PETROLEUM AND MINING IN SOUTHEAST ASIA: Managing the Environmental and Social Impacts Author(s): Andrew Symon Source:

Southeast Asian Affairs, (2007), pp. 77-100 Published by: Institute of Southeast Asian Studies (ISEAS) Stable URL: http://www.jstor.org/stable/27913327 . Accessed: 22/08/2011 19:08
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Institute of Southeast Asian Studies (ISEAS) is collaborating with JSTOR to digitize, preserve and extend access to Southeast Asian Affairs.

http://www.jstor.org

Southeast Asian Affairs 2007

PETROLEUM AND MINING IN SOUTHEAST ASIA the Environmental Managing and Social Impacts
Andrew Symon

A host of new upstream oil and gas and mining projects is under way in Southeast Asia as a result of increased demand from both within the region and worldwide. This presents governments with an array of issues. Policy concerns go beyond immediate industrymatters and may encompass macroeconomic, budgetary, tax, and exchange rate issues, as well as environmental protection and land access and ownership questions. Crucially, given thatmost projects are in areas distant from the urban centres, they also must address relations between the central and local governments planning. Petroleum Especially critical development has many is the impact of production on local communities and mining

and regional development dimensions.

and the surrounding environment. often surrounds petroleum extraction and mining. Instead Controversy of bringing development and higher living standards to local areas, they may be criticized for damaging the environment and disrupting the lives of local distant The projects may be seen by local people as providing wealth to central governments and big companies, but providing little real local benefit. These feelings may be compounded where operations are run by large communities. as is still commonly the case in the region, giving rise to allegations that foreigners are taking a country's natural resources bounty. is thus fundamentally intertwined with Petroleum and mining development companies, central governments and regions and policies for development

multinational

relations between

Andrew Symon is the Singapore-based regional manager for UK business research and Menas Associates. He is an Associate of the South Australian Centre for advisory firm, Economic Studies at the University of Adelaide.

78 of with local communities

Andrew

Symon

governments

and protection of their surrounding environment. Both and companies must address this. For governments, poisoned relations

local regions may take many years to heal. At worst, they could encourage separatist movements harnessing this grudge against the centre. For companies, at stake is the long-run success of the particular operation, and, increasingly, elsewhere in the world. A bad record in one country may through, for example, conscious themselves harm a company's prospects from major issues elsewhere, banks, its ability to finance other of risks to their international Nor are they though is decision

other activities

projects

reputation. These are not restricted, of course, of developing lessons countries. to Southeast Asia. Asia's just the concern makers within Southeast

experience and corporate

important and provides

not just for government

the region but also for those elsewhere. The question of how to resource extraction is not limited to petroleum and minerals. Fishing best manage and forestry may also have major environmental and social impacts. Production

is similarly being driven by sharply increasing regional and international demand. But attention in this article is restricted to the petroleum and mining industries. They a number of things in common, the most obvious one being that and oil and gas fields have limited industries. Mines they are both non-renewable do have lives. Just how generous

the region's and indeed the world's overall energy and mineral reserves are, is a matter of debate but they remain ultimately finite resources. Hydro-power generation, which also is not dealt with in this article, may Here be a sustainable environmental source of energy, but its development also has social and as the is in for the case, implications, example, Mekong region. dam projects are raising fears of interruption to river systems adversely livelihoods and eco systems.1

affecting community

Taking Stock: Overview of the Industries2

Before looking at several current case policy and practice, All industries. feature and corporate and mining multinational and studies, and then considering government it is useful to survey the region's petroleum extensive investment operation dominated more and by

Indeed, companies. by a to lesser than others extent, Japanese-invested Western, any companies, in the region. There is a long history of foreign direct investment. These were among the first export-producing in the latter colonial industries to attract large-scale investment from Europe centuries.3 era in the late nineteenth and early twentieth

the industries are probably

Petroleum

and

Mining

in Southeast

Asia

79

is an important factor in the shaping of foreign companies extraction can trigger of government policy and corporate behaviour. Resources strong nationalist sentiment. There are few other areas of the economy where The presence fears that foreigners though, domestic They include not only large state-owned groups, but also domestic to their own They too are not limiting themselves companies. are exploiting a country can be more pronounced. Today Southeast Asian companies are also becoming more prominent. private sector but countries

increasingly operate elsewhere in Southeast Asia and beyond. A prime example is state oil company, Petronas, a truly international group. Another recent Malaysia's and very important change Southeast Asia more has is the increasing presence of Chinese companies and investment in these industries. large reserves of oil and natural gas with the latter being it was one of the world's first major commercial abundant. Historically,

oil-producing regions. By the early years of the twentieth century, crude oil was being exported from what was then British Burma and Sarawak, and from Sumatra and eastern Borneo in the then Dutch East Indies. Today's multinational, Royal Dutch/Shell, one of the world's production teeth in Sumatra in the region. Southeast Asia largest petroleum groups, cut its upstream and Borneo and continues to have a leading presence

today is not seen as prospective as the other major petroleum ? theMiddle East, Central Asia, producing regions by international companies Africa, Russia, and northern Australia (for natural gas) but its oil and gas resources stimulated by high oil and gas prices, has revealed another generation of fields. In the case of natural gas, exploration is also encouraged is a markets. Gas by growing domestic power-generation remain significant. New exploration, desirable to supply fuel because of gas combined gas transmission burning properties and the high efficiency And there are options for producers wanting cycle power plants. as a result of expanding domestic and cross pipeline supply factor is that new of its clean

and production exploration of fields which was not allow identification and development technologies in earlier decades. An example here is the Cepu oil field in central possible in Indonesia in recent times, made Java. In the largest oil discovery by US systems. Another major ExxonMobil, the reserves lie below older fields first worked company, Chevron, where decades ago. had Another is the discovery by another US in 2005 and 2006

of oil and gas offshore Cambodia

under waters

earlier

exploration

yielded nothing.
Oil and gas reserves oil- and gas-producing are fairly evenly distributed in the region. Major countries are Brunei, Indonesia, Malaysia, and Vietnam.

