Tangguh project Update 2005

Down to Earth No 65  May 2005

Status of the project

The 'final investment decision' to proceed with Tangguh came on March 7th, after many delays. The construction phase of the US$5 billion project is now expected to start in late 2005. Tangguh will be operational in 2008, with two full gas production units or 'trains' (Reuters7/Mar/05, TIAP 2004).

One of the delays was due to a need to extend the gas field contracts. The project plans to exploit three production-sharing contract (PSC) blocks fields in Bintuni Bay - Muturi, Weriagar and Berau. These PSCs were due to expire between 2017 and 2023 whereas the sales contracts expire later, between 2026 and 2028. In January this year, Reuters reported that Jakarta had agreed to extend the gas field contracts so that Tangguh could fulfil its long-term sales contracts (Reuters 13/Jan/05), but a later report by the Jakarta Post said the extension still needed presidential approval (JP 27/Jan/05). This same report also referred to 'tough negotiations' over several clauses in the Principles of Agreement between the Indonesian government and BP, including a financial risk guarantee in case of policy changeswhich prevent the plant from fulfilling supply commitments. A further problem related to regional autonomy and the potential for increased powers of the district heads (JP 27/Jan/05).

The final decision from BP to go ahead with the project was first expected in October last year, then by the year-end, delayed again until January 2005, and finally issued in March 2005.

The Environmental Impact Assessment (AMDAL) for the project was approved in 2002. In October 2004, a ministry of environment team made its first visit to the site to monitor achievement of commitments made. According to BP's quarterly Tangguh LNG Project Stakeholder Update (Q4, 2004), the resulting report found that "Tangguh was making significant progress in areas meeting AMDAL social mandates", a point contested by NGOs who say that human rights commitments are not being followed up.

BP's CEO Lord Browne visited Tangguh in November 2004, going on to meet President Yudhoyono and "other members of the national leadership" (Q4, 2004).

Preparatory activities ("Early Works Phase A Programme") were due to be completed in January 2005. These include the construction of a base camp for the LNG Plant contractor, KJP, at the plant site. Construction work already completed includes a 1,300 metre airstrip at the nearby town of Babo, enabling commercial flights to the area, and new piers also at Babo. KJP is the consortium of KBR (US), JGC Corporation (Japan) and PT Pertafenikki Engineering (Indonesian-Japanese joint venture) which won the bid for engineering, procurement and construction for the Tangguh LNG complex, worth around $1.4 billion.

KBR, formerly Kellogg Brown and Root, is the engineering arm of Halliburton, headed by US vice-president Dick Cheney from 1995 to 2000. As noted by Asia Times, Cheney is a key player in the Bush administration's successful push to resume funding for the US military training programme (IMET) with Indonesia. Congress had blocked funding for IMET over the killing of two Americans in 2002, in which Indonesian military involvement is widely suspected. (The Bush administration announced in February this year that Indonesia had satisfied conditions for resuming IMET, see Tapol Bulletin 178:14 and Asia Times 4/Dec/04 for more on this issue). Halliburton is also the company awarded major contracts in post-invasion Iraq - see eg www.corpwatch.org and www.warprofiteers.com for more details.

An Italian engineering firm, Saipem, controlled by oil company ENI, won the contract to build Tangguh's offshore installations (Reuters7/Mar/05).


FPIC and adat rights 

The principle of Free Prior and Informed Consent - whereby indigenous peoples have the right to make a decision to accept or reject a project on their land - was never applied at Tangguh. Instead, after the site location was identified, local communities were consulted on project benefits such as education, health and other development programmes.

While the company has offered replacement housing to the villagers who had to move to make way for the LNG site (Tanah Merah), this has been built on customary land belonging to other people and there remain tensions over long-term land ownership claims.

Part of the problem lies in the fact that the Indonesian government does not give adequate recognition to indigenous adat (customary) rights over lands and resources, so that the interests of big business are afforded a higher priority than local livelihoods.

The land for the LNG plant is classified by the Indonesian government as 'production forest'. According to BP, the land was relinquished to the government by communities in 1999, prior to BP's involvement in the project, and BP holds land use rights (HGU) which last 30-50 years. After that the land reverts to the government, which, according to BP, has promised to return it to the original adat owners (see DTE 57). Problems over land have been festering ever since the project began, because the original handover of land was involuntary and is disputed by the communities involved (see community statement above).

According to a 2005 report by the regional representative of mining advocacy network JATAM, BP reacted to the community's attempt to reclaim their land, by withholding payments to members of the Saengga village development committee. When the community demanded that BP resolve the conflict, the company replied that it is only a contractor to the government and does not have the capacity to take decisions related to these problems over land. However, on another occasion, BP offered to give Rp1 billion (US$100,000) in cash to the three land-owning clans, if this would be accepted as a final resolution to the matter. The communities refused the offer. (Brief Report Proyek Tangguh dan Isu Hak Asasi Manusia Teluk Bintuni, West Papua, Bustar Maitar JATAM, regional representatives for West Papua, 2005).

