Markkula Center of Applied Ethics

UNOCAL in Burma

by Manuel Velasquez

Union Oil Company of California, or Unocal, was founded in 1890 to develop oil fields in California. By the 1990s, however, most oil fields in the United States were nearing depletion so the company began investing in energy projects outside the U.S.

One project that attracted the company was the "Yadana Field," a natural gas field that belonged to Burma and that lay off its coast beneath the Andaman Sea. Estimates indicated the Field had over 5 trillion cubic feet of natural gas, enough to continue in production for 30 years.

In 1992 Burma had signed a contract with Total S.A, a French company that gave Total the right to develop the field and build a pipeline to transport the gas to Thailand, whose government wanted to buy the gas. Total invited other companies to buy into the project as partners. The government of Burma stood to net an estimated $200 - $400 million a year for the life of the project. While Total and its partner companies would actually construct the project, Burma contracted to "assist by providing security protection and rights of way and easements as may be requested by" the companies.

Burma is a poor developing Southeast Asian country with a population of 42 million. Economically, Burma's per capita gross domestic product is approximately $200-$300, while inflation is above 20 percent. Burma suffers a high infant mortality rate (87 deaths per 1000 live births) and a low life expectancy (53 years for males and 56 for females). The natural gas project would provide significant benefits to the impoverished nation.

Unocal was attracted to Burma for several reasons. First, labor was cheap and relatively educated. Second, Burma was rich in natural gas resources. Third, Burma was an entry point into other international markets, particularly in and around Southeast Asia. Finally the political environment was extremely stable.

The only real problem the company saw with the project was that the government of Burma is a military dictatorship accused of violating the human rights of the Burmese people. In 1988, after crushing major countrywide pro-democracy demonstrations, Burma's military had seized power and made the State Law and Order Restoration Council (SLORC) head of the government. The SLORC, which was made up of 19 senior military officers, imposed martial law on the country.

The U.S. State Department, in its 1991 "Country Reports on Human Rights Practices" wrote that the SLORC maintained 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." In its 1995 "Country Reports on Human Rights Practices," the Department of State wrote: "The [Burmese] Government's unacceptable record on human rights changed little in 1994... The Burmese military forced hundreds of thousands 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."

Despite the risks, Unocal decided to invest in the project. The company felt that the benefits to itself and 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... 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."

In December 1992, Unocal paid $8.6 million to Total for a stake in the project. Eventually Unocal held a 28.26% stake in the project; Total a 31.24% stake; Thailand's PTT Exploration & Production Public Co. a 25.5% stake; and the Burmese government a 15 % stake. It was agreed that Total would be responsible for overall coordination of the project, and would extract the gas at the Yadana field. Unocal would construct the 256 mile pipeline that would carry the gas from Yadana to Thailand where it would be sold. 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, a minority ethnic group hostile to the Burmese government.

The period between 1993 and 1996 was devoted to 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 period human rights groups-including Human Rights Watch and Amnesty International- issued reports claiming that the Burmese army was using forced labor and brutalizing the Karen population to provide "security" for Unocal workers and equipment. Roads, buildings, and other structures, they claimed, were being built with forced labor recruited from local Karen groups by the Burmese military, and hundreds of Karen were forced to clear the way for the pipeline and to provide labor for the project. Greenpeace, Amnesty International, and Human Rights Watch met with Unocal executives in Los Angeles and discussed the forced labor and other violations of human rights that were taking place in the pipeline region.

Unocal hired a consultant in 1995 to investigate. The consultant reported: "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 pipeline 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."

Work on the project continued and commercial natural gas production in the Yadana project began in 2000. Unocal and the other companies had instituted programs to benefit the people along the pipeline corridor. Unocal claimed that it provided 7,551 paid jobs to Burmese workers during construction, and would continue to employ 587 Burmese. New medical programs reduced infant mortality along the pipeline region from 87 deaths per 1,000 live births, to 31 deaths per 1,000, and then to just 13 deaths per 1,000 by 2002. The company reported it built schools and roads and provided opportunities for small businesses along the corridor. These claims were corroborated by several independent groups who traveled to Burma.

By 2004, the project was delivering 500-600 million cubic feet of gas per day to Thailand, benefiting that nation's expanding economy and enabling Thailand to use clean burning natural gas to fuel its electrical plants instead of dirtier 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 spent about $10 million a year to operate it. 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.

In October 1996, 15 members of the Karen minority Burmese 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 a class action suit against Unocal in a U. S. federal court (Doe v. Unocal). The suit 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 benefited. 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 recognized 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. As 2004 drew to a close Doe v. Unocal remained unresolved.

Manuel Velasquez holds the Charles Dirksen Professorship in Business Ethics at Santa Clara University, where he is chair of the Management Department.

November 3, 2005