1.309 Consumption 0 0 0.071

0.095 0 0.102 0.233

0.106 1.055

1.164

Gas Natural (Trillion feet peryear) cubic

Production 0.406 0

2.663 0

0.360 2.205 0 0.102 0

0.106 0.790

of Consumption 13 3.8 Oil

Products and natural gas in Southeast Asia, 2004 TABLE 1 Petroleum

3.0 1,200.0

37 515.0

342.0 763 10.0 900 230

barrels (1,000 Oil per day)

Gas Liquids204.2 0 Crude Natural of and Production

0 20.2 850.4 1,168.6

25.0 0 237.8 403.3 Source: US Department of Energy, Information Administration. Energy 51.9

Timor-Leste Cambodia Indonesia MalaysiaPhilippines Singapore Myanmar Country Brunei Vietnam Laos Thailand

Petroleum

and

Mining

in Southeast

Asia

81

They

all export oil but imports because compared with

in the case Indonesia's demand.

of Indonesia, grades own As

this is offset by crude needed and for certain the overall has become

and

product products

of different oil

refined lack of a net

production,

refining capacity

to match also

a result, Indonesia

importer. Vietnam must

refining capacity with a major gas producer for its own use but is almost entirely reliant on imported some oil and exports gas to Thailand. The Philippines oil. Myanmar produces is a small gas producer for domestic markets. Timor-Leste has significant gas reserves Cambodia may awaiting development. result of new offshore oil and gas discoveries. also become

it does not yet have any import oil products because come set to on-stream in 2008. Thailand the first plant is

Singapore centre for the region and further afield. Southeast Asia has long played an important role as an exporter of oil and gas. The region was a pioneer in long-distance export of natural gas, shipped in liquefied form, to Japan and now elsewhere inNortheast Asia. But this historical pattern is changing of oil, overall, as the region's demand grows ever more strongly. In the case is a net oil importer (this excludes oil imported Southeast Asia the region). The region is In the case of natural gas,

a producer as a is a major refining

and refined in Singapore and then exported outside on East. supply from theMiddle increasingly reliant while also the region increasingly This remains sought

an important supplier of liquefied natural gas, gas is to support power generation and industry in domestic intra-regional supply with more cross-border surplus areas in one country with the demand

markets.

gas pipelines centres of another. Coal

stimulating emerging to connect

is also

production also has a long history with large commercial mines operating by the end of the nineteenth century in Sumatra, Borneo, and northern Vietnam to provide fuel for steam ships and local locomotives. Joseph Conrad wrote in his novel, Victory Indonesian Today, frommines South Korea, Belt Coal Mining Company on the island of Pulau Laut. The bulk of the region's reserves are in Indonesia. (1915), about the Tropical in east and south Kalimantan and Taiwan) is themost largest exporters of steam coal, mainly on Borneo. Again, northeast Asia (Japan, steam coal continues is also a significant of lower-grade coal are mined in the case for coal source and of petroleum, intra regional there trade

the country is one of the world's

important market where

to be a mainstay producer and used is also

fuel for base

load power generation. Vietnam smaller quantities in Thailand. As the region

and exporter while for power increasing Coal generation demand

within

is expanding. Malaysia's

from Indonesia

is the main

of fuel for peninsular

coal-fired generation

expansion

programme.

82

Andrew

Symon

TABLE 2
Coal in Southeast (Million metric Country Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Timor-Leste Thailand Vietnam Source: 0 0 0 0 20.0527.60 7.37 16.44 0 0 0 0 129.14 21.72 0.29 0.29 0.29 6.62 1.31 0.13 2.68 9.15 Production Asia, tonnes) Consumption 2004

US Department of Energy, Energy Information Administration.

Southeast

Asia's

overall mineral

endowment

is not as significant deposits

in global

terms as its petroleum the world's

resources but there are still world-class tin, bauxite,

of copper, gold, silver, nickel,

chromite, and zinc. The

and mining region is one of

major suppliers of tin produced in Indonesia, Thailand, and Malaysia, and also copper, gold, and nickel, mainly from Indonesia. The Philippines also has the potential to be a major supplier of copper and gold. Vietnam, Laos, and Cambodia may also have promise with little exploration inmodern times because of war and political instability. An important gold and copper mine opened recently (gold in 2002 and copper in 2005) in south central Laos run by Australia's Oxiana Resources while a large-scale tungsten mine is to come into operation in northern Vietnam in 2009 run by Canada's the Philippines, Tiberon. Indonesia, copper are especially prospective for and eastern Malaysia (gold and silver are often found with copper deposits,

and gold deposits as well as on their own). This The archipelagos of several moving in Southeast Asia Golden to western Borneo gold mining.
mas intan.

reflects the particular geology of the sub-region. are part of what is known as the Pacific Rim of Fire, a region and colliding tectonic plates. There Gold mining and earthquakes. is deep seismic activity has a very long history

resulting in active volcanoes with Island while

the ancient Hindus

calling

Sumatra

some of the region's first Chinese inwhat is now Indonesian Kalimantan literally means Rivers of Gold

or the Suvaranadvipa immigrants were attracted by prospects for alluvial ? and Diamonds Kali

Kalimantan

( tonnes) Zinc00 0

0.6 0

1.0 0

25.9 26.1

Tin

(00 tonnes) 0

0 64.0

1.3 1.1 3.4

0.9 2.1

00 ( tonnes) 0 Nickel

103.5 0

0 19.5

Production Southeast in major of minerals metallic 2003 Asia,

3 TABLE

0 (Tonnes)

5.1 4.7 0 164.4

0 39.0

Gold

0 ( Copper tonnes) 00

0 0 1,003.4

27.9 20.4

1.2

0 Bauxite tonnes) ('000

0 5.7 0 1,262.7

20.0

World Bureau Source: of Metal Statistics.

Indonesia Country Cambodia Brunei Laos

Timor-Leste Singapore Philippines Thailand

Myanmar

Vietnam

Malaysia

84

Andrew

Symon

TABLE 4
Production of gemstones (Thousand Country Cambodia Indonesia Laos Myanmar Source:
Investment,

in Southeast carats)

Asia,

2003

Value 50 30 2,303 45,442 ASEAN Minerals Trade and

Thailand 716
2005.

