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The Economic Challenges of Sustainable Development: Models and Perspectives from Chevron in Papua New Guinea

D.T. Flemming, ChevronTexaco, Papua New Guinea Abstract.


In developing countries, ensuring impacted communities can achieve lasting benefits from petroleum developments becomes increasingly challenging as production declines over time and fewer resources are available. In Papua New Guinea, ChevronTexaco has learned important lessons from its efforts to assist the rural communities surrounding oilfield operations and exploration there. The license areas are surrounded by a total of 83 scattered villages and 13 language groupings in remote, tropical rainforests with limited access to basic social services such as healthcare and education. ChevronTexaco established social development programs to address the communities needs, working with local government officials and other social development agencies wherever possible. Many of the companys earliest efforts focused on filling the gaps between community needs and the capacity of local social service providers to address them. Such direct assistance however, promotes increasing community reliance on the companys support and is not sustainable past the life of oil and gas production in the area. Internal and external reviews of lessons learned identified the need to focus efforts on capacity building of local institutions to provide sustainable development assistance to the impacted communities. ChevronTexaco recognized the importance of establishing a separate vehicle for capacity building that would be able to effectively draw upon support from a network of government and non-government organizations. In the face of declining operating budgets, such a vehicle would need to develop its own capacity to be self-sustaining over time, ensuring the social impacts of declining production and associated benefit streams can be effectively addressed in an environment of continued cost reduction. This paper identifies the lessons learned and resulting model ChevronTexaco has developed to address its strategic commitments to ensuring sustainable development is achieved in Papua New Guinea without compromising its strategic commitments to continued cost-efficiency and profitable operations.

Introduction
Oil companies operating in rural areas of developing countries are often faced with the challenge of addressing the social needs of the communities surrounding their operations. In the early stages of a petroleum development, the Developers commitment to being a responsible corporate member of those communities usually results in some form of assistance to those communities to help them meet those needs. As production declines over time however, the Developers available resources to meet those needs also decline. Communities who have become reliant on the Developers efforts are faced with the uncertain sustainability of this support while NGOs and government agencies often give little priority to these communities because they feel areas without resource developments are more deserving. The Developer is thus faced with identifying new ways for addressing the social impacts of declining production and the sustainability of the social development it has worked hard to establish in the surrounding communities. This is the scenario faced by Chevron Niugini Limited (CNGL) at its operations in southwestern Papua New Guinea (PNG). In an era of declining production and cost reduction, CNGL has developed a new approach to ensuring its social development assistance to the project area communities is not only maintained, but is actually enabled to expand through the establishment of a corporate sponsored Foundation. The contents of this paper describe the background of CNGLs assistance to the communities surrounding its operations and the lessons it has learned from its efforts. It goes on to provide details of the model it has established to apply those lessons learned by establishing the Community

Development Initiatives (CDI) Foundation in 2001. The paper identifies the benefits this Foundation provides to CNGL and its joint venture participants as well as the benefits to the communities and the government departments and agencies involved. It also highlights the economic advantages of using such a model, the leveraging potential from other donors and development agencies and the initial conclusions from its first year of operations.

Background
Years of exploration in PNG eventually proved up sufficient reserves to justify the first oil project development in 1990. The oilfields are situated in a remote, underdeveloped region of the southern highlands of PNG and are connected to a single point mooring facility in the Papuan Gulf by a 270km pipeline. The communities surrounding the oilfield facilities and pipeline corridor include approximately 15,000 inhabitants, but they are scattered throughout an incredible diversity of 13 languages and 83 villages amongst dense tropical rainforests stretching from rugged, mountainous terrain at one end to a sprawling river delta with endless mangroves at the other end.

