Community engagement key to business success in Myanmar

Community engagement key to business success in Myanmar

By Victoria Bruce

Senior Reporter, M-ZINE+

Engaging local communities and ensuring international standard corporate social responsibility (CSR) practices will be key to the success of petroleum projects in Myanmar, says a leading civil society organization.

Image courtesy of Myanmar cartoonist "Lailone"

For many IOCs, this is the first time they’ve set foot in post-sanction Myanmar and while most are no stranger to emerging markets, building a successful business in the long-isolated Southeast Asian nation comes with its own set of risks and challenges.

For David Allan, co-founder of civil society organization Spectrum, this doesn’t refer to the geological challenges of petroleum exploration, but treading carefully in a country that’s still transforming from a military dictatorship to a fledgling democracy and is still marred by reports of human rights abuses.

“A great deal of care needed in the areas of land and livelihood and it’s going to take time to do that,” says the former chemical engineer.

“A tripartite dialogue improvement between government, business and the public offers improved communication, understanding and many opportunities to facilitate further national development,” he says.

 On a global scale, the extractive industries are risky business in terms of human rights abuses, and Myanmar is no different.

Professor John Ruggie, UN Special Representative on human rights and transnational corporations (TNCs), notes “the extractive sector is unique because no other sector has as enormous and as intrusive a social and environmental footprint.”

“The extractive industries also account for most allegations of the worst abuses, up to and including complicity in crimes against humanity.”

“These are typically for acts committed by public and private security forces protecting company assets and property; large-scale corruption; violations of labour rights; and a broad array of abuses in relation to local communities, especially indigenous people,” Professor Ruggie says.

In Myanmar’s case, one landmark example is the Doe v Unocal trial, where villagers sued the firm for complicity in forced labor, rape, and murder committed by the Myanmar military, which was contracted to provide security for a pipeline project, according to EarthRights International (ERI). 

In March of 2005, Unocal agreed to compensate the plaintiffs in a historic settlement that ended the lawsuit. Shortly thereafter, Unocal was acquired by Chevron, which has a 28.25 per cent stake in the Yadana gas field operated by France’s Total. 

Image: "Lailone"

More recently, the massive Shwe Gas Project, a 2,800 kilometre pipeline carrying natural gas from Myanmar’s Shwe field to China, has come under fire for disrupting traditional fishing and farming lands without providing adequate financial compensation for affected villagers, says the Shwe Gas Movement (SGM), a community based organization.

 “The majority of people in Arakan State (Western Myanmar) rely heavily on both fishing and farming to gain income and sustain their families. Both these industries are now being destroyed, leaving residents jobless and without income,” SGM states in its 2011 report, titled Sold Out.

 “There’s a very significant and growing history of social license issues in Myanmar,” Mr Allan says, pointing to recent examples where communities have lobbied against projects, such as President Thein Sein’s call to suspend the controversial Myitsone Dam project as a result of public concern, the suspension of a mega coal-fired power station in Dawei and the recent unrest over the Lapundaung Copper project.

“If they (IOCs) don’t operate in a way that’s considered satisfactory then they’re going to lose the public social license to operate and will be significantly impacted as a result of that,” Mr Allan says.

 

Photo: Courtesy of Spectrum

In post-regime Myanmar, ensuring the approval of community stakeholders, or social license to operate, could make it or break it for new operators.

So what can companies do to minimize reputational risk and maximize community acceptance?

In absence of existing comprehensive legal framework, Mr Allan says firms can follow many international best practice principles – particularly John Ruggie’s Guiding Principles of Business and Human Rights which outline how countries and businesses can better manage business and human rights challenges.

“Companies would be well advised to look carefully at what they need to do to operate successfully in Myanmar,” Mr Allan says, adding “just following current regulations isn’t going to be good enough.”

He says ensuring community participation and consent in the processes of decision making would overcome many of the issues currently resulting from the operation of extractive projects.

 “There needs to be attention to land, livelihood, environmental, gender, cultural heritage, benefit sharing, safety, community harm and community protection issues, as these are considered particularly important,” Mr Allan says.

 As Myanmar slowly emerges from the shadow of a former military regime and begins the slow transition towards democracy, it’s clear that not only policies, but people’s mindsets, need to reform and modernize.

“After decades of isolation, there are gaps between those in the government who are advocating reform policies and those at local level who are trying to implement those policies without much guidance on how to do it, or much experience on what best practice operation looks like,” Mr Allan says.

