Reference no: EM13953996
Union Oil Company of California, or Unocal, was founded in 1890 to develop oil fields around Los Angeles and other parts of California. By 1990, Unocal had operations in all aspects of the oil business, including extraction, refining, distribution, marketing, and even retail (the company owned a chain of Union 76 gas stations). With most oil fields in the United States nearing depletion, the company had turned to investing in energy projects outside the country. Unocal’s strategy was to market itself to governments as a company that had expertise in all aspects of oil and gas production. According to Roger C. Beach, CEO of the company, “What every government likes about Unocal is one-stop shopping—one group able to take the whole project from development to the marketing end.” 2 One of the international projects that attracted the company’s attention was a natural gas field called the “Yadana Field” that belonged to Burma. The Yadana Field is located in the Andaman Sea beneath 150 feet (46 meters) of water off Burma’s shore. Estimates indicated the field contained more than 5 trillion cubic feet of natural gas, enough to produce natural gas continuously for approximately 30 years. 3 In 1992, the government of Burma had formed a state-owned company named the Myanmar Oil and Gas Enterprise (MOGE) to find private companies to help it develop the Yadana Field. In 1992, it signed a con-tract with Total S.A, a French company that gave Total the right to develop the field and build a pipeline to transport the gas from Yadana to Thailand, where the government of Thailand would buy the gas. The government of Burma stood to net an estimated $200–$400 million per year for the life of the project. A portion of these revenues would be paid to the companies that partnered with Burma. MOGE, the government-owned company, signed a contract with Total agreeing to “assist by providing security protection and rights of way and easements as may be requested by” the companies with which it partnered. 4 While its partner companies would actually construct the project, Burma would provide security through its army, which would also ensure that land was cleared and rights of way secured for the passage of the pipeline through Burma. The Burmese project appealed to Unocal. Burma was attractive for several reasons. First, labor was cheap and relatively educated. Second, Burma was rich in natural gas resources, and its many other untapped resources presented major opportunities. Third, Burma was an entry point into other potentially lucrative international markets. Burma not only offered a potentially large market itself, it also occupied a strategic location that could serve as a link to markets in China, India, and other countries in Southeast Asia. Finally, the Burmese government maintained a stable political climate. With the military to maintain law and order, the political environment was extremely dependable. Before committing itself to the project, Unocal evaluated its risk position by conducting research on the social-political environment of the country. Burma is a Southeast Asian country with a population of 42 million and land mass about the size of Texas. Burma is bounded by India to the northwest, China to the north and northeast, Laos to the east, Thailand to the east and southeast, and the Andaman Sea to the south. The majority of the population, some 69 percent, is Burmese, while Karens, Kachins, Shans, Chins, Rakhines, Indians, and Chinese are minorities in the nation. The Karens, clustered in rural parts of Southern Burma, had periodically fielded rebel groups against the government. Burma as a country is poor. Economically, Burma’s per capita gross domestic product is approximately $200–$300, and inflation is above 20 per-cent. Socially, Burma suffers a high infant mortality rate (95 deaths for every 1,000 live births) and a low life expectancy (53 years for males and 56 for females). The natural gas project could provide much-needed revenues and significant benefits to the people of the impoverished nation. The only real problem the company saw with its involvement in the project was that the government of Burma, with which it would be a partner, was a military dictator-ship accused of continually violating the human rights of the Burmese people. In 1988, after crushing major countrywide prodemocracy demonstrations, Burma’s military seized power and made the 19-member State Law and Order Restoration Council (SLORC) head of the government. The SLORC, which was made up of senior military officers, imposed martial law on the entire country. The U.S. State Department, in its annual “Country Reports on Human Rights Practices, 1991,” wrote that the army of the SLORC maintained law and order through “arrests, harassment, and torture of political activists. . . . Torture, arbitrary detentions, and compulsory labor persisted. . . . Freedom of speech, the press, assembly, and association remain practically nonexistent.” 5 Many groups, including the U.S. State Department, accused the SLORC of numerous human rights abuses, particularly against Burmese minority groups. In its “Country Reports on Human Rights Practices, 1995,” the Department wrote: The [Burmese] Government’s unacceptable record on human rights changed little in 1994. . . . The Burmese military forced hundreds of thou-sands, if not millions, of ordinary Burmese (including women and children) to “contribute” their labor, often under harsh working conditions, to construction projects throughout the country. The forced resettlement of civilians also continued. . . . The SLORC continued to restrict severely basic rights to free speech, association and assembly. 