ASEAN,

Enhancing

By a major spawned

late colonial

times, elements

of today's

industries were Island. The

laid. Tin became latter operations

export from Malaya in 1860 what would

and Sumatra's become

Bangka

a major international company, Billiton now (named after the island adjacent to Bangka), group part of Anglo-Australian BHP Billiton, the world's largest mining group. Tin is also important inMalaysia's history as Chinese As produced phosphate operations Like on the peninsular stimulated development and attracted immigration with the prospect of jobs in and around the tin-mining areas. well as these metallic minerals, there is an array of commercially its extraction non-metallic such as gemstones, gypsum, limestone, kaolin, are generally small scale, mostly domestic rock and sands. Operations minerals for local markets such as construction. there is an elaborate, are an exception. international market. Myanmar Gemstones products are concerned

diamonds, high-value is a major exporter. As far as other non-metallic mineral there is some intra-regional trade. Virtually increasing all segments of these petroleum This demand. exploration regional, markets joined and production. and world and prices

and mining

industries are seeing increasing energy and minerals

is hardly surprising given International

domestic, commodities now being in Europe,

reflect much

by India and Brazil. quickly. Meanwhile,

of the huge demand from China, own demand is also But Southeast Asia's total demand from the mature economies and Taiwan) and

large and growing is still enormous, mining companies

North America,

and Northeast Asia

(Japan, South Korea,

if growing much more

slowly. Not

surprisingly, petroleum

are eagerly searching worldwide for investment opportunities. Southeast Asia, having a good resources portfolio, increasing local demand and reasonably certain political and legal conditions as compared with many other prospective parts of the world, is seeing its share of new projects.

Petroleum

and

Mining

in Southeast

Asia

85

A Reminder of the Hazards: The Sidardjo Mud Volcano

Southeast Asia's governments encourage petroleum and mining industry exploration and production. They are generally open to foreign investment although terms and conditions may be a matter of ongoing debate and evolution, with governments concerned to get a good share of resource rents. Attention given to the social and environmental impact of development varies. Laws and regulation may certainly be and adherence to these requirements

in place, but the implementation, monitoring, may be less than satisfactory.

the importance of the latter, given the hazards of the extractive Underlining ? one of the country's worst industries, is Indonesia's Sidardjo mudflow disaster ever industrial environmental disasters. This hit the headlines inMay 2006 when a flow of hot volcanic mud gas not far from Sidoarjo, east Java. Still unabated at the time of writing, erupted near an exploration well drilling for natural south of the city of Surabaya on the north coast of this has submerged four villages homeless. The mud pool covers an area thick. Much and sixty hectares of it is being of rice and cane indefinitely of

and 25 factories and left 11,000 people of nearly four square kilometres and is up to 10 metres directed main into a nearby river. Three hundred

fields have been flooded. The mud flow has also forced the closure

a gas pipeline exploded under the highways and railway lines. In November weight of a holding dam built to contain the flow, killing 13 and injuring dozens of others. To achieve some sort of long-term solution, government engineers are building a permanent canal to divert the mud into the sea. The volcanic mud began flowing from an exploration drill site, the Bajar

Panji-1 well, operated by domestic company, Lapindo Brantas, owned by the Jakarta listed Energi Mega Persada (EMP). EMP in turn is owned by the Stock Exchange Bakrie group, one of the country's largest conglomerates. The group is controlled by the family of government minister, Aburizal Bakrie. Bakrie, now Coordinating Minister for Social Welfare, has long been a prominent businessman and influential in government circles, dating back to the Soeharto period. Brantas (50 per cent) is operating under a production-sharing with another (18 per cent). The has become domestic What contract to the government in partnership Santos local firm, the listed Medco (32 per cent), and Australia's

companies are active elsewhere in the east Java region, which an important natural gas-producing area, onshore and offshore, for generation, industry, and household remains supply. Lapindo suggests it was the freak disaster unclear.

power

caused

a consequence of Yogyakarta mudflow

that occurred in central Java near the city of the earthquake on 27 May, 300 kilometres southwest of Java. The Brantas Lapindo cites argument of some geologists that the

dates from 29 May.

86 created new fractures in the ground or re-activated triggered the movement the conduit of mud

Andrew

Symon

earthquake zone. This

a pre-existing fault from underground and the faults and

fractures became Medco

asserts gross negligence would also

through which the mud reaches the surface. But on the part of the operator's drilling team as correct the triggering of the mud flow. The influential (NGO), the Indonesian Forum for Environment on technical incompetence. Analysis by

procedures (WALHI), geological GSA Today,

have prevented

local non-government

has blamed

organization the disaster

scientists published also points towards

a highly pressurizedpocket of hot They believe that the deep drilling ruptured
gas and water, that occurred creating fissures in a bed of porous two days earlier is coincidental".4 limestone. "The earthquake

in the Geological Journal, Society of America's it being a man-made rather than a natural disaster.

is certainly huge and experts say it is impossible to predict when than 100,000 cubic metres of mud oozing from the earth daily will end. Clean-up and compensation payments are likely to be of the order of the disaster is handled is a test for several hundreds of millions of dollars. How The damage the flow of more Indonesia's government. The government to social says that Lapindo compensation and must meet the President, all costs Susilo of the disaster from clean-up

has issued a decree ruling that all expenses in connection Bambang Yudhoyono, are to the impact of the mudflow the responsibility of Lapindo Brantas. There are fears though that Lapindo Brantas' with weaknesses in the legal system, will terms of compensation of villagers and clean-up political influence, combined result in an unsatisfactory outcome in of the disaster. Question marks

have also been raised by attempts by the company to sell Lapindo, which some say would be a means of avoiding liability. The fears may be misplaced. The presidential decree has had the declared support of Minister Barkie. The Bakrie Group itself has vowed to enable it to cover the cost of handling to provide financial the disaster.5 support to Lapindo

about the intent of EMP

Challenging ForeignMining in the Philippines

Tensions emotional Philippines While and is well between public government suspicion else desire to foster the extractive are perhaps more industries and often pronounced in the and opposition

than anywhere the Philippines endowed

in the region. resources, it has some coal

has very limited petroleum

attractive copper, gold and, to a lesser has been limited in recent decades extent, nickel. But development essentially to foreign investment. This has been at least because of nationalist opposition with the commercially