Image: "Lailone"

He says this could involve local authorities or contractors, and a particular red flag applies to local security firms, partly due to the lack of appropriate models to follow and adequate training on internationally acceptable procedures.

One way operators can make inroads with local communities is by offering training and employment opportunities and ensuring community involvement.

“Anything that brings in external labour when there could be use of local labour will not be received well by these communities, which would very much like to have better employment options,” Mr Allan says.

“It’s important for operators to not impose on, but involve communities. Very few are thinking about this. Many are thinking, how do we get the project to go ahead, rather than thinking about it from a community stakeholder perspective,” he says.

By engaging local business, foreign firms can help build capacity and transfer essential skills, as well as provide education on international best practice and CSR strategies.

There’s a long way to go before local understanding is in line international practices, and Myanmar businesses trade the model of corporate philanthropy for more holistic CSR practices.

 

Image: "Lailone"

“There are many in Myanmar who think CSR, instead of being an all-encompassing model for shared value for business as it’s viewed internationally, interpret it as a corporate philanthropy model where a company gives to a local area or monastery,” Mr Allen says.

“There’s quite a difference between the model of business creating shared value for everybody and the model of corporate philanthropy.”

As Myanmar continues to open up its petroleum blocks to international investors, the nation’s coffers are set to swell with oil and gas revenues, meaning measures need to be put in place to ensure revenue transparency and government spending.

Last year, the Myanmar government announced plans to voluntarily sign up to the Extractive Industries Transparency Initiative (EITI) and a task force consisting of key government officials was established in December. The purpose of the EITI process is to track revenue flows and in-kind contributions between companies and the government, with the intention of ensuring extractive industry revenues reach the national budget and can then be used as part of an overall government development package.

Image: "Lailone"

If done well, unlocking the wealth of Myanmar natural petroleum resources could prove essential to the impoverished country’s growth, and the influx of foreign firms could boost the industry by bring international best practice guidelines and creating much needed local job opportunities.

For Mr Allan, the message is clear – as in any developing country, tread lightly, engage local communities and when in doubt, adhere to international best practice guidelines.

“Many large operators have well developed models how to cover all aspects of due diligence and operating rules and they need to apply it here just as they would in any other complex operating environment,” he says.

“The guidelines that exist internationally apply in Myanmar just as they would anywhere else. And the pitfalls also exist – if you cut corners then there’s likely to be a consequence for that.”

  This article first appeared in Issue 14, Vol 2 of M-ZINE+ business magazine on April 4, 2013

Underwater adventures... Malaysia's Allied Marine & Equipment take a look at sub-sea Myanmar

Underwater Adventures... AME takes a fresh look at sub-sea Myanmar

By Victoria Bruce

From the docks of old London town to the seas off southern Myanmar, Mark Shepherd’s underwater adventures have taken him around the world.

The British-born commercial diver is the managing director of Allied Marine & Equipment (Thailand), a wholly owned company of SapuraKencana Petroleum Berhad and the Thai operating arm of Allied Marine & Equipment Sdn., Bhd., a Malaysian firm specializing in underwater diving surfaces for the oil and gas industry and part of the giant SapuraKencana oilfield services family.

The company is poised to make its first Myanmar play and is eying off the underwater opportunities in the country’s burgeoning petroleum industry, Mr Shepherd told M-ZINE+ Senior Reporter Victoria Bruce.

 “There are rumours of other large multinationals coming into Myanmar soon and it’s no secret that companies here are looking to expand their operations,” he said.

While Myanmar currently offers a fraction of the work AME picks up in Malaysia and elsewhere in the region, Mr Shepherd says that will increase once the country opens up its offshore and deepwater blocks.

Underwater adventures... Photo: AME

“The amount of work available in Myanmar at present is probably about 10 per cent of the work available in Malaysia however it’s obviously not going to remain that way,” he says.

“There’s going to be significant growth in coming years and the people that get in early are likely to do well.”

At this time, AME feels it has some key advantages over its competitors and Mr Shepherd hopes AME will become Myanmar’s service provider of choice in the niche underwater area of inspection, maintenance and repair of offshore structures and pipelines with their teams of divers and remotely operated vehicles (ROVs).

For AME, Myanmar offers another major advantage – its geographical location means that weather offshore is favorable during the lengthy northeast monsoon season between November and March that often makes subsea work difficult or impossible in other areas of the region.

Myanmar is the geographical opposite of Thailand, Malaysia, Indonesia and Vietnam, where 90 per cent of work is carried out between March and November, when the weather is favourable, Mr Shepherd says.

