Energy Special: The houses that gas built

By Shawn Donnan

Financial Times

Published: March 26 2005

Yusuf Agopha was eight years old when I met him last August, and he should have been in school. He certainly wanted to be in school. Rattling around on his back, empty, was a Pokemon school bag, a burst of primary colours and cartoon characters that, according to his father, he eagerly donned each day. The Indonesian school year was more than a month old and classes should have been under way hours ago. But instead of sitting in a class, Yusuf was hovering nervously around our group, watching as we surveyed the new elementary school that the energy company BP had built for him and the other children of New Onar.

I was in New Onar because Yusuf, his family and 25 other families had moved into the fishing village six weeks before. It was the smaller of two such communities built by BP to house the more than 700 people it had moved from the future site of a $5bn natural-gas project in the far-flung Indonesian province of Papua. New Onar was, as a result, home to two-dozen freshly built $30,000 homes, whose running water, septic systems and mains electricity were at odds with the ramshackle thatched huts the villagers had left behind in one of the world’s remotest corners.

If Indonesia, a sprawling archipelago of more than 17,000 islands, largely evades the international radar other than in times of Biblical-scale disaster or epic political transition, then Papua’s anonymity is even greater. A separatist conflict simmers, causing Indonesia to control access tightly. And it’s still home to Melanesian tribesmen who wear elongated gourds to cover their manhood as they wander through dense jungles populated by tree kangaroos, wild boars and the man-sized and occasionally ferocious cassowary bird. BP has begun work to extract trillions of cubic feet of gas from under the seabed of Bintuni Bay: by 2008, the “Tangguh” project should begin feeding millions of tonnes of liquefied natural gas (LNG) to voracious markets in China, the US, and beyond. But in response to what is now a growing pressure on energy corporations worldwide to consider the plight of those living close to such projects, BP is also undertaking an ambitious social experiment, one with the potential to reshape the way resource projects are undertaken around the world.

BP has already played an important role in Yusuf Agopha’s young life. Courtesy of the energy giant, he has his new home and new jungle surroundings to revel in. Over the coming decades, whether the company wants to admit it or not, BP will continue to be responsible for his education, his health, his security and, in all likelihood, his employment and economic future. Yet by the time I met Yusuf, it looked like BP was stumbling at the first hurdle.

The school in New Onar was a vivid example. There were freshly hewn wooden desks in its classrooms. There were bookshelves in the library. There were, however, no books, or teachers, or students. Schoolbooks had been bought and were sitting in a warehouse in the nearby town of Sorong. In New Tanah Merah, the bigger of the two fishing villages, an elementary school was up and fitfully running, but a junior high school had yet to open. Relations with some community leaders were growing strained. There were structural problems - overtaxed power grids and faltering water supplies - and what might easily become longer-term issues: in New Tanah Merah most of the local fishermen had stopped fishing and no one was planting vegetables. As BP was due to stop delivering food parcels a few months after my visit, such inactivity raised the spectre of an emerging culture of dependency. Plus, some 5,000 workers were about to descend on the place to build the BP gas plant. It would be, in the preferred description, a challenge.

The people of Papua, a former Dutch colony ruled by Indonesia since 1962, have long been familiar with the so-called “resource curse”. Remote as it is, the mangrove-lined and shrimp-filled Bintuni Bay where BP is now at work has drawn curious oil men its way for almost a century: the Netherlands New Guinea Oil Company sent expeditions to the area as early as 1907. But Papua’s main engagement with the resource world has been with Freeport-McMoRan, the New Orleans-based mining company which since the 1980s has operated, via an Indonesian subsidiary, the province’s massive Grasberg gold and copper mine.

Freeport’s role in Papua has often been held up by its critics as an example of the worst the resource industry has to offer. It is at the centre of a battle over the distribution of the billions in royalties and taxes it generates, and has been criticised for its close ties to the Indonesian military, whose soldiers guard the mine and have been accused of human-rights violations in the area around it.

