Exxon in PNG: hoping to banish the spectre of Bougainville

December 2010

Reports of growing tension around Exxon’s PNG LNG project suggest further efforts may be needed to prevent the project contributing to an escalation in conflict

Cultural Festival, Port Moresby Papua New Guinea

PNG: modernity meets tradition

This is the fourth article in our ‘Snapshot’ series, designed to provide a rapid view of socio-political risks facing resource projects based on the LicenseSecure framework. Here we look at Exxon’s LNG project in Papua New Guinea (please note that Exxon is not a client of Critical Resource – the Snapshot series is based on rapid ‘outside-in’ analysis and provides a provisional, rather than formal, LicenseSecure rating).

The $15 billion PNG LNG project, operated and 33% owned by Exxon, the US energy firm, promises to double PNG’s GDP and triple its exports in the lifetime of the project. Late last year, Critical Resource provisionally rated this colossal project at B on the LicenseSecure scale. Exxon would inevitably face significant pressures in such a socio-politically volatile context, with various local tensions already reported; at the same time, it had so far appeared to have adopted various industry best practices, including a fairly significant consultation exercise with local landowners and exhaustive social and environmental impact assessments.

Over the last 12 months however, reports suggest that tensions have ratcheted up. The promise of compensation to landowners affected by the project’s considerable footprint appears to be stoking disagreements in a region with a rich history of violent land disputes and a heavy saturation of weaponry. Protests, disruptions and attacks on company facilities are reported to be increasingly common. At the national level, serious doubts continue over the PNG government’s ability to manage the tide of revenues the project will generate. As a result of all this, the project’s provisional rating has slipped down to CCC.

Exxon’s predicament demonstrates that in such a complex context, and with a project of this scale, even following industry best practice may be insufficient. PNG is littered with past examples of resource projects inadvertently sparking local tensions which rebound on the companies concerned. Most notorious of these was the Panguna mine, which helped fuel a war on the island of Bougainville in the 1990s. To avoid such risks and ensure they are relegated to PNG’s history, Exxon may now need to approach socio-politics with the same foresight and sophistication it applies to engineering challenges.

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Background on LicenseSecure: The LicenseSecure™ framework assesses the health of the ‘socio-political license to operate’ for resource projects. A decision tool for resource firms and their financiers, it aims to support far-sighted, responsible management of sustainability and stakeholder issues around these often critical investments. LicenseSecure has been developed by Critical Resource over a number of years, based on an analysis of 60+ projects which have suffered challenges to the license to operate (for example where the host government has toughened fiscal terms or communities have impeded operations). The model assesses a project’s socio-political context and the quality of its management of these issues across six key categories, drawing on some 150 indicators. It is supported by an extensive database of projects which allows benchmarking and rapid assimilation of lessons from parallel projects.

Declaration of interest: Critical Resource has supplied information to Exxon on LicenseSecure