer, manager and user of CSR.
Society should be the subject of CSR implementation. The theme of the work program is
considered by community initiatives, government and company so that the programs are win-
win solutions.

Methods

The research approach is qualitative with case study method in nickel mining CSR
program in Konawe and Konawe Utara. After the enactment of the Minerba, some companies
stopped operating due to the absence of smelters that as a result reduced the number of
companies in Konawe and NorthKonawe. During the research, the company that currently
has a nickel refinery,exists only in PT. Virtue Dragon (PT VDNI) located in
Morosi.Researchers, for that reason, are more focused in that area. While in Konawe Utara
some companies do not have a refinery so the raw material is distributed to Konawe.
Interviews were done to representatives of companies, local authoritiesand
communities at two locations in Molawe and Morosi. However, during the study, access
roads to the site were severely damaged, therefore only a few informants could be questioned
face-to-face. Meanwhile the rest of the researchers utilized telephone interviews.

Profile of CSR Management InKonawe and North Konawe

CSR is one of the company's basic obligations to build social relationships. How
important the CSR ismakes companies in good faith run the CSR program not only as an
obligation to carry out policy but also as a moral obligation in empowering the community
surrounding.The management of CSR in Konawe developed after the opening of the mine in
Southeast Sulawesi through the national development program of Special Economic Zone
(KEK). Konawe became KEK area because of its large nickel reserves. Total nickel content
in Southeast Sulawesi is predicted to reachapproximately 97.4 billion tons spread over 480
thousand Ha (Ministry of Energy and Mineral Resources, 2015).
Table 2: Distribution of Location and Amount of Nickel Reserves Southeast Sulawesi
No. Location Nickel Reserves
1 North Konawe Utara 46.007.440.652.72
2 Bombana 28.200.014.800,00
3 Kolaka 12.819.224.028,00
4 South Konawe 4.348.838.160,00
5 North Kolaka 2.763.796.196,00
6 Konawe 1.585.927.189,00
7 Buton&Bau-bau 1.676.332.000,00
Total 97.401.593.025,57
Source: Local Institution of Research, Planing and Develompmentin Southeast
Sulawesi Province (Ministry of ESDM, 2015)
The number of companies with IUPs (business legalization letter) in Konawe
amounts to 54 companies, special for Nickel is 46 companies, while currently active is only 3
companies completed with smelter machines (Ministry of ESDM, 2015).The company
recently producing nickel is PT Virtue Dragon Nikel Indonesia (PT VDNI) located in Morosi,
Bondoala District. As one of the exploration and production companies, it continues to take
efforts in increasing nickel production and empowering communities through the acceptance
of work and apprenticeships to companies. Virtue Dragon is one of the mining companies
owning IUP managing nickel mining in Konawe commencing in 2014. Currently the plant
construction for production has been completed and the next phase will becompleted in 2019
and 2020 (kemenperin.go.id/2017).

Figure 1: Mining Distribution Map in Southeast Sulawesi

Source: Google map

The results of the research shows that the existence of the mining sector has affects
the social, economic and environmental life due to exploration and exploitation of natural
resources in the mining area in Konawe described by few points namely:

Implementation of CSR Mining Sector Program in Konawe

Based on onthe spot observation, society has not gaint and felt marked inmpact to
their welfare. This is evident from the public's understanding of corporate CSR. The results
indicate that mining companies focus on providing compensation or compensation for losses
suffered by communities regarding environmental pollution and other losses resulted from
mining activities. So far, several nickel mining companies in Konawe still use public roads
for the distribution of nickel material.
 Graph 1: Mining Companies

Persepsi Masyarakat Tentang Keberadaan Tambang

62

17 18
3

Sangat Mengetahui Kurang Tidak

Mengetahui Mengetahui mengetahui

Source: observation
The existence of mining companies in Konawe and North Konawe has been a long
time. The mining sector becomespopular in the community, even their families aspire to work
in the mining sector if they do not become civil servants. Working in the mining sector is the
attraction of the local community as well as the people outside Konawe. The data shows that
although familiar with the firms operating in Konawe, the knowledge of the company's
programs is not proportional to the community's knowledge of CSR. The community is
largely ignorant of community empowerment programs or corporate CSR.
Corporate socialization programs have not been able to lift the surrounding community's
economy. If carefully considered, these programs do not include other aspects that the
community wants such as access to capital, job opening and training. Whereas the
community element in the management of mining is very vital (Yaw Brew, 2015).

The Role Of CSR In Improving People's Welfare.

The data above shows that the economy is still running constant but there is no
increase. Communities around the mine explained that the problems before and after the
opening of their mine was unremarkable. Furthermore, after the opening of the mine, people
feel the economy is mediocre and their economy is considerably poor.

Graph 2:Perceptions of the Economic Conditions of People After the Opening of the Mine

Kondisi Kehidupan Ekonomi Masyarakat Setelah Dibukanya

Perusahaan Tambang
53

31

11
5

Sangat Meningkat Kurang Tidak Meningkat

Meningkat Meningkat
Source:Observation
Above ercentage portraits that najority of people have not gain economic advantages
from mning industry. Just about 11% feel marked economic progress whilst 58 feels
stagnantion/no progress. Moreover 5 % feel no effect at all. Society in general has not or less
know about empowerment program conducted by company.