Indonesia

Papua New Guinea

Moro Samberigi Project Area Kikori

Australia

New Zealand

Gulf of Papua
Fig 1 Map of the region highlighting CNGLs Project Area in southwestern Papua New Guinea CNGL operates the Kutubu, Gobe and Moran oilfields in this region of PNG on behalf of a joint venture of several oil companies including CNGL, Orogen Minerals, Ampolex PNG, Petroleum Resources Kutubu, Merlin Mitsubishi, Merlin Pacific Oil, Southern Highlands Petroleum, Barracuda, Cue PNG Oil, Mountains West Exploration, Petroleum Resources Gobe and Esso Highlands. As operator of these fields, CNGL has faced the difficult task of ensuring the positive impacts of their presence amongst such a diverse set of underdeveloped communities outweigh the negative impacts of the rapid changes these communities face. To accomplish this, CNGL implemented a number of social development programs at the beginning of the project aimed at improving the quality of life amongst the communities surrounding its operations. These programs focused primarily on business development, public health, distance education, agriculture and community development. After several years of lessons learned to draw upon, CNGL recognized limitations in its approaches. These include:

The organizational culture of an oil company is better suited to the pursuit of economic objectives than social objectives. For the implementation of social development programs, NGOs are usually able to operate under much lower cost structures than oil companies can.

Social development programs carried out by a resource developer are limited to the life of oil and gas production in the area, yet the biggest need for such programs would occur after production has ceased and monetary benefit streams to the local communities have dried up. Significant expertise and resources for social development are available from NGOs, universities and aid donors. Oil companies are limited in their ability to identify and access this support because of negative perceptions of the industry amongst many of the people working in those organizations. The government's capacity for social service delivery in the area is limited by a lack of resources and training. CNGL could produce better results if direct community assistance were balanced with assistance to the government in building its capacity for social service delivery. Community relations efforts, which are focussed on managing expectations, were not separated from community development efforts, which are focussed on addressing needs. This limited the ability of social development work to make long term progress without being affected by the issues and conflicts associated with distribution of monetary benefits.

CNGL looked at other models and structures for implementing its social programs that would address those lessons learned and improve its ability to maximize the positive impacts of the petroleum developments whilst minimizing the negative impacts. Several useful examples were observed amongst the mining industry, where corporate foundations have been established to implement community assistance programs surrounding large mining developments. CNGL discovered that such foundations could serve as effective vehicles for developing the type of organizational culture and sustainable support for social development that could overcome the limitations of its previous approaches. In 2000, CNGL commenced plans to establish a new organization called the CDI Foundation. CDI stands for community development initiatives, as the new organization was designed to assume responsibility for the initiatives previously implemented by CNGLs Community Affairs group. The Community Affairs group retained staff focused on the monetary benefit streams such as land compensation, local contracting and local labor relations whilst staff focused on social development were transferred to the new foundation, which commenced in January 2001. Since then, the CDI Foundation has supplemented the original CNGL staff with personnel from NGO and government backgrounds and is expanding upon the original initiatives with support and participation from universities and other NGOs.

Why Not Use an Existing NGO?


Before establishing the CDI Foundation, CNGL considered outsourcing its social development programs to one or more NGOs already operating in PNG. However, a few considerations dissuaded the company from adopting this approach. Existing NGOs in PNG were established with their own unique sets of objectives and priorities. Reconciling their objectives with those established by CNGL for its original social development programs would have resulted in several changes to the original programs and a loss of momentum to the progress already made. There was no single NGO in PNG that specialized in the unique combination of social programs carried out by CNGL to meet the needs of the project area communities. This would have required CNGL to either develop a program with several NGOs - with the increased costs associated with managing the relationships between them or to assist a single NGO to extend beyond its core area of specialty with the resulting uncertainty in performance. NGOs would seek funding according to their own priorities. CNGL felt it was unlikely any NGO would place a high priority on seeking additional funding for programs in the project area communities when it was already receiving funding for those programs, minimizing the opportunity to leverage Developer grants with additional resources from other donors. CNGLs social development programs had been an important part of demonstrating its commitment to the project area people of being a responsible corporate member of their community. Establishing a new NGO, instilled with CNGLs original social objectives and maintaining a strong relationship with the company, helped CNGL to continue demonstrating that commitment in the eyes of the community.