The rules have now changed, however. This is an era in which corporate social responsibility is a mainstream idea. And at the core of that idea is this as-yet open question: can resource projects ever be friendly to the people who live closest to them?

The Tangguh project has moved only 127 families - a tiny fraction of the 15 million people who, according to the World Bank, are displaced by development projects around the world each year. But “it’s not a quaint case”, according to Michael Cernea, a Romanian-born sociologist and expert on resettlement who heads a Tangguh monitoring group convened by BP. “The BP case is small in extent,” he says, “but it is huge in content.” That, Cernea argues, is primarily because it provides a “laboratory case for what can be done when there’s a commitment and adequate resources are put to work”. In a context where, he says, “unmitigated disaster” is the norm, a multinational company is adopting what amounts to the best practices. Cernea was in a position to know about the disasters he described - he had drafted the World Bank’s resettlement policy and over the years tackled the issue of relocation through countless Bank-funded dam projects. “The test is in the process, not in the product,” he told me. If BP succeeds, it can reshape the way things are done in the oil and mining industries as a whole - and how the rest of us views them. If it fails, it will be just another example of the cost people in the developing world pay for providing the fuel and raw materials for the rest of the world’s economic engines.

BP, even its most vocal critics cautiously agree, appears determined to try to do the right thing with Tangguh. Eager to avoid a repeat of the PR disaster that beset it in Colombia in the 1990s - when the company was accused of funding military units implicated in human-rights abuses - BP wants to avoid hiring Indonesian security forces to guard its facilities in Papua. It has engaged in protracted consultations with local villagers, and deployed “community development” teams to provide latrines, walkways and clean water supplies to fishing communities that are often ignored by the local governments around Bintuni Bay. Eminent experts, such as retired US Senator George Mitchell, have been brought in to monitor BP’s progress. And it has turned to people such as Cernea to help it draft its resettlement policies.

But most experts are still reserving judgment on the project. In a report released quietly last month and due to be presented to stakeholders in Washington and London just over a week ago, an advisory panel chaired by Mitchell warned that while the Tangguh project had widespread support in Papua and Bintuni Bay, “serious concerns remain and complaints continue”. John O’Reilly, who as a BP vice-president was in charge of all Tangguh’s “external relations” and community-development programmes, left in 2003 after, he says, falling out with the company over how best to react to human-rights abuses, should they occur. The company, he says, didn’t want to address the issue, one he holds dear after working for BP in Colombia. As a result, O’Reilly argues, “it’s too early even to say that the aspirations that Tangguh has promised are capable of being delivered.”

By the time I visited Papua last August, BP had spent $20m on building the two new villages, and there had been countless delays before the new residents could move in. It had taken me more than a year to get BP to allow my visit, the first - and still, at present, the only - one allowed by a foreign journalist. “Welcome to the club of very few non-BP people who have had a first-hand look at what’s going on there!” a former consultant e-mailed me, shortly after my return.

But the feeling of being involved in a project occurring in isolation wasn’t shared by BP’s managers in the field. “We’ve got tons of people watching this,” Rick Harrison, the lanky 47-year-old Californian leading BP’s relocation project, told me the night after my trip to New Onar.

Harrison and I were sitting on the porch of his office, drinking herbal tea and smoking the Indonesian clove cigarettes that, after a non-smoking lifetime, he had taken up in response to the stress of Papua. We were discussing a long list of difficulties he and his team of nine Indonesians and expats had been confronted with; from this alone it was plain that BP had run into a project far more complex than it originally envisioned. When Harrison was recruited for the relocation job in November 2001 - he was pulled off a team of engineers working on the design criteria for the Tangguh LNG plants - his bosses had described the relocation to him as a “six-month assignment”. Almost four years later, Harrison remains in Papua, and has a more realistic view of the work at hand. “The fact of the matter,” he wrote to me in an e-mail after my visit, “is these people have undergone a change that will affect them for the rest of their lives. I honestly think it’s going to work out. There’s going to be some bumps and scratches along the way. Some will benefit, some will not. But on the whole, the project is producing an opportunity to improve their lives.”

