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Infrastructure Finance Feb/Mar 96
TROUBLING PROJECTS
Myanmar's Yadana gas field raises the question: Should companies do
business with regimes that violate basic human rights?
By Gregory Millman (pp. 17-19)
Myanmar's early god-kings ostentatiously poured their country's
wealth into building herds of sacred white elephants. The military
dictators who have ruled Myanmar (formerly Burma) since 1988 continue the
ancient traditions of absolutism and spending, but have added something
more: Myanmar's State Law and Order Restoration Committee (SLORC) has
been charged with just about every human rights violation - including
rape, torture, execution without trial, political prisoners, and slavery.
The SLORC was born in a bloody massacre of pro-democracy
demonstrators in 1988. It renamed Burma the Union of Myanmar - though
opponents to the regime continue to call the country Burma. The SLORC
allowed an election in 1990, but when 80 percent of the voters cast their
ballots against the SLORC, it nullified the poll, imprisoned opposition
candidates and placed Nobel laureate Aung San Suu Kyi under house
arrest. The SLORC's human rights record has been condemned publicly by
the US State Department, the United Nations, Amnesty International, Human
Rights Watch Asia, and the editorial page of the Wall Street Journal.
But is the fact that a regime is tyrannical and oppressive a
reason not to do business with it? From China to Nigeria and from Cuba
to Iran, investors are having to grapple with the morality issues as well
as the economics of various investments. The Yadana pipeline now under
development in Myanmar by Unocal of the US and Total of France paints the
issue in the starkest colors.
Some think that the record of Myanmar's government is so
egregious that it is immoral to do any business there - at any price.
George Soros acted decisively on this conviction in 1994, when he dumped
the shares of Peregrine Investments held by his Quantum Fund because of
Peregrine's involvement in Myanmar. Levi Strauss and Co. pulled out of
Myanmar in 1992, saying that doing business there was impossible without
"directly supporting the military government and its pervasive violations
of human rights." Liz Claiborne Inc., the clothing manufacturer, also
withdrew for the same reason, and RH Macy and Co., the US department
store, left because of "corruption." In addition, the Asian Development
Bank is not extending loans to Myanmar because of human rights violations.
Does Commerce Civilize?
However, several oil companies have been getting involved in
Myanmar. Amoco has departed for so-called economic reasons, but Texaco
and Arco are actively engaged in exploration. And Unocal and Total are
beginning to develop the Yadana gas field - about 43 miles off Myanmar's
coast in the Andaman Sea. Production from this field is expected to
reach 650 million cubid feet per day, most of which will be shipped via a
416-mile pipeline to the Electricity Generating Authority of Thailand.
Critics say that revenues from the Yadana project will help keep
Myanmar's junta financially secure and make it possible for the generals
to buy arms. From this perspective, the pipeline may be regarded as a
callous collaboration between a repressive regime and companies that put
profits before people. "Unocal and Total are partners in that and can't
escape culpability," says Simon Billenness, senior analysts at Franklin
Research and Development, which he describes as a socially responsible
investment firm.
Oil companies view the project differently. They describe it as
a means of opening a closed society. "You have a choicwe between doing
nothing and doing something," says Herve Chagneux, Total's coordinator
for Myanmar and Thailand. "We are entrepreneurs. Our business is to
create wealth, and we feel that by doing so, we push things in the right
direction." In other words, commerce can be a civilizing influence.
An Ethical Challenge
The Yadana project is neither a challenge technologically nor
financially. The $1 billion project is expected to be financed entirely
with equity. According to Chagneux, financing will include export credit
agency (ECA) support. However, he does not expect any participation from
ECAs in the US, UK or France; though, he says, "Japanese [support] is
clearly a possibility at this stage. As for the rest, it is difficult to
say." Contractors have already been invited to submit bids.
Total owns 31.24 percent; Unocal, 28.26 percent; the Burmese
government's Myanmar Oil and Gas Enterprise (MOGE), 15 percent and
Thailand's PTT Exploration and Production Public Co., 25.5 percent. The
Petrolium Authority of Thailand has signed a 30 year gas sales cotract.
According to Chagneux, the contract provides for the purchase of 525
cubic feet of gas per day. As a result, the project is expected to be
highly profitable. In fact, Lehman Brothers analyst Paul Cheng estimates
that the Yadana pipeline will boost Unocal's per share earnings by as
much as 10 percent annually.
There are only two serious challenges. One challenge is
presented by the Karen and Mon, two ethnic groups who have been fighting
the Burmese for centuries. The proposed pipeline will only cross Burmese
land for 39 miles, but the route goes through Karen and Mon strongholds.
In the Spring of 1995, insurgents attacked and killed five surveyors.
The insurgents say their land is being taken for the pipeline without
their consent or any compensation. They claim that their villages have
been razed and their people marched off to forced labor camps or
otherwise relocated. They aren't happy, they have guns, and they know
how to use them.
The second challenge is ethical. Ethicists say that even among
countries charged with human rights violations, Myanmar is unique. The
abuse of human rights is so much a part of the system that it takes very
creative approaches to do business ethically in Myanmar. Professor Tom
Donaldson of Georgetown University, author of The Ethics of International
Business, says, "In Burma the human rights violations have been systemic,
widespread, and involve violations of the most fundamental and central
human rights accepted by both liberals and conservatives."