CDI Foundation: Description of the Model


The model is most easily described by identifying the activities carried out by CNGL to interface with the community. Community relations are defined here as activities related to doing business with the community and addressing the issues that arise over CNGLs business operations. Community development is defined here as activities related to management of the social impacts of the project on the community and efforts to address essential social needs. The community development activities were transferred to the Foundation, which has been instilled with the objectives of sustainable development identified through extensive social research. The types of activities carried out under the previous model and new model include: Previous Model
CNGL Commnunity Affairs
Community Relations Activities: Land Ownership Identification Land Compensation Local Contracting Local Labor recruitment Project Awareness Community Liaison + Community Development Activities: Social Impact Monitoring and Mitigation Social Development Assistance Logistic support for Social Service Providers Agricultural Extension Community Health and Education Community Capacity Building Cultural Preservation

New Model
CNGL Commnunity Affairs
Land Ownership Identification Land Compensation Local Contracting Local Labor recruitment Project Awareness Community Liaison

CDI Foundation
Social Impact Monitoring and Mitigation Social Development Assistance Logistic support for Social Service Providers Agricultural Extension Community Health and Education Community Capacity Building Cultural Preservation Government Capacity Building Field Research & Training Joint implementation of social development with NGOs

The CDI Foundation is defined by its mission, vision, values and objectives. The following sections describe what the CDI Foundation seeks to achieve and what programs and activities it is implementing to do so.

Mission Statement
CDI Foundation will serve the needs of rural communities by fostering self-sufficiency and facilitating long-term improvements to the capacity of social service providers.

Long Term Vision


The long term vision for the CDI Foundation is to achieve a legacy of sustainable development amongst the rural communities in the Southern Highlands and Gulf Provinces of PNG that will last well beyond the life of oil and gas production in the area. Under this vision, communities will develop a strong sense of self-reliance and actively participate in the development planning processes of the local level governments. Government bodies and other local providers of social services will maintain a strong capacity for identifying community needs and addressing them in an effective and sustainable manner. CDIs role in this vision is to work in a manner that is both complimentary and supplementary to the role of the government and other development agencies operating in the project area. It will seek to support and improve capacity amongst all stakeholders through awareness of critical needs and the provision of training to develop skills. CDI Foundation will play a key role in developing and implementing eventual closure plans for the oilfield operations in its target areas as they relate to managing the social impacts on the affected communities. Although closure is not expected to occur for several years to come, CDI will build its

own capacity during the period of oilfield operations to ensure that it is well-prepared to assist the communities with the transition when it occurs.

Organizational Values
CDI Foundation has identified a set of values that serve as guiding principles for the development of its strategic plans and organizational policies. These values help ensure CDI maximizes its understanding and respect for the community and the environment and more pro-actively address the changing conditions of rural livelihood. They also encourage professional competence, ethical practices and quality program design and implementation. Accordingly:

An independent Board of Directors governs CDI Foundation without discrimination to race, color, nationality, age or sex. CDI's finances are managed in such a way to ensure funds are utilized for the purposes intended by the donors. CDI carries out its activities and administers its funds in a manner that is open and transparent to all stakeholders. In all activities, CDI supports universal human rights and respects the dignity, values, history, religion and culture of employees, the communities that it works with and the stakeholders it associates with. CDI endeavors to follow best management practices by: Respecting its employees voluntary freedom of association Providing a safe and healthy workplace Promoting equal opportunity for employees at all levels of the organization with respect to color, race, gender, age, ethnicity or religious belief Prohibiting unacceptable treatment of its workers such as exploitation of children, physical punishment, sexual harassment or other forms of abuse. Promoting fair competition, including respect for intellectual and other property rights and not offer, pay or accept bribes Compensating employees to enable them to meet their basic needs and provide the opportunity to improve their skills and capabilities in order to increase their social and economic opportunities. CDI strives to work with the Government and Community to improve the educational, cultural, economic and social well being of the targeted communities by: Facilitating self-reliance and self-help to avoid dependency. Using participatory approaches to ensure all affected groups take part in the design, implementation and evaluation of programs and activities. Working with and through local and national groups and assisting in their institutional strengthening. Integrating gender participation and awareness of gender issues into every aspect of program design and implementation to foster equitable participation and benefits for both men and women.