6 Amnesty International, in an August, 1991 report on Burma, wrote that the ruling Burmese army “continues to seize arbitrarily, ill-treat and extra judicially execute members of ethnic and religious minorities in rural areas of the country. The victims . . . include people seized by the [army] and com-pelled to perform porterage—carrying food, ammunition and other supplies—or mine-clearing work.” 7 Responding to these reports, the U.S. Congress on April 30, 1994 voted to place Burma on a list of international “outlaw” states, and in 1996, President Bill Clinton barred Burmese government officials from entering the United States. To check the situation for themselves, Unocal man-agers hired a consulting firm, the Control Risk Group. The report of the consulting firm warned: “Throughout Burma the government habitually makes use of forced labor to construct roads. . . . In such circumstances Unocal and its partners will have little freedom of maneuver.” 8 Despite the risks, Unocal decided to invest in the proj-ect. S. Lipman, a Unocal vice president, later stated that Unocal managers had discussed with Total the “hazards” that were involved in having the Burmese army provide “se-curity” for the project: “we said that . . . having the military provide protection for the pipeline construction . . . might proceed . . . not in the manner that we’d like to see them proceed, I mean, going to the excess.” 9 Nevertheless, the company felt that the benefits, both to itself and to the people of Burma and Thailand, outweighed the risks. Moreover, the company would later assert, “engagement” rather than “isolation” was “the proper course to achieve social and political change in developing countries with repressive governments.” 10 The company stated that “based on nearly four decades of experience in Asia, [Unocal] believes that engagement is by far the more effective way to strengthen emerging economies and promote more open societies.” 11 In December, 1992, Unocal, through a wholly owned subsidiary, paid $8.6 million to Total, S.A. for part of Total’s stake in the project. Unocal became one of four investors in the Yadana Field project, each of whom would contribute financially in proportion to their stakes in the project. Unocal held a 28.26 percent stake in the project as a whole; Total had a 31.24 percent stake; Thailand’s PTT Exploration & Production Public Co. had a 25.5 percent stake; and the Burmese government (MOGE) had a 15 percent stake. 12 It was agreed that Total would be responsible for over-all coordination of the project, would develop the wells at the Yadana field, and extract the gas. Unocal would construct the 256-mile pipeline that would carry the gas from Yadana to Thailand. Most of the pipe would lie under the ocean, but the final 40 miles would cross over southern Burma through the region inhabited by the Karen, the minority ethnic group most hostile to the Burmese government. The military, it appeared, might have to use force to secure the area before construction could begin. It would also have to build roads and other facilities such as base camps, buildings, barracks, fences, airplane landing strips, river docks, and helipads. The period between 1993 and 1996 was devoted to preparing the way for construction of the pipeline, including clearing land and building roads, camps, housing, and other facilities. Actual construction of the pipeline began in 1996 and was completed in 1998. Throughout the time of preparation and construction of the pipeline, human rights groups—including Human Rights Watch and Amnesty International—issued numerous reports claiming that the Burmese army was using forced labor and brutalizing the Karen population as it provided “security” for Unocal workers and equipment. Roads, buildings, and other structures, these critics claimed, were being built with the use of forced labor recruited from local Karen groups by the Burmese military, and hundreds of Karen were being forced to clear the way for the pipeline and to provide slave labor for the project. Moreover, they claimed, Unocal was aware of this and aware of the brutal methods the army used to provide “security” for Unocal workers and equipment. 13 Several human rights groups, including Greenpeace, Amnesty International, and Human Rights Watch, met with Unocal executives in Los Angeles and informed them that forced labor and other violations of human rights were taking place in the pipeline region. In May, 1995, Joel Robinson, a Unocal official who monitored the Yadana project for Unocal, spoke with U.S. Embassy officials stationed in Burma. The Embassy reported that: On the general issue of the close working relationship between Total/Unocal and the Burmese Military, Robinson [of Unocal] had no apologies to make. He stated forthrightly that the companies have hired the Burmese military to provide security for the Project and pay for this through the Myanmar Oil and Gas Enterprise (MOGE). He said Total’s security officials meet with their military counterparts to inform them of the next day’s activities so that soldiers can ensure the area is secure and guard the work perimeter while the survey team goes about its business. . . . Total/Unocal uses [aerial photos, precision surveys, and topography maps] to show the [Burmese] military where they need helipads built and facilities secured.” 14 Unocal hired another consultant in 1995 to investigate conditions on the Yadana project. The consultant reported in a letter to Unocal officials: My conclusion is that egregious human rights violations have occurred, and are occurring now, in southern Burma . . . the most common [of which] are forced relocation without compensation of families from land near/along the pipe-line route; forced labor to work on infrastructure projects supporting the pipeline (SLORC calls this government service in lieu of payment of taxes); and imprisonment and/or execution by the army of those opposing such actions. 