Donaldson is no knee-jerk bleeding heart. He says that his
ethical business guidelines would allow a company to do business with
almost anyone in the world. "I call this the condition of business
principle," he says, "Basically, we will tolerate a fair amount of
unethical behavior from a person, firm or nation with whom we just have
business dealings, but when matters reach the point of a dramatic
threshold, most people say you just don't do business with that type of
person. I don't think China reaches that point, but if any country might
qualify as passing that threshold, it would be Burma."
Donaldson's view is reinforced by Richard DeGeorge, director of
the International Center for Ethics in Business at the University of
Kansas, who says, "One of the guidelines I would put out is that a
company should not knowingly cooperate with with any supplier, government
or other enterprise that engages in slavery, slave labor, or even child
labor. Saying, 'We know they're doing it, but we're not doing it,'
doesn't let you off the hook. If you know it's being done, you're
ethically responsible for it. It's your responsibility to mitigate the
harm they're doing to those people. They can't simply be ignored."
Professor Kenneth Goodpaster, a former faculty member at the
Harvard Business School who now teaches business ethics and policy at the
University of St. Thomas in Minneapolis-St. Paul, says, "When you can
forsee in clear terms that this supplier or user of your services or
products is engaging in behavior that is, by any reasonable estimate, an
abridgment of basic human rights, there's no escaping that you have a
responsibility there."
None of these ethicists specifically says that it is unethical
for Unocal and Total to invest in Myanmar, but they all underscore the
need for innovative approaches to insure that the project does not
benefit from the SLORC's injustice. They add that if companies could
exert a positive (text missing) project. Thus it's no surprise that
Unocal, Total and other oil companies justify their presence in Myanmar
by arguing that economic development and prosperity will eventually
civilize that state. They point to other examples where they say
economic growth has helped facilitate an expansion of human rights in
Asia - including the Philippines, Indonesia and China.
Though oil companies insist they are making every effort that
ethical business requires, their interest are entwined with those of the
SLORC. One executive, who declined to be identified, even defended
Myanmar's use of forced labor as reasonable given that the country could
not borrow money to build its infrastructure.
While Unocal and Total have not gone that far, thay have been
supportive of SLORC in some ways. For example, John Imle, Unocal's
president, says of SLORC, "What we look for is a government that delivers
on its commitments. This one has." Moreover, in January 1995, he told a
group of human rights activists that opponents of the pip[eline should be
blamed for the military's atrocities in the region, "Let's be reasonable
about this. What I'm saying is that if you threaten the pieline, there's
going to be more military. If forced labor goes hand-in-glove with the
military, yes, there will be more forced labor." In an interview with
INFRASTRUCTURE FINANCE, Imle clarified his point: "The troops assigned
to provide security on our pipeline are not using forced labor," he said.
Interestingly, Imle's partners at Total do not share his
confidence in the good conduct of Burmese troops. "I could not guarantee
that the military is not using forced labor," says Total's Chagneux.
"All we can really guarantee is what we [ourselves] are doing, the
contracts we make, the people we employ. What is being done nearby we do
not know." As the operating partner, Total handles on-site activities
such as hirings and construction, and is, therefore, much closer to the
scene than Unocal.
There is no shortage of reports from refugees who say that they
have been forced from their villages in the pipeline areas and compelled
to work as porters or as construction workers on military bases. "We've
sent them mountains of interviews with dislocated villagers, victims of
forced labor, photographs of villages being burnt down, people being
shot, but they refuse to believe it," says Louisa Benson, US
representitive of the Karen National Union and the Democratic Alliance of
Myanmar.
While the US State Department says that many such refugee
accounts are credible, Imle doesn't believe them. "The people being
interviewed - a lot of them in Bangkok or in the refugee areas - may be
people who don't understand where the pipeline will be or what it is," he
says, adding, "There are people who are using this as a cause or as part
of an agenda."
Not all oil executives question these accounts. At another oil
company exploring in Myanmar, an executive says he's looking for ways to
provide security for his operations without relying on the Burmese army,
in order to avoid any taint of collaboration with the regime.
But at UBS in New York, oil company analyst Mark Gilman says
frankly, "There are a lot of folks in the industry who would rather deal
with an authoritarian regime than with the chaos often associated with an
emerging democracy." As a securities analyst, Gilman adds, how a
dictatorship treats its people is of no concern. "Human rights remain
off the table until such issues begin to jeopardize the likely conclusion
or the bringing to fruition of projects. When those issues begin to have
intermediate to long-term economic implications, then they become
relevant, but exclusive of that, they're not." Gilman's view is
generally shared among analysts who cover Unocal, though no others were
willing to be quoted. George Soros may have abandoned Myanmar because of
his personal convictions, others seem unlikely to follow his trail.
Profits and Principles
The decision on whether and how to do business in Myanmar will be
made by individual companies, who must weigh issues of profits and
principles. In this context, every oil executive interviewed for this
article cited as one justification for staying, that if his or her
company left, there were others eager to take its place.
To change the trade-off facing compnies, a number of governments
are dusting off boycott measures once used against South Africa. For
example, the Commonwealth of Massachusetts and several US cities have
introduced local legislation calling for a boycott of companies that do
business in Myanmar. Moreover, in Washington, DC, sanctions legislation
is expected to be sponsored in Congress by Senator Tom (sic) McConnell
(R-Kentucky) and Senator Daniel Patrick Moynihan (D-New York).
Amid the growing debate, Unocal and Total continue to insist that
it is possible to do business ethically in Myanmar, and they don't worry
that they have a vested interest in protecting an oppressive regime.
However, that view is not necessarily shared by executives at other
companies or by public officials in many countries around the world.
END
Typed by Seattle Campaign for a Free Burma