BPXC's operation in Casanare, Colombia : factoring social concerns into development decisionmaking

OCIAL DEVELOPMENT PAPERS F ~N VRC NM t L -,-,h D S O C.; A L U S TA i J AB 1 F DE V E i V P M ENT NET WVO R K Paper Number 31 July 1999 BPXC's Operations in Casanare, Colombia: Factoring social concerns into development decisionmaking Aidan Davy Kathryn McPhail Favian Sandoval Moreno THE WORLD BANK   Social Development Papers Paper Number 31 July 1999 BPXC's Operations in Casanare, Colombia: Factoring social concerns into development decisionmaking Aidan Davy Kathryn McPhail Favian Sandoval Moreno  This publication was developed and produced by the Social Development Family of the World Bank. The Environment, Rural Development, and Social Development Families are part of the Environmentally and Socially Sustainable Development (ESSD) Network. The Social Development Family is made up of World Bank staff working on social issues. Papers in the Social Development series are not formal publications of the World Bank. They are published informally and circulated to encourage discussion and comment within the development community. The findings, interpretations, judgments, and conclusions expressed in this paper are those of the author(s) and should not be attributed to the World Bank, to its affiliated organizations, or to members of the Board of Executive Directors or the governments they represent. Copies of this paper are available from: Social Development The World Bank 1818 H Street, N.W. Washington, D.C. 20433 USA Fax: 202-522-3247 E-mail: sdpublications@worldbank.org  Contents Executive Summary 1 1. Introduction 7 Aims and Objectives 7 Approach 8 Project Location 8 Main Issues to Factor into the Evaluation 9 Route Map to the Report 9 2. An Evolving Social and Environmental Context 11 Description of BPXC's Operations 11 The Envirorunental Context of BPXC's Operations 13 The Social Context of BPXC's Operations 13 Key Stakeholders and Their Interactions 13 The Evolving Demographic and Socioeconomic Context 16 Conflict in Casanare 19 3. An Evolving Regulatory, Policy and Management Framework 21 Regulation of the Petroleum Sector, 1987-1998 21 Royalty Allocation and its Impact on Casanare 22 BPXC's Approach to Managing Social Issues, 1987-1997 25 An Evolving Corporate Policy 25 Evolving Objectives of BPXC's Social Programs 2 7 Responsibilities for Implementing Policy and Staffing 27 Approach to Developing Community Investment Programs and Projects 28 4. Evaluation Findings 29 Integrating Social Concerns: An Enabling Environment 29 Capacity for Planning, Implementation, and Stewardship of Royalties 30 Social Responsibility within BPXC 31 Relevance of Policy and Programs to Casanare 32 Policy and Programs: Creating Dependency or Fostering Independence? 33 Royalty Distribution: A Role for BPXC? 33 Casanare 2000: Shared Vision or Tunnel Vision? 34 BPXC's Capacity to Deliver on Policy Commitments 35 i  Learning from Experience 36 Environmental and Social Assessment Processes within BPXC 36 Security and Social Interaction: Striking a Balance 38 Community Perspectives: BPXC's Social Investments and Royalties 39 BPXC's Social Investments 39 Participation in Royalties 41 5. Conclusions and Recommendations 43 Main Conclusions of the Evaluation 43 Recommendations for National Government and Authorities in Casanare 44 Conduct National Dialogues 44 Delineate Institutional Responsibilities and Strengthen Regional Capacity 44 Support Regional and Sectoral Environmental and Social Assessment 45 Promote Departmental Peace and Development 45 Recommendations for BPXC in Casanare 45 Align Corporate Policies with Regional Development Plans 45 Develop a Performance Contract with Development Partners 45 Actively Monitor Devolution of Community Affairs 46 Strengthen Efforts to Promote Human Rights 46 Recommendations for Civil Society in Casanare 47 Strengthen Public Involvement in Planning 47 Strengthen Procedures for Transparency 47 Seek Partnerships with NGOs and Promote Transparency 47 Actively Participate in Monitoring and Evaluation 47 Annex 1. List of Interviewees 48 Table 1. Demographic and Socioeconomic Information for Casanare 17 Boxes 1. Provisions for Public Involvement in Colombia 22 2. Corporate Learning within BP 26 Figures 1. BPXC's Evolving Regulatory and Policy Framework for Social Aspects 3 2. Map: Location of Local Communities and BPXC's Operations 10 3. Milestones of Project Development 12 4. Stakeholder Dynamics in Casanare 14 5. The System for Allocating Royalties 23 6. Income from Royalties 24 7. Areas of Investment Supported by Income from Royalties 31 8. BPXC's Response to Expectations at Community, Municipal, and Regional Levels 34 ii  Executive Summary In 1987 British Petroleum Exploration In attempting to evaluate how BPXC Colombia (BPXC) began exploring for oil in a integrated social concerns into remote part of Colombia which only recently development decisions, the important was designated the Department of Casanare, factors to consider are: the stakeholders in 1991. The capacity of the Casanare (and the interplay among them), the government for planning, managing chronology of decisionmaking, and the finances, and maintaining law and order was social, political, and