“For our work we need relatively calm seas and good weather otherwise it’s very dangerous to take people and equipment in and out of the water.”

The diving season here is November through until March so it gives you a chance to increase utilization and assets and maintain at least some work during what is normally a very quiet period for us,” he says.

Calm seas essential for smooth operations... Photo: AME

 So monsoon season in other parts of the region means its perfect time to dive in Myanmar, and for a subsea company like AME this means people and assets that would otherwise be sitting idle are kept in operation.

Mr Shepherd’s underwater career began as a scuba diving hobby at age 18 and has taken him to depth of the North Sea, which he says was “cold and boring” to the pristine waters off Myanmar’s coasts, which he tips to be amongst the clearest in the world.

Starting out his Asian play on a cable ship laying telephone cables around the Gulf of Thailand in 1992, Mr Shepherd later ended up running the operations in a Thai based company as a member of a small management team, turning it into a multimillion dollar public company.

He’s now been with the SapuraKencana Group for two years and heads up AME’s Bangkok base.

While the majority of their subsea contracts are in the Thai and Malaysian market, AME’s Myanmar play follows the flow of international operators with a rising interest in the Southeast Asian nation.

As an assets-based company, reliant on good weather conditions and the number and size of contracts, Mr Shepherd says AME has no plans to set up a permanent base in Myanmar just yet.

 “It’s difficult for a niche business like ours to have a permanent establishment here,” he says. It is more advantageous, at present, to have representative through an agreement.

“The opportunity became apparent when Cranes and Equipment Asia (CEA) decided to open shop here because we had people we knew and trusted on our behalf to be here full time, so we can provide our services without carrying the costs which inevitably would be passed on to the client.”

Like many in the global oil and gas community, he’s also waiting for Myanmar to offer up more offshore and deep water blocks because once operators come in, the demand for subsea services like AME’s will rise.

A whole new world... a diver tends underwater infrastructure. Photo: AME

 “Pretty much everything you do above surface, you have to do underwater at some time or another,” Mr Shepherd says. “Basically there’s an entire infrastructure on the sea bed, often out of the range of divers, that you can’t get down and put a spanner on by hand, so many systems are now being designed for operation by ROV,” he says.

And as operators explore record deep water depth, a new breed of diver has emerged – the electronic highly technical ROVs, some costing in excess of US$6 million and capable of reaching depth of 3 ~ 4,000 metres.

“It’s not economically feasible or pratically possible to carry out man diving operations deeper than around 300 metres,” Mr Shepherd says.

“Once you’ve hit that 300 metre work then everything has to be done by remotely operated vehicles.”

And at the bottom of Myanmar’s deep water basins, a growing complex infrastructure is being built to funnel hydrocarbons from production sites to onshore facilities and beyond, and Mr Shepherd hopes AME’s diving and ROV teams will be down there with it.

ENDS

Myanmar's slow road to reform

Myanmar’s getting better — but there’s a long way to go

Victoria Bruce | Mar 18, 2013 1:06PM | www.crikey.com.au

 

Myanmar’s president — currently in Australia — is driving a range of social, political and economic reforms in the former military dictatorship. But Rome wasn’t built in a day, writes Victoria Bruce in Myanmar.

President Thein Sein is slowly transforming Myanmar from a military dictatorship to a fledgling democracy, but for millions of Burmese without basic services, how much have the reforms really helped?

Thein Sein is currently visiting Australia as part of a broader re-engagement strategy. The former military man has put his neck on the line to transform regime-ruled Myanmar, previously known as Burma, from an impoverished nation isolated by decades of punitive sanctions to a country that is rapidly opening up to the outside world.
Under Thein Sein’s administration, the government has freed hundreds of political prisoners, including released Nobel Peace Prize Laureate Aung San Suu Kyi from house arrest, embarked on peace deals with ethnic minority groups and relaxed media censorship. To promote post-sanction Myanmar’s re-engagement with the outside world, Sein has toured Europe and hosted US President Barack Obama, and his country is set to chair the Association of South-East Asian Nations in 2014.
Many in Myanmar’s business community agree change is in the air — but Rome wasn’t built in a day, and it’s a slow process transforming a 50-year old dictatorship into a vibrant capitalist democracy. As noted by chairman of Myanmar agricultural company Tropical Biotechnology, Ashok Murarka: “In a nation’s history 20 months is too short a period to notice real changes. So far we see only realignments of various views. These changes will be visible in a few more years.”
For William Aung, director at Yangon-based consultancy Thura Swiss, the most significant reforms to date include freedom of speech, relaxation of media censorship and the liberalisation of the economy. ”Since the President took office there have been some economic reforms, such as allowing the formation of public companies, granting licence to private insurance companies and some privatisation of the military-controlled State Own Enterprises,” Aung said. “But the problem is the lack of skilled workers, adequate law and regulations to do the jobs. That is the major obstacle for Thein Sein’s administration.”
Thein Sein’s commitment to Myanmar’s reform process — and bringing military hardliners in the government along with him — demonstrates courage and leadership, says Eugene Quah, an Australian-born lawyer and one of the founders of the Australia-Myanmar Chamber of Commerce, who lives in the economic capital of Yangon. ”He was handed a mess and has had to tread a very fine line to move the country forward after decades of stagnation while balancing so many different stakeholder interests [both domestic and international],” Quah said.

