Complete Infrastructure Finance Feb

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Subject: Complete Infrastructure Finance Feb/Mar 96

Larry Dohrs' original post of this article had some text missing.  Here is
the complete article.
        -- David Wolfberg



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 influence in Myanmar, it would be ethically legitimate 
to do the 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