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BP - Raising the Bar in Tangguh?

In this weekend's Financial Times, there is an interesting Energy Special worth delving into (especially before website access expires.) In particular, I was struck by an article, "The Houses That Gas Built, about BP's learning curve in relocating Indonesian villagers in the remote province of Papua as a result of their future $5 billion natural gas "Tangguh" project in Bintuni Bay, which will be feeding the voracious energy appetites in China, the US and beyond with liquified natural gas (LNG) starting in 2008.

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Described as "an ambitious social experiment, one with the potential to reshape the way resource projects are undertaken around the world", this story is partly inspirational and partly a cautionary tale. It's inspiring, or at least mollifying to us worldchangers, because at last corporations like BP are showing that they are committed to doing the right thing -- taking responsibility for the consequences of resource extraction -- and with adequate resources. Over $20 million is being spent on this project. The corporate norm in this department is far less and often just plain terrible, so hopefully this is an indicator of higher standards other companies can emulate.

But this project also highlights some serious dilemmas as well, which is why I liked the article so much; so much reporting on this topic fails to mention these. For starters, the complexity of this project was far greater than BP ever had expected; something they thought would take 6 months is now well over four years in the making. This project is thus challenging the limits of BP's capabilities. "It’s asking engineers and geophysicists to do social work - which is 'very different from building LNG plants'" said one BP employee. The BP-built village is also "creating jealously and confusion" among other villagers nearby. And there are new dependencies being formed, as the elected chairman of the resettled residents confessed: “In the old village we weren’t dependent on BP. But here we need time to learn."

The FT journalist, Shawnn Donnan, thoughtfully gets to the crux of the matter when (s)he says:

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?

This question haunts me too. While I applaud the mainstreaming of the practice that corporations should take responsibility for their actions and be good citizens (that's just a fair baseline), I'm wondering and worried about this happening in a vacuum where the role of the other actors -- namely governments and civil society -- is unclear or impaired for any number of reasons. For resilient, sustainable, and just societies require a careful check-and-balances between all three sectors. Unfortunately, these have been out of whack for some time.

For instance, in the case of Tangguh, does the corporate involvement of BP let the Indonesian governments off the hook from making long term investments? Perhaps this was part of the deal, who knows. Furthermore, does this kind of intervention make it easy for local communities like New Onar to slide into new dependencies and mindsets that impede their sense of responsibility for their own futures? Is it possible to have a legitimate, authentic, and thriving community that was not organically created but manufactured as such?

Of course, these questions speak to something much larger than BP's experience in Bintuni Bay. Among many other things, these questions are emerging from the unintended consequences of the great structural realignment between government and business and civil society over the last few decades. (A great survey of this is the Commanding Heights by Daniel Yergin, who incidentally has oil industry credentials as well.) The cumulative effects of privatization and the corresponding public sector devolvement has now created a vacuum. On one side, this is being filled by corporations like BP under the rubric of social responsibility; while on the other side social entrepreneurs and civil society actors are emerging to fill key voids as well.

Privatization, CSR, and social entrepreneurship all seem like good ideas, especially at the time, and aspects of these ideas are robust. But their aggregate and interacting impact has blurred and confused the important division of labour between the private, public and civil society actors. For each sector has their own distinctive competency and sphere of influence of action; and problems start to compound over time when these jobs are conflated and confused, exposing much deeper conflicts and fundamental differences in how these worlds operate.

To understand why, we need Jane Jacobs and in her classic work, Systems of Survival. She argues that there are two fundamental "moral systems" in human civilizations: (1) guardian systems whose primary purpose to protect the public and preserve public goods; and (2) commerce systems whose purpose is the immediate exchange of value. The former focuses on the long view, is slower moving and more deliberate; while the latter is faster moving, creative and inventive in the short term. Both modalities complement and need each other for a well functioning civilization. Problems, however, occur when these jobs are conflated and confused, which is what I see happening now.

So do Cradle-to-Cradle authors Bill McDounough and Michael Braungart. They argue that the mixing and matching of private and public sector roles creates "monstrous hybrids". Too much regulation and onus on corporations to deliver public goods impacts the very fast moving virtues of commerce, impeding the creative, bottom-up problem solving the market excels at. Similarly, if governments are incentivized too much by money, this will corrupt the guardians and encourage them to make short term rather than long term investments. (Indonesian officials take note.) McDounough and Braungart argue the solution is in better design from the outset. They believe that regulation is actually a signal of poor design. "Regulation can be a license to harm: a permit to do acceptable amounts of harm". And this rings true when we look back at how governments have indirectly subsidized corporations to do the wrong thing, either unknowingly or through influence-peddling. In any event, all of this is easy to advocate for designing new systems, but less helpful in dealing with entrenched industries like oil and gas where the degrees of freedom are far less.

The point is still well taken. We need a more comprehensive methodology for designing projects like Tangguh that is ruthlessly rigorous and honest about the question "who should do what?" with mechanisms for resolving the inevitable dilemmas and areas of ambiguity. Organizations like UNDP and a dazzlingly array of consultants would argue that this is already happening with the latest private-public sector partnerships ("PPPs") craze. My sense is that these are likely to disappoint, unless some of these core assumptions are clarified and sorted. Corporations, for instance, should not be in the business of making long term investments in infrastructure. Making these long payout decisions is what governments do best (assuming they are properly functioning in the first place with perceived legitimacy and democratic feedback looops.) Rather, the private sector's role is to invent, increase the churn, and density of options.

In terms of "who should do what?" in the sectoral dance, I have no clear picture yet of the steps ahead in our shifting context. I suspect that will become more apparent in the next decade. The fear is that governments --under the auspices of national security -- reassume too much of the mantle. On the other hand, the good news is that this is one of those moments of creative destruction where out of the ambiguity can rise new positive possibilities. My hunch is that the highest leverage solutions, the most important social ingenuity, will emerge from the new protocols, processes, and institutional players that re-negotiate this precarious division of labour and mindset amongst sectors. Civil society actors are likely to be critical intermediaries and thus shapers of this outcome. So look for those boundary spanners at the cross hairs. Perhaps this is what we're seeing now, however obliquely. And I think this is a good thing 'cause these civil society folks tend to be worldchangers.

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