Despite reforms, life is still hard for many of Myanmar's rural poor. Photo: Victoria Bruce

 But for many of Myanmar’s 60 million-strong population, the impacts of Thein Sein’s reforms are yet to be experienced; three out of four are without reliable access to electricity, according to World Bank statistics, and mobile phone penetration is around 3%.
“Until now I haven’t seen any positive impact on rural/poor people,” Aung said. “Many people from village are still poor and leaving their villages to go Yangon or neighbouring countries to look for jobs and a better future.”
Last month rice farmer Bar Lue was given his marching orders by local township authorities because he lives and works in the vicinity of the 2400-hectare Thilawa Special Economic Zone (SEZ) mega-project, a multibillion-dollar industrial zone and port project spearheaded as a joint venture by the Japanese and Myanmar governments, touted as a solution to the country’s infrastructure shortage. If completed, it will be south-east Asia’s largest economic zone.
Jared Bissinger, an economist and PhD student from Australia’s Macquarie University who is studying Myanmar’s economy, notes land confiscations are a common occurrence in modern-day Myanmar and could pose a major problems in the future development of the country. As Myanmar opens up for business, care needs to be taken to mitigate further human rights violations and to include communities in future negotiations.
In urban Myanmar, change is more visible. Streets are clogged with new cars following relaxation of import licences and taxes, Western brands such as Coca-Cola and Pepsi are replacing local beverages, and firms including KPMG and the UK’s Standard Chartered Bank have offices in downtown Yangon. A Hilton hotel is tipped to open next year, a Novatel is being built at the edge of Yangon, and 91 telecoms companies have expressed interest in bidding for two mobile licences as the Myanmar government moves to liberalise its telecommunications sector.
Since the President took office and got the ball rolling on the reform process, a myriad punitive sanctions have been eased against Myanmar. Australia has rewarded the Thein Sein’s efforts by abolishing sanctions, stepping up its aid commitments and encouraging trade relationships. An Australia-Myanmar Chamber of Commerce has been founded, and Australian firms including mega energy firm Woodside Petroleum are preparing for their Myanmar play.
While the President’s three-day visit is tipped to focus more on government-to-government relations than engagement with Australia’s private sector, for Myanmar, having Australia onside as its geographically closest Western ally is an important part of building its ASEAN and Pacific alliances. But the ongoing ethnic conflicts in the northern Kachin and western Rakhine states remain a sore point  for the government, and it’s expected that human rights concerns will be on the agenda during his Australia visit.
While the President’s reforms are a step in the right direction, the actions of his party aren’t enough, says Aung. “Not only Thein Sein nor Daw Aung San Suu Kyi can change the country, but all Myanmar citizens need to participate and help continue the reform process for future generations,” he said.

*Victoria Bruce is the senior reporter at M-ZINE+, a Myanmar-based business magazine
http://www.crikey.com.au/2013/03/18/myanmars-getting-better-but-theres-a-long-way-to-go/ 

Myanmar's deep water petroleum blocks on the horizon for IOCs

International oil companies can go it alone, says Myanmar govt

Monday, 04 March 2013 18:43  

Victoria Bruce / M-ZINE+ Senior Reporter

  

International oil companies (IOCs) will be able to independently invest 100 percent in offshore and deepwater blocks without having to take on a local partner, Deputy Minister Htin Aung from Myanmar’s Ministry of Energy (MoE) told Mizzima’s sister publication, M-ZINE+, in an exclusive interview on Monday on the sidelines of a petroleum conference in Yangon.

Shell Exploration & Production Perdido deep water project, Gulf of Mexico, USA. Photo: Shell

In Myanmar’s onshore sector, operators are required to team up with a local partner to explore for oil and gas, the focus being on technology and skills transfer, Htin Aung said, explaining that this requirement will remain for all onshore and some shallow offshore exploration.