Graphic 4. Corporate CSR Activities in North Konawe

Kegiatan CSR Perusahaan Tambang yang Beroperasi di

Kabupaten Konawe Utara

84

14
0 2.7

Sangat Mengetahui Kurang Tidak

Mengetahui Mengetahui mengetahui

Source:Observation

Researcher find that people still misunderstand the community empowerment done
by the company (84%) and no one knows it well . So far, the mining companies in
NorthKonaweonly provide compensation instead of CSR. So far, what is done by the
company is only in the form of compensation. Some nickel mining companies in North
Konawe still use public highways to send contents(raw materials) to Morosi to be processed
thatdamage the road. In addition, environmental damage is one of the community concerns.
The results show that people feel the incompatibility of the CSR with their wishes.
They feel that they only compensate for the loss of activities rather than empowerment.
Interestingly,people feel that CSR management is less transparent and does not seem open.
The results of the study illustrate that 95 percent of people feel CSR management is not open,
only 5.4% feel that CSR management is open to the public.Corporatesocialization programs
have not been able to lift the surrounding community's economy. These programs do not
include other aspects community wants such as, access to capital, vacancy and training.
Whereas the community roles in the management of mining is very vital (Yaw Brew, 2015).
Related to CSR management policy, people feel less aware (89%). There is an
impression that this policy is lack of socialization both by the regional government and the
company. This policy absolutely need to be socialized to society. There is a reluctance to
involve community participation in CSR. Companies more involved the role of local
governments and influencers.In addition, local communities receive less attention and
involvement in CSR management so that the public is not aware of whether or not CSR
existance due to its closed nature. Community engagement in CSR is almost non-existent.
The percentage of the results showed that community involvement was at a low point of only
2.7%, involved 5.5%, while the less involved was the highest which figure 92%.
Ideally the CSR program is practiced integrally with regional development. The community
considers the forn of CSR is compensation itself.
The Role of CSR In Supporting Community in North Konawe
Community perceptions in North Konawe in implementing CSR policies are still far
from expectations. The data show the fact that most people consider that CSR programs have
not addressed the issue or are inadequate to the community. 84% people assume it is
unsuitable while corresponding is only around 8% and the rest is under 5%. However, in the
view of community support, if there is a policy related to the management of CSR, the level
of support tends to be positive. The trend shows a significant figure in which 59 percent will
support the policy. This indicates the community always supports the efforts made by the
government and companies related to CSR. This also indicates that the community still
believes that the local government will manage CSR. Furthermore, the results showed that 95
percent of people consider the need of regulation on mineral product management in North
Konawe is vital. While the remaining 5.4 percent consider that the local regulation has not
been issued by the local government. The management of CSR requires the-poor-oriented
policiesto establish synergy between companies, local governments and communities.

Conclusion

According tothe research that: (1) the implementation of CSR has been done but has
not touched the issue of capacity development andcommunity empowerment. This happens
because the company is still focusing on the process of smelter development and nickel
production, accordingly the community empowerment aspect is not running as expected. (2)
The existence of nickel mining companies in Konawe and North Konawe has no major
impact on the economy and income of surrounding communities. What happens is the
redundancy (PHK). Additionally, CSR also has not been able to improve the socio-economic
quality of local communities. (3) the absence of cooperation between local governments,
companies and communities in formulating policies for CSR management in the mining
sector. People want involvement in the CSR management process so that it is more
transparent and accountable. (4) It is important to have CSR framework empowerment model
either owned by the company or local government. The weakness of this research is its focus
only on the perception of CSR on the surface. Further research is suggested to identify the
wishes of companies, local governments and communities that have a direct impact on nickel
mining in Konawe.

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Broomhill, R. (2007). Corporate Social Responsibility: Key Issues and Debate. Dunstan
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Carrol, A. B., & Shabana, K. M. (2010). The Business Case for Corporate Social
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Kadir, N. (2011). Implementasi CSR/PKBL Semen Tonasa di Desa Biring Ere Kecamatan
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Csrindonesia. (2015, Juni 11). csrindonesia. Retrieved from csrindonesia:

http://csrindonesia.com/perlukah-csr-diatur-dalam-sebuah-undang-undang/

http://www.kemenperin.go.id/artikel/10825/Perusahaan-China-Bangun-Pabrik-Feronikel-Di-
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Foreword

Researchers want to convey gratitude to to informants and colleagues on campus who have
spent time discussing for hours. We also do want to thank to The Directorate of Higher
Education and Technology Research (RISTEKDIKTI), which has providedus full fundedin
completing the research. Thanks to the Provincial Governments of Southeast Sulawesi
Province through BALITBANGDA Provincial and Konawe District Government for the
research permit as well asthe companies providing valuable information. The views of this
study are the results of the researcher's objectivity based on data collected.