corporate contexts very weak. The lifestyle of most of its people throughout project development. In broad was far less advanced than the more terms the four stakeholder groups of developed parts of Colombia, with education interest are corporate employees, levels below the national average. Yet within representatives of government agencies, ten years, Casanare's oil-related royalty conmmunity representatives, and local income would exceed that of any other nongovernmental organizations (NGOs). department in Colombia. For the most part, BPXC's community The expectation of economic opportunities affairs activities have been progressive, far resulted in large-scale inmigration that reaching, and beneficial to both the resulted in a growing disaffection in local corporation and the community. This is a communities. The injection of cash into the significant endorsement of the company's local economy and the presence of approach, given the difficult circumstances contractors fueled corruption and extortion, in which it has been operating. Perhaps its causing civil conflicts to escalate. The violent most remarkable achievement has been to activities of both guerrilla and paramilitary obtain from communities a "license to groups still affects all elements of society in operate," which paved the way for a major Casanare, casting a shadow of intimidation industrial development to be implemented, among its communities and impeding its although it remains to be seen whether this social and economic progress. In the midst of license can be maintained. this complex web of expectations, impacts, and opportunities, BPXC consciously The company will also acknowledge attempted to define and redefine its social that its involvement with communities and responsibilities to stakeholders. How BPXC other stakeholders has not always resulted achieved its objectives, including the in mutual benefit, or the perception of evolution of its social policies and programs mutual benefit. In other cases, BPXC has despite various obstacles, lies at the heart of been criticized for investments or other this evaluation. interventions some view as inadequate. 1  BPXC's Operations in Casanare, Colombia More significantly, BPXC risks being Environmental and Social Assessments associated with a "lost" developmental opportunity if local governments are unable Prior to 1993 BPXC and other oil and gas to manage locally accrued revenues for companies were obliged to produce sustainable social and economic numerous environmental assessments (EA) development, or if their efforts to do so are for specific activities (over 80 in the case of overshadowed by violence. BPXC), without producing an overall statement of the likely cumulative direct and Enabling Socially Responsible Behavior indirect impacts of all planned actions. This by Corporations piecemeal bureaucratic approach was unsatisfactory for the company and the Although the National Constitution of regulatory authorities, and it provided little 1991 strongly emphasizes the rights of assurance of environmental and social Colombian citizens to benefit from protection. development and participate in decisionmaking, there are no specific In 1991 the company instigated a provisions relating to the social comprehensive environmental pre-diagnosis responsibilities of private sector entities. The for the Cusiana project. This exercise was Colombian government has been intended to provide the kind of progressive in allocating royalties. A large environmental and social overview that the proportion of the 20 percent royalty on piecemeal approach required by regulation production is returned to provide social could never deliver. The decision by BPXC benefits to the communities directly to undertake this work is commendable. impacted (via the departmental and municipal authorities in which oil Although the information available was production takes place). A sound practice, limited, the pre-diagnosis produced valuable in theory. The development impact of the information. For example, it accurately royalties, however, depends on the predicted the limited importance of direct recipient's capacity for planning and impacts compared with indirect impacts management within its territory. And such as inmigration and the lack of social Casanare has an extremely limited capacity. and economic structures to accommodate it. The pre-diagnosis also helped to shape The production wells and two central BPXC's social policies and programs. Some processing facilities are located in the of the predictions made in the pre-diagnosis municipalities of Tauramena and Aguazul. were not acted upon (in particular the In 1996 alone the royalties from oil strategic issues of royalties). production in Casanare, Aguazul and Tauramena were CP$77.7 million, CP$10.7 Some of BPXC's recent work on million and CP$12.1 million respectively. environmental assessment (EA) and social Potential development opportunities have assessment (SA) go well beyond the legal been constrained, however, by such factors requirements which were strengthened in as lack of coordination among territorial 1993 by the enactment of Law 99 (figure 1). bodies (and capacity for planning), failure to For