Managing the Social Dimensions of Offshore Blocks – Mitigating Non Technical Risk

For Myanmar Offshore Congress 2014

Thursday 25 September, 2014

Overview of Presentation

n  What is non-technical risk?

n  Why is non-technical risk relevant?

n  What are some key non-technical risks in Myanmar?

n  How can licence holders prepare themselves?

n  Questions

About Social Clarity

n  We are a social performance consulting firm, with a focus on emerging economies and fragile states.

n  We have an office in Myanmar.

n  We work with businesses, governments and communities.

n  We have strong experience in the extractives sector.

n  Our services span social impact assessments, social risk management, stakeholder engagement, social investment and local content strategy development and execution.

n  We partner local social and environmental consulting firms.

n  We draw on complementary technical expertise e.g. environment, health and safety, security.

What is Non-Technical Risk?

n  Also referred to as ‘Above Ground Risk’.

n  Often not immediately quantifiable.

n  Includes: n  Political Risks – e.g. regulatory changes, nationalisation.

n  Stakeholder-Related Risks – e.g. blockades, kidnappings.

n  Linked to project phase and operating context.

n  Risk factors should be identified in robust IEE/E(S)IA.

n  2014 Harvard Kennedy School/UQ Study: Costs of Company-Community Conflict in the Extractive Sector n  E.g. approx. US$750m of estimated US$1.6bn cost blow out

attributable to community conflict issues not identified in ESMP.

Source: Davis, Rachel and Daniel M. Franks. 2014. “Costs of Company-Community Conflict in the Extractive Sector.” Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School p. 17

Cost Impacts – Macro Level

n  Security – payments, operational costs, training/management.

n  Project modification – design changes, additional works.

n  Risk management – insurance, legal and conflict expertise.

n  Material damage – to public/private property & infrastructure.

n  Lost productivity – operation and production impacts, delays.

n  Capital – loss of value, impact on capital raising, debt default.

n  Personnel – staff time, remediation costs, retention impacts.

n  Reputation – brand impacts, competitive loss.

n  Redress – compensation, fines, increased obligations.

Source: Davis, Rachel and Daniel M. Franks. 2014. “Costs of Company-Community Conflict in the Extractive Sector.” Corporate Social Responsibility Initiative Report No. 66. Cambridge, MA: Harvard Kennedy School pps. 15-16

Cost Impacts – Operational Level

n  Project Management Impacts: n  Cost impacts n  Schedule delays n  ‘Scope creep’ n  Management time n  Contractual bureaucracy – particularly with Contractors

n  Diluted ‘Social License to Operate’: n  Government stakeholders (at all levels) n  Community stakeholders n  International stakeholders e.g. financiers

n  Reputational Impacts: n  Not contained to Myanmar n  Reverberate outside; can affect future financing and risk profile

Some Key Non-Technical Risks n  Political Transition – Elections 2015.

n  Social Dynamism and Evolution.

n  Ethnic Conflict – in particular, Rakhine State.

n  Land Acquisition – for infrastructure.

n  Human Rights – see Oil & Gas SWIA.

n  Cumulative Impacts – see Oil & Gas SWIA.

n  Liberalising Media: n  new freedom to exercise ‘voice’.

n  Rapidly Evolving Telecommunications Sector: n  exponential increase in potential for social media use.

n  Community and Government Expectations.

n  Reputational Risk n  e.g. UNICEF

Source: Lenoro, Pablo Ordorica and Fraser Thompson. August 2014. “Riding the resource wave: How extractive companies can succeed in the new resource era.” McKinsey & Company Insights & Publications.

10

Core Business

Direct Employees

Joint Venture Partners

Local Governments

Communities

Customers

Suppliers

Distributors

Contractors

Indigenous Peoples

Wider Society

National Governments

More Influence Less Influence

Social Management Plans Contribute to Increased Company Influence

PNG LNG Project: Construction ESMP

Source: http://pnglng.com/images/environmental_pdfs/1Q_2010_Full_Report.pdf p. 14

PNG LNG Project: Production ESMP

Source: http://pnglng.com/images/environmental_pdfs/Q2_2014_ES_Report_FINAL_FULL.pdf p. 6

How can Licence Holders prepare themselves? (1) n  Integrate Non-Technical Risks into Risk Heat Maps.

n  Develop an Environmental and Social Management Plan.

n  The Social Management Plan (SMP) component should include (at least*): n  Stakeholder Engagement Strategy including Third-Party

Grievance Mechanism. n  Social Investment (CSR) Strategy. n  Local Content Strategy. n  Contractor Management Systems. n  Social Compliance Monitoring.

n  It should be informed by social impact analysis and socio-economic baseline data from the SIA.

*Companies may differ in their organisational structures for managing social dimensions. SMP could also cover: Community Impacts, Infrastructure, Health & Safety; Employee Relations; Human Rights etc.

How can Licence Holders prepare themselves? (2) n  Engage Early and Often.

n  Manage Expectations. n  Use trusted third party service providers to support engagement.

n  Focus Beyond Compliance. n  Align with international standards.

n  Monitor Myanmar’s Transition Closely. n  Things change on a daily basis e.g. Oilfield Workforce.

n  Keep across changes in Development Context and Focus: n  Identify synergies e.g. SME development focus.

n  Keep in touch with other Industry Players – including onshore oil and gas license holder. n  Can have shared stakeholders.

n Questions?