The Economist - June 29, 2002

BP in Indonesia - Sociologists Before Geologists?

Bintuni Bay, Indonesia 

AT FIRST, it reads like a film script. An oil multinational enters a remote rainforest in a disputed corner of an unstable country, where a brutal army confronts a popular independence movement. Throw in tribal politics, corrupt officials and hostile NGOs, and watch it all simmer.

But this is a true story about the British oil giant BP, which has been busy transforming a sleepy bay in Indonesia's restless West Papua province, formerly Irian Jaya, into a $2 billion gas plant. Construction of the onshore plant, which will convert offshore natural gas into liquefied natural gas (LNG) for export to Asia's energy-hungry markets, should start next year. The first LNG will be shipped in 2006 at the earliest.

BP has already sunk some $600m into the project, known as Tangguh, or "Invincible". That includes costs incurred by Atlantic Richfield, the American oil company that discovered the gas and later merged with BP. Under its production-sharing contract with Pertamina, Indonesia's state-owned oil producer, BP hopes to recover its investment and more once the profits start
to flow.

ButTangguh is about more than profits. It is a chance for BP to show that its much-trumpeted embrace of corporate social responsibility extends beyond the boardroom and into the boondocks. That is why the company has sent scores of sociologists, anthropologists and other clipboard-toting consultants into bayside villages to listen and learn from its local "stakeholders". 

BP's base camp, a temporary set of wooden cabins, is dominated not by grizzled oilmen talking shop but by these new, Gap-wearing consultants, schooled in the language of "community development".

It is a calculated risk by BP that it can grow in Indonesia without harming the reputation of the company and its brand. Indonesia is better known forcrony capitalism than the kind of caring capitalism that BP wants to espouse. Environmentalists say that the company is taking care to minimise the impact of the gas plant on local biodiversity, which includes South-East Asia's 
largest intact mangrove forest.

But some locals are tiring of the attention and starting to ask when the development funds promised by BP will arrive. Villagers in Saengga, near the camp, sent journalists packing when they tried to eavesdrop on a recent powwow about BP's offer to compensate villages affected by the project. A few dozen villagers later staged a peaceful sit-in at the camp to protest against 
delays in settling the claims. BP says it wants to make sure that everybody agrees before it pays, hence the delay. 

Less easy to control is the wider social and political impact of such a project on West Papua, a backward province that has bristled since it came under Indonesian rule in 1963. After Suharto's fall in 1998, West Papuans, who are ethnically and culturally distinct from most Indonesians, agitated unsuccessfully for independence.

West Papuans are suspicious of foreign resource companies. Freeport-McMoRan, a big American company quoted on the New York Stock Exchange, mines one of the world's largest gold deposits in West Papua. The success of Freeport's community relations can be measured by the thousands of policemen and soldiers that it uses to fend off locals disgruntled at having lost tribal lands.

Of course, BP knows a thing or two about operating in conflict zones. In 1997, it was criticised for using soldiers in Colombia to guard its pipeline against self-professed Marxist guerrillas. The result was a public-relations disaster that it does not want to repeat. But despite its best intentions in West Papua, BP's room for manoeuvre is limited. Indonesia's army sees its job as defending national assets, of which Tangguh is one. BP says that it will not need soldiers billeted on the site--it is training a community-based force to stand guard. What worries human-rights groups is that the company's talk of social responsibility may be blunted by the need to keep pumping gas if things turn ugly.