The business case for informed consent

In the see-saw of policies related to the Special Economic Zones (SEZ) one recent announcement has been worthy of attention. The central Ministry of Commerce told the Maharashtra Government that land acquisition for SEZs would not be considered as complete until farmers took back their objections or gave their consent. This is one of the rare occasions in the country when the consent of the people affected by large projects has been made mandatory, albeit in a half-hearted way, for the project to move ahead.

Internationally however, obtaining consent of project affected people is being increasingly recognised as an important obligation of project sponsors. In the case of indigenous or tribal communities, the right to give, or withhold, Free, Prior and Informed Consent (FPIC) to projects that affect them is widely recognised as a fundamental human right, enshrined in several international covenants, national laws and good practice guidelines.

Background

FPIC derives its legitimacy from the justice argument - that people have the right to a say in matters that will affect them. It is ironic that in most large-scale, high impact projects like big dams, mines, power plants etc., all the other players - banks, financiers, project sponsors, corporations, governments, contractors - have the right to give or withhold consent, the choice to participate or not. Moreover, they can negotiate the terms for this consent. But those affected the most - people who lose homes, lands and livelihoods, people who suffer from health disorders and ailments from the ensuing pollution - have little or no say in the matter. To allow these communities the right to have a say in what happens to them forms the ethical and legal justification for FPIC.

There is also a 'business' argument for FPIC. Many commentators have reasoned that it makes eminent business sense for promoters of large projects to seek FPIC. Lack of community consent can lead to resistance and conflict, delaying and even stalling projects with heavy financial impacts.

A recent publication from the World Resources Institute (WRI) seeks to buttress this argument through four case studies that show what happens when community consent is actively sought, and what can happen when it is not. As FPIC clearly tilts the balance of power a little more towards the affected people, there has been strong resistance by project proponents to seek consent. They assume that FPIC can only impact them adversely. Against this background, Development Without Conflict: The Business Case for Community Consent comes as a useful reminder that FPIC also brings benefits for project sponsors.

The report is divided into four sections. The first section provides the background by describing the origins and evolution of the concept of FPIC. The second section discusses the 'business case' for FPIC, showing potential risks to projects that do not have community consent, and the benefits to those that do. The third section forms the substance of the report; it presents the four case studies - three examples of how business can suffer serious financial and reputational losses if it does not seek and obtain community consent, and one 'positive' example of how the corporation benefited from obtaining such consent. The fourth section lays out conclusions and recommendations and presents six principles that can assist in the FPIC process.

The first section succinctly describes how the FPIC, and its legal and normative framework has evolved, initially gaining acceptance as the right of the indigenous communities in recognition of their special circumstances, their special relationship with their land, water and natural resources, and their right to relative self determination. It goes on to show that there is a growing acceptance of the right of consent in the case of the non-indigenous populations also.

This section makes the very important point that consent is significantly different from consultation. This is important as the latter is the universally favoured method used by Governments, international financial agencies and private corporations to show that they have involved the local people. However, as the WRI Report makes a point to emphasise "Consultations do not involve sharing or transferring decision making authority to those who will be directly affected ... and are rarely an empowering form of public engagement." (Pg. 7) Hence, consultations often leave the community concerns unaddressed. It also emphasises that FPIC can also mean free and informed denial of consent.

Gold turns to dust

The three negative cases are the Esquel Gold mine in Argentina, the Samut Prakarn Wastewater Management Project in Thailand and the Minera Yanacocha gold mine in Peru. These three cases are classic examples of corporate arrogance, stream rolling of projects, public relations replacing genuine engagement with the community and tokenism in the name of public involvement.

The Esquel project is owned by Meridian Gold, a US-based gold producer who obtained the mining rights in July 2002. As per the report, "Meridian hoped to develop an open-pit gold mine 700 metres above and 7 kilometres east of the [nearby] town. From the earliest stages of project development, the company did not share critical information about the potential benefits and risks of the project, or engage with the community to understand and address its concerns before they became points of contention." One of the key concerns of the community was the safety and health implications of the transport, use and destruction of cyanide used in the extraction process. Meridian got a representative of the cyanide manufacturer to allay these concerns. The people were not satisfied and started doing their own research and publicised their findings. As these key questions remained unanswered, the community came out formally against the mine and series of demonstrations were undertaken.

