OUTSIDE THE FENCE
EDITION FEBRUARY 2018
Many projects or industries experience significant delays or cost increases because of issues outside the direct area of management, e.g., outside the building, plant, site, or mine. Goldman Sachs (ref*) reported that in the oil and gas industry 73% of delays were for non-technical issues (political or stakeholder-related) whilst only 21% were for technical reasons. This perhaps reflects the expertise of companies in technical matters with a lesser focus on stakeholder issues. The statistics clearly demonstrate that delays can be significant for issues “Outside the Fence.” Remediation can be costly and time-consuming, especially if senior management doesn’t have expertise working with a wide range of stakeholders.
WEMCo analyzes issues Outside the Fence through proactive, participatory frameworks and methodologies that enable teams to identify and engage stakeholders. Our whole-systems approach challenges people to reframe deficit issues into positive opportunities. Together, we can design solutions involving communication, engagement, and strategy to help you avoid risks and remediate existing challenges.
This month we describe two issues Outside the Fence – a classic Mine-to-Port transportation issue, and an example of radical transparency generating newsprint in the entertainment industry.
From Mine to Port – Concentrates and Conflicts
Las Bambas, a copper mine of world-class importance, sits in one of the poorest highland areas of south-central Peru, populated by rural Quechua-speaking communities. Culturally, extremely low-trust communities, their suspicions are heightened when affected by decisions taken at a high-level in Lima, the far-away capital on the coast. The mine produces copper concentrates in huge quantities – over 400,000 tones of contained copper per year, which necessitates a gargantuan road/rail transport operation to a port 600 km away. Since 2015 when operations started, the road transport through rural highland communities has provoked social conflict.
At a public audience in 2010, the investing company informed local communities of the scope of the project and its potential impacts. In 2011, the Peruvian government approved the Environmental Impact Assessment (EIA) and the investor undertook commitments to construct the project at an estimated cost of 5 billion USD. The company planned to transport concentrates from Las Bambas to a sister mine 150 km away through a large-diameter mineral pipeline; this pipeline would pass through rural highland communities.
In 2014, the ownership of the mine changed hands and the affiliation with the sister mine ended. At its termination point, the mineral pipeline was already under scrutiny (and protest) by local communities who expressed concern about pollution – although, technically speaking, the sister mine apparently had more than adequate facilities to handle the concentrates before sending them onward by road and rail to the port. The company halted the mineral pipeline and adopted road transport – involving hundreds of trucks passing daily through communities not prepared for such an eventuality.
In 2013 and 2014, the government adopted changes to the EIA involving the construction of an additional plant at the mine site and transport by road as “technical addendums,” which did not involve a public audience. At this point, Peru struggled with the implementation of ILO 169 legislation (based on Free Prior Informed Consent). Some local communities rejected the EIA changes because they occurred with little public participation.
In September 2015, a protest initiated in the area around the mine and its transport routes culminating in a conflict between communities and the police that resulted in the deaths of three community members and injuries to several policemen. The road transport through communities and the perceived dangers of the additional plant to the local town’s water supply emerged as the core conflict. Both issues were viewed as “non-informed” to local communities, who regarded the decisions as disrespectful. In late 2016, protests flared again over transportation and the classification of the roads, leading to the death of a protestor. In February 2017, the Peruvian government declared a state of emergency in the area close to the mine and the transport routes effectively banning public assemblies. The state of emergency was renewed continuously throughout 2017.
In January 2018, the Peruvian press reported that the President of Peru proposed the construction of a 2.4 billion-dollar railway to alleviate the region’s transport issues. Financed by a “public-private partnership,” this would be a huge engineering undertaking with a construction period of several years and not a quick solution to the 400 or so trucks currently passing daily through rural communities.
This classic mine transport issue is highly complex but involves some simple concepts:
1. The communities are not anti-mining. They feel disenfranchised by the lack of respect for agreements that date back to 2004 and the failure to respect subsequent promises made by authorities. In the context of low-trust environments we recommend that agreements and promises are kept to those issues that are achievable by the company and demonstrable to the interested stakeholders.