example, the recently completed assign all royalties to priority areas (such as environmental and social studies of health and education), and lack of proposed operations in Piedemonte used accountability. sustainable regional development as an organizing principle for assessing impacts 2  Executive Summary and developing mitigation measures. BPXC and incorporated this commitment into its adopted a participatory approach social policy. In the sensitive area of human throughout, involving a high level of rights, BPXC has promoted such important involvement with interested and affected initiatives as conflict management training parties. The end product, and the process by for 800 leaders from across the 19 which it had been achieved, are both highly municipalities of Casanare. commendable. The main criticism of the 1993 policy is in Relevance of BPXC's Social Policy and the somewhat narrow definition of the Programs project's area of influence as the immediate areas of exploration and production activity. Since 1993 BPXC has had a robust This was somewhat divisive among Community Affairs Policy that has been communities, because those living beyond periodically reviewed and updated (figure the area of influence were unable to benefit 1). To a large extent BPXC's original policy from BPXC-supported development and related programs were timely and initiatives. However, BPXC recognized this locally appropriate. In making the transition from exploration to full-scale Figure 1. BPXCs Evolving Regulatory and Policy production, the company Framework for Social Aspects developed a coherent framework for the disparate activities that it had 1990 1992 1994 1996 1998 previously supported. In I : I i I I I t l particular, the appointment of a field-based Community Regulatory developments Affairs team in 1992 shifted Constitution Law 99 (Dec'93) 0 0 Law 149 (Royalties) the interaction with stakeholders from mitigating imnpacts to actively attempting Evolving social policy within BPXC to promote local development gsBPXCsCommunityAffairsPolicy * Casanare 2000* Revised'98poIcy * (figure 1). The 1993 policy and programs provided a Social investment objectives and approaches sound basis for managing Impact management Managing expectations Regional devebpment| expectations at the community level and creating trust and dialogue. Employment opportunities Numbers of Community Affairs staff with the company and its 3 6 8 12 16 30* 34* 4 contractors were of major concern to stakeholders. 4 Within the limits of the law, Community Affaim team established (May 1992) and often at great cost to the company, BPXC has sought to l l l l l l l l l l maximize employment 1990 1992 1994 1996 1998 maxin-dze employment opportunities for local people with considerable success, 16 forSDLAandthe restforOcensa 3  BPXC's Operations in Casanare, Colombia problem, and in its policy of 1996 expanded to obtain input from the territorial support to regional as well as local authorities or civil society. Still, many of the programs, creating mechanisms through principles, aspirations, and approaches which benefits could be more broadly outlined in Casanare 2000 are still relevant. shared. The challenge is to obtain departmental and municipal ownership of the vision it As early as 1992 the company helped presents and to find effective mechanisms to communities to diagnose their development deliver the objectives. This is all the more needs and priorities. This helped to ensure challenging at a time when the that programs were relevant, created a responsibility for community affairs is being forum for discussion, and improved the devolved to line managers and the numbers prospects for success in the follow-up of community affairs staff is being reduced development projects. The company's (figure 1). insistence on cofinancing with municipalities and on community This challenge is also complicated by contributions was also a progressive attempt community perspectives on the effectiveness to improve the sustainability of community of BPXC's social investment strategy. While development initiatives. most beneficiaries of BPXC's community projects interviewed did acknowledge the BPXC might be criticized, however, for benefits of BPXC's involvement, they failing to adopt a strategic development typically viewed BPXC's contribution as perspective earlier on. The Cusiana obligatory and as inadequate retribution for environmental pre-diagnosis highlighted the the disruption related to oil production. failure of territorial authorities in the Given that BPXC's budget for community neighboring Department of Arauca to affairs of US$6 million is a fraction of the benefit from royalties and the consequent royalty-related earnings in the department escalation in conflict. It also identified weak (which totaled almost US$100 million in institutional capacity for planning, 1997), the real opportunity for sustainable management of royalties, etc. BPXC development in Casanare lies in harnessing appeared unable to help territorial these revenues more effectively. authorities manage royalties in an equitable and transparent way. In its defense, the Recommendations company is rightly sensitive about appearing to meddle in the affairs of