"Meridian reacted to the gathering opposition mainly by initiating a public relations campaign. The company organised a counter-demonstration in favour of the mine that was sparsely attended. It also retained a Buenos Aires public relations firm to implement a political strategy for winning a public referendum." All this backfired and the Mayor of Esquel was forced to call a referendum in February 2003, which voted overwhelmingly against the mine.

This has had huge financial costs for Meridian - US $379 million in value written off in balance sheet, $1.81 billion in reserves lost, $200 million in lost revenue and more.

The other two projects too have faced huge financial and other losses because of lack of consent of the local people. The Samut Prakarn Wastewater Management plant is 95 per cent complete but "it remains unclear whether the ... facility ... will be ever completed ... In net present value (NPV) terms, the people of Thailand have already lost more than US$ 1.27 billion in quantifiable economic benefits." The broader economic costs to the country are far more. At the Minera Yanacocha gold mine project, confrontation with the local communities resulted in the company having to publicly apologise, and it "formally requested that the Ministry revoke its permit" to explore the Quilish project - a critical element in the Yanacocha mines. This led to estimated losses of US$ 1.69 billion in lost earnings for the company and has threatened any further expansion of the company's mines in the area.

Better than usual

On the other hand, the positive case study of the Malampaya Deep Water Gas-to-Power Project in Philippines describes how the Shell Philippines Exploration (SPEX), a subsidiary of Royal/Dutch Shell, operator and part owner of the project sought community consent for the project. It says that based on the interaction with the community, Shell made significant changes to the project. The initial opposition was overcome, and the project could be completed ahead of schedule. Moreover, SPEX used its success with Malampaya to help convince the Philippine government that it was a suitable sponsor for a related project. Internationally, Shell used the Malampaya project as "tangible evidence that it can implement good practices with respect to community consent."

However, even the Shell case, as described in the report, fails to convince fully as a case of seeking FPIC. First of all, it does not indicate specifically that the consent of the community was sought or taken. Secondly, it appears that at least several of the community concerns were taken up by the company only after it began facing protests. Changes were made to the project, but it appears that the community was not a party to the decision making. The community expressed its concerns, and SPEX/Shell decided whether it would agree to something or not, while retaining the right of refusal or agreement. This is not what FPIC is about. Thus, Malampaya at best appears to be a better-than-usual process of consultation. Of course, this does not detract from the business case for FPIC. Rather, it reinforces it, by showing that even a better-than-usual consultation can yield useful benefits to the project.

Implications

The Shell case also highlights the need for legal provisions for FPIC. Discussing the motives behind Shell's interest in engaging the community, the report points out, "Shell began to develop Malampaya in the mid-1990s, at a time when its record of environmental and social stewardship was being sharply criticised and intensely scrutinised. Activists had been criticising Shell for its environmental and human rights record in the Delta region of Nigeria ..." In Philippines too, one of Shell's earlier projects, a gas terminal facility in Binan, Laguna Province, had faced intense opposition and had had to close down. Attempts to seek FPIC that derive, at least partly, from such motives will not be as effective as those that emerge from formal legal requirements emanating from a respect for people's fundamental rights.

The report is well written, and at 61 pages, is concise. To its credit, it does not sweep under the carpet the great difficulties and complex questions associated with implementation of the FPIC concept. Rather, it poses these issues upfront, and through the case studies, and the principles given at the end, tries to indicate how these problems might be handled.

The Indian economy, booming at a nine per cent growth rate, is driving the construction of hundreds of mines, power plants, dams, industrial complexes. These are leading to massive displacement, environmental disruptions, adverse health impacts and loss of livelihood for innumerable people all over the country. Opposition and conflicts are increasing as these issues go unaddressed.

In all these, there appears to be a fundamental conflict between the interests of the local communities and 'development' as it is unfolding. In the end, the question is how those bearing the brunt of development are going to be involved in the process - as victims, or as beneficiaries who have a say in their destiny. It is also likely that empowering communities through FPIC would lead to significant changes in the current forms of projects, avoiding large scale displacement, environmental disruptions and ensuring more equitable distribution of benefits. The ethical and justice arguments for FPIC become urgent and primary in this context. The WRI Report highlights that the business case for participatory decision-making is also fairly significant.