Wednesday, July 1, 2009

Oil and Politics Don’t Mix

The Irrawaddy News
JULY, 2009 - VOLUME 17 NO.4

The growing revenues from Burma’s oil and gas resources provide financial support to the Burmese military to the detriment of Burma and her peoples

AS the Burmese regime increases its isolation of opposition leader Aung San Suu Kyi and the National League for Democracy, the United Nations and Western governments, especially the US and the European Union, remain steadfast in applying diplomatic pressure on the junta.

Burma’s stubborn military leaders can shrug off Western pressure, however, knowing they can rely on support from such friendly and powerful neighbors as China, India and some Southeast Asian countries, most of which have significant trade and investment links with Burma and which are inclined to follow an engagement-oriented policy towards the regime.

(Map: The Irrawaddy)

However, both camps—supporters of sanctions and proponents of engagement—acknowledge failure in their efforts to influence Burma’s military leaders. That is why US Secretary of State Hillary Clinton said in February that both sanctions applied by the US and the European Union and the policy of constructive engagement by the Association of Southeast Asian Nations (Asean) and Burma’s neighbors were not working.

So the question remains: who can influence the Burmese generals to listen to world opinion?

Many observers said that a start could be made on ending ongoing human rights abuses if oil and gas companies operating in Burma used their influence with Burma’s ruling junta, the State Peace and Development Council (SPDC). They said the global and regional energy companies involved in Burma’s oil and natural gas sector are funding the Burmese dictatorship.

It is clear that the military receives the largest share of the official budget—with the help of natural-gas revenue, Burma’s foreign-exchange reserves have reached US $3.6 billion and are expected to increase—which ends up in the pockets of the ruling generals and their cronies, or is allocated to their pet projects. The latter include the new administrative capital at Naypyidaw, the Yadanabon cyber city project between Mandalay and Maymyo, and a nuclear research reactor (as announced by Russia’s Federal Atomic Energy Agency in 2007).

After the latest action against Suu Kyi, the regime’s criminal mismanagement of Cyclone Nargis relief and its brutal crackdown on the September 2007 demonstrations, Burma activists are calling for energy enterprises to carefully consider their priorities before entering deals with the regime.

Matthew Smith, the project coordinator of EarthRights International, an environmental and human rights group with offices in Thailand and Washington, believes there are solid business reasons for energy companies to think twice about accepting Burmese contracts. “Financing the Burmese regime in this way can only reflect poorly on a company’s reputation, and that will ultimately affect their bottom line and ability to capitalize on deals in the future,” he says. “It’s simply bad business.”

However, US-based Chevron and France’s Total—both leading investors in Burma’s oil and gas sector—have declared that they will not pull out of the country, arguing that even if they did withdraw they would be replaced by other competitors. Observers agree that power-hungry neighboring countries, especially China and India, are eager to do business with Burma, hoping to secure some of the fuel supplies that their surging economies need.

Speaking as EU countries mulled action against the junta over its treatment of Suu Kyi, France’s foreign minister, Bernard Kouchner, told members of the French parliament in May that any decision to pull out their national energy giant Total would have serious consequences for the region. Total—France’s largest and most profitable company—has been a major investor in Burma’s Yadana gas field since 1992, and production from Yadana represents 60 percent of Burma’s gas exports to Thailand.

“If we take a firm stand—this would have to be decided at the highest level of state, and we’re going to review the situation in the coming days—that would mean cutting off gas supplies to a good part of the Burmese population, not to mention the city of Bangkok, since the gas also goes to Thailand,” Kouchner said in May, also warning that if Total was forbidden from working in Burma’s natural gas fields, Chinese firms would be quick to pick up the slack.

A pull-out by Chevron and Total could also backfire in other ways, according to Derek Tonkin, the former British ambassador to Thailand, who is now the chairman of the NGO Network Myanmar. He suggested that lower wage costs incurred by Asian operators could result in more money accruing to the Burmese regime, as well as there being fewer safeguards for both local people, who currently benefit from Chevron/Total’s welfare and security measures where none would exist under a Burmese army security team, and for the environment.