BP had managed to build some impressive facilities for the villagers. On the first day I walked into New Tanah Merah, music was blaring out of almost every home, a raucous testament to the wonders of free-flow electricity drawn from a new solar-power station. Families sat proudly on their new porches. Small kiosks sold snack foods, cigarettes and soft drinks. With more than 100 identical houses laid out in neat rows, New Tanah Merah looked like a tropical Levittown, the Long Island suburb that set the 20th-century standard for suburban replication. BP was eager to show that off. “Maybe you want to ask about the electricity?” my minder, Jacob Kastanja, interjected during an interview early in my visit. “It’s a big change for them. They have TVs now.” The village also has a Catholic and a Protestant church, a mosque, two schools, a health clinic and new sports fields. There is a new pavilion for the village market and new docks to house what should, if all goes as planned, one day be a fishing fleet composed of new boats promised for each household. Together with New Onar, the result was what Cernea rightly called a community that could “probably compete successfully... for the title of best physically endowed villages in all of Indonesia”.

That endowment continues to cause problems outside New Tanah Merah. In its recent report, George Mitchell’s panel warned that the BP-built village was fuelling “jealousy and confusion” among villagers on the opposing north shore of Bintuni Bay. But when I visited, there was also a palpable unease within New Tanah Merah itself. Not about the facilities but about the people themselves: BP people, and local people. The company, say its managers privately, is confronting limits to its institutional capacity. It’s asking engineers and geophysicists to do social work - which is “very different from building LNG plants”, said one. The locals, too, are confronting a very different world. “There are a lot of people who are still struggling to adjust,” Thomas Mayera, the chairman of the elected committee which represented Tanah Merah’s residents during the resettlement process, told me. “In the old village we weren’t dependent on BP. But here we need time to learn.”

You could see it in the faces of the idle teenagers and the fishermen who had downed nets. It was there in the poor attendance at a boatbuilding class BP was providing in order to improve the community’s fishing fleet. And it was there late one afternoon, when a villager armed with a megaphone was calling residents to a meeting about who would be allowed to sell what at the village market. I asked if we could join the meeting, due to start half an hour later, and received an enthusiastic invitation. So I waited with my guide and translator on the steps of a house near where the meeting was due to take place, and watched a group of children playing volleyball. More than an hour later there was no sign of any meeting.

That unease will not live in isolation for long. Tangguh’s construction phase will involve up to 5,000 workers, and most big resource projects generate their own economies. An influx of mostly male workers flush with cash soon creates boom towns, with all the attendant ills. Tony McMullen, the Australian doctor directing the project’s health programmes, told me prostitutes had already begun scouting the Tangguh site (a daunting prospect - Papua has the highest HIV infection rate in Indonesia). So BP is asking its contractors, a consortium led by Halliburton subsidiary Kellogg Brown Root, to maintain a closed construction camp. It will recruit workers from three surrounding towns rather than locally, and pay them only where they are recruited. It is also promising to hire as many local Papuans as it can, and to provide at least one job on the construction project for each of the 600 households in the nine villages around Bintuni Bay deemed to be “directly affected”. And it has hired locals as guards, as part of a “community-based” security plan designed to help keep the Indonesian security forces at bay.

There are, however, doubts over how much control BP can really exert. By the time I visited last August, there were already at least 30 outsiders who had arrived in search of work, according to Philips Kamisopa, the village head. Harrison also said “in-migration” was a “longer-term concern” and already a sensitive issue. The authority to recommend which locals were hired lay with the village heads of New Tanah Merah and Saengga, an adjacent village. And that, Harrison said, had already generated a local industry - or “profit opportunity”, as he put it to me - that promised to “complicate an already strained relationship”.

