Tangguh LNG Project
 
Tangguh LNG Project- Papua- Indonesia

Project Highlights
WALHI, JATAM and KAU Joint Letterz
Environmental Defense Letter to US Executive Director

Project Highlights

The project is located in Papua, Indonesia. This is the first private sector project in the Oil and Gas sector in Indonesia. The ADB will provide USD million 350 private sector Loan for building Liquefied Natural Gas facility to export LNG to PRC, Korea and the West Coast of North America. The LNG facility will initially consist two"trains" ( equipment units that purify and liquefy gas) with name-plate capacity of 7.6 million tons per annum of LNG.

Project Sponsors
BP Berau Ltd., BP Wiriagar Ltd., BP Muturi Ltd.
CNOOC Muturi Ltd., CNOOC Wiriagar Overseas Ltd.
MI Berau B.V.
Nippon Oil Exploration( Burau), Ltd.
KG Berau Petroleum Ltd./KG Wiriagar Petroleum, Ltd.
Indonesia Natural Gas Resources Muturi, Inc.

Environment Category:

Public Concerns
Civil Society organisation in Indonesia raised many environmental and social concerns with regard to this project. The letter sent to the ADB Board given below shows their concerns in detail.
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WALHI, JATAM and KAU Joint Letter

Re: Expression of opposition to ADB loan for the BP Tangguh Project due for consideration at ADB Board meeting 14 December 2005.

From: WALHI (Indonesian Forum for Environment), KAU (Indonesian Anti-Debt Coalition), JATAM (Indonesian Mining Advocacy Network). Contact person: Torry Kuswardono, Campaigner Mining and Energy WALHI (0811-383270)

To:
Board of Directors, Asian Development Bank
6 ADB Avenue, Mandaluyong City 1550 Philippines;
By fax to + 632 636 244

Dear Board Members,

The Indonesian Forum for Environment (WALHI), Indonesia's largest and oldest environment organisation comprised of around 420 community-based] member organisations throughout the country, is joined by KAU (Indonesian Anti-Debt Coalition) and JATAM (Indonesian Mining Advocacy Network) in strongly opposing the proposal before the ADB Board to loan USD $350 million to the (BP) Tangguh gas project in Papua Province, Indonesia. We draw your attention to the following problems associated with the Tangguh project, and with the ADB's decision-making process:

Free and Prior informed consent and public opposition:
• The Tangguh project is being developed without adhering to the principle of Free, Prior and Informed Consent for the indigenous customary landowners;

• The project is opposed by some affected villagers, and is causing serious social tensions within and between landowning communities.

• A letter of condemnation of the Tangguh project has been signed by over 300 individuals and NGOs from Papua Province, elsewhere in Indonesia, and other nations.

Compensation:
• The indigenous landowners of Tanah Merah are unsatisfied with the IDR 15/m2 (USD $0.0015/m2) compensation they received in 1999 for the compulsory acquisition of their land for the Tangguh project. This has lead to serious disquiet and efforts are underway by disenfranchised landowners to recover their land and/or sue the Tangguh project.

Promises of jobs and development:
• Community development promises made regarding electrification of villages, jobs and housing made by BP Tangguh cannot be fulfilled in all cases, leading to tension between recipients and those who have missed out.

• The export-oriented Tangguh project is aimed at serving the needs of international gas consumers, rather than ensuring the energy needs of Papua Province and Indonesia generally can be sustainably met today and for future generations.

• As far as WALHI has been able to ascertain, certain royalties and/or taxes will not be paid to the government by the Tangguh project consortium until their capital costs are recovered, which would be very unjust and unhelpful outcome for Indonesian development.

Environment:
• The process of environmental impact assessment for the Tangguh project was seriously flawed, without meaningful consultation of affected communities, and was a "rubber stamp" process since the national government granted the Tangguh license before the EIS process was even completed.

• Significant impacts are inevitable to the sensitive mangrove environment and waters of Bintuni Bay which perform an important role as nursery habitat for regional fish populations, not to mention forming the basis of local traditional sustainable livelihoods.

• The Tangguh gas project is inherently unsustainable, being based on a finite fossil fuel reserve, and will add to the level of CO2 emissions and contribute to the problems of global warming.

• By supporting the Tangguh fossil fuel project, the ADB is misdirecting funds which could be better used to support Indonesia's transition to renewable energy, which due to budgetary constraints is only planned to account for 2% of national energy supply in the 2005-2025 Indonesian national energy blueprint. Support for renewable energy would create more jobs and benefits such as energy for the many Indonesian villages still living without electricity, rather than supporting the economies of foreign countries and the profits of foreign multinational corporations such as BP.

Security arrangements and human rights:
• BP's community-based security arrangements are untested and are no guarantee that the notoriously corrupt police and military forces will not engage in rent-seeking behavior by stirring up trouble to ensure their presence, and paid services, are required in the project area.

• The Tangguh project is being developed in Papua province where historical and recurring human rights abuses against local people by the military and Brimob paramilitary police are well-documented, especially against people who are opposed to foreign-owned resource extraction projects or the policies of the national government in Jakarta.

