MAC: Mines and Communities

London Calling - August 4 2002

Published by MAC on 2002-08-04


London Calling - August 4 2002

Beyond BP lies PR

What's the world's "Most Respected Company"? No prizes for guessing! We might sometimes forget that BP (BP-Amoco) is the only major oil and gas company left with substantial mining interests. "Big Oil" invested its huge gains from the OPEC cartel into the sector during the 1970's and 'sonly to find the edges gradually shaved from of profits the companies had come to expect. However, BP (formerly government-owned British Petroleum), holds onto its 50% share (and co-management of) the Kaltim Prima Coal mine in Indonesia, the country's largest producer of the mineral. (Royal Dutch Shell and ExxonMobil both sold off their coal interests over the past eighteen months).

In its annual corporate opinion survey for 2001,the Financial Times, assisted by PriceWaterhouseCoopers (or PwC, now the mining industry's most-respected accountancy firm) identified BP as "the World's Most Respected Company". Before sneering - or sneezing - too heavily at this whole exercise, you should know that, last year for the first time, the survey asked the opinions not only of leading industry CEO's but also environmental groups and media.

Have a Big Mac rather than a little green peace

All three bodies of opinion were unanimous about BP's leading position. Thereafter opinions differed: CEO's ranking Royal Dutch/Shell as number two in the league, while media and NGO's put it fifth; The companies allocated Body Shop an eleventh slot, but media and NGO's put it second.

Perhaps most surprising, the media and NGOs ranked Greenpeace Ltd as low as number 16 - after such eco-heroes as Ford, McDonald's and General Motors (sic)! No doubt this only shows just how skewed and expedient in their thinking some supposed corporate critics have become.

Last week the Financial Times also published a hefty three-part series on BP, focusing on its urbane and articulate chairperson, Lord Browne (looking startlingly like his namesake Gordon Brown, the Labour regime's treasurer. Are they perhaps related, as Britain's leading satirical magazine, Private Eye, might ask)? Though the articles covered some of BP's recent woeful exploits - as in Colombia - they didn't mention its latest forest offensive at Tangguh in West Papua.

Nonetheless, the third part (reproduced here thanks to Girona 2002) teases out some revealing links between Britain's biggest (and the world's second largest) multinational,and the British government.

The Woofer that doesn't bite the hands which might feed it

You might also be surprised (but won't be) that a US oil representative scorns BP's "environmental record" as mainly a Public Relations ploy, while Robert Napier, Chief Executive of WWF-UK thinks the company's pretended moves to combat adverse climate change are "genuine".

Presumably the US oil company considers BP a market competitor, while the world's leading conservation organisation is happy to do business?

Now read this:

Oiling the political engine

By Tobias Buck, David Buchan, Krishna Guha and Sheila McNulty Published: in the Financial Times, August 1 2002

Oil executives have always defended their close relationship to the powers that be, arguing that it is born out of necessity. But critics maintain there is something unhealthy about this marriage of economic and political clout.

Lord Browne acknowledges that the geopolitical complexity of the oil industry makes it important for BP to get political support wherever it can. "We've always got to be in a position to turn to the government in power," he says.

"This isn't how we get business, but it is a way of underpinning the business we've got."

To achieve this, the company and its chief executive have an impressive arsenal at their disposal. The group's tax contributions and spending power, the fact that it employs more than 100,000 people and the contacts some of its senior figures have honed ­ all make BP and its chief executive formidable players in the capitals of the world.

"Blair Petroleum"

BP has perhaps more reason than other oil companies to fear the tread of governments, having been nationalised out of existence in Iran, Iraq and Nigeria when it was seen to be an arm of its UK government owner.

While the days of ownership have long past, BP's ties with the British government are still so close that rivals call it "Blair Petroleum", even though this did not ward off this April's North Sea oil tax increase.

Browne has developed this relationship prudently, avoiding scandal of the kind that embroiled Bernie Ecclestone, the Hinduja brothers, Lakshmi Mittal and Richard Desmond.

Unlike these businessmen, whose donations to the Labour party exposed them to allegations of buying political favour, neither Browne nor BP is a party donor.

Nor does BP try to buy the favour of MPs. Instead Browne has developed personal ties and regular exchanges of ideas between BP and the government. One Whitehall insider says there is a "meeting of minds" between Tony Blair and Browne, who is a regular visitor to Downing Street. Both men admire the other's leadership.

This rapport is reinforced by the presence on Browne's staff of former New Labour officials still close to Number 10. Anji Hunter, Blair's childhood friend and former special assistant, is Browne's director of communications.