The Tangguh project has continued to ignore the customary rights of villagers on the north shore of Bintuni Bay who claim ownership of the gas. The LNG processing plant is to be built on the south shore of the bay, but parts of the gas fields lie under the northern shore. TIAP notes that "villagers on the north shore are jealous of the development of Tanah Merah, Saengga and Onar, which exemplifies to them a dramatic imbalance in benefits from BP. This jealousy and the confusion among north shore villagers regarding the rationale for this imbalance is not unjustified." The TIAP report said that it saw little evidence of additional steps being taken by BP to diminish the tensions (TIAP, p130).

TIAP notes that the root of the tension lies in the north shore villagers' belief that, based on adat rights, they own the gas. "While this claim has no legal validity under Indonesian law, it must be considered by BP."



The Tangguh LNG plant construction involves the relocation of the village of Tanah Merah. Construction of a new village started in February 2003 and the move took place in mid-2004. Of 127 families in Tanah Merah, 101 chose to move to the new settlement near Saengga village (3 km away from the old site), while 26 families opted to move near to Onar village (12 km from the old village). The new sites were officially opened on July 17th 2004 (Stakeholder Update Q3).

TIAP judges the resettling of villagers from the site selected for the LNG plant, when viewed in isolation, as a "resounding success". It reports that the living conditions of all Tanah Merah villagers have improved dramatically, with the building of new homes and facilities in Tanah Merah Baru and Onar. Renovations in Saengga village [the village which owns the land used for the new village] also represent major improvements, according to TIAP. The new homes include electricity, running water, cooking and toilet facilities, with every Tanah Merah family choosing the location of their new house.

TIAP raises the concern that the very success of the resettlement has exacerbated tensions elsewhere and is a "glaring illustration of unfairness to villagers in the north shore DAVs" [directly affected villages]. It also notes concerns expressed by a Jayapura NGO and some elected officials that the new homes are excessive and inappropriate.

It recommends that BP establish a separate fund for north shore communities and explore with local and provincial officials possibilities to support a housing assistance programme (TIAP, p22).

The 2004 human rights and security review summary warns that jealousy and resentment over housing and compensation, particularly among north shore villages, plus "frequent misunderstandings regarding hiring practices, benefits and other Project-related issues" could lead to serious security incidents.

TIAP also points out the danger that Tanah Merah villagers are becoming dependent on the benefits provided by BP for fuel for electricity generation and on food baskets, both of which are due to be phased out. "Villagers are concerned about the termination of these benefits". TIAP advises BP to abide by its scheduled phase-out to avoid over-dependency. It says BP should continue community programmes so that the new village can become self-sufficient. These include agricultural projects, access to fisheries, boat-building, training for post-harvest processing of marine produce, small business development and establishing a village management cooperative to take over the operation of village facilities and utilities (TIAP, p17).


In-migration and employment

TIAP mentions that the new homes and facilities in the resettlement villages are likely to attract in-migrants. It says that this has already begun in Onar village. Resettled villagers may be tempted to rent or sell their homes for cash. While migration and ownership must be left to the residents and their leaders, BP should carefully monitor developments "so as to be aware if any tensions arise." It points to a report by a separate Resettlement Panel which recommends an information campaign to discourage migration (p18).

BP responds by saying that it will be implementing an education and awareness campaign with the villages and local government officials this year to help alert community members to the potential impacts of inward migration.

The 2005 report by JATAM's regional representative mentions that the resettled villagers have themselves questioned how they will live once the food aid stops, since they don't have enough farm land to grow crops and they are not permitted to fish in the seas around the project. From discussions with villagers, it appeared likely that the new houses would not stay long in the hands of the families they were built for, but would be sold to outsiders. The report predicted that outsiders who were better equipped to take advantage of opportunities offered by the presence of the gas project would increasingly marginalise local people.

Around 150 people from outside the village (mostly from Sulawesi) had come to Saengga village to seek work with BP, when the report was researched. Many more have arrived since, as the construction phase nears, it says. These migrants secure work on the recommendation of the village head and village development committee and are therefore counted as local people by BP. These workers rent rooms in Saengga on an `emergency' basis at around Rp500,000 per month. Migrant workers pay the village head from Rp50,000 to Rp1 million (US$5-100) and give cigarettes to the development committee leader in return for the recommendations.