Meanwhile, a booming China, with its voracious appetite for oil and urgent need for security of oil supplies, has signed a deal with the Burmese military junta to build cross-border oil and gas pipelines more than 1,930 kilometers (1,200 miles) in length from Kyaukpyu Port on the Bay of Bengal through Burma to southwest China.

China will use the planned pipelines for importing natural gas and oil from the Middle East and Africa, which currently supply 85 percent of China’s demand for oil, helping China to reduce oil shipping through the Malacca Strait. As part of the current strategic and economic move, China has now secured a 30-year deal from the junta for natural gas tapped off the Burmese coast.

However, some Burma experts argue that Burma’s ultranationalist generals are not merely puppets of China and that Chinese influence on Burma has been exaggerated. While the Burmese military has used its relationship with China to strengthen its hold on the country, it is becoming increasingly concerned about China’s growing economic domination and will be worried that tougher Western sanctions could push the country’s biggest gas field into Chinese hands, argued economics professor Sean Turnell of Macquarie University in Sydney, Australia.

“If China was to grab this [Total operation] ahead of the big Shwe gas project already bottled up by them, Burma’s economic vassal state destiny would be almost complete,” Turnell told The Irrawaddy. “You don’t want to hand over pricing power of your most important export commodity to your principal customer. Yet this is what would happen if Total divested and China took its place. It would be a monopoly buyer able at will eventually to push down the prices Burma gets for its gas,” Turnell said.

However, Burma’s gas reserve—the Shwe field alone might be up to 14 trillion cubic feet—is also attracting other energy-hungry neighbors and investors. India is keen on exploiting Burma’s huge oil and gas resources. In 2007, India signed a production deal for three deep-water exploration blocks off the Arakan coast as part of the Shwe Gas Project, a project of the regime-owned Myanmar Oil and Gas Enterprise (MOGE) in partnership with Daewoo of South Korea (60 percent), the state-owned Korean Gas Corporation (10 percent), India’s state-owned Oil and Natural Gas Corporation (ONGC) (20 percent) and the Gas Authority of India Ltd. (GAIL) (10 percent).

The Burmese generals know very well that they have no shortage of friends. Current investors in Burma’s oil and gas industry include companies from Australia, the British Virgin Islands, China, France, India, Japan, Malaysia, Singapore, South Korea, Thailand, Russia and the US.

“When Premier Oil withdrew, partners Petronas (the Malaysian oil firm) took over Premier Oil’s stake and then subdivided this among Nippon Oil and Thai PTTEP,” Tonkin noted. He said it is normal contractual practice for existing partners to have the right of first refusal, so that in the event of a Total or Chevron withdrawal, MOGE and Thai PTTEP would be offered the stake first. “In short, China could be the last in the queue of applicants, after Thailand (first), then Malaysia, India, Japan, South Korea, Russia and Indonesia.”

Advocates of sanctions have pointed to the success of the sanction model against apartheid-era South Africa. In the case of South Africa, sanctions were imposed by a broad coalition of its major trading partners including neighboring countries. Burma’s energy-hungry neighbors and the global and regional oil companies dealing with the regime have been the major lifeline keeping the military in power.

Gas revenues have been supporting the country’s military junta, who are misusing it, turning the gas into a “resources curse” for Burma, Turnell has suggested. The Australian economist noted in a recent report for Macquarie University’s Burma Economic Watch that large natural gas reserves offered an opportunity for the country to lift itself off the economic floor, where it was already languishing before Cyclone Nargis hit. Instead of allocating its budget to Burma’s needy public sectors such as health and education, which he noted are almost invisible in the country’s public accounts, he said “they seem to be earmarked for the type of wasteful and grandiose spending projects that have been a characteristic of Burma’s military regimes for nearly five decades.”

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