Petroleum

and

Mining

in Southeast

Asia

87

in part due

to the experiences

of environmental

government, with prevention Marcopper mine

foreign mining operators and clean-up. An often cited example operated

damage and seeming to escape

inept handling

by

responsibility for is an incident in 1996 at the

south of the main ore-processing

Placer Dome on Marinduque Island, just by Canada's island of Luzon. A break in a drainage tunnel from the copper toxic mining

slurries into theMakulapnit and Boac in the rivers causing health problems local community and severely damaging the island's eco system. Rehabilitation of the area is still far from complete today. There are only a handful of operating mines in the Philippines but theArroyo has set out to rejuvenate the industry through new policy set down is encouraging foreign investment with various tax and for 100 per cent foreign ownership of from not only nationalist politicians and NGOs but companies are required to provide social development,

plant released

government

in January 2004. Manila other incentives under a law that allows mines. also To ease opposition Church, the Catholic

environmental

assistance, and non-equity partnership agreements with local mining A companies. Supreme Court challenge was made to the Mining Act by opponents. Initially, in January 2004, the court ruled that the law was in fact unconstitutional Manila its ruling in December is now talking of a mining bureau estimating 2004. boom gathering steam with reach US$350 the Mines million

but then reversed and Geosciences

that investment will

in 2007 and predicting it will rise to nearly US$7

controversy most social

billion by 2010. But

still stalks the industry. In a country where civil society is one of the free in Southeast Asia, mining is a ready target for those concerned about and environmental conditions and doubting whether mining wealth will the local elite and foreign companies. In January 2006, for example, issued a pastoral of the Philippines (CBCP) Bishops Conference

flow beyond the Catholic

statement denouncing mining as a "destroyer of life", and called for the repeal of the 1995 Mining Act and the closure of big mining operations. The bishops the sentiments of militant environmental groups, claiming that mining echoed operations foreigners, affected often displace and destroy communities indigenous peoples, "The the gains copper give away control of lands on to the the the environment. far outweigh is the Tampakan in South Cotabato. adverse promised social impacts

by corporations", on

statement said.6 A key project island of Mindanao gold development billion mine the southern

The US$2

and processing

plant are to be built by the Swiss-based groups. The copper Tampakan deposit and gold in Southeast

Xstrata, one of the world's Asia. The

is described

largest mining as one of the largest undeveloped project though has already

deposits

88 attracted criticism with accusing Given the local Bishop Dinualdo Gutierrez

Andrew

Symon

of South Cotabato,

it of environmental

claims would
elsewhere.7

that the project seem excessive.

degradation and displacement of indigenous peoples. is still at the early planning and development stage, these Similar complaints have been levelled at projects things, it

The overlooks

flagellation

of foreign miners regions. and Problems

can be unfair. Among of extractive arise This as much, may

other

the socioeconomic small-scale

complexities illegal mining.

industries

in remote and poor unregulated

operating if not more, from in the case of

is very common

gold, with poor villagers and immigrants swarming over sites in search for gold worth a few dollars but it is also a problem for other segments including coal and tin. Using primitive extraction and processing methods (mercury to extract gold, illegal mining can badly damage local environments and community on Mindanao is Diwalwal health through itswaste. An example in the Philippines island, where some 27,000 local miners are working an 8,000 hectare site in the for example), from the environmental issues, the competition range. Aside a to claims Wild and West-like lawlessness. among promotes get protect and illegal local mining can also be an explosive element in areas Unregulated where large modern mining companies, foreign or local, are present. The large mines may fear for the security of their operations and infringement by local a strengthening of security, and possibly miners onto their blocks. However, Diwata mountain theminers calling on local police or military assistance, can easily result in violent with the local miners which may jeopardize operations.8 clashes

Newmont's
Assertions

Travails
social and environmental responsibility and effective are commonplace. But realizing them especially in the developing world, world, can be in the developed in the companies,

of appropriate

regulation by corporations and governments is often not an easy task. Resources projects, or where they impact on indigenous the best wills very tough. Even with and local communities,

communities in the world

governments,

political The big companies, sophisticated and wealthy, are often operating technologically in remote areas among poor, if not marginalized, communities. Their cultures may be worlds away from those of the companies

they are prone to enormous

and social difficulties.

and their staff. and Misunderstandings conflicts easily arise. The faults and failings do not rest only with the oil or mining company. Often they are seen as fair game for extortion of money and material as by government officials, the military, and local communities. Environmentally,

Petroleum and Mining inSoutheast Asia the search for resources

89

into new frontiers, so they are more pushes companies likely to affect hitherto untouched natural environments. of the difficulties that may be encountered are the experiences Examples gold miner, Newmont, the world's second in Indonesia. There are claims currently against for alleged

of US

Newmont,

largest gold-mining company, damage to local community health from pollution from its now closed gold operations in north Sulawesi. A criminal trial against the company is proceeding. Allegations from a group of villagers and NGOs surfaced in the latter part against Newmont of 2004 after theMinahasa was mine being inManado closed the island of Sulawesi life of the deposit. claimed province on the northeast coast of down due to the end of the economic

into Buy at tailings disposal via a pipeline Bay had caused mercury poisoning of the waters. This, they said, had resulted in sickness among local people and the death of one baby girl. Their complaints They that the mine's led to police police Minahasa investigations of Newmont of Newmont, They were to the point where, in September 2004, arrested six employees mine, Richard Ness. including the president director of the kept in jail for 32 days in the same embassy in Jakarta.9

prison shared by terrorists who had attacked the Australian In December the police 2005, a Jakarta court declared Nevertheless, himself As Yet would criminal charges have been He of the complaints at March 2007, and hence

illegal. investigation pressed by the authorities as a result and Ness the current court case against Newmont faces possibly a jail sentence if convicted. continuing.10 and testimony by government officials The World Health Organization the (WHO), Organization of Australia, the

for criminal the weight

negligence.

the hearings were

of scientific evidence

seem to exonerate Newmont. Scientific

Commonwealth Minamata

and Industrial Research

Institute of Japan, and the Indonesian Ministry of Health found no traces contamination. WHO small The that of mercury mercury says in the nearby estuaries are attributable to local mining efforts, not to Newmont. or arsenic Only a report by the Indonesian police found unsafe levels of contamination. The court case has continued despite Newmont and the Indonesian government agreeing in February 2006 to settle a separate civil suit launched by theMinistry The Ministry lodged the civil case in 2005, seeking damages of

of Environment.

