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New York Times Articles (r)
FOREIGN ENERGY, DOMESTIC POLITICS
Burmese Project Tests Unocal Resolve
The New York Times, Thursday, May 22, 1997
Business Day, page D1
By AGIS SALPUKAS
Ever on the hunt for rich discoveries abroad, American oil companies
have long had to factor in fears about the unstable nature of foreign
governments when considering huge investments in capital and
equipment.
But now the companies are finding that politics back home is the new
focus of risk.
The threat of unilateral economic sanctions, typically directed by
Washington at governments accused of human rights violations, has become
big enough to cast a shadow over investment decisions stretching from
Southeast Asia to West Africa to the Caspian Sea, oil executives and
other industry experts say.
No company has exposed itself more to the new unknowns than the Unocal
Corporation. In an industry that is rapidly directing its investment
focus offshore, Unocal has staked more of its future on overseas projects
than anyone else, concentrating on Asia. Last November, it even sold its
refineries, gas stations and other assets on the West Coast to free
capital to invest in the region.
It has placed its biggest bet so far in Myanmar, where it is part of
an international consortium that is investing $1.2 billion to develop
the Yadana natural gas field. And while the field will not start
operating until next year, Unocal's presence in Myanmar has already
become a case study in the politics and pressures that are increasingly
affecting the energy industry.
Last month, the Clinton Administration approved the use of sanctions
against Myanmar, formerly known as Burma, under legislation that the
President signed last fall.
Even so, Unocal will remain in business there. The sanctions, which
went into effect yesterday, prohibit American companies from making
new investments in the country, which is ruled by a military
dictatorship that human rights groups have called one of the most
repressive regimes in the world. The Yadana project as well as lesser
ventures involving Texaco Inc. and the Atlantic Richfield Company,
or ARCO, are shielded from the sanctions by a compromise in the
legislation that exempts existing investments.
Unocal helped win that compromise through intense lobbying. It also
succeeded because Washington appears to be more willing to talk tough
than to act directly against the interests of American business. But
Unocal's experience has exposed just how many problems sanctions can
create and underscored how readily constituencies can rise up to pose
obstacles to projects thousands of miles away.
While it is hanging on to its project, Unocal is also stuck with its
critics, risking a legacy of bad publicity along with any profits.
Just last month, the Oil, Chemical and Atomic Workers International
Union joined the forces opposing the company, upset that Unocal's
concentrated move abroad was unnecessarily costing American jobs.
And Unocal's victory is only partial and may not be permanent. Opponents
are backing new legislation to force the company out of Myanmar. Even
if that effort fails, Unocal will not be able to start new projects that
may look promising.
"In the oil and gas business, you continually have to reinvest as you
draw down reserves," said John H. Lichtblau, chairman of the Petroleum
Industry Research Foundation. "This is an ongoing process and not just
a one-time thing."
The result is a war for public opinion -- and lawmakers' support that
is still being waged in the halls of Congress, in letter-writing
campaigns and on the Internet. The fighting even reached the City
Council in New York, where a bill was passed last week that would
prohibit the city from buying products from any company doing business
in Myanmar. The measure becomes law in 45 days unless Mayor Rudolph
W. Giuliani vetoes it.
What seems clear is that what is happening to Unocal will happen other
American oil companies. For example, in the Caspian S which has become
one of regions for new development, "American companies are already
feeling some reluctance to go into partnerships because of the sanctions
that have already been applied and might be applied in the future,"
Mr. Lichtblau said.
Julia Nanay, a director of the Petroleum Finance Company, a consulting
firm in Washington, added: "It's devastating for the U.S. oil industry.
There is an increasing list of countries that are potential targets.
It's having a terrible effect." Potential flash points include Nigeria
and Indonesia, experts say.
Whatever the risks and the complications, the industry has little choice
but to pursue most projects overseas because that is where the oil is
and because American consumers show no signs of trimming their demand.
Indeed, Unocal went into Myanmar in 1993 knowing there were troubles
ahead, but saw the potential rewards as justifying the risks.
Company executives recognized that they were in for a long battle with
rights groups, Unocal's president, John F. Imle Jr., recalled, but
were determined to see it through. " 'This project is going to happen --
there is no way they are going to stop it,' " he recalled the Unocal
executives as saying.
The critics were not long in coming. Grass-roots groups of students and
immigrants, linked through the Free Burma Coalition, spread reports of
rights abuses by the military regime, known as the State Law and Order
Restoration Council. The regime, which seized power in 1988, gained
notoriety by refusing to recognize the 1990 election victory of the
opposition party, whose leader, Daw Aung San Suu Kyi, was put under
house arrest for years.
