A test for big oil in Indonesia

BP says its new gas plant can yield both profits and societal benefits.

From the mangrove-fringed shore, the waters of Bintuni Bay look deceptively calm. Only a metal platform a few miles offshore hints at the riches beneath this remote bay in eastern Indonesia.

If all goes according to plan, this languid scene will be transformed within four years into a $2 billion spider web of pipes and onshore processors that will convert Bintuni's gas reserves – among the largest in Asia – into liquefied natural gas (LNG) bound for markets in China, Korea, and Japan. The 500 or so residents of the village of Tanahmerah will relocate inland to a new site that they will help build.

But as BP, the British oil giant, embarks on the project, critics worry that it could fall into a disappointing pattern of global development, in which the presence of oil and mining companies in unstable countries exacerbates or even sparks civil conflicts.

BP says it wants to break the mold and hopes that the venture, called "Tangguh," or "invincible," will show that oil companies can be responsible investors in the developing world.

"We want to manage the impact so that we can be a force for good," says John O'Reilly, BP's senior vice-president of external affairs. "What we are doing is integrating the entire social dimension into the framework of the project."

But some human-rights groups in Papua, the Indonesian province that is home to Tangguh, are skeptical of BP's talk of social responsibility. "BP is a company and it's profit-oriented," says John Rumbiak, a veteran campaigner for human rights in Papua. "Don't pretend to be a church or a social organization."

With the Tangguh project, BP enters a remote corner of an unstable country where a repressive army is confronting a simmering separatist movement. In the province of Papua, also known as Irian Jaya, that tension was heightened by the murder last year of Theys Eluay, a popular pro-independence leader. Nine soldiers have been named as suspects in the killing.

BP is no stranger to conflict zones. Rebels have targeted its oil pipeline in Colombia, sparking reprisals by army units paid by BP to guard the pipeline. British newspapers have accused BP of supplying military equipment to abusive soldiers and spying on local communities. BP says it pays Colombia's Army for protection, but denies abetting any human-rights abuses.

Other foreign companies have already run into trouble in Indonesia. Freeport McMoran of Louisiana, for example, operates a gold mine in Papua that is guarded by thousands of troops and has become a byword for combative community relations. At the other end of the archipelago, Exxon-Mobil operates a similar LNG plant in Aceh that was shut down for four months last year after attacks by armed separatists.

It's hard today to imagine such strife in the backwaters of Bintuni Bay, where the few thousand inhabitants are mostly fishermen and farmers. Armed rebels, who have operated elsewhere in Papua for decades, are unheard of here. Local villagers are busy angling for jobs at the plant and jostling for land compensation and social-development funds.

"Most people would agree that BP has good intentions," says Diarmid O'Sullivan, who has studied conflicts over natural resources in Indonesia for the International Crisis Group, a global think tank. "The question is how far good intentions will get you in an inherently complex and unstable situation in Papua."

One key player is Indonesia's army, which has a hand in many legal and illegal business activities in Papua. Most observers say the army will expect some of Tangguh's riches to flow its way in the form of protection money. If there's no strife today to justify the stationing of troops in the area, "then it's going to happen in the future – it's just a question of when," says a US consultant on the project who is familiar with Papua.

A draft report written for BP by two former State Department human-rights officials highlights the risk of troops entering the area under the guise of securing the project from threats, and terrorizing local communities. It recommends that BP screen any Indonesian troops deployed there for past human-rights abuses.

Company officials declined to comment on the report, which has not yet been made public. BP was among seven UK and US oil and mining companies that two years ago signed a set of voluntary principles on security and human rights. It is also a founder member of the UN's Global Compact on corporate responsibility.

BP insists that its social program and emphasis on partnership with locals is the best way to secure its investment. It has begun training a small local security force to guard the site and handle everyday disputes, and says it doesn't want police or troops stationed there – a popular stance with locals, given the brutal reputation of Indonesian security forces in Papua.

Some Indonesian security officials are skeptical, however, that BP's community-based force can secure the project. "They will need the police ... not only to guard [the site], but also when a certain amount of people are there, there will be crime," says Made Mangku Pastika, provincial police chief in Jayapura.

The Indonesian Army's Maj. Gen. Mahidin Simbolon, the provincial commander, visited the site's base-camp earlier this year and reminded BP officials that the army is required to defend "national assets" like Tangguh. To some ears, this sounded like a veiled threat, though BP officials insist it's simply a statement of fact. "The police have a role to play ... and the military also has their duty to protect the sovereign rights of Indonesia," says O'Reilly. "In neither case are we indicating there isn't a role for the police or the military. What we are doing is looking to have them well-defined and understood by all stakeholders."

The plant will employ no more than 500 people. BP says it is determined to keep out carpetbaggers who could disrupt local communities and says no roads will be built to the site, which is currently accessible by helicopter and boat. The company is also trying to direct its spending power into regional towns, rather than foster a local boomtown. By 2012, the plant should contribute around $100 million in tax revenues, in addition to development funds earmarked for local communities.

Environmentalists say BP has worked hard to modify the plant's design to minimize the risk to local plant and animal life.

While development experts say BP's approach is pragmatic and sympathetic to Papuan culture, it has yet to be tested in Indonesia's choppy political waters.

Leroy Hollenbeck, who used to manage Freeport's social development fund, says BP is taking some innovative steps, but "we won't know for another 5 to 10 years whether they work."