state. To become more actively involved at the The company also supported preparation of strategic level BPXC must balance many development plans and provided training conflicting considerations: its de facto for municipal and departmental personnel, capacity to provide leadership and technical but frequent changes in administration skills coupled with its reluctance to interfere diluted the long-term benefits of such with the affairs of state, the difficulty of efforts. developing institutional capacity when the employees change every time there is an The strategic perspective that the pre- election, and the risk to BPXC's reputation diagnosis of Cusiana recommended for of failing to act or from failure as a result of BPXC was reflected in Casanare 2000: undertaking the wrong actions. BPXC's strategic vision for how the department could benefit from oil revenues One overall conclusion the evaluation in a sustainable manner. Casanare 2000 clearly points out is that if the goal is to involved tremendous effort and vision at the sustain the benefits from BPXC's social corporate level, but BPXC made little effort investments, to promote better stewardship 4  Executive Summary of the substantial incomes generated by It is recommended that government royalties and to overcome the constraints to provide additional support to upstream social and economic development resulting sector planning activities for environmental from increased violence, effective and social assessments. Finally, mechanisms partnerships need to be developed between should be explored to strengthen incentives government, BPXC, and civil society. for companies to invest in communities. For example, government might enable Government companies to offset a proportion of the costs of social investments in the early stages of It is crucial to reinforce the framework projects against taxes on future profits for transparency and accountability in the (assuming that projects proceed to allocation of royalties. This is best addressed implementation). at the national level. The starting point could be to begin a dialogue among BPXC government, oil and mining companies, and civil society to discuss how oil revenues can Despite BPXC's intensive efforts in be distributed in an equitable and Casanare at the local level, its reputation transparent way. This dialogue may also remains at risk if the opportunities extend to the "wealth and violence" issue by presented by royalties are not realized. In building support for public-private devising Casanare 2000, the company development interventions and reducing the outlined an appropriate sustainable credibility of guerrillas. development strategy for Casanare, but stopped short of obtaining buy-in from the The problem of poor institutional other important development partners. capacity is pervasive in Casanare and has diluted the development impact of royalties It is recommended that BPXC develop a and of BPXC's social programs. Given the "performance contract' with its link between poor capacity and electoral development partners (government and civil cycles, this issue also needs to be addressed society), using Casanare 2000 as a starting at a national level, with involvement by the point for discussion. The partners should territorial authorities. The objective should agree on objectives, programs, and be to strengthen implementation capacity institutional responsibilities and and continuity, particularly at the accountabilities for each party. The departmental and municipal levels. Ideally, performance contract should identify this will involve reinforcing existing indicators to measure the success of territorial bodies and other organizations, programs (based on outcomes) and rather than creating new entities. responsibilities for monitoring. The undercurrent of violence in Casanare Clearly there are risks to BPXC using this severely constrains the ability of Casanare to approach. However, these risks could be realize its development potential. There is partially mitigated by parallel approaches to also a need to more effectively involve civil capacity development (described above) and society in development planning. The by strong involvement from civil society in creation of a citizens network (comprising developing any performance contract to groups and individuals with a stake in the ensure continuity beyond electoral cycles. development of Casanare) could feed into BPXC should also carefully monitor the the development planning process and in devolution of responsibility for community parallel, help to resolve conflict between affairs so that it does not compromise this or opposing factions. other ongoing community activities. 