• The number of military personnel stationed in Papua province is already the highest in any province in Indonesia, and is being increased. A new headquarters is being established in the province for Kopassus special forces, which have been involved in serious and unresolved human rights abuses in East Timor and elsewhere. Experience shows that an increased military presence means conflict will escalate in the province where the Tangguh project is located.

Asian Development Bank decision-making process and Indonesian development interests:
• The ADB is ignoring the results of the investigation conducted by Dr. Emil Salim at the request of the World Bank, which identified numerous problems with oil and gas projects and concluded with a recommendation that the World Bank not provide further support to oil and gas projects. Dr Salim's findings that lending to oil and gas projects are not compatible with development goals are directly relevant to the loan under consideration by the ADB.

• The information available from the ADB on the proposed loan to the Tangguh project is limited to a summary of the EIS, and two paragraphs of information at http://www.adb.org/Documents/Profiles/PS/38919014.asp. No information is available in the national language, Indonesian. Crucial information to enable informed public participation in ADB decision-making is absent, with the following sections of information entirely empty: Rationale; Policy Dialogue; Environment Impact and Mitigation; Social Aspects and Remedies; Benefits and Beneficiaries; Beneficiary Participation in Formulation; Beneficiary Participation in Implementation; and contact details for all but one of the six project sponsors.

• We are concerned that he information available to the ADB may be incorrect and that the information available to the public appears to be seriously misleading regarding the nature and benefits of the project for the people of Papua Province and elsewhere in Indonesia. The paragraph on "Objectives and Scope" section erroneously states that: "The Project is critical for Indonesia in its energy development and export efforts"; "The Project is in accordance with the government policy of maintaining security of LNG supply"; and "ADB's participation will catalyze significant amount of long-term debt to support Indonesia's energy sector."

• These statements give the seriously erroneous impression that the Tangguh project as it stands at the moment will provide energy for Indonesia. As far as WALHI has been able to determine, all the "cleaner" natural gas resources extracted through the first two trains to be constructed in the Tangguh project will be exported.

• This is not in the interests of Indonesian development and public health at a time when Indonesia is experiencing a crisis in domestic fuel pricing and provision. Please be informed that the Indonesian government has been forced to allocate 150 billion rupiah to subsidize 10 million coal stoves and promote the use of health-endangering coal briquettes as a household indoor cooking fuel because ordinary Indonesians cannot gain access to healthier gas cooking option, because their resources will be exported to China, North America and others.

On the basis of the concerns above, we demand that the ADB postpone making a hasty decision on this project pending the provision of complete information to the Indonesian public, including information in the Indonesian language. In the meantime, we reiterate our opposition to any ADB loan for the Tangguh project.

Sincerely,

Chalid Muhammad,
National Director,
WALHI - Indonesian Forum for Environment

Kusfiardi,
Coordinator
KAU (Indonesian Anti-Debt Coalition)

Siti Maimunah
National Coordinator,
JATAM (Indonesian Mining Advocacy Network).

Contact persons:

Torry Kuswardono, Campaigner Mining and Energy WALHI (0811-383270) Siti Maimunah, koordinator Jaringan Advokasi Tambang (08129459623) Kusfiardi, koordinator Koalisi Anti Utang (0811837389)
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Environmental Defense Letter to US Executive Director
In support of concerns raised regarding support for the Tangguh LNG project by Walhi, Jatam and KAU

Paul W. Speltz
United States Executive Director
Asian Development Bank

Dear Mr. Speltz,

I am writing regarding a potential $350 million Asian Development Bank loan for the proposed Tangguh Liquefied Natural Gas project in West Papua, Indonesia, sponsored by British Petroleum, China National Offshore Oil Corporation, Nippon Oil Exploration Ltd, Japan Oil, Gas, and Metals National Corporation, and LNG Japan Corporation. Environmental Defense supports substantial concerns currently being raised by affected community members and prominent Indonesian environmental organizations, including WALHI, JATAM, and KAU - most recently articulated in a letter of December 13, 2005 (enclosed).

According to the ADB's November 2005 "Report and Recommendation of the President to the Board of Directors on a Proposed Loan for the Tangguh Liquefied Natural Gas Project in the Republic of Indonesia", an early November 2005 ADB appraisal mission concluded that "satisfactory" progress had been made regarding resettlement implementation, community access to "replacement forest and coastal resources" and "relations between clans following resources allocation." According to the Board report, however:

"The host communities will experience some intensification of use of their coastal resources as a result of the need to share with resettler households. All villagers will experience some loss of access to fishing area as a result of restrictions around the LNG plant, subsea pipelines, and offshore platforms."

The Board Report claims that these losses, likely to inflame existing tensions, will be offset by an endowment trust of up to US$2 million for affected peoples. The joint letter circulated on December 13, 2005 by the Indonesian Environmental Forum (WALHI), JATAM, and KAU, however, documents numerous current and significant problems at the project site regarding compensation (i.e indigenous landowners unsatisfied with compensation of IDR 15/sq.meter (USD$0.0015/sq.meter), and potential environmental impacts to mangrove areas and fish nurseries which form the basis of traditional local sustainable livelihoods.

