A decision tool for senior executives and investors, Critical Resource’s LicenseSecure™ model assesses the likely level of political and stakeholder risk (or the health of the ‘socio-political license to operate’) for resource projects. This ratings update provides a rapid overview of a new or updated asset in the LicenseSecure ratings database, with a focus on projects in the news.
Please note that the ratings below are provisional, based in part on open source analysis and are not from client projects. (Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.)
- In late April, Norway’s Statoil and US-based ConocoPhillips signed a Production Sharing Agreement for deepwater block AD-10. Each company holds a 50% interest in the block, which will be operated by Statoil. The firms now have two years to conduct environmental and social impact assessments and a further six years for exploration.
- The agreement is the latest in a series of offshore exploration and production rights granted to international oil companies in Myanmar since 2014. A further offshore bidding round is expected in 2016-17.
- The agreement is the latest signal that Myanmar is ‘open for business’ after decades of isolation, authoritarianism and conflict. Political reforms introduced since 2011 have prompted the lifting of international sanctions and paved the way for a sharp increase in foreign investment, particularly in oil and gas.
- As part of Myanmar’s opening, strides have been made on transparency in a country historically plagued by corruption. In July 2014, Myanmar was accepted as a candidate to the Extractive Industries Transparency Initiative (EITI). Progress on this will help Statoil and ConocoPhillips – both international EITI supporters – manage some of the reputational risks associated with operating in Myanmar. However, civil society activists, including the NGO Global Witness, continue to highlight opacity in the country’s resource sector.
- Despite progress, major challenges remain for investors. Myanmar’s democratic transition is fragile and the military maintains significant influence, including in the resource sector. Unrest could accompany elections slated for November 2015, with a strong showing by the pro-reform National League for Democracy potentially triggering a military backlash. This could turn the spotlight on foreign investors and, in a worst-case scenario, lead to renewed sanctions, with both reputational and operational consequences.
- Both companies generally have strong policies on conflict and human rights risks. Even so, AD-10’s location offshore Rakhine State poses serious challenges. Rakhine is one of Myanmar’s poorest states and is periodically the scene of flare-ups of ethnic violence between the Buddhist majority and the state’s sizable Rohingya Muslim minority – with groups such as Human Rights Watch accusing the military of stoking tensions. The situation has triggered an acute refugee crisis attracting growing Western attention. It has also impacted foreign organisations in the state: in March 2014 for instance, Buddhists attacked aid workers accused of pro-Muslim bias. Despite operating off-shore, the ethnic divide could prove difficult for Statoil and ConocoPhillips to manage. Even with best practice policies, local hiring and social investment could exacerbate tensions if seen to favour one group over the other.