Petroleum and Mining in Southeast Asia: Managing the Environmental and Social Impacts

Southeast Asian Affairs 2007 PETROLEUM AND MINING IN SOUTHEAST ASIA Managing the Environmental and Social Impacts Andrew Symon A host of new upstream oil and gas and mining projects is under way in Southeast Asia as a result ofincreased demand from both within the region and worldwide. This presents governments with an array of issues. Policy concerns go beyond immediate industry matters and may encompass macroeconomic, budgetary, tax, and exchange rate issues, as well as environmental protection and land access and ownership questions. Crucially, given that most projects are in areas distant from the urban centres, they also must address relations between the central and local governments and regional development planning. Petroleum and mining development has many dimensions. Especially critical is the impact of production on local communities and the surrounding environment. Controversy often surrounds petroleum extraction and mining. Instead of bringing development and higher living standards to local areas, they may be criticized for damaging the environment and disrupting the lives of local communities. The projects may be seen by local people as providing wealth to distant central governments and big companies, but providing little real local benefit. These feelings may be compounded where operations are run by large multinational companies, as is still commonly the case in the region, giving rise to allegations that foreigners are taking a country's natural resources bounty. Petroleum and mining development is thus fundamentally intertwined with relations between central governments and regions and policies for development Andrew Symon is the Singapore-based regional manager for UK business research and advisory firm, Menas Associates. He is an Associate of the South Australian Centre for Economic Studies at the University of Adelaide. 78Andrew Symon of local communities and protection of their surrounding environment. Both governments and companies must address this. For governments, poisoned relations with local regions may take many years to heal. At worst, they could encourage separatist movements harnessing this grudge against the centre. For companies, at stake is the long-run success of the particular operation, and, increasingly, other activities elsewhere in the world. A bad record in one country may harm a company's prospects elsewhere, through, for example, its ability to finance other projects from major banks, themselves conscious of risks to their international reputation. These issues are not restricted, of course, to Southeast Asia. Nor are they just the concern of developing countries. Southeast Asia's experience though is important and provides lessons not just for government and corporate decision makers within the region but also for those elsewhere. The question of how to best manage resource extraction is not limited to petroleum and minerals. Fishing and forestry may also have major environmental and social impacts. Production is similarly being driven by sharply increasing regional and international demand. But attention in this article is restricted to the petroleum and mining industries. They do have a number of things in common, the most obvious one being that they are both non-renewable industries. Mines and oil and gas fields have limited lives. Just how generous the region's and indeed the world's overall energy and mineral reserves are, is a matter of debate but they remain ultimately finite resources. Hydro-power generation, which also is not dealt with in this article, may be a sustainable source of energy, but its development also has social and environmental implications, as is the case, for example, in the Mekong region. Here dam projects are raising fears of interruption to river systems adversely affecting community livelihoods and eco systems.1 Taking Stock: Overview of the Industries2 Before looking at several current case studies, and then considering government and corporate policy and practice, it is useful to survey the region's petroleum and mining industries. All feature extensive investment and operation by multinational companies. Indeed, the industries are probably dominated more by Western, and to a lesser extent, Japanese-invested companies, than any others in the region. There is a long history of foreign direct investment. These were among the first export-producing industries to attract large-scale investment from Europe in the latter colonial era in the late nineteenth and early twentieth centuries.3 Petroleum and Mining in Southeast Asia79 The presence...