5  BPXC's Operations in Casanare, Colombia Civil Society more actively involved in promoting transparency in the planning and The territorial authorities should take implementation of projects. In particular, measures to ensure that civil society is more the mechanism for citizen's participation actively involved in development planning (Citizen's Auditing) could be more widely using existing mechanisms such as the invoked for controlling the management of Departmental and Territorial Planning public services. Councils. In parallel, there is a need for territorial authorities to improve Finally, the potential for NGOs and local transparency in the selection, communities to actively participate in implementation and financing of projects. monitoring should be explored with government and BPXC. Such monitoring Local NGOs should seek opportunities for should use clearly specified indicators to partnership with international NGOs so that track changes in incomes, living standards, they can match up complementary skills and environmental quality, with links to and draw from the experience of similar action plans for corrective measures where projects elsewhere. They should also become necessary. 6  1. Introduction As BP Exploration Colombia's (BPXCs) employees, representatives of relevant operations' in Casanare approach government agencies (dealing with oil and maximum production of almost 500,000 gas developments, social infrastructure, barrels per day (bpd), the extent and scale of planning, etc.), local community the company's activities is immediately representatives, and nongovernmental apparent. It is easy to forget that just over a organizations who have been actively decade ago the company had no presence in involved with some aspect of the project on Casanare and no oil production the ground or in monitoring development infrastructure, and that construction of the activities. The intention was to engage each Cusiana central processing facility only of the four stakeholdqr groups to obtain commenced in 1993 once the commerciality their perspectives and insights. of the oil reserves had been declared. Like many large-scale infrastructure Aims and Objectives developments, the project has evolved in a series of incremental stages, starting with The overall aim of the evaluation was to exploration and punctuated by periods of develop an understanding of the intense construction activity, involving up to institutional and social context of the 7,000 workers. In evaluating the interaction project, as the basis for a detailed between BPXC and its stakeholders, it is exploration of how BPXC factored social critically important not to lose sight of this concerns into the development of its incremental development. operations in Casanare. The evaluation will be used to help ground-truth some of the While the evaluation centered on BPXC's conclusions derived from earlier work on operations, it was implicitly assumed that the factors influencing corporate social socially responsible investment decisions in responsibility,2 and to develop training Casanare would necessitate partnerships modules to disseminate knowledge to key among government, company, and civil stakeholder groups. The specific objectives society. Therefore the evaluation focused on were to answer the following questions: the project stakeholders, the interplay among them, the chronology of corporate * What were the prevailing corporate (and decisionmaking, the extent of stakeholder government) objectives with respect to involvement, and the social, political, and the social aspects of BPXC's operations corporate cultural context throughout throughout the past decade? project development. In broad terms the four stakeholder groups are corporate * What were the motivations behind 7  BPXC's Operations in Casanare, Colombia corporate commitments to addressing 1). Due to security constraints, the team had social concerns? limited direct access to communities. Consequently, a local NGO (CEMILLA - El * What were the approaches to addressing Centro MicroEmpresarial Del Llano) was social concerns? contracted to capture additional community * perspectives on a limited number of BPXC's * How were obstacles to socially community investment activities. Those responsible behavior overcome, and findings have been factored into this report. what was the nature of these obstacles? Project Location * What level of effort was involved in managing social concerns, and what BPXC's activities in Colombia are located were the costs? some 125 km to the northeast of the capital, Bogota, in the Department of Casanare, * How did stakeholders measure the among the largest of Colombia's 32 results achieved against the objectives departments (figure 2). The company has (for example, of community entered into three association contracts with development initiatives)? the state owned oil company, Ecopetrol, and other associate partners to continue * How did the various stakeholders view exploration and produce oil in three the outcomes of the corporation's social geographically linked blocks (SDLA, interaction and initiatives? Tauramena, and Rio Chitamena). In addition, BPXC has association contracts for Approach two further adjoining blocks, Recetor and Piedmonte, where exploration is ongoing In advance of BPXC committing to an with other associate partners. These blocks evaluation of its operations, they reviewed are all situated in the Llanos foothills of the and agreed to a detailed guidance note that Andean mountain range in wester had been prepared by the World Bank.3 The Casanare, in a southeasterly to guidance note aimed to define the northwesterly orientation that runs parallel boundaries of the evaluations and clarify the to the Llanos. Culturally