Nick Butler, strategic policy adviser, is a former Labour candidate and friend of Jonathan Powell, Blair's chief of staff. In contrast, the head of BP's UK government relations office is Richard Ritchie, a former Tory candidate and aide to the late Enoch Powell MP.

Senior executives are encouraged to take time out to sit on government task forces. But the strength of the relationship between BP and the government lies in the fact that ties at the top are matched much lower down the organisations.

Browne has encouraged BP managers to make use of secondment programmes to ministries, mostly the Department of Trade and Industry, but also the Foreign Office and Treasury.

There are four BP employees at the DTI. There are no DTI officials seconded to BP today, though there have been in the past. The Cabinet Office says such secondments were designed to "exchange experience and skills".

BP staff are not permitted to work on policy issues affecting the company, but gain insight into how policy-making works.

"There is a bit of a revolving door," says Norman Baker, a Liberal Democrat MP who has looked into the ties between BP and the government. He says the connections are probably more extensive than with any other UK company, but adds he has found no evidence that BP has abused them.

As the appointment of Ritchie shows, BP is keen to play both sides of the UK political fence. The group can ill afford to be seen as partisan or parochial. For these reasons, BP is staying out of the UK's debate on adopting the euro ­ "because we regard it as too partisan to enter," says Browne, "and we're not just a UK company".

Overseas the group adopts a less hands-off approach: "When we started in Azerbaijan, we encouraged the UK government to set up a representative office in [the capital of] Baku. We gave them office space, which they paid for." The way governments see it, Browne says, is that "the flag goes and the trade follows". But sometimes as in Azerbaijan, it is a case of "the trade goes and the flag follows".

However, in Azerbaijan, BP found more support from the US. Washington has backed its plans to pipe Caspian oil and gas through Georgia to Turkey to prevent Russia or, even worse from Washington's view, Iran dominating the export of Caspian energy. The US has "given confidence to the participating governments [Azerbaijan, Georgia, Turkey], and that's important", he says.

In the US, BP has entered uncharted waters by deciding earlier this year that it would discontinue the habit of political campaign donations practised by Amoco and Arco. This brings the company's behaviour in the US into line with its ban on political funding in the UK and continental Europe.

However, US employees of BP can still make voluntary campaign contributions through a company public affairs committee (PAC). Out of BP's 45,000 employees in the US, 11,000 are eligible to be on the PAC and 1,500 have chosen to get involved, the company says.

The ending of corporate donations is a new departure, says Browne. "Some people have said to me: 'you'll never get access [to politicians] again'. If so, so be it."

But most observers feel that the doors will remain open to BP in Washington. BP is a big employer in Alaska, in Chicago (through Amoco), in California (through Arco), and in Texas. "When you're an important employer, people listen", says J Robinson West, who runs the Washington-based Petroleum Finance Company. "People who make these [campaign] contributions tend not to have this kind of leverage."

"They work the Hill"

Julia Nanay, another PFC analyst with a focus on the Caspian, says: "Like every other oil company, they work the Hill. They're very good at it, at being in Washington and educating whoever they need to educate."

She adds: "BP has a reputation for being among the most well-liked. The US government seeks them out as much as they seek out the US government." Hugh Depland, spokesman for BP in the US, says: "BP has 45,000 employees in the US, but in Washington DC it has 16 people."

He adds: "We haven't stopped having involvement and discussions with government entities. What we have stopped is making contributions to public entities. We still have people in Washington who are lobbyists and lobby in the various states in which we do business."

In the UK, BP's clout has benefited Browne personally. Last year, and after having been knighted two years earlier, Browne was invited to put himself forward as a "people's peer", and he did so. Since then, he has spoken as Lord Browne twice in House of Lords' debates, but only on subjects he knows ­ climate change and universities.

Browne is understandably coy about his political tastes. He says he does not vote for a particular party, but makes a "personal" choice for his local MP. But this may not pose him a problem, because he is registered to vote at his home in Chelsea. The Conservative incumbent, Michael Portillo, is a friend.

How the company was caught in a Russian bear hug

Lord Browne says BP uses government support to "underpin" business rather than "get" business. But sometimes such underpinning does not work, as in the case of Russia.

In November 1997, Tony Blair's Labour government offered to host a signing ceremony in the cabinet room of 10 Downing Street. The UK prime minister and a Russian energy minister applauded while Browne shook hands with Vladimir Potanin, a politically influential Russian businessman, on a deal whereby BP paid $484m for 10 per cent out of Potanin's controlling stake in Sidanco, a medium sized Russian oil company.