Newmont itself US$133 million. Newmont paid US$30 million in the settlement.
continues Batu Hijau, to operate principally the major copper and gold mine, on the island of Sumbawa in eastern Indonesia. This is Asia's second in Indonesia,

largest in operation after Freeport's Grasberg operation in Indonesian Papua, which in turn is one of the largest in the world. Batu Hijau, which began operating in

90 2000, has not been embroiled in any Minahasa-like conflict and

Andrew

Symon

held up as an exemplary project by the Indonesian government. Newmont was granted a second "Green Award" by the environment ministry.11

in fact is being In August 2005,

BP'S Tangguh Project: Avoiding the Pitfalls?

From a corporate perspective, experience shows that business will be difficult or even come to grief if a company does not pay attention to the wider social and

impact of its operations and the political context in which it finds itself in any country. An often cited example is US copper and gold company, in Papua it operates one of the world's Freeport, in Indonesia, where, largest at in the Carstensz Range mines in south central Papua. Freeport now Grasberg suffers because years of its association with the corruption and cronyism of the Soeharto rights abuses of the military. While Freeport has made great this stigma, it continues to be subject to newspaper and NGO efforts to overcome allegations One company, political of improper practices.12 company British dimensions taking heed Petroleum and social of Freeport's It is going (BP). is the UK petroleum experience to great lengths to manage the and human

environmental

billion impacts of its US$6.5 area of western Papua liquefied natural gas (LNG) project in the Bird's Head ? and to publicly demonstrate that it is indeed doing so. It has established an independent monitoring panel of prominent international and Indonesian figures. The panel's reports and BP responses, as well as other detailed information about the project, as discussed below, are published in full on the BP website. BP thus the project is transparent and publicly accountable.13 is led by BP, the operator (37.16 per cent), in partnership with Tangguh CNOOC of China (16.96 per cent) and several Japanese consortia.14 It is the argues biggest foreign-invested project in Indonesia and since the country's economic and political upheavals Featuring offshore gas field development and an onshore liquefaction plant and shipping terminal, the first of two 3.8 million tonne per year production trains are to come online in 2008. Tangguh has huge ramifications at local, regional, and national levels. For Jakarta, its success will provide important revenue to government, benefit trade accounts thereby offsetting the increasing import of oil and products, and encourage other foreign long-term basis Tangguh year complex. investment to China, into the archipelago. South Korea, would Initial sales are contracted on a the Ultimately, BP believes tonnes per further to as much as a 15 million and Mexico. in 1997/98 the fall of Soeharto.

and environmental

plant could be expanded Operation

be for 25 to 30 years.

Petroleum

and

Mining

in Southeast

Asia

91

the project, and for the province of Papua as a whole, the impact of the project is equally if not more profound. Tangguh promises very large revenues for local governments under Indonesia's far-reaching For the local districts around local autonomy across and decentralization arrangements. These laws passed the country following watershed extreme centralization of government in the Soeharto years. A particular grievance in the case of those areas with oil and gas and mining operations was that all the financial benefits flowed share of the resource little returning. This has led to a defined ? rents from the extractive industries petroleum, mining, to Jakarta with have been put in place in 1999 in reaction to the

forestry, and fisheries, being earmarked for the local governments.15 For Papua, and also Aceh, where separatist challenges to Jakarta have been in Aceh, these shares are much higher than the national strong, most especially average dollars under special autonomy laws aimed government. The Papuan should eventually Special Autonomy at defusing conflict with the central of Law was passed in 2001. Millions

flow into local government in Papua from the Tangguh can be gained from just considering annual project. Some idea of the magnitude tonnes returns. At 7.6 million per year, the revenue at today's prices production for LNG task for local from Tangguh will be an enormous governments. For a region that is one of themost under developed in the Indonesian archipelago, Tangguh promises vital funds for infrastructure, health, and education. is nearly US$3 revenue Managing billion a year.

But

there is also

uncertain

the danger of corruption and waste. Politically, they could be an continue ingredient in relations between Papua and Jakarta. Tensions a small but active in a

separatist movement. One approach could be to place the funds long-term investment fund which can provide for capital for future generations. The rest long-term investment and development and there remains may be used to support annual recurrent spending. and developing quite a number of developed as in Canada. in the United States and Alberta Alaska such in federal systems, is setting up such a the new state of Timor-Leste in Southeast Asia, Elsewhere fund for mainly natural gas revenue from the Timor Sea.16 For BP and its partners, the political and corporate social responsibility aspects of the development are in many respects more difficult than the commercial and technical dimensions. and There are great expectations among local people about the project will bring. But the onset of financial benefits to local areas from Tangguh revenue may be delayed because project costs will have a first claim on revenues. The danger here then is that communities will the benefits BP be disappointed. funds are in place in countries and also individual states Such

92 There are also disruptions to local

Andrew

Symon

life as a result of the project's presence although its stamp is far smaller and more benign than a large mining development. Gas fields are offshore and the LNG plant and shipping facilities are in relatively
small area.