Program Goal & Objectives


The overall goal of CDI Foundations programs is to improve the quality of life in rural communities and achieve a lasting legacy of Sustainable Development. Programs have been developed that address six key objectives which form the basis for the Foundations logical framework of objectives, outputs and activities. These objectives include: 1. Support and assist primary healthcare providers to improve health conditions in the community 2. Facilitate improvements to the quality and availability of education services in the community 3. Foster balanced agricultural development in the community to generate income and improved food security 4. Improve the communitys capacity for planning and implementing rural development 5. Promote the sustainable use of natural resources amongst rural communities 6. Promote capacity building, networking and research in support of sustainable development The Objective Tree on the following page briefly summarizes the outputs to be achieved in support of each objective and the activities being implemented to produce those outputs.

Goal:
To improve the quality of life in rural communities and establish partnerships that will achieve a lasting legacy of sustainable development

Objectives:
To support and assist primary healthcare providers to improve health conditions in the community To facilitate improvements to the quality and availability of education services in the community To foster balanced agricultural development in the community to generate income, and improved food security

Outputs/Activities:
Improved curative health services: - Identify health needs - Liaise with health workers - Provide logistic support - Facilitate supplies - Monitoring health reports - Facilitate training Distance studies administered: - Secondary school distance education - Matriculation studies Income from sustainable projects: - Feasibility studies - Technical assistance - Monitor commercial project results - Facilitate supplies Improved health & sanitation conditions: - Vector control - Awareness programs - HIV/STD prevention - Health education in schools - Infectious diseases control

Students informed of further opportunities: - Educational counseling - Career counseling

Improved quality of education services: - Logistic support - Libraries and literacy support - Teachers In-service training - Build mgmt and admin capacity of local schools Local farmers and govt extension officers learn useful techniques: - Conduct demonstrations - Seminars/workshops - Ag Demonstration Centres - In-service training for extension officers Communities aware of cultural heritage: - Awareness & documentation - Assist govt cultural heritage activities - Conduct awareness in local schools - Promote cultural events and groups

Improved food security: - Identify nutritional needs - Training/Technical advice - Promote consumption of local produce

To improve the communitys capacity for planning and implementing rural development

Community makes informed decisions about their development needs and develops plans and projects for addressing them: - Awareness Programs - Village Self Help infrastructure projects - Capacity building of village institutions - Awareness of gender issues Conservation & social development activities integrated: - Coordinate activities between CDI and WWF - Work with WWF to develop CDIs capacity to promote conservation Capacity of govt agencies and development organizations improved: - Identify training needs - Facilitate training Partnerships established and maintained: - Maintain profiles - Liaise with partner agencies - Participate in conferences and seminars

Improved skills in community: - Facilitate programs, courses & workshops - Establish and maintain training facilities

To promote the sustainable use of natural resources amongst rural communities

Improved awareness of biodiversity values amongst resource developers: Research conservation impacts of development programs Conduct awareness programs

To promote capacity building, networking and research in support of sustainable development

Knowledge of environment and socio-economic conditions enhanced: - Socio-economic impact monitoring - Anthropological studies - Research key issues

Capacity and sustainability of CDI and social service providers enhanced: - Staff development - In-service training - External funding and investment trusts - Gender issues

Fig 4 - The Objective Tree above summarizes the goal, objectives, outputs and activities that define CDI Foundations programs.

Facilities
A key part of the new model revolves around the establishment of separate facilities for CDI from CNGLs camps and offices. This allows increased access by the community of CDIs training facilities and development workers. It also enables CDI to develop an asset base suited to the support of long term social development which can be accessed by a broad range of organizations and researchers working with CDI. Wherever possible, CDIs facilities are being placed near government and mission run centers that service the local populace.