But for the next few years Sidanco was a deal that Browne had cause to rue. Within a year it had became clear that BP had got itself caught in a feud between Russian oligarchs ­ Potanin and shareholders in the oil group, TNK, which also owned a stake in Sidanco.

According to Simon Kukes, president of TNK, it soon became clear that Potanin was starting to strip Sidanco of its assets. "In September 1998, I realised that pieces of Sidanco were going to be acquired. I suggested to BP that they should do something jointly with us, but perhaps I didn't speak to the right people because I got no response."

In January 1999 Kukes tried to press his case with Browne in Davos. The two men might have hit it off, but, somehow in the melee of the World Economic Forum, they didn't. "John Browne did not exactly give me the brush-off, but just got one of his people to give me his card and moved on," recalls Kukes.

Mr Kukes, a Russian-American who had worked for Amoco in the US and now runs TNK for its shareholders, reflects that perhaps it was his fault for being too forward with the normally reticent British. "I appealed to BP, but I was too blunt and scared them off." As for Browne, he recollects hearing of the warning from TNK, but says "there wasn't much we could do about it". At all events, Kukes took the Davos meeting as rejection from BP, and TNK went its own way with seemingly disastrous consequences for Sidanco and the UK oil company. In dubious bankruptcy proceedings, TNK shareholders managed to outdo Potanin in asset-stripping by getting hold of Sidanco's main asset, the Chernogorneft field, leaving BP holding 10 per cent of precious little.

BP accused the TNK shareholders of theft, and fought back. "We didn't sit on our hands," recalls Browne. "We used as many carrots as we could and as many sticks as we could." One of the sticks was to get the US to threaten to cancel an Eximbank loan to TNK. Eventually, the two parties struck a peace deal in which TNK returned Chernogorneft to Sidanco, whose management BP took over. Relations were further cemented this year, when BP paid $375m to raise its stake in Sidanco to 25 per cent.

Did Browne do less due diligence on his Russian investment than he should have done, because it had official government blessing? No, says the BP chief executive: "In the end you have to rely on some representations from the people who owned the company ­ you can't examine everything yourself." But he did catch up on his due diligence with Kukes. The latter recalled that in 2000: "When my mum passed away ­ very close to the time of the death of his own mother ­ [Browne] sent me a card."

Pitfalls of working in a violent country

The decade since the discovery of Colombia's vast Cusiana and Cupiagua oil reserves has handed BP some of its most bruising lessons in the pitfalls of working in a violent developing country, and has been a stern test of BP's vaunted ethical stance.

"Some of the social investment policies worldwide have perhaps been inspired by the Colombian experience," says a company spokesman in Bogotá.

Few environments in the world are tougher for oil companies. Powerful rebel armies opposed to foreign oil investment control vast tracts of the country.

The riches generated by oil production ­ the fields operated by BP have spawned about $900m in royalties for previously impoverished Casanare province ­ inevitably attract unwelcome guerrilla attention.

Like other oil companies, BP signed an agreement with the Colombian army and police to provide protection for its operations in return for logistical support. But as the oilfields were working towards full production in the late 1990s, BP found itself criticised for links to an army often accused of colluding with growing paramilitary death squads and other human rights abusers. BP's security contractors were alleged to have provided lethal training to police.

However an investigation by Colombian authorities, carried out at BP's request, exonerated the company.

The company's relationship in Colombia with the security contractors in question has recently been scaled down in what BP called a "business decision" in line with reduced activity at the declining oilfields.

BP says it has no choice but to rely on support from Colombia's army for security. Critics say the company should have been more alert to the risk that its security needs could contribute to human rights violations.

Since those incidents, which sparked more open dialogue with non- governmental organisations, criticism of the company has diminished. The army brigade that operates around BP's oilfields has largely escaped criticism for human rights abuses in recent years, although Human Rights Watch reported that an alleged paramilitary leader was allowed to escape from the brigade's custody two years ago.

The operating environment remains fraught. Contractors have been kidnapped and in May three contract staff were injured when a helicopter was hit more than 80 times by rebel fire as it landed at a drill site. However, BP, Colombia's largest foreign investor, can at least rely on getting the ear of government. The oilfields operated by BP account for half of Colombia's daily output of oil, which is the country's most important legal export, accounting for a third of foreign exchange earnings. "If BP asks for a meeting, it will get it," says a person familiar with the company's operations.

