Feeling the Heat : Unocal Defends Myanmar Gas Pipeline Deal

Unocal Corp. is no stranger to the volatile mix of foreign dictators, political unrest and developing economies.

Over the past three decades, the Southern California energy giant has weathered a military crackdown in Indonesia after an aborted Communist rebellion in 1965, the overthrow of Philippine strongman Ferdinand Marcos in 1986 and a succession of peaceful, and not so peaceful, coups in Thailand.

Through it all, Unocal kept drilling for oil and natural gas, filling its corporate coffers and providing jobs and energy for countries now being enthusiastically courted by other multinationals interested in a piece of Southeast Asia’s rapidly expanding energy market.

Now Unocal--undeterred by the prospect of a consumer boycott, shareholder protests and scathing editorials--is heading straight into another center-stage controversy. The Los Angeles-based company signed a contract this month giving it a prominent role in a $1-billion natural gas pipeline across Myanmar (formerly Burma) that critics say will enrich a brutal military regime, displace ethnic groups and destroy one of the country’s largest remaining tropical rain forests.

When Unocal President John F. Imle Jr. looks at a map, he sees a giant infrastructure project promising healthy returns for his shareholders and a better life for Myanmar’s 43 million people.

His critics see a pact with the devil--one that will boost the finances and image of Myanmar’s State Law and Order Restoration Council (SLORC), whose leaders are accused of slaughtering thousands of pro-democracy demonstrators in 1988 and waging a war of terror against their political opponents and rebel ethnic minority groups ever since.

*

Indeed, these critics argue that as repressive regimes go, Myanmar is beyond the pale. Even such pro-development voices as the Wall Street Journal have counseled against investments, such as the pipeline, that would directly generate royalties for the government.

“Burma is different,” said Simon Billenness, a senior analyst with Franklin Research and Development Corp. of Boston, which invests in “socially responsible” firms. “We’re not asking these companies to give up their operations anywhere else in the world; we have no problems with their presence in Azerbaijan, China or Thailand. . . . But this project is clearly benefiting (Myanmar’s leaders) by providing millions of dollars in hard currency.”

Critics cite reports from refugees who claim the government is displacing villagers along the pipeline route and using forced labor to prepare for the project--a claim denied by Unocal.

Imle, himself a veteran of oil and gas exploration on three continents, said in an interview last week that Unocal officials visit the area regularly and are confident that no human rights abuses are being committed by the government or others in connection with the pipeline project.

“These issues we’re talking about are discussed privately in Myanmar with the government people with whom we’ve met,” he said. “In my view, the government is sensitive to these issues.”

Central to Unocal’s conflict is a question that also bedevils the Clinton Administration as it redefines its foreign policy in a post-Cold War environment: Is the economic carrot or stick the most effective way to promote human rights, environmental preservation and democracy overseas?

Since last spring, when President Clinton granted most-favored-nation trade status for China over objections of human rights activists, the White House has advocated the separation of human rights and economic issues.

In response to the criticism, the President promised to push for a voluntary code of conduct for U.S. companies operating overseas. But sources in Washington said that effort has lost steam, hampered by a lack of support from corporate leaders and human rights groups.

*

While Unocal and other U.S. companies applaud the Clinton Administration’s policy of “constructive engagement” abroad, domestic groups such as Human Rights Watch/Asia, the Rainforest Action Network and the Burma Forum accuse the government of caving in to corporate interests. They argue that the only way to bring the world’s most egregious human rights violators into line is by hitting them where it hurts, in their pocketbooks.

Earlier this month, AFL-CIO President Lane Kirkland wrote Secretary of State Warren Christopher urging that the U.S. government implement a full trade and investment embargo against Myanmar and that it block any international aid destined for that country.

But the consequences of wielding the big stick can be far-reaching, even against a tiny country that barely registers in U.S. trade figures.

U.S. allies in the region are boosting investments in Myanmar and opposing economic sanctions that would further isolate the military government. And U.S. drug enforcement officials want closer ties with Myanmar’s military leaders to stem a flood of high-grade heroin from the region into the United States.

U.S. companies would suffer the most from unilateral trade sanctions, since Myanmar’s military leaders could turn to foreign competitors, according to Nicholas Lardy, director of the Jackson School of International Studies at the University of Washington in Seattle.

“I think multilateralism is the prerequisite for having any real lasting effect,” he said.