The November 2005 management report to the Board indicates that there were issues and concerns regarding resettlement "undertaken in accordance with a Tangguh Project Land Acquisition and Resettlement Plan (LARAP) which forms part of the Government approved AMDAL [EIA] for the Project. The AMDAL LARAP was prepared in accordance with the Government legislation and World Bank standards. Among other issues, national and international NGOs expressed some concerns about resettlement and compensation aspects of the Project during the AMDAL process. A 'due diligence' of those resettlement activities completed prior to ADB's involvement was undertaken. Some gaps were identified. Subsequently, with guidance from ADB, the Project has prepared a second LARAP referred to as the "Implementation LARAP". This addresses gaps identified during the 'due diligence' and provides additional livelihood restoration for affected people. The "implementation LARAP" is in accordance with ADB policy and operation requirements."

An English-language copy of the 350 page "Implementation LARAP" prepared by British Petroleum was apparently posted on the ADB's website in early November. We could not find a Bahasa Indonesia version of this document on the ADB's site as of December 12, 2005.

The LARAP identifies, on page 32, the following important risks to the local communities arising from the project:

High risk:
Landlessness
Homelessness
Lost Access to Common Property

Moderate Risk:
Food Insecurity
Increased Morbidity
Marginalization
Social Disarticulation

However, the Asian Development Bank President's report to the Board identifies the Project's "Main Risks and Safeguards" as follows:
1) LNG market risk
2) LNG price risk
3) Project completion risk (technical aspects only)
4) Operation Risk
5) LNG transportation risk
6) Foreign exchange exposure risk
7) Foreign exchange availability risk
8) Gas reserve risk
9) Guarantor risk

The ADB's core calculus of risk for this project and the focus for project evaluation do not appear to center on the impact on over 1000 people who are to be resettled for the project and 40,000 people in the surrounding district, despite substantial risks to lives and livelihoods of local communities documented by the project proponent. This is of significant concern, given that this project is being implemented in an area of Indonesia with high levels of military involvement, human rights abuses, and a history of massive corruption linked to central government activities.

Project proponents have proposed plans to address the risks to local communities. However, their effectiveness remains to be seen. It took a concerted campaign by community organizations and hundreds of civil society groups to draw attention to "gaps" in the initial resettlement plans drafted and implemented by the company. ADB's current documentation indicates that "internal review" of the project will be conducted by the company every six months and "external review" by consultants hired by the company, once a year. It is not clear that there is a plan for routine independent monitoring of social and environmental impacts by the ADB as part of the Bank's own due diligence and formal evaluation structure proposed for the project.

According to the President's report, ADB project performance and effectiveness will be measured by "how successfully the Project attracts private sector capital (both debt and equity); how the Project secures fixed construction costs and contracting arrangements for on-time construction, within budget and within specifications; and how the Project secures suitable operational arrangements to enable optimal production of LNG for export. The Project will also be measured by financial profitability and sustainability through timely debt repayment and investor returns." The body of the report indicates that the ADB measures of "development effectiveness" for this project appear to be the above-mentioned "project performance" measures, "economic sustainability" and "private sector development" measures.

One must turn to Appendix I to locate a chart indicating that one of the thirty one measures of development effectiveness, under the "economic sustainability" category is the "implementation of an Integrated Social Program (ISP)/indigenous peoples development framework (IPDF)." The thirty other measures of "development effectiveness" appear focused on financial and construction aspects of the project. The proposed five-year ISP budget is US$58.3 million, of which approximately US$35 million is for programs (the rest is for staff costs). PT. Tangguh expects to achieve average profits of close to US$1 billion per year for decades, potentially for up to 40 years.

Regarding pollution from the project, Appendix 9 (page 67) of the report to the Board indicates that the "discharge into the atmosphere of carbon dioxide and other pollutants (Sulfur Dioxide, Oxides of Nitrogen and particulates)" will contribute to local air pollution. "However, these environmental costs will be to some extent offset by any environmental benefits to be gained by replacing coal or oil with LNG." Given that the LNG is intended for export (i.e. the benefits of pollution reduction will occur elsewhere) and the fact that it is the impoverished local communities who will bear the impacts of the pollution generated by the project, this argument is hardly one that bodes well for the health of project-impacted peoples or for the ADB's "development mandate" requirements.

In conclusion, given the lack of attention to environmental and social impacts in the core risk assessment measures identified by ADB management for the Tangguh project and the potential substantial impacts on local communities and the environment, we urge you to respond to the concerns raised by Indonesian NGOs in their December 13, 2005 letter. WALHI, JATAM and KAU express objections to the proposed ADB loan, underscore the lack of Indonesian language materials from the ADB regarding the proposed loan, and request a postponement of a Board vote on the loan until full documentation has been provided in Bahasa
Indonesia to local communities and Indonesian civil society organizations.

Sincerely,

Stephanie Fried, Ph.D.
Senior Scientist
Environmental Defense
P.O. Box 520
Waimanalo, Hawaii 96795
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