The critics accused Unocal of everything from condoning the laundering
of drug money -- Myanmar is the world's biggest producer of heroin --
to using slave labor. Through demonstrations and the Internet, the
groups picked up support, including backing from American student
groups.
By last year, Senators Mitch McConnell, Republican of Kentucky, and
Daniel Patrick Moynihan, Democrat of New York, were pushing for an
immediate ban on investments, including existing projects.
Unocal fought back, denying the critics' charges and noting Washington's
inconsistency when pressing for democratic reforms abroad. China, a
neighbor of Myanmar's that is also accused of rights violations, has
escaped Washington's wrath because it has far more commercial importance,
Unocal argued. Just this week, President Clinton began a campaign to
renew China's most-favored-nation status despite growing anti-China
sentiment.
Top Unocal executives made the rounds in Washington, arguing that if
the company was forced to quit the gas project, it would be replaced
by another big foreign company, just not an American one. After all,
Unocal said, it is not even the I participant in the project, which
is led by Total S.A. of France. What's more, the company said, its
prescence is helping the 35,000 people who live near the project
area, where Unocal and Total are spending $6 million on education,
medical care and other improvements.
To spread the message, Unocal made use of such prominent lobbyists as
Tom Korologos, who served as an adviser to Bob Dole in his campaign
for President.
Unocal also sought to influence public opinion by having the Washington
office of Edelman Public Relations Worldwide write to professors and
other foreign affairs experts, urging them to support its position.
Outside Washington, worked to head off resolutions in a number of cities
that would barred local governments from doing business with companies
that invest in Myanmar.
Without any direct interest in Myanmar, most oil companies kept a low
profile in the dispute. One senior executive, who asked that his name
not be used, said that they saw little chance to sway public opinion
in a debate that pitted economic interests against human rights.
The battle in Washington reached a crucial point last summer. A
breakthrough for Unocal, which is based in El Segundo, Calif.,
occurred when it persuaded one of its home state Senators, Dianne
Feinstein, a Democrat, that any sanctions should be prospective in
nature. The company argued that divestment would not only cost Unocal
jobs at home, but would also lead to cutbacks at the many domestic
contractors that it used.
In an interview yesterday, Senator Feinstein said she was concerned
that foreign companies would have stepped in if Unocal had been
forced to divest itself of its interest last summer.
"There's constantly the problem with these things -- that we can shoot
ourselves in the foot and not accomplish what we hope to accomplish,"
she said.
Equally important to the outcome was the fact that the Clinton
Administration also did not want to order divestiture, and worked
with William S. Cohen, then a Republican Senator from Maine and now
the Secretary of Defense, on a compromise proposal.
Ultimately, Senators Cohen and Feinstein co-sponsored legislation that
limited sanctions to future investments and then only if the Myanmar
regime committed further rights abuses, a judgment that would be left
to the President.
Senator Feinstein said yesterday that she wanted the legislation to
provide some flexibility, including time to see if the regime in
Myanmar would open a dialogue with dissidents. "I wanted to create
an opportunity for leverage," she said.
The legislation became law in the fall. In January, Unocal signed a
contract with the state-owned Myanma Oil and Gas Enterprise to expand
its operations. (Texaco and ARCO also signed deals in the wake of the
legislation.)
Finally, in April, President Clinton, under renewed pressure from rights
groups, activated the sanction provisions. The Treasury Department is
expected to issue rules for carrying them out in the next two weeks.
Meanwhile, Unocal is proceeding with the Yadana project. Most of the
gas to be produced by four offshore platforms will be delivered to
Thailand through a 416-mile pipeline. Some will flow to Myanmar, which
will reap $150 million or so a year in revenues by about 2000.
Unocal holds a 28.26 percent interest in the project. Total has a 3l.24
percent interest. The PTT Exploration and Production Public Company of
Thailand holds 25.5 percent and Myanma Oil has 15 percent.
Will Unocal and the other American companies in Myanmar get to finish
their projects? Roger C. Beach, Unocal's chairman and chief executive,
is cautiously optimistic. The fact that President Clinton has moved to
stop future investments, he said, has taken the pressure off Congress
"to implement a more onerous sanction bill."
But there are many minefields ahead. How will the Presidential order
be carried out? Will opposition from the oil workers, union catch fire?
Will events in Myanmar force Washington's hand?
Industry executives say that questions like these are going to come
into play in one place after another where American companies will be
searching for oil and gas. And while the industry has been slow to
recognize the threat until now, Mr. Beach said that was no longer the
case.
Six months ago, Mr. Beach said, "we were the Lone Ranger crying in the
wilderness." Now, he said, "a lot of companies are sitting up and taking
notice."
Accompanying photo (supplied by Unocal Corporation) of pipeline
construction with caption:
Workers lower welding stations onto a natural gas pipeline, which begins
off the coast of Myanmar and ends at Ratchaburi, Thailand, 416 miles away. Unocal is part of a group that plans to finish the pipeline by July 1998.