*

Rep. Bill Richardson (D-N.M.), a leading congressional critic of Myanmar, urges U.S. corporations to act as ambassadors of change. Last April, he asked officials of Unocal, Texaco and a handful of other U.S. companies to use their business contacts to privately press for democratic reforms and for the release of Aung San Suu Kyi, the opposition leader and Nobel laureate who has been under house arrest in Myanmar for more than five years. So far, he said, nothing has been done.

“Corporate America could be quietly helpful on human rights, and they’ve not made any effort,” said Richardson, a member of the congressional human rights caucus and the House Intelligence Committee. “They’ve elected to lie low, and I think that’s unfortunate.”

Unocal argues that it is helping to develop Myanmar’s economy and thus its people’s quality of life. But the firm’s decision to join a high-profile partnership composed of Total, the French oil company, and the national oil companies of Myanmar and Thailand comes at a time when other U.S. companies are beating a retreat.

Earlier this month, Eddie Bauer, the Seattle sportswear manufacturer, joined Liz Claiborne, Levi Strauss & Co. and Amoco Corp. in pulling out of Myanmar, though Amoco said its decision to leave was purely economic.

Citizen activists hope to turn up the heat on Unocal closer to home. This week, a coalition of human rights and environmental groups will begin contacting some of Unocal’s 1,400 gas station managers, asking them to express concern about the pipeline project to Unocal management. Those station managers who do not cooperate run the risk of being picketed.

Next week, the Berkeley City Council takes up a resolution banning city officials from doing business with any company involved in Myanmar. Similar efforts are under way in Massachusetts and Washington state.

Unocal is also under pressure from activists to let shareholders vote on two proxy resolutions at its annual meeting in June. The resolutions would require the company to pull out of Myanmar and establish guidelines for doing business in countries with “ongoing violations of human rights.” The U.S. Securities and Exchange Commission granted the company’s request to omit those resolutions from its ballot since the Myanmar operation does not represent 5% or more of its operations. That SEC decision is being appealed.

Last year, a more modest measure requiring Unocal to provide more information on its Myanmar activities was rejected by shareholders--but collected 14% of shares voted at the annual meeting.

*

Corporate sensitivities to these complaints raised by critics differ widely. Levi Strauss, the San Francisco-based retailer often held up as a model of socially responsible business practices, places maintaining its “global image” at the top of its corporate code of conduct. It withdrew from Myanmar in 1992 and from China in 1993. Eddie Bauer, a company that promotes a green-and-clean image, said its decision to withdraw from Myanmar was based on the “political climate and growing opposition to trade in Burma.”

Other U.S. companies involved in or considering doing business in Myanmar include Texaco Inc., Pepsico Inc. and Los Angeles-based Arco, which has applied for a license to develop an offshore energy project.

Retailers such as Eddie Bauer generally have the option of readily shifting production from one country to another, since they conduct most of their operations abroad through subcontractors rather than establishing expensive facilities.

Oil and gas companies, on the other hand, must go where the oil and gas are. Often, this takes them to undeveloped regions with sensitive environmental issues, resistant indigenous groups or dictator governments. Companies also must spend millions of dollars upfront for licenses, drilling rigs and exploratory wells with the potential of a payoff years, or even decades, down the line.

And survival in an industry in which governments generally control the resources means steering clear of controversy and keeping lines of communication open to any old or new faces who might appear in the presidential suite, according to oil company officials and analysts.

*

But gone are the days when a company such as Unocal could set up an operation in Indonesia shortly after government troops crushed a rebellion in the streets of Jakarta and not expect repercussions back home. CNN, fax machines and a growing international network of citizens groups are now bringing issues such as China’s prison labor network or Myanmar’s political repression into America’s living rooms.

“These big multinational corporations have to be held accountable for their actions,” said Carol Richards, an anthropologist working with the Santa Monica-based Burma Forum.

Unocal’s Imle said he welcomes the increased scrutiny abroad, even with the additional headaches and expense, figuring it pressures foreign governments to toe the line and creates a better environment for doing business. He said Unocal’s operation will be closely supervised by pipeline representatives stationed in Myanmar to ensure no forced labor or other human rights abuses take place.

“We have nothing to hide,” he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Unocal’s Myanmar Controversy

Unocal is under fire for its role in a $1-billion pipeline that will carry natural gas from the Yadana field 43 miles offshore across Myanmar to Thailand. Company officials are exploring alternative routes for the second half of the pipeline to lessen costs and reduce the environmental impact. Production is expected to begin in 1998.