BP

has

worked

with

the Asian protection,

Development sensitive programmes.

implementing relocation sponsored education local

environmental

in planning and land acquisition, and village There is an array of project

Bank

and community development socioeconomic to micro programmes finance

ranging from health and basic and vocational

employment

for local enterprises. Development of skills enabling (although an LNG facility is far from labour-intensive once expected

to employ full time about 500 skilled and as is very important unskilled people) experience has shown that where projects are too reliant on an immigrant workforce from other parts of the country, local in operation with Tangguh dissatisfaction so where the is especially immigrants are racially or ethnically different from the local areas. Freeport, in the 1970s and '80s found this out at first hand. Its its operations developing operations attracted many from other parts of Indonesia, whose cultures are quite and resentment inevitably follow. This local population. issue is security. For such a project must play army has argued in the past that it One of national especially sensitive and highly political

different from the mainly Melanesian

significance, the Indonesian a lead role in its protection and security.17 But, as the Freeport

experience shows, this has had bad consequences with allegations that local communities are subject tomilitary extortion and brutality. BP as a result has insisted that local communities

as far provide themain security force and that the role of themilitary be minimized as possible. Assisting BP is the separation of the police force from themilitary in 1999 and the ongoing reform of themilitary being pursued by the central government. There can be no doubt Commercially to become a major it clearly does to be an exemplary project. that BP wants Tangguh a it is very important play for BP. At stake for BP is the opportunity LNG producer the project in the Asia Pacific. From that point of view, not want

by political tensions and strife jeopardized ? or future allegations of improprieties by and local community dissatisfaction ? ?r BP's international NGOs. financiers banks large Western similarly are concerned and have insisted also on BP meeting social and environmental impact management Tangguh Indonesia, benchmarks is also a critical before providing loans. For the Indonesian government, test for new large-scale resources developments. In

they have often been entangled in national and local politics and vested interests. But the Tangguh project may prove to be a new model for large-scale resource development projects.

Petroleum

and

Mining

in Southeast

Asia

93

Shareholder
BP's

and

Investor Scrutiny

Tangguh project points to how multinational companies are being increasingly standards (and in some required to meet appropriate social and environmental

political behaviour) because of the demands of shareholders and financiers as well as for other reasons discussed above. Another example of the influence of investor pressure is the case of Premier Oil of the United Kingdom, which pulled out of Myanmar gas field as NGOs operating military gas in the Gulf and the UK in 2002 and its operating because who of Mart?ban, government, interest in the offshore Yetagun of pressure from investors as well that Premier human should not be of its rights abuses

cases

believed

in the country government. by France's

in the light of the alleged together with supplies Total, Premier

Yetagun,

field operated

the neighbouring offshore Yadana about 25 per cent of Thailand's natural state oil and institutional eight leading UK

supply via pipeline.

sold its interests to theMalaysian decision,

gas company, Petronas.

Before Premier's

funds managing more than US$800 billion in investment declared that they had grave concerns about countries with operations or business relations inMyanmar.18 The country's important gemstone exports have also been targeted by the regime's critics in theWest with US While law forbidding under rubies from Myanmar. and other gemstones the importation into that country of to import rubies the law it is still possible

cut and polished in third countries, the famous US and in 2005 that it would international jeweller, Tiffany's, declared also not sell as come stones that it from could identify having prepared Myanmar.19 have public, in theWest providing reports of their social in listed companies and environmental practices alongside of their traditional financial reports and resulted sheets. In the United Kingdom, Investor and financier concerns, as well as those of the general

70 of the top 100 British companies produce such reports. There is pressure for this sort of reporting to be mandatory as well as in various jurisdictions in continental Europe. in the United Kingdom And it is not simply a matter of putting out reports and information on web can find it very difficult to raise offshore project finance unless sites. Companies they can assure damage that will may Some lenders that there will not be social risk. companies pay more atten of the reaction or environmental put the project suggest questions at commercial listed Western non-listed

balance

that large and

tion to these greater is also social

than smaller

scrutiny of argument

investors

the wider companies

because companies on their public operations.

There

that non-Western

and environmental

issues. This may

generally pay less attention to also be an unfair stereotype. In fact,

94 it is often operate used as an

Andrew

Symon

argument say

in countries activists. will take

whose They

or do who wish by Western companies are criticized by human rights and governments

democracy companies sensitivities

that if they are not there other non-Western near their do not have anywhere their places which about benefits to local communities and protecting

in bringing

the environment. In any case, as more Asian-based and list on Western stock exchanges interesting example their operations. An company, is its Hong Kong resources seek Western finance companies so they too will face greater scrutiny of

the China National

in this regard is China's largest state oil overseas spearhead Petroleum Corp (CNPC). CNPC's

and New York

the group's operations are severely criticized CNPC, CNPC

listed subsidiary, PetroChina. But in the case of in the Sudan and Myanmar ? both places whose regimes in theWest for human rights abuses ? CNPC operates as

that is, it is the unlisted parent rather than the listed subsidiary, PetroChina. thus escapes any reporting requirement from these exchanges. But there Several institutional investors, decided position banks for

has still been some market censoring of PetroChina.

including the funds of the Ivy League US universities, Harvard and Yale, in 2005 and 2006, respectively, to divest from PetroChina, citing CNPC's in the Sudan as the reason.20 for Southeast agencies Asia is a movement among Important

international benchmarks

and other financial

to set down

commonly

agreed

social and environmental risk in financing determining, assessing, and managing are so-called Equator Principles petroleum, mining, and other projects. These based all on World Bank and the International practices. They provide sectors. To funds, a a common date, Finance Corporation criteria and that is in scope and covers approach global they have been adopted by 42 large banks and of whom are active North American represent about Asian in project and Australian financing although outside

industrial

investment

in the region. Most there are Japanese members. finance market. At present

large number are European,

They no Southeast

80 per cent of the project banks

or other Asian

it does have an important of Japan have adopted the principles. Nevertheless, in the region as significant petroleum and mineral bearing on development on project finance, that is, finance not from projects generally do need to draw internal sources or balance

which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure.
The project will developers, likely have whoever Western, or they may be, foreign or domestic, Asian to deal with at least one or more of these banks.21

sheet borrowing

but a method

of

funding

in

Petroleum

and

Mining

in Southeast

Asia

95

Corporate
Increasing

or Government
expectations

Responsibility?
on companies to demonstrate effective

are being placed

"corporate social responsibility". But where should the line be drawn between what a company must have responsibility for and what in fact is the province of government? After all, should a company concern itself with social and environmental matters beyond what is required by government law and regulation? In other words, one view is that the correct social function of companies is to focus on the job of making profits for shareholders, paying its employers and suppliers, and paying taxes to governments. A company should not to take on social roles that really belong to governments and civil organizations. But of course it is not a perfect world. Especially in the poorer developing countries, where petroleum and mining companies typically operate, the ability of governments services to communities may be limited, at best. Petroleum to provide