AS UNOCAL FOCUSES OVERSEAS . . .
Accompanying graph (graphic of Unocal 76 logo as pie chart) with caption:
Unocal. More than any other big American oil company, Unocal has staked
its future on investments abroad, mainly in Asia, even as it disposes of
its American refineries and gas stations.
Capital Expenditures:
1995:
United States: 60%
Foreign: 40%:
total [not the company]: $1 billion
1997 Projected:
United States: 32%
Foreign: 68%
total: [not the company] $1.3 billion
. . . OPPOSITION IS GROWING AT HOME
Accompanying Photo of Free Burma: No Petro Dollars for SLORC Web page
with caption:
HUMAN RIGHTS GROUPS
Using the Internet and more traditional forums, grass-roots protesters
have accused Unocal and its partners of collaborating with Myanmar's
oppressive regime.
Accompanying photo of demonstrators at Total Tower in Denver with
caption:
LABOR UNIONS
The threat of job losses from Unocal's sale of its domestic operations
has prompted the Oil, Chemical and Atomic Workers union to join protests
like this one in Denver last month against Unocal and its partners in
Myanmar.
Accompanying photo of Statement by the President on Investment Sanctions
with caption:
WASHINGTON
President Clinton said last month he would impose sanctions on new
investment by American companies in Myanmar. Unocal's existing project
is exempt, but it remains unclear whether the company can expand its
presence.
Accompanying map of Burma showing Proposed Domestic Line (150 miles)
and Yadana Export Pipeline (416 miles) by The New York Times, with
caption:
Myanmar could earn $150 million a year from the Yadana gas project.
Accompanying pointer:
AMID U.S. BAN, BURMESE CRACK DOWN
As a U.S. ban on new investments in Myanmar took effect, the Burmese
Government arrested dozens of pro-democracy activists. Page A13.
By SETH MYDANS
BANGKOK, Thailand, May 21 -- As an American ban on new investments in
Myanmar took effect, the Burmese military Government was reported today
to have carried out a new wave of arrests of members of the pro-democracy
movement led by Daw Aung San Suu Kyi.
The human rights group Amnesty International said that at least 50
members of Mrs. Aung San Suu Kyi's party, the National League for
Democracy, had been detained.
Foreign diplomats in the Burmese capital, Yangon, formerly Rangoon,
confirmed by telephone that arrests were taking place in several cities.
An official of the pro-democracy party told The Associated Press that
the arrests had begun on Monday and that a number of party members were
taking refuge in Mrs. Aung San Suu Kyi's compound.
The American economic sanctions, intended to punish the military
Government for human right abuses, were announced a month ago, signed
into law on Tuesday an took effect today. In announcing the action,
President Clinton said it was taken in response to increased political
repression as well as to Myanmar's continued production of opium and
heroin.
The imposition of sanctions drew a stubborn response from Myanmar's
military leaders and from officials of neighboring nations, which are
to decide at the end of this month whether to admit Myanmar into their
political and economic bloc, the Association of Southeast Asian Nations.
"Since Myanmar is walking on a straight line towards her noble goal,
there is no reason to deviate from its original path to serve the
interest of a foreign government," the Myanmar Government said in a
statement last month.
The arrests this week appeared to be an attempt to block a congress of
the National League for Democracy planned for next week to mark the
seventh anniversary of parliamentary elections in which the party won
more than 80 percent of the seats. The military Government refused
to honor the results and continues to hold power.
A similar round of arrests took place a year ago before similar plans
for a party congress. At that time, Government officials said 262
party delegates were detained. Most were released shortly afterward,
but more than 20 were tried and sentenced to prison terms.
Since then, Government pressure on the pro-democracy movement and its
leader has continued, with more arrests and with tightening restrictions
on the activities and movements of Mrs. Aung San Suu Kyi.
Her weekly addresses to supporters outside her home have been blocked
and soldiers outside her home bar most visitors. Her telephone has
been cut off for much of that time, and she could not be reached today
for comment.
The sanctions allow existing American business contracts to remain in
force, including the largest single foreign investment in Myanmar, a $1
billion natural gas pipeline being developed jointly by Unocal, based
in California.
After the announcement of sanctions last month, Unocal said it was
suspending exploration activities for additional deposits of oil and
gas, and Anheuser-Busch said it was suspending exports of beer to
Myanmar.
A number of other American companies have already pulled out of Myanmar
because of the publicity surrounding its human rights record.
Accompanying Pointer:
BUSINESS AS USUAL FOR U.S. OIL GIANT
Despite American sanctions, Unocal, the California energy giant, remains
a big investor in Myanmar. Business Day, page D1.