”Strained” was Harrison’s way of referring to BP’s testy relationship with Philips Kamisopa. The week of my visit, Kamisopa had confronted a security guard imported from Java, Indonesia’s dominant island, at the site of the by-then demolished old village. The problem was simple - the guard had not recognised Kamisopa as the local village head or been suitably obsequious when he arrived at the site. The two scuffled, and a seething BP security manager was threatening to file assault charges against Kamisopa.

When I met him, Kamisopa seemed embarrassed by the incident and sought to play it down. But the village head had plenty of other gripes. “We feel very disappointed,” he declared, as we sat in the living room of his new home. His principal complaint was about land. Unlike their old home, which was surrounded by jungle where they could plant fruit trees and other crops freely, New Tanah Merah had strict boundaries. Customary law dictated that only the clan from which BP had bought the land - who lived in neighbouring Saengga - could exploit the land beyond the village line.

There was also a nagging problem with the empty, BP-built junior high school. The local government had declined an offer to run it, and BP was scrambling to find a non-profit foundation instead. At best, Rick Harrison said, it would be a year before the school would open. By October, talk was of using the buildings for a vocational training centre instead. And when I got in touch with Harrison again in late January, the plan had changed yet again. BP, he said, had decided to take charge of the schools in New Tanah Merah and New Onar. They would finally open in July, and be run by BP “over a three- to five-year period”. Harrison admitted that the “delays relate primarily to the Project’s reluctance to go headlong into commitments that by all rights should be the government’s”. But that kind of candour wasn’t enough to avoid the wrath of the Mitchell panel, which last month said the failure of the school to open “illustrated a considerable lack of advance planning”.

BP’s stance had actually been encouraged by Michael Cernea, the World Bank relocation expert. When I first talked to him in late October, before a visit of his monitoring team to the project site, he took a hard line. “The worst thing that BP could do is substitute itself for the government of Papua and manage everything,” he said. “It would be a disaster. Not only would the people be dependent on it, but so would the government.” By the time Cernea returned from his visit in November, he was frustrated enough by the impasse over the schools to start recommending a change in policy. But he laid plenty of blame on the villagers, too. “It is now time for the community to learn to do the things for which it was given the tools,” he declared.

Today, with the Indonesian school year more than half over, the classrooms in New Onar remain empty and will remain that way for another three months. But the school’s emptiness is just one of the many issues still facing the villagers as they adjust to their new lives.

The day I landed last August, the school was one of many pressing concerns facing Johannus Agopha, Yusuf’s uncle and wild-haired village head. I first met him by the community’s water supply, which had, because of a design flaw, gone dry two days before. Without a phone or radio to call for help - or the tools needed to fix the problem - the people of New Onar had sent a messenger by boat to tell BP about the problem. So when I was introduced to him, Agopha was standing in orange coveralls watching two BP workers trying to engineer a solution, and pondering what felt to him like broken promises.

Agopha swore New Onar had been promised a church by BP, for example. But until then nothing had been built. Nor was there any sign of work on houses he claimed BP had promised for the school’s teachers. Yet as burdened as he seemed, Agopha was also remarkably upbeat. With the project - and its likely societal costs - an hour’s boat ride away, New Onar had the virtue of relative isolation. Thanks to what Harrison called Agopha’s more “pro-active” leadership, the community also seemed to be adjusting better to their new life than people in New Tanah Merah. It wasn’t hard to imagine this eventually making the village a reduced priority for BP. But Agopha seemed to have etiquette on his mind as well.

”There was an agreement with the company that when we moved here everything would be ready,” he told me. When that hadn’t been the case, it made relocation “difficult”, he added. “But we can’t push BP to build the facilities faster.”

”Why not?” I asked.

Melanesian manners, it turned out. “During the move we realised that BP was busy already,” Agopha said, shrugging. “We didn’t want to push BP.”