Costs & Benefits Costs


In 2000, CNGL spent US$975,000 on its social development programs. This amount was used as the baseline for determining future operational funding for CDI that would decline at a rate of approximately 10% per year. In 2001, CDI was given an operational grant of US$975,000 plus a one time capital grant of US$650,000 to establish its initial facilities outside of the companys operations. To reduce operational costs, CDI developed a cost structure reflecting the norms and standards of NGOs operating in PNG. It would have been difficult for CNGL to apply this cost structure to a part of its own organization without creating several anomalies in its systems and policies for human resources, contracting and procurement. A summary of the key differences between CDIs and CNGLs cost structures is outlined below. Personnel Costs: The pay scales of NGOs are typically lower than those of the private sector. CDI developed a pay scale in line with NGO norms, aiming to pay slightly above the average salaries of similar positions in other NGOs to attract high potential employees. The resulting pay scale lowered the annual costs per employee by an average of 22% from what CNGL had been paying its employees doing the same work. CNGL employees at its remote field operations work on a rotational basis with four weeks on and four weeks off, each position requiring two employees who work twelve hour days, seven days per week. This type of schedule however, is not well suited to social development work, which must match the pace and schedules of the local communities and cannot therefore achieve the full benefits of the long days and weeks involved. CDIs employees in these remote areas work on a six weeks on and three weeks off rotation, ten hours per day six days per week and scheduling their activities accordingly. This therefore allows CDI to have one employee per position and spread its personnel over a wider range of positions and functions. CNGL has overheads associated with each field-based position to comply with the policies and requirements of a large company involved in highly technical operations. CDI has been able to reduce these overheads associated with each of its positions, reflecting the policies and requirements of a small NGO and freeing more of its employees time for social development work. Facilities Costs: CNGL employees in its remote field locations share a set of office and accommodation facilities reflecting the standards required for a highly technical and specialized international workforce. CDI has established office and accommodation facilities for its field staff that reflect the standards required for a local workforce with limited technical requirements. This has reduced the accommodation and messing costs per employee by 34%. The cost of contracting services and procuring supplies at CNGLs operations are impacted by PNG petroleum regulations; agreements with the government and the community and the high standards established by the company itself. As a separate organization, CDI has been able to establish its own policies and standards more suited to those of an NGO. CDI rarely engages contractors to perform services, opting instead to utilize trainees and local laborers wherever possible and subsequently taking the time to accomplish tasks more slowly. As CDI is a non-profit organization, there is no Net Present Value to increase through timely completion of capital projects, providing more opportunity to develop projects and secure services with a high training component involved.

Training Costs: As a member of the NGO community in PNG, CDI has been able to participate in several training workshops and learning opportunities available for NGOs at no cost to the participants. It also participates in several training attachments and reciprocal visits with other NGOs that considerably improves the skills and experiences of its staff. CDI is also able to develop cost synergies between its development programs in the community and the support it requires for its facilities and staff. Some examples of this include: Part of the vocational training for villagers in carpentry and mechanics is applied to CDIs building and vehicle maintenance needs. Part of the training in domestic skills for local women is applied to some of CDIs catering and cleaning needs. Agricultural extension work helps CDI to maximize its purchases of produce from local farmers for its own catering needs. Training resources applied to government officials and community members are also applied to the training needs of CDIs own staff.

Stakeholder Benefits
The establishment of the CDI Foundation offers several key benefits for each primary stakeholder. These include: Government: As an NGO, CDI can help to bring the NGO network of assistance for government social services from aid donors, NGOs, Universities, Research Institutes and Volunteer Agencies. CDI works as a development partner with government departments, ensuring its programs fit within government policies, plans and objectives. CDI complements and supplements government services rather than duplicating them. With continued commitment to the area beyond the life of the oilfield, CDI can use long term approaches to addressing the training and development needs of government social service providers. CDI is securing additional resources and expertise for training of government development workers which has been declining for several years. CDIs extensive data gathering and social analysis provides useful input for government planning and policymaking. CDI co-ordinates critical communications and logistic support for local schools and clinics and assists government extension workers to utilize new infrastructure developments for maximum benefit. Community: Separating the community development functions into CDI and focussing CNGL Community Affairs on community relations enables the communitys needs and their expectations to be addressed in a more timely and effective manner. CDIs planning processes ensure a more holistic approach to community development is achieved through better co-ordination with government departments and other development agencies. CDIs emerging network of support increases the quality and level of development assistance to the community. The creation of CDI proves to the community that development assistance will continue to be available beyond the life of oil and gas production. CDIs new participatory approaches to working with the community help to better identify their needs and priorities and to guide their own development. The establishment of separate facilities for CDI offers more accessibility of CDIs development workers to the community than they were able from within CNGL camps. As an NGO, CDI has developed new commitments and expectations for engaging the community in self-sustaining projects and promoting the concept of self-sufficiency.

