ALLOCATION OF RESOURCES TO COMMUNITIES FROM MINING AND OIL AND GAS OPERATIONS

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 2C
ALLOCATION OF RESOURCES TO COMMUNITIES FROM MINING AND OIL AND GAS OPERATIONS
Luke Danielson ¹
Sustainable Development Strategies Group
Gunnison, Colorado

Luke Danielson is a lawyer, researcher, and academic, who in his career has focused on the environmental, economic, and social impacts of the mining and minerals industries. He is a Principal of the Sustainable Development Strategies Group, a research and consulting nonprofit, and practices law in Gunnison, Colorado. His law clients include both leading mining companies and nongovernmental organizations interested in mining and minerals problems. He is a former regulatory official, and was three times Chair of the Mined Land Reclamation Board, Colorado's permitting agency. He has consulted on various aspects of minerals policy and environmental management to a variety of governments, including Chile, Peru, the Peoples Republic of China, Cuba, and Romania. Mr. Danielson was the Director of the Mining, Minerals and Sustainable Development Project at the International Institute for Environment and Development in London. He was also the Director of the Mining Policy Research Initiative of the International Development Research Centre in Montevideo. He has taught on various aspects of mining and minerals policy and law at a number of leading universities, including the University of Colorado, the University of Denver, Simon Fraser University, the University of Chile, Western State College and Tulane University. He is an Honorary Lecturer at the Centre for Energy, Mineral and Petroleum Law and Policy at the University of Dundee, and serves on the sustainability or stakeholder advisory groups of Caterpillar, Inc, and INMET.

The modern mining and oil and gas industries have overcome some tremendous challenges. For example, these industries once had very troubling safety records, and unacceptable numbers of employees killed or injured on the job. Dealing with this problem seemed an almost insurmountable challenge.

While there are still corners of the world where performance has improved little over the past, and while few of us regard any level of death or injury as "acceptable," the progress has been truly impressive. In the leading companies, industry, government regulators, labor organizations, and independent watchdogs have together made a significant difference. A `safety culture' is embedded in organizations. People no longer look at safety as the job of specialists in safety departments, but accept that everyone in the organization has responsibility for improving safety performance. At its best, change is neither `top down' nor `bottom up,' but both; a shared consciousness of the importance of safety permeates organizations.

As this once seemingly impossible challenge was being confronted with increasing success, the extractive industries were hit with another extraordinarily difficult challenge: the awakening to the need for a much higher level of environmental performance. On this issue, the industry is somewhere in mid-stream. While in the places that have focused hardest on environment there has been dramatic improvement in mine reclamation planning, smelter and refinery emissions, spill prevention and containment, and water quality, there are still some problems on which we are very far from declaring victory.

We are still less than clear how to manage the carbon footprint of oil, gas and coal use, conservation of biological diversity in areas of oil and gas production, or what to do about the

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legacy of abandoned unreclaimed sites. But it is both possible and necessary to imagine that industry, again in cooperation with others, will somehow solve these problems.

But even before we have the environmental issue fully under control, the industries have again been hit hard by a new challenge, and one they are just starting to understand how to manage: the "community problem." This is probably where we seem to have the farthest to go, and the least idea what to do. This is symbolized by the fact that we have not yet fully developed a shared vocabulary to talk about the problem. We talk about the "social license to operate" or "community development" or "community consent," and use a lot of other words as well.

Industry has a clear idea of what it wants: the ability to develop projects without obstacles risk and delays, and to be appreciated as a positive contributor to the communities in which we work. But we have very little idea in many cases how to achieve that, or of what the other actors want. This is the great visible challenge of the future, and is one we still in most cases do not know how to approach with confidence of success. If we are just guessing at what local communities want, and we have no rigorous way of measuring what we are in fact delivering, or whether that corresponds to what communities want, we are simply wandering in the dark. Any progress will be an accident.

If this paper does no more than help us - all of us concerned with this problem - think through our objectives, and get a little clearer about how we might achieve them, it will be an effort well spent. If it can help us focus on what words we use to talk about the problem, and what we mean by them, that is also useful.

If on some level we see the problem as lack of community acceptance, then the subject of this paper is one of the key parts of gaining that acceptance - finding a way that real, solid social and economic benefits reach to the communities most directly affected by industry operations. As almost everyone who has tried it is aware, this is a problem that cannot be solved simply by spending money. And those who spend money in any case want to have clear ways of measuring whether it is well and prudently spent; without clear objectives and a way of measuring progress we have no idea whether we are spending too much or not enough on community issues.

While money is required, the money is usually the least of the problem. The difficult challenge is achieving much better local governance, so that spending the money achieves the benefits. We will therefore spend a good deal of this paper talking about the context in which money reaches local communities, whether it reaches them (a) by direct taxes imposed by local government; (b) by national government sharing tax revenues locally; or (c) through company sponsored foundations or community development funds.

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INTRODUCTION

At its most vivid and destructive, the issue is easy to see: oil operations in Chad,² the Niger Delta,³ or Aceh Province of Indonesia,⁴ sunk in a sea of violence that is bad for the business of the companies involved, bad for the image and reputation of the industry as a whole, and above all, bad for the people on the ground.

Most people who have looked at the problem of violence acknowledge that the civil war in Democratic Republic of Congo has been the bloodiest single event since the end of World War II. The estimate is over 5.4 million war-related deaths between August 1998 and April 2007.⁵ Most agree that the struggle to control revenues from copper, coltan,⁶ gold, and diamonds played a key role both in starting the war and in making it so terribly long and bloody.⁷

In Resource Wars: The New Landscape of Global Conflict,⁸ Michael Klare argues that the root causes of all the world's major wars since the end of the Cold War are conflicts over valuable or scarce resources, from oil to diamonds, from timber to water. In a later book, Blood and Oil, he reaffirms this thesis and emphasizes the role oil plays in igniting and sustaining violent conflict.

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In his recent Foreign Affairs essay "Blood Barrels,"⁹ prominent political scientist Michael Ross agrees with Klare, arguing that oil, more than any other resource, `breeds' conflict both within oil-producing countries and among them. According to Ross, "oil alone cannot create conflict, but it both exacerbates latent tensions and gives governments and their more militant opponents the means to fight them out,"¹⁰ which, at least in the poorest developing countries, leads almost always to bloody conflict.

These are not the scribblings of fringe players, but the considered opinions of established, main line scholars. As respected a figure as Paul Collier, in The Bottom Billion, identifies dependence on natural resource exports as one of the key indicators of potential for violence in the poorest countries.¹¹

One of the most important points to be made is that in the great majority of these cases of conflict, a national government has issued a concession, and has given the holder of the concession all the permits and approvals required under national law. But scrupulous compliance with national law and the terms of contracts is not enough to buy peace, when minority nationalities, indigenous peoples, traditional local communities or others feel that their interests are being sacrificed on the altar of development, and that they have insufficient say over processes that impact them dramatically.

Further, even where national governments very much want projects to go forward so that they can start receiving the mineral revenues they want and need, most governments are increasingly reluctant to "solve" the problem through use of police and military force. They are increasingly putting the onus on companies to achieve a social license, or an understanding with local communities that allows projects to proceed and national government to receive revenues without paying the political price that use of force implies.

This tendency toward insistence on consensual solutions has a variety of roots worth exploring elsewhere. They include the spread of democratic government, which virtually all lawyers applaud. They include the spread of the Internet, which makes it easier and easier for disaffected communities to...