 "At this moment, for onshore and shallow water, there will be a requirement for local participation. But for the deep water, which is capital intensive and high risk, we are looking to promote foreign direct investment," he said, adding the much-anticipated offshore bidding round could be opened by April 2013.

For many local companies, the announcement will come as a disappointment, since around 100 firms have registered with the MoE in recent months in anticipation of pairing up with foreign operators to exploit Myanmar’s offshore petroleum resources.

“Local firms are lobbying against this,” said a representative from local services company Parami Energy, which is a minority partner for onshore block PSC-I with India’s Jubilant Energy.

To balance things out, the Myanmar government said it is leaving the decision whether to take on a local partner to the discretion of the operator, explained Soe Myint, the former Director-General of the Ministry’s Energy Planning Department, who is now the Executive Director of local services firm Machinery and Solutions Co Ltd.

“We have more than 80 local companies registered with the Ministry of Energy ready to work with foreign E&P companies,” he said.

But in the capital-intensive business of deepwater exploration, where drilling one well can cost in excess of US $100 million, it’s just not economically feasible to expect the local partner to come up with five or 10 percent, or to free-carry them, a representative from Anadarko Petroleum Corporation told M-ZINE+.

“Most IOCs have global portfolios and if the terms aren’t profitable in Myanmar, then they’ll look elsewhere,” he said.

This picture taken on on June 1, 2012, shows the construction of oil tanks at a site operated by China National Petroleum Corporation at an offshore block of Madae Island near the town of Kyaukphyu in Rakhine State, western Myanmar. (AFP PHOTO)

The requirements in capital, technology, and the expertise of drilling a well in 2,000-meter open deepwater as compared to depths of 200-500 meters in shallow offshore or onshore differ exponentially, said Edwin Vanderbruggen, a partner of VDB Loi, a law firm specializing in transactions and taxation.

“Doing deepwater or doing petroleum operations on the shelf is like comparing boiling an egg with cooking a six-course dinner in a two-star Michelin restaurant,” Vanderbruggen said. “It’s actually an entirely different business.”

He said it doesn’t make sense to have a local partner requirement for deepwater offshore blocks, because the local partner has little to offer in terms of technology or capital.

“There are only four or five E&P [exploration & production] companies in the world with the money and technology to do deepwater,” said Vanderbruggen.

“Drilling a well at this depth costs $500-600 million,” he said. “If you have a local partner who has 10 percent, that means with every well they have to come up with $60 million. How many local partners in Myanmar have that kind of money lying around? That will be very difficult.”

To advertise in a special issue on Myanmar’s petroleum industry in M-ZINE+, datelined April 4, 2013, click here.

He said many operators will compare the profitability of a Myanmar play against their global operations, and if the numbers don’t add up, they won’t invest.

“For example, if you want to invest $600 million to drill a well, and your local partner can’t come up with his 10 percent, what are you going to do? Free carry him? That’s giving money away,” he said.

Under the current MoE guidelines, foreign firms must enter into a production-sharing contract (PSC) with the Myanmar Oil and Gas Enterprise (MOGE), the country’s national oil company, which is responsible for upstream hydrocarbon production.

Htin Aung said the terms and conditions of the PSC, the industry term for an agreement between an IOC and host country regarding the percentage of production each party will receive, will not be up for negotiation, as the Myanmar government wants to create an equal playing field for all applicants.

“Before it [the PSC terms] was negotiable, but now with more interest coming from foreign companies, we will not have time for negotiation because it takes too long,” he said.

However, he stressed the need to speedily develop Myanmar’s petroleum sector to respond to the country’s growing demand for energy.

“We are not going to entertain any negotiations, but we want to develop our country very fast,” Htin Aung told M-ZINE+, adding, “so the company that offers the best terms and conditions will be preferable.”

Bids are currently being invited for the country’s onshore tender, which is due to close later this month. The much-anticipated tender for offshore and deepwater blocks is tipped to be announced in the next few months, industry insiders said.

A range of international E&P firms are putting in bids for some 17 blocks in Myanmar’s second onshore tender, including India’s ONGV Videsh Ltd and UK-registered Dove Energy.

This article first appeared on www.Mizzima.com:
http://www.mizzima.com/business/8998-international-oil-companies-can-go-it-alone-says-govt.html 

http://www.mizzima.com/others/announcement/8997-petroleum-flyer.html