and ecologically, nature and extent of the issues to be the llanos have distinct characteristics that addressed. It also provided a basis for transcend both national and international reaching mutual agreement on the precise administrative boundaries. details of the evaluation and for framing the Casanare is one of the newest approach adopted by the evaluation team in departments in Colombia having been the field. assigned departmental status in 1991. This The evaluation visit to Bogota and partly reflects the remoteness of the region: Casanare took place over approximately it is cut-off from Bogota by the Andes. three weeks (from late February to early Administratively, Casanare is divided into March 1998) and involved a team of three 19 municipalities. The three municipalities people from the World Bank. The team that are most directly affected by BPXC's reviewed key project documents and held operations are Aguazul, Tauramena, and extensive interviews with government Yopal. The towns of Tauramena and representatives from the national, Aguazul are both within seven kilometers departmental, and municipal levels; BPXC of primary processing facilities, and they employees and representatives of Ecopetrol; have experienced rapid growth throughout and representatives of civil society (annex the past decade. The departmental capital, 8  Introduction Yopal, has also undergone dramatic growth In the midst of this complex and dynamic in the same period, although it has been less web of expectations, impacts, and directly impacted by oil-related opportunities, BPXC consciously attempted infrastructure. to define and redefine its social responsibilities to stakeholders and the Main Issues to Factor into the Evaluation objectives of its social programs. How BPXC pursued its objectives, including the In theory, the social and environmental evolution of its social policies and programs issues arising from the exploration and despite various obstacles, lies at the heart of development of large oil reserves are fairly this evaluation. generic. In practice, their assessment and management becomes complicated due to a Route Map to the Report host of unique circumstances that collectively make up the social and The report is divided into five main environmental context of a specific project. sections. The introduction describes the aims In Casanare, BPXC began exploring in an of the evaluation and locates BPXC's area that had not yet achieved departmental operations in the region. The second section autonomy and where institutional capacity explains how the project evolved over time for planning, managing finances, and and the changing social and environmental maintaining law and order was extremely context of BPXC's operations during this weak. Educational attainment was below period. The third section describes the the national average, particularly at the evolving regulatory, policy, and secondary level, and the majority of people management framework for social and lived a lifestyle far less advanced than the environmental issues relating to the project. "more developed" parts of Colombia. Yet Collectively, the first three sections set the within ten years, Casanare's departmental scene for the findings of the evaluation, income from oil-related royalty payments which are presented in section four. Finally, exceeded that of any other oil-producing conclusions and recommendations are department in Colombia. presented in section five. Even before the extent of the reserves was proven, the expectation of economic I BPXC is the appointed operator for a number of opportunities resulted in large-scale Association Contracts in the Department of inmigration to the area that had significant Casanare. For convenience, this report refers to socioeconomic and demographic impacts. BPXC throughout as a surrogate for specifying the Thisocioecono and dohemographic impactatns. partners in each Association (in which Ecopetrol, This in turn led to heightened expectations the state owned oil enterprise, always retains a 50 and disaffection on the part of local percent stake). communities, compounded by the fact that royalties were negligible until 1994. At the 2 Presented in World Bank Discussion Paper No. peak of construction in late 1996, BPXC's 384. Integrating Social Concerns into Private Sector operations required a workforce of almost Decisionmaking: A Review of Corporate Practices 7,000 people, but it rapidly declined in the Mining, Oil and Gas Sectors, 1998. thereafter. Like the neighboring department I Integrating Social Concerns into Private Sector of Arauca, oil-related incomes from royalties Decisionmaking: Guidance Notes for the and the presence of contractors fueled both Evaluation of Selected Projects. The guidance notes corruption and extortion. It also led to an include a schedule detailing the areas of interest to escalation of guerrilla-paramilitary-military be evaluated, specific questions to be explored, and conflicts and increased violence within to which of the four stakeholder groups questions Casanare. were to be addressed. 9  Figure 2. COLOMBIA LOCATION OF LOCAL 0H 0Cooa COMMUNITIES AND La OSa BPXC'S OPERATIONS o TOWNS AND VILLAGES * CENTRAL PROCESSING F~ACILITIES