15 Work on the project continued and commercial natural gas production in the Yadana project began in 2000. The companies by then had instituted a number of social-economic programs to benefit the people around the pipeline. Unocal claimed that it provided 7,551 paid jobs to Burmese workers during construction and that while production continued it would continue to employ 587 Burmese workers. By 2004, the project was deliver-ing 500–600 million cubic feet of gas per day to Thailand, benefitting that nation’s rapidly expanding economy, pro- viding an efficient and reliable source of energy, and enabling Thailand to use cleaner-burning natural gas to fuel its electrical plants instead of fuel oil. Revenues from sales to Thailand yielded several hundred million dollars a year to the Burmese military government. Unocal reported that besides its initial investment of $8.6 million, it spent a total of $230 million constructing the pipeline. It is estimated that it costs Unocal $10 million a year to operate the project. In return, Unocal’s share of gas revenues was $75 million a year, which would continue for the course of the 30-year contract. Unocal’s total gain is expected to reach approximately $2.2 billion dollars. The benefits that the people in the region around the pipeline were deriving from the programs that Unocal and the other companies had initiated in that area were summarized by Unocal: An extensive, multi million-dollar socioeconomic development program associated with the project has brought real and immediate benefits to thousands of families who live in the pipeline region. These benefits include significantly improved health care, improvements in educa-tion, new transportation infrastructure and small business opportunities. The impact of these pro-grams has been enormous. Infant mortality in the pipeline region, for example, had dropped to 31 deaths per 1,000 live births by the year 2000, compared to 78 deaths per 1,000 live births for Myanmar overall. In 2002, the infant mortality rate in the pipeline region declined again to just 13 deaths per 1,000 live births (national figures not yet available). 16 These claims were corroborated by the Collaborative for Development Action, Inc. (CDA), an independent group headquartered in Massachusetts and funded by the governments of the Netherlands, Denmark, Canada, and Germany and by the World Bank. After three visits to the pipeline region, the CDA reported in February, 2004 that “the number of people benefiting from the SocioEcon Program is steadily increasing.” 17 Although “the pro-gram has mainly benefited the middle class,” this “middle class has grown, relatively, wealthy” and the program was refocusing on “programs for the poorer people in the corridor.” The CDA noted, however, that “the educated mid-dle-class” still wanted “freedom” and a government “based on a constitution.” 18 Moreover, it appeared that benefits from the Yadana project were not benefiting the people of Burma outside the pipeline region, with the exception of the military government, whose stake in the project gave it a steady stream of income. Not all Burmese citizens were pleased with the development of the Yadana Field. In October, 1996, 15 members of the Burmese Karen minority group, who alleged that they or their family members had been subjected to relocation, forced labor, torture, murder, and rape on the Yadana pipeline project, filed class action suits in U.S. courts against Unocal: one suit in U.S. federal court ( Doe vs. Unocal ) and a second in California state court. Both suits argued that Unocal should be held responsible for the injuries inflicted on hundreds of Karen by the Burmese military because the activities of the military were conducted on behalf of the pipeline project in which Unocal held a major stake and from which Unocal benefitted. The suit in federal court was based on the federal 1789 Alien Tort Statute, which has been interpreted to authorize civil suits in U.S. courts for violations of internationally recog-nized human rights. On June 29, 2004, the U.S. Supreme Court upheld the right of foreigners to use the statute to seek compensation in U.S. courts for violations abroad. On December 20, 2004, Unocal announced it would settle the federal lawsuit, compensate the Karen villagers, and pro- vide funds for social programs for people from the pipeline region. The terms of the settlement were not revealed. Four months after the settlement, Chevron Corpora-tion, announced it would purchase Unocal for $16.2 billion and so assume Unocal’s stake in the Yadana project. Chev-ron now was accused of complicity in continuing human rights abuses in the pipeline area. EarthRights International (ERI), an NGO that had helped the villagers win their law-suit, claimed in a series of reports that the Burmese army still provided security for the oil companies and while doing so engaged in human rights abuses “including torture, rape, murder, and forced labor.” In 2007 the military regime bru-tally suppressed nationwide demonstrations against its rule, shooting and killing dozens of Buddhist monks who led the peaceful protests, and imprisoning thousands of others. ERI claimed that revenues from the Yadana project financed these and other brutalities of the military regime. In a 2009 report, Total Impact , ERI calculated that the regime’s share of the Yadana revenues was $1.02 billion in 2008. Since 2000, according to a 2010 ERI report, Energy Insecurity , the project gave the regime $9 billion. ERI claimed much of that money went into offshore bank accounts owned by Burmese generals, while public expenditures on health and education remained the lowest in the region and poverty was widespread.
Asses whether from a utilitarian, rights, justice, and caring perspective, Unocal did the right thing in deciding to invest in the pipeline and then in conducting the project as it did. Using your utilitarian, rights, justice, and caring assessments, did Unocal do the right thing? Assume there was no way to change the outcome of this case and that the outcome was foreseen, was Unocal then justified in deciding to invest in the pipeline?
Is Unocal morally responsible for the injuries inflicted on some of the Karen people? Explain. Is Chevron?
Do you agree or disagree with Unocal's view that "engagement" rather than "isolation" is "the proper course to achieve social and political change in developing countries with repressive governments"? Explain.