2. Modifications to the scope of the project were not informed to the stakeholders. As well as negative impacts of the modifications (perceived or real), the communities are energized to protest by the apparent lack of consultation. We recommend that wherever possible an open communication is maintained to avoid the perception of non-informed changes.
3. There is no plan. From mineral pipeline, to road transport, to a proposed railway – the lack of a sustainable plan and reactive nature of the various authorities underpins the potential for conflict linked to changes in the operation. We recommend that sustainable plans are developed early with little modification wherever possible.
*190 Projects to Change the World, 2008. Goldman Sachs
Radical Transparency – Everyone Will Know Everything (whether you like it or not)
Taking a large jump from the Andes of Peru, we land in Anaheim, the center of Disney’s operations in California with two large Disney theme parks and a host of associated investment crucial to the economic activities of the town and its people. As reported widely in the American press in November 2017, Disney Corporation ended the privileges of Los Angeles Times´ film critics to view advanced film screenings. Apparently, articles the L.A. Times had published on Disney’s activities in Anaheim prompted the prohibition. The ban on the L.A. Times sparked a solidarity-focused boycott of Disney coverage by several other news organizations. Disney reversed its decision stating, “We’ve had productive discussions with the newly installed leadership at the Los Angeles Times regarding our specific concerns and as a result we’ve agreed to restore access to advance screenings for their film critics.” This generated a large amount of press coverage, all of it very much Outside the Fence for Disney.
We recommend that businesses prepare for and accept radical transparency – it plays a key role in the modern world and can damage reputational value even if the origin of a story is questionable. Avoid potential damage (tidy up your operation, implement good practices, embed Sustainability), make a clear response plan, and be prepared to promote ALL aspects of your business. Even better, communicate well and tell your story before somebody else does. At WEMCo, we incorporate radical transparency into our Sustainability consulting services and offer proactive advice aimed to create value.
What's On Our Minds
Sustainable Development challenges us to take a broad, holistic view of the world of business. It’s a license to be curious. It inspires a willingness to take risks and simultaneously offers new opportunities to mitigate risks. In these posts, we curate a wide array of relevant articles, thoughts, and ideas.
When Everything Matters takes an interdisciplinary approach to business. Working with great people ratchets up excitement. We like the power of new ideas and co-creating them with our clients. We hope these posts ignite your curiosity.
The World Economic Forum on Latin America took place in Buenos Aires, Argentina April 5 – 7. The WEF ran a live blog covering the events, which ranged from Latin America’s energy transition to practical solutions for poverty reduction. The blog served up four trends that will shape Latin America’s Economies in 2017: U.S. Interest rate hikes, Regional integration, Corruption scandals, Innovation to adapt.
Between the identification of economic trends and the implementation of new developments, however, comes a vital, fragile, and sometimes unchartered step, the implementation process.
How, we wondered, might these trends bode well for the mining industry, which drives economic growth in many Latin American countries? Might new business models, ways of communicating, of generating power, and of increased connectivity enable mining companies to move minerals to market, faster, while reducing poverty and plugging local jurisdictions into the low-carbon economy?
Or, does hyper-connectivity mean more social-and-environmental risk?
We believe what WEF called the Fourth Industrial Revolution—disruptive new technologies—can, and should, be leveraged to design unconventional, productive, even irreplaceable relationships among corporations, communities, and governments.
Based on the WEF Latin America Forum, companies, especially those in extractive industries, that shift from scrambling for the elusive “social License to operate” to scaling up a genuine journey toward stakeholder balance will thrive in Latin America’s emerging markets.
WEF Argentina, it seems, points businesses toward practices that create shared visions, flourishing ecosystems, competitive enterprises, and thriving countries.
And while you can find scores of different (and contrasting) methods to help you minimize environmental impacts or speed up construction, when it comes to strengthening stakeholder relations, there’s one clear trail map: Design a Shared Vision. You can get that job done without corruption, setbacks, or scandals.
Wayne E. Mayer, Ph.D.