The report says that economic domination by outsiders is already happening around the project area and that BP's `diversified growth strategy' has failed to prevent it. The company's efforts to encourage economic growth in Sorong, Manokwari and Fak-Fak thereby diverting migrant labour away from Tangguh, look unlikely to succeed.

TIAP reports that more than 500 Papuans have now been employed by BP and its contractors, ranging from members of the Community Affairs Field Teams (CAFT), the security force (named as Shields Security Guard Force) and support for the Babo base camp and the Project site. It advises BP to ensure that the company's commitment to providing employment to at least one member of every family from each of the directly affected villages is fulfilled by its contractors and subcontractors and that all Papuan employees are treated fairly (p19).

BP says that it is training 28 Papuans at the Bontang LNG facility in East Kalimantan, which will enable them to become field operators at the Tangguh LNG plant. Over 100 Papuans have been trained to join the project's Integrated Community Based Security force - a number that BP expects to double in the near future.

There will be an estimated 3,500-5,000 workers at Tangguh during the 3-year construction phase, reducing after that to a few hundred.


Community development

TIAP's 2004 report says that BP's community development fund for the nine directly affected villages - $30,000 per year per village* - has provided tangible benefits in each village and has begun to provide social and economic development benefits for the Bintuni Bay area. Projects have so far included clean water reservoirs, health clinics, school furniture and books, a new jetty and renovation of religious facilities (p19).

Education, along with health and concerns about security, emerged as primary concerns of local people during BP's consultations with communities several years ago. Yet, as is evident from the latest TIAP report, there is much scope for concrete action. The report notes that there is "little visible benefit to education despite the fact that at every governmental level in Papua education was highlighted as a priority" (p20).

TIAP reports that in the new village of Tanah Merah, a new secondary school plus dormitory has been built but, at the time of the panel's visit, these remained empty and unused due to a lack of both teachers and students. TIAP put this down to a "failure to coordinate the construction and operation of the schools with officials in the Bintuni Regency" (p17). It suggests that BP consider funding scholarships for students in other directly affected villages as a means of spreading education benefits from Tangguh to all villages in the area (p18).

On the expenditure of community funds, TIAP emphasises the need for strict controls and transparent accounting, with both BP and villagers being entitled to full accounting.


TIAP ignores women

Indonesia's mining advocacy network, JATAM, and others have pointed out that women will be hurt most by the transformation of their environment, since it is they who do the crab fishing - a main source of protein as well as providing an income - and depend most directly on the mangroves of Bintuni Bay.

Nowhere in the TIAP report or the recent human rights review summary are the different impacts of the project on men and women examined. There is no indication, for example, whether local employment will take gender balance into account, or to what extent prominent women are in decision-making bodies at village, district or provincial levels.

TIAP's own failure to address issues of gender justice is evident from its recommendation that BP should work with the authorities "to encourage governmental support for local fishermen in the form of more advanced fishing boats and equipment…" (p30).

Where does this leave the fisherwomen and their specific fishing activities?


Local livelihoods and environment

As in previous years, the 2005 TIAP report expressed concern over the potential disruption of local fishing activities in Bintuni Bay, once construction of the LNG plant begins. It quotes a report by researchers at the University of Papua at Manokwari (UNIPA) which finds that shrimp stocks may be declining as a result of overfishing by large non-Papuan trawlers (modern trawlers account for an estimated 95% of the shrimp catch), and erosion and sedimentation from forest concessions. TIAP recommends again that BP continue to work with the local authorities and the minister for fisheries to develop a fisheries management plan to prevent overfishing by large trawlers (p30).

TIAP states in its report that the environmental NGOs it met commended BP's work with USAID's Global Development Alliance and its support for the publication of an environmental atlas for the region. It notes, however, that the more direct environmental impacts resulting from the construction and production phases of the project will soon have to be dealt with. BP should monitor and control all effluent and other discharges both onshore and offshore, and share these with the appropriate authorities, says TIAP, to avoid the 'difficulties' being faced by the US company, Newmont (see separate item), (TIAP p33).

The Bintuni Bay Nature Reserve, 80 km east of Tangguh, if successfully preserved with BP's support, will, according to TIAP, "provide a recognizable ecological accomplishment that will always be associated with the Tangguh Project."

TIAP advises BP to be prepared to communicate accurately in the event of any accident or other adverse incident (p34).

BP says it is working with the USAID-funded Coastal Resource Management Partnership (COREMAP) project, UNIPA, The Nature Conservancy, Bogor Agricultural University, forest ministry and government officials, plus "various conservation organisations and civil society groups" on a Bintuni Mangrove Management Plan to "develop this globally significant area while incorporating community needs" (p12).


Gas reserves

Tangguh holds 14.4 trillion cubic feet of proven and certified gas reserves, according to BP. Probable and possible reserves bring the total to 24-25 tcf.