Sometimes the interests of BP and the Colombian government have coincided. There is no suggestion that BP has ever made facilitation payments, which are illegal in Colombia. The company says it makes no political donations. However, it does invest heavily in social promotion to build support. Aside from the royalties paid, BP has spent more than $40m on infrastructure, health, education, environmental work, and human rights promotion throughout Colombia.

Browne battles to paint Big Oil green

The oil industry, as Lord Browne freely admits, has something of an image problem. "It's considered very big, pretty secretive and providing something which is not a good product," he says.

Throw in the sector's reputation for covering pristine beaches in oil, ripping off motorists, cosying up to dictators and bankrolling Washington, and the picture Browne paints of perceptions of BP and its peers becomes pretty accurate.

In response to the criticism the industry has faced in recent years, Browne has sought to distance BP from the pack by pushing through an overhaul of the way the company deals with the outside world:

In 1997 he became the first major oil company boss to call for action to stem carbon gas emissions contributing to climate change. In 1998 BP set itself Kyoto-style targets. It aimed to cut emissions 10 per cent by 2010 from a 1990 baseline. This year it met the target. But Browne acknowledges that the hard part in reductions is to come, particularly keeping emissions down as BP grows over the coming years. "So far we've gathered in the very low hanging fruit by stopping [gas] flaring." In addition to stopping US campaign contributions, BP banned employees from making "facilitation" payments that have been made by many contractors to get things done in developing countries. Such payments have in any case become constrained by UK and US legislation. Last year it published the sums it paid to the Angolan government as "signature" payments for exploration licences. These payments are routine and legal, but rarely made public in developing countries where ministers or officials often put the payments in their pockets.

BP's move was criticised by the Angolan government and some of its competitors, but praised by non- governmental organisations (NGO). Last month Browne announced that, to widen BP's meritocracy and to ensure it could recruit "the most able people who happen to be gay or lesbian", BP would offer equal benefits for partners in same-sex relationships. But while Browne has won applause from the environmental lobby and other activists for his moves, BP is still far from being the NGO's best friend.

Neither has his position made him popular with his peers, who accused him of "leaving the church" when he pronounced that climate change was for real. While few oil executives doubt that BP has made great strides towards becoming more friendly to the environment, some question Browne's motives.

One US oil man says that "people are rather cynical about it [BP's environmental record]", arguing that BP's efforts have more to do with public relations than welfare.

Surprisingly, environmentalists are less cynical. Robert Napier, the chief executive of WWF-UK (the World Wildlife Fund), says he believes Browne's stance on climate change is "genuine".

He adds: "BP was the first oil company to break ranks and say that climate change is for real."

However, while Napier is happy to hand the "first mover accolade" to Browne, he also argues that Shell's environmental record is not far behind BP's ­ "if at all".

Nothing embodies the risks and rewards of Browne's drive to paint BP green more than its "Beyond Petroleum" campaign: The group found itself lampooned by the oil industry for suggesting it was abandoning hydrocarbons, pressed by environmental groups to do that, and quizzed by some of its more remote customers as to whether BP had changed its name.

Browne calls the slogan a "shorthand" for something less dramatic or immediate. "I think what we mean by Beyond Petroleum is going beyond the conventional way of dealing with petroleum. That is exactly what we do," he says, citing the group's position on the environment, the movement into cleaner fuels and "the work we do on alternative and renewable sources of energy".

He insists that BP is in an industry that "will be dominated by oil and gas for the next 30 to 50 years". But it is investing in alternative energies so "we're right up there understanding the change in the world's energy mix, and when the time is right, leading it".

But BP is still a company that produces mainly oil and gas. And the environmental lobby is unhappy with some of the places where BP is looking for supplies.

The WWF and other environmental groups are suspicious about what BP might do in Alaska if President George W. Bush ever got the Arctic National Wildlife Refuge (ANWR) opened to drilling. "We believe they should not go there," says Napier.

Browne also faces the problem of managing the expectations he has raised. At last year's annual meeting Greenpeace decided it would take Beyond Petroleum literally by sponsoring a resolution requesting the management to set out a timetable for exiting from oil and gas.

Browne accepts the "paradox that through engagement you are more likely to find yourself in conflicts than if you close the door and decline to engage with anyone".

But whatever he and the group do, he believes that progress in the problem of climate change awaits broad political agreement between US and European governments. In the global scheme of things, he says, "BP itself is sort of irrelevant".


"London Calling" is published by Nostromo Research, London. Its views do not necessarily reflect those of any other inidividual, organisation, or the editorial board of this website. Reproduction with acknolwedgment is welcomed.

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