Case Analysis: Unocal In Burma

Case Analysis: Unocal in Burma

Union Oil Company of California, Unocal, progressed into a full-service oil business after being founded more than 100 years ago to develop oil fields in California. Its services included extraction, refining, distribution, marketing and retail. Because of the depletion of oil fields in the United States, Unocal turned to foreign investments with a strategy to market its one-stop shopping business to governments.

A major international project of interest was the "Yadana Field" off the shore of Burma, which contained approximately 5 trillion cubic feet of natural gasÐ'--enough to produce gas continuously for about 30 years. Burma's government created the company Mynamar Oil and Gas Enterprise (MOGE) to find private companies to help develop their oil. In 1992, MOGE signed a contract with Total S.A which gave Total the right to develop the field and build a pipeline to transport the gas from Yadana to Thailand. In the contract, MOGE agreed to provide Burmese government security through its army and ensure that land was cleared and that the right of way was secured in the passage for the pipeline through Burma. Thailand's government would purchase the gas. Burma had the opportunity to earn approximately $200-$400MM per year over the life of the project. A portion of the revenues would be shared with Burma's oil development partners.

The Burmese project was appealing to Unocal for many reasons: cheap, educated labor, and rich natural gas resources as well as other untapped resources. There was also the advantage that Burma would provide an entry point into other profitable international markets such as China, India and other Southeast Asian countries. The fact that Burma had a strong, dependable government with a stable political climate was also appealing. Yet it was widely known that since 1988, Burmese government had continuously violated human rights in a brutal manner.

Prior to taking on the Burmese project, Unocal conducted research on the sociopolitical environment of Burma. The 42 million person population is 69% Burmese, while several minority groups are present including the Karens, clustered in Southern Burma, who had a history of rebellion against the government. Burma is a poor country with a GDP of only $200-300 per capita, and high inflation. The country suffers from high infant mortality (95 deaths/1000 births) and low life expectancy (53 males/56 females). The Burmese project had the potential to benefit the poor country by providing much-needed revenues and benefits.

However, a major problem did exist with the project: the Burmese government. Unocal viewed that "the only real problem" was that the Burmese government was a military dictatorship which had accusations of perpetually violating the human rights of its people. In 1988, the Burmese military seized power and imposed martial law on the entire country. The US government reported in 1991 that the Burmese government maintained law and order through such things as arrests, harassment, torture of political activists, torture, arbitrary detentions, forced labor and restricting basic rights. Amnesty International reported that same year that their government "continues to seize arbitrarily, ill-treat and extra-judicially execute members of ethnic and religious minorities in rural areas" and victims are forced to do hard labor and very dangerous work. US Congress outlawed Burma and former President Clinton barred Burmese government officials from coming to the US.

Unocal hired Control Risk Group, a consulting firm, to check out the situation first hand which reported that Burma continually made use of slavery in construction of roads and that Unocal would not have much freedom of mobility. Regardless of the warnings they received and the obvious risks facing them, Unocal moved forward to invest in the project because they felt that the benefits to Unocal and to the countries of Burma and Thailand outweighed the risks. Unocal felt that "engagement" rather than "isolation" was the right action to "achieve social and political change in developing countries with repressive governments." They felt that this would effectively strengthen the Southeast Asian economy and promote freedom there. Unocal paid $8.6 million to buy a 28.26% share in the project.

Total was responsible for coordinating the overall project, developing the wells and extracting gas, while Unocal would construct a 256-mile gas pipeline from Yadana Field to Thailand. The final 40 miles of the pipe would cross through the southern region of Burma which was inhabited by the hostile Karens.

From 1993 to 1996, preparations for construction of the pipeline took place and the pipeline was built from 1996 to 1998. Throughout this entire period, the Human Rights Watch and Amnesty International issued several reports about the forced labor practices and "security" provided by the Burmese military. The Karens were brutalized and forced into slave labor as construction took place. Unocal was aware of all of this. Several human rights groups met with a Unocal project monitor and reported that Unocal had "no apologies to make."

In 1995, another investigative consultant was hired by Unocal for the Yadana project. This consultant reported that "egregious human rights violations have occurred and are occurring in southern Burma" including forced relocation without compensation, forced labor on pipeline projects, and the army imprisoning and/or executing anyone who opposed these actions. Yet, Unocal did not take any action to stop the abuse.

Work continued on the project and gas production began in 2000. By this time, numerous socio-economic programs had been put in place by the companies involved in the project for the benefit of the people in the surrounding area. Unocal claimed that 7,751 paid jobs were given to Burmese workers during construction and it would continue to employ 587 to continue development. By 2004, the project was delivering hundreds of millions of cubic feet of gas every day to Thailand which greatly supported their rapidly growing economy. Other benefits included a reliable and efficient energy source and cleaner-burning natural gas to fuel Thailand's electrical plants. Unocal said that the project brought "real and immediate benefits to thousands of families" living in the pipeline region including greatly improved health care, education, transportation infrastructure, and small business opportunities. Infant mortality in the region dropped to 31 deaths/1000 by the year 2000, which was lower than the country's overall rate of 78) and again to deaths/1000 two years later (see Appendix A.) Collaborative for Development Action, Inc. (CDA) agreed with these claims