Shareholdings and financing

Tangguh's shareholdings are as follows (as of May 2004): BP - 37.16%; MI Berau BV (held by Mitsubishi Corporation and INPEX Corporation) - 16.30%; CNOOC Ltd - 16.96%; Nippon Oil Exploration Berau - 12.23%; KG Companies (held by Japan National Oil Corporation, Kanematsu Corporation and Overseas Petroleum Corporation) - 10.0%; and LNG Japan Corporation (held by Nissho Iwai Corporation and Sumitomo Corporation) - 7.35% (www.hydrocarbons-technology.com/projects/tangguh/).

Recent estimates put the costs of the Tangguh project at US$5 billion - 5.5 billion, of which BP and partners will cover $2 billion - including funding for the early stages of construction. The other $3 billion - 3.5 billion is expected to be in the form of loans. In October 2004, theJakarta Post reported that the project partners were completing the loan agreement with foreign banks including the Japan Bank of International Cooperation (JBIC) (JP 30/Oct/04). Dutch Bank ABN AMRO might be hired to underwrite the loans from Japanese and Chinese banks, he said. A director of ABN AMRO in Asia confirmed the bank's interest (Reuters 26/Jan/05).


LNG sales

Tangguh is expected to produce between 7 million and 8 million tonnes of liquefied natural gas (LNG) per year in the first phase of production - enough to supply around 6% of current world demand. It now has 4 major sales agreements to supply a total of 7.6 million tonnes. The last of these was signed in October 2004 with US power company, Sempra Energy LNG Corp, for a 20-year supply of LNG to markets in the US and Mexico. The agreement is for 3.7 million tonnes of gas per year from Tangguh for 15 years, beginning in 2007, to the planned Energia Costa Azul LNG re-gasification terminal in Baja California, Mexico. (Stakeholder Update Q4, Reuters 27/Jan/05).

The other companies are South Korea's K-Power Co; South Korea's steelmaker Posco and China's Fujian province. (Asia Times 4/Dec/04 and DTE 60).

Since some of the supply contracts start in 2005-2007, the Tangguh partners will have to source LNG shipments from other gas suppliers until Tangguh comes onstream.

Previously, a Philippines supply contract was under discussion. More recently, the possibility of sales to Chile has been mentioned by Indonesia's mining minister, Purnomo Yusgiantoro. According to this report, Jakarta has asked BP to build a third LNG production unit to boost meet growing demand for LNG (Asia Pulse/Antara 30/Nov/04).


Revenues for Papua

In its 2002 environmental impact study, BP predicted that revenue flows to Papua should increase after 2012 and, based on two gas production units (trains) under Special Autonomy, "could reach around $100 US million per annum by 2016...potentially remaining at that level for many years". The delay in revenues flowing to Papua is due to Tangguh's financing arrangements which prioritise repayments to investors.

The estimated share for the Indonesian government from production-sharing and tax revenues is US$12 billion for the expected production from 18 tcf of gas reserves (ANDAL 5-175).

Indonesia will get the lion's share of these revenues. According to research for the Ethical Corporation in 2004, over the next 30 years, it is expected that the central government could earn more than US$8.7 billion from Tangguh, while the Papuan government could receive US$3.6 billion will go to Papua (draft report, 2004).

In its second report (2003), TIAP warned that the splitting up of Papua province could increase "political instability, inevitably affecting the Tangguh project." This year's report, drafted after the two-way split of Papua had been carried out, warns that since income from Freeport will, in the near future, flow only to the remaining part of Papua province, West Irian Jaya may be left without many of the economic benefits of Special Autonomy until significant revenues from Tangguh start to flow into the province. This will not be for at least 10 years (ie 2015 - later than predicted in the AMDAL) (p13).

Once Tangguh revenues do start flowing in, however, West Irian Jaya will receive more funds than the total annual budget of pre-divided Papua. TIAP regards this revenue "spike" - a massive and sudden increase in funds - as something that must be avoided. TIAP recommends (again) that a mechanism be found to bring forward the flow of revenues from Tangguh. The report mentions that the planning minister is particularly interested in this and that multinational lenders, such as the World Bank, could implement a revenue-smoothing mechanism. BP should play a 'catalytic', facilitating role, says TIAP, in explaining the financial impact of the imbalance to key government ministries and encouraging their focus on such a mechanism (p27). In 2003, the World Bank was reported to have expressed an interest in this idea - news which raised questions about its suitability to play such a role and the long term political impacts for West Papua (see DTE 57).


On income from Tangguh....

"...who is Papua? There is no legitimate government of the Papuan people through which it could be channelled. The "central, provincial and local governments" to which BP will be giving the money all answer to Jakarta..."

(George Monbiot, Guardian, 3/May/05)