and mining projects are prone to social and political challenges and difficulties that companies cannot simply ignore. To gain communities' acceptance of projects in theirmidst, companies must show that they can provide social benefit sense as and not cause unacceptable environmental damage. And it also makes far as self-interest is concerned to assist community development as a means of through local employees and supplies and services. All this may be required by the terms of their operating agreements with central and provincial governments. But even where this is not the case, if a community is alienated, eventually it will result in government actions which helping may be detrimental to the company, governments for companies even if in the short term the company is the in operating in areas where local context. But the dilemma show a lack of interest or care about is just how far they should to support a project economically

go

small-scale and infra health, education, providing industry development structure. They argue they are not, after all, alternative governments, although that may be in effect the expectation of local communities. is some There as the of historical transformation in Asia irony foreign trading companies and Africa centuries emergence rent taker. Petroleum corporate social and mining industries may exhibit different propensities towards generally disturbs more of an area than into proxy of Western local governments control in order to secure their commercial in the eighteenth and nineteenth position was a key reason for the The host and cannot simply be a passive

colonial

in these parts of the world.

country government

has many

responsibilities

responsibility.22 Mining

does oil and gas extraction. Processing

of ore onsite often is also more environment

96 ally hazardous because of the chemicals involved

Andrew

Symon

Much

produced. oil and gas extraction also takes place offshore, thereby reducing operational disturbance of communities. On the other hand, even where the upstream impact be minimal, petroleum

and the toxic waste

may

by long-distance production may be complemented on to to land which need be avoid adverse may carefully planned pipelines environmental and community impacts. An example here is the gas pipeline from to Thailand. Construction of the overland section offshore fields in Myanmar in the late 1990s from the Thai border to power and NGO plants at Ratchaburi itwas (west of was groups because

Bangkok)

cutting challenged by community a to the accommodate their the of national government edge park, forcing through concerns. Furthermore, while offshore petroleum production may be benign as far as environmental and community disturbances are concerned, itmay result in in the form of oil refining and/or petrochemical production processing that can have serious implications in both respects. Finally, what should not be forgotten is that oil and gas production upstream can release large quantities dioxide, a concern as in the context of global warming in power and greenhouse industry, and to favourable emission, as much their combustion generation, conducive

onshore

of carbon gas

transport.

Industry economics

and corporate culture can be more

in the petroleum industry than the mining industry. Petroleum profits practices over the long run are higher and more predictable than those in mining, making to fund social and environmental programmes. Large it easier for corporations petroleum groups also usually have more of a public profile and reputation to protect and enhance as a result of their retail activities. BP sells petrol at thousands and thousands with corporate The in developing questions and is recognized first proposed coalition lateral Monetary the EITI plementary than 20 petroleum of outlets around the world. But copper in the petroleum intertwined and gold are not stamped and mining critical industries and wider This (EITI), a logos. role of major countries issues by

companies is clearly

then with

to do with

governance Industries Tony

and economic Transparency Blair in 2002.

development. Initiative This

the Extractive

by UK

Prime Minister

features

of governments, and bilateral Fund. and Both

investors, companies, and NGOs, supported by multi Bank and the International such as the World agencies corporate actions and government The practices Initiative are monitored argues Asia and pursued. by both South America, by for com More

reforms proposed and in Africa,

policies

companies

and governments. with However,

countries

and Central

and/or mining

industries

are already members.

large there are

Petroleum and Mining inSoutheast Asia no member governments from East and South Asia

97

apart from Timor-Leste. Southeast Asia does feel the impact of EITI initiatives as the Nevertheless, EITI in World Bank and other agencies and principles guidelines incorporate are their programmes assisting countries in these regions. Member companies all Western: BHP Amerada Hess, Anglo American, Areva, Barrick Gold, Eni, ExxonMobil, BG Group, Lonmin, Billiton, BP, Burren Energy, ChevronTexaco, NorskHydro, Repsol Xstrata. Almost

Marathon,

Newmont,

YPF, Rio Tinto, Shell, Statoti, Talisman all of these have interests in Southeast

Energy, Total, Woodside,

Asia.23

Conclusion
The and mining and the wider dimensions of extractive will gain increasing political industry development commensurate attention in Southeast Asia with the increasing exploration and development activities by both foreign and domestic companies. Neither governments nor corporations can escape examination by the region's strengthen and access ing civil societies, armed with instant electronic communications to CNN financial
agencies.

social

and environmental

impacts of petroleum

(Cable be

News

Network)

and

other worldwide

media.

International

scrutiny will

but also from banks and intense, not just from activist NGOs as as well multilateral and bilateral assistance agencies development

In the international corporate world there is a strong movement for reform as and self-regulation and the Extractive support for the Equator Principles Industries Transparency shows. In Southeast Asia, domestic companies, however, significant regional and international players, in the region are generally have yet to embrace these initiatives. Governments clear in their advocacy for good policy and regulation to avoid environmental and social plicated to complement problems caused area. Governments petroleum by the extractive industries. But it remains a com face a long list of policy and programme tasks and mining relevant company performance. How in the region can be to attract foreign investment, there should not be standards and practices of standards. However, largely by national local communities, and the govern the among which there now are some

ASEAN

forumsmay be in this regard is a matter of debate although joint

and harmonize

effort to develop

important. In the competition what can amount to a competitive compromising issues that remain are ones that must be addressed ments
corporate

in partnership with
sector.

local

governments

and

98

Andrew

Symon

Notes
1 Milton Osborne, River at Risk: The Mekong and the Water Politics of China and Southeast Asia (Sydney: Lowy Institute, August 2004), http://www.lowyinstitute. org/publication.asp?pid=160. Andrew Symon, "Fuelling Southeast Asia's Growth: The Energy Challenge", ASEAN Economic Bulletin 21, no. 2 (August 2004): 239^8. overviews, including demand and supply projections, of Southeast Asia's energy sector can be found in theAsia Pacific Energy Research Centre, APEC Energy where Demand and Supply Outlook 2006 (Tokyo, 2006), http://www.ieej.or.jp/aperc/, Useful this and other relevant studies can be downloaded; theASEAN Paris-based another source of information is Centre for Energy in Jakarta, (http://www.aseancentreforenergy.org); the International Energy Agency (http://www.iea.org) and theUS Department

of Energy's Energy Information Administration (http://www.eia.doe.gov) provide consistent and detailed statistical time series for production, consumption, and so forth,by country in Southeast Asia and for the rest of the world. A good survey of the mining industries in each Southeast Asian country, with accompanying statistics can be found in a consultants' study on mining in the Secretariat funded by theRegional Economic Policy Support region for theASEAN

Development Cooperation Program. The study, Facility under theASEAN-Australia Enhancing ASEAN Minerals Trade and Investment,REPSF Project No. 041009b, made its final report in December 2005. This was undertaken by the Australian Bureau of Agricultural and Resource Economics and the Hanoi-based Mekong Economics.
Comprehensive volumes giving both regional overviews, outlooks for various

minerals on world markets, and country profiles including policy and regulatory frameworks can be found on the project's web site: http://www.aadcp-repsf.org/ 3
publications.html.