Developer: CDI leverages CNGLs existing programs with increasing involvement with the government and increasing support from aid donors, NGOs, Universities, Research Institutes and Volunteer

Agencies. This enables the social development programs to progress and even expand at a time of declining funding support from the Developer. Establishing CDI with an NGO cost structure has enabled community development staff to achieve more results for a given level of expenditure and support. Separating the community development functions into CDI and focussing CNGL Community Affairs on community relations enables both groups to better plan and control their activities without being compromised by conflicting social and economic priorities. CDI provides tangible proof of CNGLs commitment to establishing a lasting legacy of development beyond the life of oil and gas production. CDI serves as a useful bridge between CNGL and many government departments, NGOs and international development agencies. CDI adopts a more objective and professional approach to addressing CNGLs requirements to mitigate the social impacts of oil and gas production in the area.

One of the most significant benefits of CDI for all stakeholders is the opportunity to leverage the financial and operational support provided by CNGL and its joint venture participants with support from other donors and organizations. CNGL has had limited opportunities in accessing this support in the past as most donor funding is only available for NGOs and many organizations are often reluctant to establish long term partnership programs with oil companies out of concerns that their social objectives will be compromised by profit motives. To overcome these limitations, CDI has been established as an NGO with clearly defined social objectives and programs as well as independent policies and values that can be verified with a high degree of transparency. CDI has opened its doors and its books to the NGO and donor community in PNG and the initial reaction has been positive, providing new opportunities to expand its programs and target communities with increasing support from other sources. Initial contacts have been established with potential donors for new projects and CDI has been able to qualify for assistance from bilateral aid donors and private foundations. But leveraging potential is not only achieved through additional financial support. A more common form of leveraging is accomplished through partnership programs with NGOs and universities who bring their own resources and expertise into the project area, utilizing the infrastructure established by CDI. After its establishment in 2001, CDI has already been able to develop program partnerships for expanding its public health program; improving literacy in the project area; and promoting natural resource conservation. Over time, it is anticipated that increasing support and assistance from other sources will be able to replace the declining funding available from CNGL and its joint venture participants, enabling CDI to continue facilitating social development in the project area without losing momentum through declining funding.

Sustainability
For CDI, sustainability is defined as the continued availability of resources to facilitate social development in the future. To achieve its mission, CDI plans to ensure sufficient funds are available to support its programs after eventual closure of the oilfields. While CDI currently receives its primary funding from CNGL and its joint venture participants, it is actively seeking replacement of this funding with increasing support from other sources. It is also in the process of establishing an investment trust that will provide sufficient returns to sustain an acceptable level of operational expenditure in the future. The investment trust will be gradually built from operational funding while oil and gas is still being produced. Sustainability for the Foundation does not necessarily mean perpetuity. The ultimate sustainability for CDI as an organization will depend primarily on the communities it serves. Should continued success be achieved in empowering rural communities and building capacity of local service providers, there may be a point where all stakeholders agree that there is no longer a substantial need for CDIs programs to justify continued funding. CDI is expected to evolve in sync with the communities, growing and changing as they change. Their interest in continuing to rely on CDI as a tool for development will depend on CDIs ability to recognize and work with these changes.

Conclusion
While the full results of CNGLs efforts to develop the CDI Foundation will take time to measure, it has already been able to prove that it can facilitate social development more cost effectively and with more opportunities to leverage the companys efforts through external support. It has enabled CNGL to overcome the existing paradigm that its support for social development is not sustainable and allows the company to forge ahead with new hopes of leaving a lasting legacy of development in the communities where it operates. Only time will tell whether this development will be sustainable or not. CNGL will continue to support and monitor the CDI Foundation and share the results of this new model with the industry as its full potential unfolds.

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