The colonial history of mining and petroleum is explored in J. Thomas Lindblad, Foreign Investment in Southeast Asia in the Twentieth Century (London: MacMillan, 1998). Richard J.Davies, of a Mud Volcano: Richard E. Swarbrick, Robert J. Evans, and Mads East Huuse, "Birth Java, 29 May 2006", GSA Today (Geological Society of 17, no. 2 (February 2007): 8. America, Boulder, Colarado) See theJakarta Post, http://www.thejakartapost.com for historical and current coverage of Sidoarjo, company web sites, http://www.energi-mp.com, http://www.medcoenergy. com, http://www.santos.com, and Richard J.Davies, Richard E. Swarbrick, Robert J. Evans, and Mads Today (Geological
4-9.

Huuse,

East Java, 29 May 2006", GSA Society of America, Boulder, Colorado) 17, no. 2 (February 2007): Conference of the Philippines, http://www.cbconline.net/

"Birth of a Mud Volcano:

See Catholic

Bishops

statements/statementonmining.html.

Petroleum

and

Mining

in Southeast

Asia

99

7 8

David

L. Llorito, "Philippines' Mining Down

in the Dumps", Asia Times, 26 May

2006, http://www.atimes.com/times/Southeast_Asia/HE26Ae02.html. Luzi Ann Javier, "Philippine Miners Gird forNew Rights Fight", International Herald Tribune, 26 January 2007; a useful examination of the local dynamics of illegal West Sumatra: Access mining in Indonesia is Erwiza Erman, "Illegal Coal Mining in and Actors in the Post-Soeharto Era", in The Politics and Economics of Indonesia's Natural Resources, edited by Budy P. Resosudarmo, pp. 206-15 (Singapore: Institute

of Southeast Asian

Studies, 2005).

10 As

Tom McCawley, "Pollution Dispute Tests Indonesia", The Christian Science Monitor, 20 October 2004. this publication went to print, on 24 April theMenadao court aquitted Newmont and Ness after a 21-month trial saying that thematter should never have resulted

in criminal proceedings (Donald Greenlees, "Indonesia Clears U.S. Mining Giant of Pollution", International Herald Tribune, 24 April 2007, p. 1). 11 See the Jakarta Post, http://www.thejakartapost.com, for historical and current cover age of theNewmont Minahasa 12 13 affair and Newmont web site, http://www.newmont. (Honolulu: com/en/operations/indonesia/index, http://www.buyatbayfacts.com/. See Denise Leith, The Politics of Power: Freeport in Suharto's Indonesia University of Hawaii Press, 2003).

Comprehensive social impact and community development and environmental plan ning studies are available on BP's web site as well as the reports of the independent monitoring committee, http://www.bp.com/modularhome.do?categoryld=4760&conte ntld=7009216. The Japanese consortia comprise MIT Berau-Mitshubishi and Inpex (16.3 per cent), Nippon Oil Exploration-Nippon Oil and Japan Oil Gas and Metals National Corp (12.23 per cent), KG-Mitsui, Kanematsu Corp, Japan Oil, Gas and Metals National Corp (10 per cent), and LNG Japan Corp-Nissho Iwai and Sumitomo (7.35 per
cent).

14

15 The

16 Timor-Leste's 17
gov.tl/; see

implications of decentralization for natural resources and local revenues are explored in The Politics and Economics of Indonesia's Natural Resources, edited by Budy P. Resosudarmo (Singapore: Institute of Southeast Asian Studies, 2005). fund is explained on the government web site: http://www.transparency,
http://www.eitransparency.org/section/countries/_timorleste. also

The position and attitudes of themilitary are documented in the annual reports on the Tangguh development by the independent advisory committee established by British Petroleum (BP). Panel members include theUnited Kingdom's Lord David Hannay, US Senator George Mitchell, former Indonesian ambassador, Sabam Siagian, and Papuan churchleader, Reverend Herman Saudu. The reports, published in full on BP's web site, are explicit in their discussion of this and other issues. Over the course of time, themilitary has accepted BP's desire for a community-based security

100 Andrew Symon system,minimizing directmilitary presence, unlike the case of theFreeport mine. The acceptance of this approach would not have been achieved without complementary support from Jakarta where the government has sought to reform the military and is eliminate old abuses. "Fund Giants Warn against Burma Trade", BBC News, 3 December 2001, http://news. bbc.co.uk/l/hi/business/1689339.stm; "UK Urges Oil Firm toQuit Burma", BBC News, 12 April 2000, http://news.bbc.co.Uk/l/hi/world/asia-pacific/710278.stm. See Tiffany and Co's corporate social responsibility statement: http://www.tiffany. com/about/co orateResponsibility/default.aspx. Statement by Harvard Corporation Committee on Shareholder Responsibility (CCSR) Regarding Stock inPetroChina Company Limited, Harvard University Gazette, 4 April 2005, http://www.news.harvard.edu/gazette/daily/2005/04/04-sudan_statement.html. Yale Acts toDivest 07.all.html
21 See

19 20

Affairs Press Release,

inResponse toDarfur Genocide, Yale University Office of Public 15 February 2006, http://www.yale.edu/opa/newsr/06-02-15

22

http://www.equator-princples.com.

23

Collapse: How Penguin 2006), pp. 441-68. Jared Diamond,

See http://www.eittransparency.org.

Societies Choose

to Fail

or Succeed

(New York: