ENERGY AND RESOURCES GROUPUNIVERSITY OF CALIFORNIA-BERKELEY

Corporate Roles and Rewards inPromoting Sustainable Development:

Lessons Learned from Camisea

Peter H. MayProject Director

With:

Alan DabbsPatricia Fern�ndez-D�vilaVal�ria Gon�alves da VinhaNathan Zaidenweber

January 1999

Corporate Roles and Rewards in Promoting SustainableDevelopment: Lessons Learned from Camisea

TABLE OF CONTENTS

ACKNOWLEDGEMENTS _______________________________________________________ i

EXECUTIVE SUMMARY ______________________________________________________ iv

I. SOCIO-CULTURAL CONTEXT OF THE CAMISEA PROJECT ________________________2

II. LEGACY OF SHELL'S PRIOR EXPLORATION IN THE REGION_______________________4

III. FORCES FOR CHANGE IN CONCEPTION OF THE CAMISEA PROJECT_______________53.1 Early Management Commitments ____________________________________________8

IV. STAKEHOLDER CONSULTATION AND COMMUNITY LIAISON____________________104.1 Biodiversity Assessment and Monitoring_____________________________________134.2 Community Liaison Team Roles and Conflicts _________________________________154.3 Capacity-Building with Indigenous Federations________________________________174.4 Efforts to Form an Indigenous Commission ___________________________________194.5 Strengthening Professional Associations and MothersÕ Clubs ____________________20

V. FROM HEALTH TO SOCIAL CAPITAL AND SUSTAINABLE DEVELOPMENT _________20Box 1: State-Society Synergy Model toward Social Capital__________________________22Box 2: Social Capital and Sustainable Development: Pro-Natura's Role_________________235.1 Attracting Regional Government "Buy-In" and Commitment_______________________24

VI. TRANSITION TO ALLIANCE CONTROL, CONTRACTS AND FID___________________256.1 Arrival of the Construction Alliance_________________________________________256.2 Contracts as Instruments for Social Capital___________________________________266.3 Final Investment Decision and Close-Out_____________________________________28

VII. AVERTING "SHOW-STOPPERS" BY INCORPORATING SOCIAL CONCERNS IN PROJECT DESIGN AND EXECUTION ________________________________________29

7.1 The Choice between Roads and Helicopters _________________________________30Box 3: Cumulative Impacts ___________________________________________________317.2 Hovercraft Ð Demon or Domado? __________________________________________327.3 Public Health and the Path "Offshore" _______________________________________337.4 Incorporating Local Concerns into Operations ________________________________35

VIII. CULTURAL ASYMMETRY, SURPRISE AND SOCIAL CAPITAL __________________378.1 Lessons for Future Social Capital and Sustainable Development Efforts ____________398.2 Corporate and Community Roles and Rewards________________________________41

REFERENCES _______________________________________________________________42

ACKNOWLEDGEMENTS

This study would never have been undertaken or been driven by such pragmatism were it notfor Martin Christie's crucial role in its conception and allotment of funds from Shell International.We are also particularly indebted to Alan Hunt, Murray Jones, Miguel Ruiz-Larrea, Matthew

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Bateson, Ted Murray, Bruce Skinner and Victor Grande of Shell Prospecting and DevelopmentPeru (SPDP), and to Sachin Kapila of Environmental Resources Management (ERM). Through theirpenetrating insights and insistence on corporate learning, they helped us define a path to recountthe Camisea experience and build on its lessons.

We also appreciate the assistance of all staff of SPDP and the Bechtel-Cosapi-OdebrechtAlliance (BCO) in providing for our logistics needs while in Lima, the lower Urubamba and thehighlands of Cusco and Ayacucho during field research from March through June 1998. Similarthanks are due to the tireless staff of the Energy and Resources Group at the University ofCalifornia-Berkeley (UCB), particularly Donna Bridges, Lee Tajbakhsh and Sandra Dovali for theirhelp with the often daunting administrative complexities of this international endeavour.

Gratitude is also in order for the time and enthusiasm lent by all members of the CommunityLiaison teams at SPDP and BCO, and of nearly 100 respondents in project operations, fieldpersonnel, consultants and collaborators to our incessant questioning. Their frankness andgenuine interest in documenting the experience were a great motivation to our work. We alsoappreciate the frank and open responses to our queries obtained from a wide range of nationaland international stakeholders from business, government, non-governmental organisations andthe clergy, in particular those who conscientiously reviewed successive study drafts.

Finally, we acknowledge our immeasurable debt to the native peoples of the lower Urubamba,who received us with warmth and hospitality in their communities. They made a heroic effort todistinguish us from Shell, so we could appreciate their understanding of this enterprise in socialcapital and sustainable development.

Berkeley, CaliforniaJanuary 30, 1999

Camisea Case Study Team

Peter May, Visiting Scholar, UC-Berkeley 1

Alan Dabbs, Pro-Natura, Resident Advisorat SPDP/HSE (Lima)

Patricia Fern�ndez-D�vila, Consultant (Lima)

Val�ria Vinha, Visiting Scholar, UC-Berkeley 2

Nathan Zaidenweber, Pro-Natura

Advisory Group

Martin Christie, Shell International,External Affairs

Marilu Hastings, Houston AdvancedResearch Center

Richard Norgaard, Energy and

1 Research fellow, CNPqÐBrazil.2 Research fellow, CAPES, Bras�lia/Brazil.

Resources Group, UC-Berkeley

For further information, contact:www.pronatura.org and pmay@igc.org

EXECUTIVE SUMMARY

The prevailing corporate vision regarding energy resource development in the tropics hasemphasised immediate financial gain over long-term societal benefits. This view is changing ascorporations increasingly view their competitive advantage as being linked both to proactiverelations with host communities and to adequate protection of fragile ecosystems.

In the 1990s, Latin American governments began to divest publicly held assets and to substitutetheir former leadership with partnerships in energy development. But, due to inadequate financialresources, governments have rarely been able to provide complementary social services in theoften-inaccessible regions where energy resources lie. Consequently, companies have seen itnecessary to assume quasi-governmental roles.

Companies are frequently unsuccessful in providing social services in an efficient way. First,because this is not their core business and they have little expertise in social development.Second, such services may be perceived by shareholders as an unwarranted additionalexpense. Governments are then able to deflect blame for local problems to negligence by energycompanies. As a result, projects are subject to disruption, sabotage, delay and failure.

Their proximity to major energy development projects seriously imperils native peoples' previouslyharmonious coexistence with nature. Colonist influx and territorial disputes leave localcommunities more vulnerable to external domination and manipulation. A few individuals mayaggrandise power to reap benefits at others' expense, thus undermining traditions that favoursocial leveling and democratic decision-making. Due to neglect by both government and energycompanies, native communities remain powerless, dependent, exposed to environmental risksand poverty stricken. What was once "sustainable" may then become "unsustainable".

This case study documents Shell's attempts to do business differently in the Camisea gas field ofthe Peruvian Amazon. The study has three intertwined objectives:

1- Describe corporate-community relations in Camisea in light of concerns that have arisenfrom major energy projects in fragile environments of the developing world;

2- Assess the extent to which Shell's consultations and partnerships with community,government and non-governmental organisations (NGOs) were constructive to projectdesign and to prospects for sustainable regional development; and

3- Systematise the lessons learned from this experience that can guide related energydevelopments in the Amazon and other developing regions.

The study thus seeks to provide the business and NGO communities with details of innovationsand cautions from Camisea that may be applicable to future projects. It refers to events leadingup to a major private investment decision (which we now know was negative). Insofar as gooddesign may be indicative of prospects for good implementation, this assessment can suggest

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industry-wide best practices suitable for the planning phase in other projects of this nature.

The study highlights efforts to incorporate stakeholder concerns made by Shell's nationalsubsidiary, Shell Prospecting and Development Peru (SPDP), developer of the Camisea gasproject. SPDP undertook these efforts through a comprehensive program of consultation,participatory processes and the consequent translation of emerging issues into technical anddesign decisions. These procedures could well have been critical to resolution of at least threepotential "show-stoppers" that arose from local concerns during pre-project activities,threatening full field development. These included the choice between infield roads andhelicopter transport, the use of hovercraft and disobedience of the company's "Offshore" policy.Such concerns could have become prejudicial to establishment of essential contractual and goodneighbour relationships with local communities, viewed as necessary to give SPDP the "licenseto operate".

Consultations to surmount these concerns laid the groundwork for longer-term strategies toward"social capital" and sustainable development through partnerships with regional government andNGOs. These strategies aimed to strengthen local capacity to improve social welfare and toensure conservation and wise use of biodiversity. Such capacities and partnerships wouldserve local communities in good stead during and beyond the 40-year period in which SPDPexpected to operate its gas facility in the region. They remain valid even in the absence of a gasdevelopment project in Camisea.

1- Legacy of Shell's 1980s Exploration Campaign

The case study opens with a contextual and chronological presentation of the Camisea project.Located deep in the Peruvian Amazon rainforest, the lower Urubamba watershed is cut-off fromthe outside world, due to the abrupt escarpment of the Andes and to its often-impassabletorrential rivers. About 10,000 people inhabit the region. Of these, 90% belong to seven nativeculture groups, primarily the Machiguenga. The rest are colonists who migrated there from theneighboring highlands of Cusco.

Although geographically isolated, native peoples of the region had become progressivelyintegrated with the market economy, bringing demand for commercial goods and a consequentneed for cash income. However, physical barriers impeded both their access to markets and theprovision of public health care and education services. Omission in public services delivery hadbeen partly superseded by religious missions (principally the Catholic Church and protestantsects) which have a long history of catechism and social work in the region.

Shell first came to the lower Urubamba in the early 1980s during an exploration campaign. There,the company discovered rich "world class" gas and condensates deposits whose extractionwould be the focus of later investment. During exploration, Shell's operating company was, justlyor not, accused of having had a severe impact on local social conditions and of endangering thehealth of previously uncontacted native peoples. It was also perceived that the company'soperations had been disruptive to the region's fragile tropical environment. Such abuses were

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rampant in the entire Amazon basin where exploration for gas and oil was underway in thisperiod. Environmental and indigenous rights organisations both in Peru and in the industrialisedcountries mobilised in protest of these activities.

In 1994, Shell returned to Peru with the prospect of reviving the Camisea project. At this juncture,driven by unsatisfactory business results, the Shell Group had begun efforts to transform itsrelations with society at large. In 1995, serious public relations crises involving Shell subsidiariesin Nigeria and the North Sea had reinforced a commitment to change the company's approach tomajor resource development enterprise.

Although not envisaged as such, Camisea became a laboratory for a learning process at Shell.The project's timing would give the company an opportunity to put into practice its appreciation ofneed for change in a particularly fragile and controversial setting: uniquely rich biodiversity andremote native communities in Peruvian Amazonia (map).

Camisea Project location inthe lower Urubamba Basin

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2- Management Commitment: "Offshore," Highest Standards and No Roads

For Camisea, Shell had the good fortune to assemble a management team experienced withproblematic environments and committed to adopt "Highest Industry Standards". SPDP leadershipdetermined from the outset that the project would operate as an "Offshore". That is, its basecamp and operational personnel would be completely segregated from local communities. Theworkers, on departure for the field, would be required to present a "Health Passport" certifyingtheir inoculation against a host of diseases and ailments that could be devastating to the nativepopulation. No contact was permitted except by designated Community Liaison Officers (CLOs).Infractions of this ruling were punished with dismissal. These measures responded directly topreoccupations expressed by stakeholders regarding the socio-environmental legacy of Shell'sprior exploration campaign in the region.

Management also adopted a "No Roads" policy for the lower Urubamba watershed and adjacentgas and condensates export corridor. This policy overruled the construction of any roads thatcould facilitate access into the fragile region by colonists, loggers or other fortune hunters.Despite their isolation and need for sources of cash income, the native communities had beenadamant that the region not be made easily accessible to the outside world, to avoid competitionand conflict over scarce resources.

Later, in-field road construction was also prohibited. Instead, transport of equipment andmaterials to the wellsite was by river and helicopter. When natives expressed concern over useof hovercraft for river transport, consultations allowed SPDP to avoid a standoff that couldseriously delay the project. Better understanding of local concerns permitted adoption of modestdesign modifications to reduce noise, make scheduling changes, and take precautions with rivertraffic. Periodic village inspections and a competition to name the vessels were hoped to quellfears of the hovercraft Ð which natives viewed as a "demon".

3- From Compensation to Social Capital and Sustainable Development

The company arrived at each of the above important policy decisions through an ongoingprocess of consultation with local communities, which reported to SPDP's Health, Safety andEnvironment (HSE) unit rather than to project operations, as had been traditional in corporatestructure. The eight CLOs visited each of over 30 villages in the region on six consecutiveconsultation "rounds". At the meetings, they presented project design features using variousmedia and three-dimensional models, airing local problems for potential solution by the company.

The Community Liaison program consistently steered natives away from a purely compensatoryapproach, avoiding cash transactions in favour of community-wide investments that couldensure a wide distribution of benefits. These included such facilities as health posts, schoolsand scholarships. SPDP also made efforts to strengthen and legitimate existing localorganisations, such as Mother's Clubs, which were thereby empowered to receive funds andadminister local projects on behalf of local women and their households.

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Such efforts attest to SPDP's commitment to a policy of social capital and sustainabledevelopment. The company committed itself to this policy as an outgrowth of a mid-1996workshop in which the incoming core management team began to "design its own project" tomeet a long-term goal of net social benefit to the communities of the lower Urubamba. In thisundertaking, Shell contracted technical assistance of Pro-Natura Ð an international NGO foundedin Brazil that championed a corporate-community partnership model. Pro-Natura personnel stayedon to advise SPDP on means to internalise socio-environmental concerns within its operations inCamisea.

Pro-Natura emphasised the importance of assuring "buy-in" from government agencies and thenational NGO community to ensure advances toward social capital. The very concept of "socialcapital," used widely in development parlance, emphasizes the critical roles of collectiveorganisations and of the State in building local capacity toward assumption of ever more complexdevelopment tasks. SPDP's primary emphasis in its social programs in the lower Urubamba wastherefore to attract "buy-in" from existing institutions and service providors whose interests andcapabilities matched local needs.

National and international NGOs, besides their active participation in ongoing consultationregarding each phase of the project, began thereby to assume a more proactive role in theplanning of regional sustainable development. A Health Baseline Assessment at the outset of theproject focused attention on the gaping deficiencies in local health and social services,stimulating discussion of further opportunities for intervention. In collaboration with the regionaland central governments, SPDP lent its support toward preparation of a regional socio-economicdiagnosis and plan for sustainable development of the lower Urubamba watershed, securingfurther public and NGO commitment toward this cause.

Early on, SPDP engaged the Smithsonian Institution's Conservation Biology Institute, long active inthe neighboring Manu Reserve, to prepare a biodiversity assessment and monitoring plan. Theseactivities generated an exceptional knowledge base, adding further value and visibility to theproject. The biodiversity program not only provided important data to the project's adaptive EIAprocess but also had the virtue of serving as a practical training ground for young naturalscientists based at collaborating Peruvian institutions. It also motivated natives hired as guides torecuperate and prize their indigenous knowledge that had become endangered by the onslaughtof modern civilisation. Operational personnel housed with Smithsonian scientists at the projectbase camp became so enthused with the effort that they began to collect their own samples asa contribution to the assessment.

4- Transition to BCO Control and FID

The difficulties of transferring commitment toward social capital and sustainability along the linesadopted in the lower Urubamba became more evident when work began along the pipelinecorridor in the highlands. In part this distinction arose due to transition of control for theseaspects of project design and local agreements to a construction "Alliance," made up of a three-firm consortium (Bechtel-Cosapi-Odebrecht: BCO). The BCO Alliance was awarded the contract

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for the project after an international competition tendered by Shell in late 1997.

SPDP took pains to "mirror" its socio-environmental policies in the BCO Alliance organisationalstructure. This was done by placing Shell personnel in critical HSE posts and by fielding aseparate CLO team to the highlands, initiating consultations with the regional population there.However, SPDP's primary concern was that the Alliance commit its technical prowess to avoidserious physical environmental impacts and accidents. Community relations activities assumedby the Alliance emphasised the need to devise appropriate compensation agreements withproperty owners in the right-of-way and with their communities. This approach was seen byBCO as interchangeable with that of "net benefit". However, the efforts by SPDP in the lowerUrubamba region went well beyond the principle of compensation to embrace long-term socialdevelopment as well as environmental protection.

By the time of the Final Investment Decision in mid-1998, SPDP had adopted a wealth of socio-environmental safeguards, stakeholder consultation processes and modest local expenditurestoward community contracts, social capital and sustainable development. These effortsrepresented only around 2% of the announced project startup costs of $300 million, and werelikely to mirror that share during the predicted full field development investment of $3.5 billion. Yet,these marginal investments leveraged financial benefits quite out of proportion to their costs.These benefits to the company included the values of risk reduction (socio-environmental andcountry risk), goodwill, and cost avoidance in future phases.3

The value of adequate stakeholder consultation and participation was affirmed by statementsfrom native community and church leaders concerned that others who step into Camisea mightnot do as good a job.4

It is now incumbent on Shell and its partners to document and absorb this learning processwhich they authored, as a contribution to any future development that may affect the lowerUrubamba, and projects elsewhere.

5- Lessons from the Case Study for Future Developments

A number of central lessons were gleaned from the study for other efforts to build mutuallybeneficial corporate-community relationships in fragile environments. These are summarised,below:

· Companies first must build sensitivity through stakeholder consultation, thus permitting theirearly identification of socio-environmental issues at stake;

3 Pro-Natura has explicitly quantified these net benefits in the Camisea case (Dabbs and Bateson,1998). These preliminary results suggest that such benefits more than outweigh the costs involvedin assuming this new responsibility in project development.

4 Open letters to President Fujimori by Padre Ricardo Alvarez (of the Catholic Mission in Sepuahua)and the Presidents of the three Indigenous Federations of the lower Urubamba expressed concernwith Shell's departure and the region's future.

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· Management then must internalise these issues and reward staff advances in understanding

and learning with stakeholders; · A fair and transparent process will help to achieve long-term relations of trust during project

development and implementation; · Companies must make early commitments at the highest managerial level to rigorously uphold

socio-environmental policies throughout the enterprise; · The company should seek to ensure staff continuity, recognising how important are

individuals themselves as guardians of corporate memory and commitment; and · Throughout, the company must emphasise setting creative and modest targets rather than

unattainable or costly ones, thus enhancing credibility with stakeholders. Above all, the Camisea experience showed how important it is to provide a framework forcollaborative learning among civil society, government and private enterprise. With a complexcultural and environmental milieu, there were no "right answers" at the outset Ð lessons had tobe learned along the way. These lessons are broadly replicable and allow all players to buildtheir capacity to identify and contend with socio-environmental conflicts not only during designbut also throughout the process of implementation of major natural resource developmentprojects.

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Corporate Roles and Rewards in Promoting Sustainable Development:

Lessons Learned from Camisea

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I. SOCIO-CULTURAL CONTEXT OF THE CAMISEA PROJECT Native Amazonian peoples have long inhabited the lower Urubamba River valley, a tributary ofthe Amazon. Their communities underwent centuries of mercantilist exploitation that began withpre-Columbian commerce during the Inca Empire, followed by incursions of rubber traders in thelate 19th Century. Gold miners and, most recently, loggers and oil and gas extraction enterprisesthen descended upon the region. All brought with them significant socio-environmental change. Religious organisations reinforced early traders' roles in settling and educating natives. TheCatholic Church was the first to establish a lasting presence with a mission in the town ofSepahua. The Summer Institute of Linguistics (SIL) Ð a Protestant organisation that establishedmissions in the Peruvian Amazon in the 1950's Ð assembled communities attracted by Westernmedicine and technology into small groups to whom they taught the New Testament, stimulatingcash crop production, animal husbandry and cottage craft (Henrich, 1996:7). By the time that Shell Exploration and Production Peru-SEPP (Shell's initial Peruvian subsidiary)arrived in the area in the early 1980s, a market culture was hence already quite well entrenchedin many of the region's communities. The natives were avid for income to buy Western goods,and had engaged in efforts to expand and intensify commodity production so as to gain greatermarket access. The appeal of the market and the lure of monetary income defined new social ties,breaking kinship bonds formerly responsible for organisation of the subsistence economy, resource-sustaining practices and cooperative labour (Ibid: 4, 6). Although no precise figures exist for the current population of the lower Urubamba valley, it isestimated that between 9,000 and 11,000 natives reside in the region today (ComisionMultisectorial, 1988; Mora and Zarzar, 1997). They represent the Machiguenga, Piro (Yine),Ashaninka, Amahuaca, Yaminahua, Nahua and Kugapakori tribes, which belong to the Arawakand Pano linguistic groups. The majority, however, are Machiguenga. These communities represent a continuum in the scale of market integration and cultural change.5 Inconsequence, communities range from scattered subsistence households or extended family units ofthe more isolated groups to clusters of dwellings not necessarily inhabited by members of a commonfamily in the more settled, market-oriented villages. Shell Prospecting and Development Peru (SPDP) studies enumerated some 25 native communitiesin the lower Urubamba in the area of influence of the Camisea project. Most of this segment ofthe lower Urubamba lies within the Department of Cusco. The area of influence was defined asthe territory between the Pongo de Mainique (a dangerous and often impassable gorgeseparating the lower Urubamba from the upper Urubamba watershed and Cusco) and thedownstream town of Sepahua on the border of the Department of Ucayali. An additional 15native communities have been described down-river from Sepahua. Other native groups, some of which are nomadic, maintain sporadic contact, while others, whichhave rarely if ever been contacted, live in the headwaters of the Camisea, Timpia, and Mishaguarivers. The latter are very traditional and vulnerable to disruptive change. 5 For example, Machiguenga and Piro approach the market very differently. The latter believe thatcommercialisation is a channel to empower (or "position") their society. Markets are seen as a "pathto dominationÓ (Pe. Ricardo Alvarez, pers. comm.).

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Native communities are governed according to national law regarding indigenous societiesenacted in 1978. Community decisions are taken at a ÒCommunal Assembly," the highest level oflocal political authority, that includes all inhabitants and is democratic in nature. Each communityelects a president empowered to represent the Assembly to the outside world, but all decisionsare taken through communal consensus. At an aggregate level, three Indigenous Federations have been formed, whose combinedmembership includes virtually all communities of the lower Urubamba:6

· CECONAMA, created in 1980 to represent Machiguenga communities, evolved from anassociation of bilingual professors;

· COMARU, created in 1989 with the assistance of CEDIA, a national NGO long active in theregion, represents other Machiguenga communities; and

· FECONNAYY, representing Piro and Yaminahua communities, founded in 1977 withassistance from the SIL.

Besides indigenous peoples, some seven colonist settlements and about a dozen fundos (cattleranches) have installed themselves in the region, originating primarily from highland areas of theDepartment of Cusco. These groups have worldviews and objectives distinct from thoseexpressed by native peoples, but must adapt themselves to what for them is a harsh andunfamiliar environment. The colonist communities' level of organisation is quite precarious, above all because most holdno legal property rights to the land. In the scattered pockets of colonist occupation, someindividual properties are titled but many colonists do not own the land they occupy. This is inmarked contrast with the natives, who have obtained collective and inalienable community title,fruit of the long and arduous work of the NGOs active in the area on their behalf, particularlyCEDIA. The native groups are dispersed over the entire project area and represent about 90% of theoverall population of approximately 10,000 people. The seven native ethnic groups and coloniststhat inhabit the area, and their distinct cultural characteristics, lead to similarly differentiatedperceived needs. Health conditions are poor and child mortality high, although the latter is due inpart to cultural factors associated with resource competition and survival (Mora and Zarzar,1997). Public health and education services in the region, despite long-term presence of religiousmissions and, more recently, NGOs, remain equally inadequate. Both natives and colonists produce crops for subsistence (cassava, corn, beans and bananas)and cash income (coffee, cocoa, rice and achiote Ð a red food colorant) employing similar slash-and-burn techniques. They also raise cattle and poultry. Logging began in the 1960Õs andremains one of the most important economic activities in the region. Natives are often hired(although clandestinely) to search for valuable trees, and to provide game for logging camps. One of the most tangible bottlenecks to development in the region is that of the limitedopportunities for commerce. Trade is through barter transactions with regatones (itinerant

6 The role of the Indigenous Federations of the lower Urubamba in the Camisea project is describedbelow (see Capacity-building with Indigenous Federations).

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merchants). Eight such regatones dominate the regional market, nearly monopolising local trade.This leaves the communities nearly without options to channel their small surplus production tomarkets. Community members have little understanding of market dynamics, and for that reasonusually sell their produce at low prices. No storage or reasonably priced transport facilities areavailable. Market centers are distant and dangerous to reach. When Shell began its explorationactivities in the region, many hoped that this would mean an end to such difficulties, marking thebeginning of a new era of prosperity for the lower Urubamba.

II. LEGACY OF SHELL'S PRIOR EXPLORATION IN THE REGION The Camisea project marks its inception in the mid-1980s, when Shell (through its subsidiaryShell Exploration and Production Peru-SEPP) initiated seismic studies in the Ucayali basin, anddrilled six exploratory wells in concession Blocks 38 and 42 over an area of 20,000 km2. There,the company found the "world-class" gas field beneath the San Martin and Cashiriari wells, thatbecame the object of more detailed studies toward potential investment. This field was laterestimated to contain 11 trillion cu. ft. (tcf) of natural gas and up to 640 million barrels (mmbbls) ofgas condensates (SPDP, 1996). In the 1980Õs, Peru as yet possessed no legislation pertaining either to environmental assessmentfor hydrocarbon exploitation, or to compensation of affected communities and native peoples. Atthe time, SEPP simply signed a generic accord and initiated operations. During this earlyexploration campaign, natives reported a number of impacts, echoing experience in virtually allareas of the Amazon basin where gas and oil exploration was taking place at this time(Kimerling, 1990; Kane, 1995). These impacts included:

· Deforestation associated with road-building;

· Exposure to disease brought by loggers or workers;

· Prostitution, claims of rape and other abuses such as the fathering and abandonmentof babies;

· Trespassing or illegal contract to occupy communal lands;

· River pollution affecting fisheries; and

· Purchase of food at a price lower than that found in local markets 7

Exploration activity also stimulated a significant influx of people into the area seeking work,particularly during seismic operations and road construction. The only town in the region whichhoused settlers, Sepahua, served as the central SEPP base camp with an airstrip, helicopterhangar and warehouse. The company built other installations in the native villages of NuevoMundo (airstrip and base camp) and Camisea (base camp, rig stacking and road construction).

Outside these camps and staging areas, contact with local communities was uncontrolled.Furthermore, incidents of confrontation with uncontacted groups arose from aggression byIndians against incursions by loggers and seismic survey teams into indigenous territories. The

7 Sources: CIPA (1991); CONAP (1988).

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most notable example of such confrontation occurred in 1984, being reputed to have led to deathof a number of natives exposed to Western disease.8

During the 1980s, relations between NGOs, government and SEPP were adversarial. In 1988,leading Peruvian environmental and indigenist NGOs mounted a Multisectoral Commission toreview companies' performance during hydrocarbon exploration activities in the Amazon. TheCommission proposed specific guidelines for sectoral performance to the government.9 In thelower Urubamba, indigenous groups also mobilised, forming an Inter-Ethnic Council, that chargedSEPP with a series of violations along these lines. They demanded that any further explorationand development be accompanied by investment in a fund to support local community initiatives(CONAP, 1988). Shell, according to some accounts, was averse to dialogue at that time.

Due primarily to insufficient gas marketing prospects, the project did not obtain financing fordevelopment at this time. SEPP was dismantled in 1988, abruptly abandoning its exploration wellsand base camps in the lower Urubamba.

8 See Public Health and the Road "Offshore," below.

9 The Commission's report (Comision Multisectorial, 1988) was the fruit of nine meetings of NGOs

and others concerned with indigenous affairs.

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III. FORCES FOR CHANGE IN CONCEPTION OF THE CAMISEA PROJECT

In 1990, President Fujimori assumed power. Peru was in desperate need of foreign capital andtrade to stimulate development. The government considered that the nation's comparativeadvantage rested on its natural resources, particularly its hydrocarbon reserves, locatedprimarily in its Amazon basin (see map above).

By the end of 1990, Petroperu Ð the parastatal corporation responsible for development of gasand oil resources Ð had invited about 150 foreign firms to bid on concessions to the nation'sdeposits. Together with other concessions, the government of Peru had also put the Camiseagasfield out for international tender (Petroperu, 1988). In March 1994, Petroperu offered Shell anexclusive right to negotiate a contract for Camisea gas exploitation in Blocks 84A and B by late1995 (see map).

Weeks after taking office, Fujimori approved an Environmental Code, which prohibitedhydrocarbon prospecting and exploitation in protected areas. These included Manu National Parkand reserves for nomadic bands of Nahua and Kugapakori peoples, that lay close to the landswhere Shell's operations were to be reinitiated. National environmental groups sought to upholdthis code in a case involving another company (Brack, 1991; Durand, et al., 1991). However, thepolitical priority for revival of foreign investment was so high that this section (Article 71) of thecode was suppressed shortly thereafter by separate legislation aiming to promote privateinvestment.

Concurrent with the changes taking place within Peru in the early 1990s, Shell was undergoingits own internal transformation. In 1994, Shell initiated a broad transformation process in reactionto unsatisfactory business performance. Not only was the corporation reorganising its businessunits, but it also began to internalise concern for social impacts and to promote interaction withstakeholders in its operations. This stemmed from an intensive review of all aspects of theenterprise, going beyond internal organisation to include opinion surveys of changing societalexpectations of corporate behavior (Wade, 1995).

In 1995, soon after Shell launched these transformations, two incidents occurred that furtherindicated need for change. The controversial dismantling of the Shell-UK Brent Spar platform inthe North Sea (Financial Times, 1995), and accusations of Shell's complicity in the Nigeriangovernment's hanging of Ogoni human rights activist Ken Saro-Wiwa led to consumer boycottsand virulent public outcry against the company.

These human relations crises arose shortly after Shell had begun to review its societal relations,further catalysing internal support for such initiatives. Fortunately, they occurred when thecompany was casting about for ways to avoid exactly such crises, leading Shell officials toheed those who offered new approaches (May et al., 1998).

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In this context, Camisea presented an opportunity for key individuals in Shell to press for furtherinnovation. The project had ingredients that demanded a new approach: native communities andtropical Amazon rainforests with unique and fragile biodiversity. In late 1994 a Camisea IssuesTeam was organized at Shell International Exploration and Production in The Hague. Members ofthis team recognised that the project would imply a learning process for the company. Mistakeswere expected and success was never assumed on the social and environmental front. In fact,from early in the process, Shell personnel often expressed fear that, if poorly managed, Camiseacould follow the pattern of Brent Spar or Nigeria. It was also expected that this new approachwould meet with substantial misunderstanding and opposition within the company. Finding thebest people to challenge such opposition would be key to the strategy.

3.1 Early Management Commitments

Shell made a firm early commitment on the public record that Camisea be developed as an"Offshore," according to "Highest International Standards". This approach responded toparticular initial concern over Amazon devastation and indigenous groups expressed byinternational stakeholders. These commitments established that:

1) The exploration and development operation would be completely isolated from the indigenouscommunities, as if it were indeed "offshore" (see Public Health and the Road "Offshore");

2) Externalities usually associated with infrastructure development would be averted by a "No

Roads" approach (see The Choice Between Roads and Helicopters); and 3) Special attention would be given to use of technologies and approaches that would

ameliorate socio-environmental impacts or avoid them altogether.

The distinctions between this commitment and standard industry practice in gas and oilexploitation in fragile tropical regions yields important lessons from this case.

Sensitive to the environmental concerns associated with its past operations in the lowerUrubamba, Shell prepared a study assessing the "legacy" and perceptions that remained, andtheir implications for the reinstated gas field development (SPDP, 1996). According to this study,Shell's hasty departure from the lower Urubamba in 1988 had left physical damages that wouldrequire a significant investment to restore vegetation and remove abandoned structures. Moreimportant than the physical damages, however, was concern over the tenacious perceptions oflocal people and the international environmental community regarding Shell's lamentable priorperformance in the lower Urubamba.

Shell fielded a Visitation Team to the Camisea region in late October 1994 "to enhanceunderstanding of the environmental issues facing the Camisea project with detailed informationgathering" (internal memorandum, 1994). Notwithstanding the severity of previous impacts,however, this consultation now detected no significant opposition to the project either in theaffected areas or in Cusco.

Shell officials made efforts from the outset to define potential sources of problems and to avoidthem. In December 1994, the company engaged Environmental Resources Management (ERM),an environmental consultancy headquartered in London, to prepare an Environmental Profile(ERM, 1994). This profile comprised an initial appraisal of potential impacts that could ensue inthis sensitive area with the project as envisaged. In February 1995, Shell distributed the profile togovernment and NGOs in Peru and for international comment.

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In early 1995, the Peruvian government, hoping to stimulate economic growth in the Limametropolitan region and southern coastal Peru, changed its negotiating stance. Rather thansimply promoting further exploration, the government sought immediate and rapid development ofthe Camisea gas field's potential. This marked a watershed in the project that stepped-up thechronology of events. Perupetro and Shell jointly presented a Feasibility Study for the Camiseagas development project shortly thereafter (Perupetro, 1995).

Some time later, Shell sought to complement its prior exploration rights to Blocks 88A and 88Bwith access to reserves in the much larger surrounding Block 75, and in May 1996 was granteda license to develop the resources of the combined concessions through a partnership withMobil Oil Corp. The respective shares of the partners were 57.5% (Shell) and 42.5% (Mobil), fora project whose estimated cost was to reach $3.5 billion. The project, as envisaged in the finaldesign submitted in 1998 for stakeholder consultations and FID, would encompass three inter-linked enterprises: Camisea field facilities, gas and condensates export and coastal facilities fordistribution for domestic use and shipping to foreign ports (see figure, below).

To develop the Camisea gas project, the Shell/Mobil partnership founded a new corporation, ShellProspecting and Development Peru (SPDP), with headquarters in Lima. In October 1995, SPDPadopted a Consultation Strategy and Plan for Camisea as an integral part of Health, Safety andEnvironment (HSE) policy. This plan contained explicit guidelines to actively seek out, inform andhear individuals and groups who had an interest in or influence over each aspect of the Camiseaproject, from exploration through development and export (SPDP, 1995). A manager from theCamisea Issues Team with a strong prior EIA background was appointed to the position of HSEManager for Camisea. He began managing the consultation process from The Hague, a rolemaintained on arrival in Lima in early 1996.

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Camisea Project Design

IV. STAKEHOLDER CONSULTATION AND COMMUNITY LIAISON

In early 1996, the SPDP Operations Department began to plan an appraisal drilling campaign toprovide a better estimate of gas and condensates in the Camisea field. This would provide thebasis for the final investment decision (FID) that was initially scheduled for May 1998.

Peru's environmental code provided that an Environmental Impact Assessment (EIA) was neededto authorise such a campaign (the law requires an EIA for each stage of a given project). To gaintime for the drilling operation so as to avoid the impassable conditions of the lower Urubambaduring the rainy season, this initial EIA thus became a critical path issue. The Peruviangovernment exceptionally allowed Shell to proceed with the EIA in late 1995, prior to contractsigning the next year.

Overall, the EIA process adopted in Camisea went well beyond the specific requirements ofPeruvian legislation. SPDP treated the EIA requirement seriously, viewing it as an innovation onthe part of the Peruvian government that should lead to higher standards, thus raising the bar onnational environmental performance. In particular, public input to the process was extremelycomprehensive. SPDP treated the EIA process as a Òdesign tool," allowing not only stakeholders'involvement but also through this the capacity to modify aspects of the EIA and therefore theproject itself. For this reason, SPDP adopted an "adaptive EIA" process (Jones, 1998).Native community consultation regarding projects affecting their territories had become animperative recognised in 1993 by the Peruvian government through its ratification of a relevant

11

International Labour Organisation (ILO) convention.10 However, the criteria and procedures forsuch consultation were not yet defined, nor was the party responsibility for the undertaking,whether business or government. Success in the field would depend largely on the creativity ofthose people engaged to design and implement these new approaches.

Furthermore, although the pertinent Peruvian legislation requires a public hearing to review anEIA,11 these requirements have often been taken as a mere formality. Companies are required bylaw to notify the public of these hearings but, on many occasions, the public is neither wellinformed of the event nor given adequate access to the EIA documentation. Those directlyaffected Ð in this case, native communities Ð often are not informed at all.

In addition to rigorous compliance with Peruvian and international law, SPDP committed itself tolocal capacity building with indigenous communities and their federations, as well as regional andnational NGOs to enhance their input to project design and EIA preparation. Public input was thusobtained throughout the process and not only in a final public hearing.

Furthermore, efforts were made to guarantee continuity of the EIA team during the entire projectdesign phase, so that SPDP's learning process could be closely mirrored in the EIA. Finally, theEIA process was adapted to the unusually rapid pace of project design and construction thatwas anticipated to deliver gas to the Lima metropolitan region by 2001. This was done byadopting a "Key Issues" approach to public scrutiny on matters the EIA team and stakeholdersidentified as being of critical concern.

The consultation approach for Camisea sought to keep all potentially interested parties informed ofall project stages. This was done by opening permanent two-way communication channels and byengaging stakeholders in the decision-making process to take advantage of their collective expertise.Through collaborative efforts, it further sought to empower individuals and organisations to assumeincreasing autonomy on the path toward sustainable development.

SPDP involved stakeholders in Camisea through a variety of participatory instruments. Theseincluded the following aspects:

1. Identification and contact with all stakeholders (about 200 organisations) representingdifferent areas the project would affect (ERM, 1998:8);

2. Provision of thorough and continuous dissemination and exchange of information to allstakeholders, including 13 bilingual briefing papers containing summaries of technical reportsand project updates, and regular updates to SPDP's Camisea Website (www.camisea.com);

3. Participation in six successive rounds of consultations with over 30 native communities in thelower Urubamba, from the Pongo de Mainique to Atalaya;

10 ILO Convention No.169 established criteria to assure that native peoples have the right to beconsulted before implementation of any project involving the explotation of natural resourceswithin their territories. (see Mora and Zarzar, 1997; Ya�ez and Tobin, 1998).

11 Peru's Environmental and Natural Resources Code (Legislative Decree No. 613, adopted in1991), established rules for environment protection. The code requires that, in developingproductive activities, private and public actors submit an EIA to a competent authority, to be madeavailable to the general public. Ministry Resolution No. 335-96-EM/SE of July 1996 amplifiedparticipation criteria, requiring a public hearing and prior notification in a national newspapers foractions in the Energy and Mining sector.

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4. Organisation of a series of participatory workshops at different levels (regional, indigenousfederations, national and international) to further promote and facilitate dialogue, whoseresults were thoroughly documented and disseminated;12 and

5. Incorporation of stakeholdersÕ concerns and recommendations to enhance the projectdecision-making process.

SPDP undertook consultations through all phases of the project (design, operations, andcloseout). Initially, the process focused on consulting interested parties with regards to thecompany's appraisal and exploratory drilling campaigns. In 1997, SPDP expanded its consultationto focus on the full field development phase and, finally, on the export pipelines and coastalfacilities.

Stakeholders were divided into four categories or groups to facilitate management of theirrelations with the project.13 Consultations involved government agencies, national andinternational NGOs, scientific institutions, native community federation leaders and members ofthe native communities themselves. Consultation with primary stakeholders absorbed the bulk ofthese efforts, particularly native communities, their local associations, indigenous federationsand regional advisory organisations.14

Although SPDP took the stance of general transparency and access by all those who wished toparticipate, the consultation process in itself served as a Ònatural filterÓ for self-selection. Only arelatively small number of NGOs remained active throughout the process, due to competingdemands and in some cases, a political decision to avoid a connection with the project. The latterposition was taken by several international NGOs, which expressed doubt whether Shell, withits reputation for poor socio-environmental performance both in the lower Urubamba and in othernations, could be trusted to make substantial improvements. This decision, while hardlyconstructive to the overall consultation process, was respected by Shell. Other organisations,while wishing to be kept informed, did not want this to be viewed as tantamount to a formalconsultation or to agreement on all or part of the project. In some cases, participants whoadopted this position were part of a network. They expressed reluctance to adopt a positionwith which other members might later disagree.

12 Besides the six consultation rounds with local communities, SPDP held four workshops with thethree Indigenous Federations representing communities of the lower Urubamba, two nationalconsultation seminars in Lima, and regional consultations in both Ayacucho and Cusco. Twointernational consultation cycles in both London and Washington, D.C. were undertakenimmediately following national seminars on the project in Lima. At a later point in the project,SPDP expected that these consultations would allow identification of Òfocus groups" that woulddraw upon the technical expertise of participating NGOs to address specific concerns (e.g., how thecompany should interact with uncontacted indigenous groups).

13 Primary: individuals and groups considered to be directly affected by the project during theproject life. These included the local native communities and settlers; and Secondary: individuals and groups identified initially, and others that emerged through theprocess. These in turn were divided into three sub-categories:

(a) Critical Stakeholders: working in the project impact area that are indirectly affected by theproject, or for which the project is of significant interest (linked to primary stakeholders);

(b) High Awareness Stakeholders: with a high level of interest in the project and the power toinfluence matters that could affect the project; and

(c) Interested Stakeholders with interest in the project, but with no immediate or directinfluence (ERM, 1998).

(d) 14 See Capacity-Building with Indigenous Federations, and Efforts to Create an IndigenousCommission, below.

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Workshops generally culminated in a series of recommendations presented by each participantgroup. These recommendations then were incorporated by SPDP into further stakeholderconsultations and project design considerations. The hope was that this approach could avertmisunderstandings, setting the stage for proactive engagement by a range of sources ofcreative expertise and financing. These organisations and individuals would then collaborate inefforts to empower communities affected by the project, gradually reducing their dependence onthe company's support.

Strong participation by NGOs was considered crucial. Their role was perceived as important,initially, as providers of valuable technical and scientific expertise on the characteristics of theareas in which the project would operate. But national NGOs were found to hold further assets,due to their keen awareness of Peruvian social and environmental reality.

SPDP hence invited a number of NGOs to work in partnership with the company in activitiesrelated to local communities, biodiversity and monitoring of environmental features of the projectitself. The company directly contracted a network of national environmental organisations madeup of 38 NGOs, the Red Ambiental Peruana (RAP), a colloquium already in existence for 10years, to conduct an independent assessment and to monitor socio-environmental proceduresand impacts.

4.1 Biodiversity Assessment and Monitoring

As part of its commitment to transparency and highest standards, Shell sought to protect thebiodiversity of Camisea. After discussions with several national and international institutions,Shell came to an agreement with the Smithsonian InstitutionÕs Monitoring and Assessment ofBiodiversity Program (SI/MAB) to conduct a biodiversity assessment and long-term monitoringplan for the Lower Urubamba Region.

During its work with the project, SI/MAB obtained baseline information through the biologicalassessment of six taxonomic groups (vegetation, aquatic systems, invertebrates, amphibiansand reptiles, birds, and mammals). This enabled scientists to discern the distribution andabundance of species. Long-term monitoring of these characteristics would allow adetermination of possible changes that were caused by the industrial operation.

SI/MAB's findings were reported to all stakeholders and used by SPDP to make informeddecisions concerning their operation. These studies comprise one of the most comprehensivebiological assessments ever conducted of a lowland forest in such a remote and pristine area. Itcan thus serve as the basis for future environmental studies in the region and may become amodel for assessments in other areas of the tropics.

SI/MAB coordinated over 100 national and international experts in tropical biology whoparticipated in fieldwork assessments for the long-term monitoring program. They establishedbiodiversity test plots at each of the four well sites and at two sites along the proposed pipelineroute in the Vilcabamba Mountains near the Apurimac River. This work led to six reports and twoworkshops on this theme (see initial results in Smithsonian Institution, 1996; 1997)

Besides the significant scientific discoveries of the baseline survey, SI/MAB trained a largenumber of junior Peruvian biologists from several national institutions, as well as 25 nativeguides, in the use of scientific protocols for assessment and monitoring. Moreover, the presenceof the research teams in the operational camps allowed engineers and other project workers tobe continuously exposed to biodiversity issues. Their constant interactions promoted an

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understanding of the complexity of the local environment as well as the importance of preventingenvironmental impacts.

As part of the adaptive management process, SI/MAB provided crucial feedback in at least threeimportant operational decisions on key socio-environmental concerns. Its scientistsrecommended that the project design team locate the proposed gas plant in an area that hadalready been deforested, rather than a location nearer the well sites, which exhibited higherbiodiversity. In the debate on roads versus helicopters, SI/MAB made clear its firm support formaintenance of the ÒNo RoadsÓ policy. They also advised that the proposed pipeline be buried toa depth of one meter or more, this being the depth within which 99% of roots are found.Immediate revegetation would follow with native local species.

It was hoped that the biodiversity work might contribute to future regional development planning.Provision was therefore made to maintain Smithsonian work beyond FID to complete comprehensivebaseline data, returning to previous sampling plots.

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4.2 Community Liaison Team Roles and Conflicts

The core of the consultation process for full field development involved six "rounds" of meetingswith all communities in the lower Urubamba region. These were recognised as the primarystakeholders, who would be most affected by the project. To manage relations with localsociety, SPDP organised a Community Liaison Team, composed of a Leader and eight CommunityLiaison Officers (CLOs).

At the outset, consistent with experience in resource development projects elsewhere, it was thoughtthat this team should ideally be located within the Operations Department. This could allow feedbackboth to and from the design team regarding concerns affecting local communities. But, in a movethat differentiates Camisea from other cases, the CLO team was placed within HSE to ensurecoherence with the project's integrated socio-environmental strategy. This approach accentuated along-term focus over immediate reaction, with an emphasis on social and developmental concerns.

The CLOs acted as the principal interface between SPDP and the native communities of the lowerUrubamba, maintaining an ongoing dialogue with them. CLOs had the following explicitresponsibilities:

· To ensure that SPDP-HSE policies and guidelines relating to the native communities wereendorsed;

· To seek permission from the communities to enter their lands;

· To accompany any SPDP or sub-contractor personnel who needed to enter native territory orto communicate with the native communities themselves;

· To consult with the communities on an on-going basis about project developments related toCamisea field production facilities and provide feedback to SPDP regarding any communityconcerns, complaints or fears;

· To assist the EIA team during field surveys, and

· To organise deliveries of goods and services to communities either under short-termcompensation contracts or as a part of the social capital strategy.

Although the CLOs were responsible for these activities, the information they conveyed wasdefined in collaboration with project engineers. The CLOs then distilled this information into asimpler form for presentation to the communities. For this purpose, CLOs employed a range oftechniques to communicate the complexities of the project to native communities. These includedbriefing notes (based on the project briefing papers, but simplified and translated intoMachiguenga); posters and videos; hand-out packages containing pictures of various projectcomponents, construction methodology, and mitigation measures to be employed; and scalemodels of project components. A notable example of their success in this respect is found in acritical decision regarding use of hovercraft (see Hovercraft: Demon or Domado?, below). Nevertheless, in our assessment, the community consultation approach was far from free ofproblems. The Community Liaison staff faced serious misunderstandings within the companyregarding the role of consultation in general and of the CLOs in particular. Traditionally, industryoperations personnel conceived of consultation as simply a tool to explain a project tostakeholders, with the CLOs' role being to "clear the way". However, the actual goal ofconsultation was to generate meaningful stakeholder feedback so that the project couldeffectively integrate local considerations. Thus, a successful consultation was tantamount tosecuring and maintaining the local "License to Operate".

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The traditional approach aimed to discourage local criticism of a project rather than to seek outand address concerns before they emerged as "surprise" elements that could escalate into"show-stoppers" (see Cultural Asymmetry, Surprise and Social Capital, below). In this respect,SPDP perhaps could have silenced initial criticism of project elements (e.g., helicopter flight pathsover communities, hovercraft operations or violations of the offshore policy) by threateningcommunities with a reversal if they continued to complain. Since the communities were generallyin favour of the project, this traditional approach could have effectively quelled resistance for afew months or even more than a year, but local sentiment would inevitably turn against theproject. In contrast, by seeking to identify and address the issues rather than just the critics, SPDP'sobjective was to allay the corporate-community tension so common in other industry experiencesin the developing world. In effect, the company hoped communities would view their role as oneof long-term partnership with a neighbour rather than "making a pact with the Devil". At SPDP, it was the HSE department that championed such a revision in consultation philosophy.This was one of the reasons that, in Camisea, the CLOs reported to HSE rather than toOperations (the latter being the more usual case in exploration and production projects).However, in its field actions, SPDP personnel still displayed some aversion to local criticismrather than focusing on the underlying issues, perhaps because this strategy was so distinctfrom traditional practice. Although not the position advanced by senior management, locals oftenreceived the message that they should not be critical of operations. Indeed, many of the leadersclosest to the project never relayed local concerns and it was often not until anger surfaced at acommunity meeting that local concern was accurately identified. Because they were based within HSE, the CLOs had fewer interactions with Operationspersonnel than might have been desirable to ensure a more complete integration of communityconcerns within design solutions. Nevertheless, CLOs' close and frequent interaction withcommunities ensured that issues that were rarely expressed directly by natives were able tosurface before they erupted as major sources of conflict to become "show-stoppers,"endangering continuation of the project. Perhaps the single biggest challenge facing the community liaison team was in effectivelycommunicating the project and generating feedback from the native communities. Given the localreality this was, at best, a difficult task. Yet, a number of factors added still further to thiscomplexity. As with any new project, design changes and a growing staff confused the natives. An evengreater preoccupation at SPDP was that regarding the insufficient training that CLOs receivedbefore going to the field. This was true, in large measure, because Shell had little successfulexperience in such corporate-community relations systematized from other projects that could be"pulled off the shelf" as had been done with more traditional HSE concerns. Furthermore, theyhad not identified an appropriate trainer, familiar with both the industrial and indigenous issues,who could prepare the CLOs for the problems they would face in the field. As a result, theeffectiveness of local consultations was undoubtedly somewhat compromised during their initialphase. Training opportunities for the CLOs had been identified toward the end of projectplanning. It had became evident that they were not yet prepared for the complexities of cross-cultural communication, contract negotiations and local capacity-building.

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4.3 Capacity-Building with Indigenous Federations One line of action to engage participation in project design was to build the capacity to do soamong the indigenous federations of the region. The federations are legally constituted torepresent groups of native communities and to advance their common interests with regard toterritorial rights, education, public health, resource management and economic development. Asdescribed above, nearly all communities in the lower Urubamba belong to one of threefederations: COMARU, CECONAMA or FECONAYY. Unfortunately, like the communities theyrepresent, native federations often lack the financial and technical resources necessary toeffectively realise their objectives. As a result, the communities are more powerful within these federations than the federationsÕelected officers themselves. These officers are elected to execute the will of the communitiesrather than to make autonomous decisions. This form of representation reflects how nativecommunities arrive at decisions through their community-wide assemblies while their localelected officers may only be empowered to manage activities. This is one reason why federationdecision making takes time, since issues are only discussed at annual or semi-annualcongresses. Two organisations, CONAP and CEDIA, serve as advisors to the federations in the lowerUrubamba. CONAP Ð a national confederation of Amazon federations Ð represents CECONAMAand FECONAYY, while CEDIA is a Peruvian NGO that assists COMARU in its activities. Thesetwo advisory organisations adopted distinct tactics. CEDIA had been active in the lowerUrubamba since the 1980Õs, when it was instrumental in securing land titles for numerouscommunities and nomadic groups there. Leaders of this organisation therefore felt a sense ofseniority over other groups that had become involved in the region. In its relations with SPDP,CEDIA espoused adversarial tactics. CONAP, in contrast, adopted a more congenial relationshipwhose objective was "constructive engagement". The two advisory organisations had a longand complicated track record of mutual distrust and conflict which often surfaced in debatebetween the federations they advised (see Efforts to Form an Indigenous Commission, below). Like many things that lie beyond their immediate boundaries, community members attached littleimportance to the federations, and often expressed ignorance as to whom represented them oreven to which federation their community belonged. As long as the pace of change seemedslow and inevitable, natives paid scant attention to representatives (or to the conflicts betweenthem). However, when SPDP arrived on the scene, representation immediately grew into a farmore important issue. The company aspired to work closely with the federations, as the only representative localorganisations that are both regional in scope and legally recognised as such. It was hoped thatdiscussion with federations could serve as a further avenue to obtain feedback on projectdesign, as well as to inform and advise the regional social capital program, in conjunction withdirect community consultations. Company personnel made initial contact in meetings during federation congresses. In 1997, SPDPlaunched a series of joint meetings with officers of all three federations, whose advisors alsoattended when their officers requested their presence. SPDP also invited other NGOs andgovernment officials to participate in these events. Besides these meetings, the company invitedfederation leaders or other native professionals to the national seminars regarding social orenvironmental aspects of the Camisea project and often donated funds for their expenses inattending.

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Furthermore, on two occasions, the company invited federation presidents to travelinternationally, once to visit a comparable gas facility and its neighboring community associationin Europe, and on another occasion to attend consultation workshops on the project. Norepresentative received compensation for participation in such events. Travel expenses werecovered according to established corporate policy. Underlying these actions was the company's belief that by involving the federations in theseactivities, it could help them develop the institutional capacity necessary to better address thechallenges facing the region. However, the federation presidents faced serious difficulties when it came time to communicatethe results of their activities back to the communities they represented. They were unable toadequately disseminate their findings or to consult their communities as to the appropriate actionto take on their behalf. Annual meetings could not address this need and direct visits to affectedcommunities were difficult to arrange, time consuming and expensive. As a result, action wasdelayed. On occasion, the federation officers' participation in such missions created misunderstandingsand tension with the groups they represented. This was especially true when officers' tripswere not perceived to yield tangible returns to communities. Travel permitted access to externalsources of status and power and, given inadequate dissemination, did not serve the purposeenvisaged. 15

An even greater preoccupation was that little constructive criticism of company operations hadbeen forthcoming from federation representatives. Even when they were residents incommunities whose members voiced concern over hovercraft runs or helicopter flights, forexample, they tended to downplay such operational impacts. This can be partially explained bythe natives' non-confrontational nature, but also by conflicting signals from SPDP regarding thepotential benefits that might be secured by acquiescence with the project. As addressed above,traditional corporate approaches had fostered emphasis on contract negotiation rather than localcapacity to address potential concerns. This tradition was not easily overcome, even with thedeclared doctrine in Camisea of transparency and participatory process, and constant efforts topromote a regional "net benefit" approach. Shell addressed these challenges in several ways. To improve the serious communication gapbetween native representatives and their respective federations and communities, liaison stafftook meticulous notes to assist them in reporting. After an initial meeting to test the waters, SPDPcontracted an external facilitator whose role was to channel discussions and report on results.Later they began to bring portable computers and printers to meetings so that therepresentatives could then carry draft notes immediately back to their communities. On severaloccasions, the company helped representatives reach their communities for consultation byfurnishing boat fuel (this was not always sufficient, since occasionally their boats did not run).SPDP also furnished each community with a two-way radio. The radios served to facilitatecommunications and logistics, as well as to alert others in emergency situations. Although these

15 Similar problems arose when the company invited other Peruvian stakeholders such as the nativepeoples' Ombudsman (Defensoria del Pueblo), the Red Ambiental Peruana (RAP) president or othernational NGO representatives to travel overseas. Their participation aimed to provide a forumwhere international stakeholders could freely exchange ideas with involved Peruvians as to howbest to assure effective support for the native populations of the Lower Urubamba. In thesecircumstances, several non-represented Peruvian organizations complained bitterly of thisprivilege. In response, SPDP limited further invitations to avoid fueling inter-organisational rivalries.

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responses were not able to completely solve the identified problems, federations had begun toassume a more active role to mediate community relations with the company. To reduce jealousies that had arisen from privileges granted to leaders and the perception ofinequitable access, SPDP became more cautious toward sponsoring travel by federationrepresentatives outside the region. After an initial event in Lima, all meetings with federationswere held in Sepahua in the lower Urubamba, despite its inconvenience for company officialsand even for the representatives themselves. Furthermore, SPDP and the federations workedtogether to make meeting attendance as open as possible. The federations were encouraged toinvite whoever they wished as advisors. Finally, SPDP always worked closely with other stakeholders. So much so, in fact, that thecompany expended considerably more time and effort in direct consultation with localcommunities and their associations than with the federations. CLOs took part in literally hundredsof community and association meetings. In contrast, only about a dozen events were held toconsult with federations.

4.4 Efforts to Form an Indigenous Commission While SPDP was working with the federations to build their capacity to support regionalinitiatives, organisations active in the lower Urubamba resuscitated a long-discussed proposal tocreate an Indigenous Commission. The Commission, an alliance of all three native federations,would address key regional concerns including, but not restricted to, those associated withCamisea gas development. Some also expressed hope that the Commission could act as a"lightning rod" and a reference point for external institutions that had previously avoided supportto the region in fear of exacerbating inter-organisational conflicts. In early 1996 the threefederations and their respective advisory institutions endorsed its creation. Despite this endorsement, the Commission was not successfully launched. Continued suspicionsand rivalry between organisations with conflicting approaches impeded its establishment. Tosome degree, this failure was due to competition over relations with the company. Onefederation, COMARU (following the lead of its adviser CEDIA) believed SPDP should workindependently with each federation Ð since there was no constructive dialogue among the threefederations. In contrast, CECONAMA and FECONAYY (agreeing with their confederationCONAP) advocated Òconstructive engagement". They hoped that, through dialogue with Shell,they could ensure landmark advances rather than just more of the Òtrinkets and beadsÓ ofprevious relations between natives and external enterprises. CEDIA argued that efforts to create the Commission would be wasted because the localinstitutions involved lacked either a common ground or the institutional strength required to unifytheir efforts. Furthermore, COMARU and CEDIA feared that the Commission would advance theagenda of the other federations by creating an organisation that might eventually supersede theirsovereign action rather than only supporting federations as initially proposed. Enthusiasm bySPDP toward the Commission perhaps intensified CEDIAÕs suspicion that behind the proposallurked a hidden agenda to create an institution that could Òrubber stampÓ corporate interests,although SPDP officials had always stressed the sovereignty of community determination. Although the company maintained its discussions with the regional federations on a broad rangeof concerns, conflict over formation of the Indigenous Commission led the company to seekalternative pathways to strengthen local representative organization. Support for informal local

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associations of bilingual teachers, health workers and Mothers' Clubs constituted one of theseavenues.

4.5 Strengthening Professional Associations and MothersÕ Clubs From the very inception of the Camisea project in 1996, SPDP and its partners worked to buildcapacity of several informal associations that had emerged among lower Urubamba communities.These organisations acquired legitimacy to promote local actions, despite their informal nature.They included APROBIBAU Ð joining bilingual professors; PROPATESA Ð local health workers;and ACMABU Ð a group of community MothersÕ Clubs. The latter were intent on creation ofincome-generating activities for native women throughout the region. Efforts by SPDP with thesegroups focused on both improvement in consultation regarding local impacts and establishingavenues to promote social capital (see below). While APROBIBAU had been in existence for some time prior to the company's return to thelower Urubamba, community members organised PROPATESA and ACMABU after their leaderstook part in SPDP-supported regional planning events. The company then helped each of theseorganisations to attain legal status as well as to set up meetings with key governmental andnational stakeholders who could offer them technical or financial assistance. These organisations are both distinct from and complimentary to the indigenous federations,since each focuses on a specific activity or professional concern. Furthermore, the federationsare historically dominated by men and therefore do not adequately reflect the perspectives andpriorities of women in regional issues. The associations, on the other hand, each containsignificantly more women and, indeed, the presidents of both PROPATESA and ACMABU arefemale. Given the preponderant role of women in native community life and governance in thelower Urubamba, their recognition and engagement are crucial to make progress toward socialcapital and sustainable development.

V. FROM HEALTH TO SOCIAL CAPITAL AND SUSTAINABLE DEVELOPMENT It had become evident during consultation rounds that the theme of health care is one thatmobilises the majority of local people. The near-absence of health services in the lowerUrubamba region is a serious problem affecting all inhabitants. Despite their indigenous originsand prior knowledge of medicinal plants and traditional healing techniques, natives there havebecome quite dependent on allopathic medicines and doctors (Strongin, 1982). Moreover,government authorities had not responded to the public health needs of the regionÕs isolated andwidely dispersed populations; most initiatives to date had been sponsored by NGOs and religiousmissions. SPDP recognised there were several things it could do on its own that would not only improvethe local public health situation, but also generate significant local goodwill toward the Camiseagas project. However, the company was reluctant to assume this role, for two reasons. Firstly,had it done so, it would imply taking on a responsibility of enormous dimension that, by its verynature, was eminently a public service issue. It would also assume the risk of being unable tohandle the intense demands, thus inevitably bringing local dissatisfaction. Simultaneously, hadthe company assumed a central role in such service provision, the regional government would

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be justified in further withdrawing its attentions from the region, favoring investment of its scarceresources in the more densely populated and accessible areas under its jurisdiction. Instead, the health program came to be envisioned as part of a wider social capital developmentstrategy (see Box 1), and of a long-term commitment to sustainable development in the area.Health-related activities would have to be strategically "dosed" and interconnected withcomplementary efforts. The aim was to provide net social benefit, building local capacity toassume a dimension of autonomous regional social capital and sustainable development. This vision, which gradually assumed a central position in HSE strategy in Camisea, did not comeready-made, but was rather the fruit of a gradual learning process at Shell. This learningprocess began with a workshop at SPDP facilitated by the international NGO Pro-Natura (seeBox 2). Through this advice and its own learning process, Shell came to realise that the company shouldprovide for immediate local needs only as part of a larger long-term vision. Thus, for example, theinitial efforts to resolve health issues required first working to stimulate a basic understanding ofneeds and the adoption of a participatory planning process with stakeholders (see Public Healthand the Path "Offshore," below). Based on this new conception of the corporate role, a Health Baseline Assessment of the lowerUrubamba was prepared as a collaborative process with all actors. Work on the Baseline took placeduring the months of July and August of 1996, and the results (Toonen, 1996) were submitted tocommunities and key stakeholders in December of that year. The Baseline established priorities fordeveloping long-term sustainable improvement in public health, including organisation of healthservices; basic health education; training of local heath promoters; and monitoring of disease andpollution. SPDP avoided playing the protagonist role in this program, regardless of the institutional voidexisting in the region. Rather than acting as a substitute for absent public service providers, thecompany focused instead on using its resources to facilitate the presence and involvement ofkey stakeholders in preparing and implementing an integrated regional health plan. This roleincluded leveraging financial contributions to match company support toward the plan'simplementation from regional government.

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BOX 1: State-Society Synergy Model toward Social Capital

Strong social ties can make people more cooperative and productive and therefore more capableto create new ways to reduce costs by mobilising local resources. However, this prospect takestime to become a reality, because the preconditions to deliver social capital are trust andexperience. The most widely cited source on the concept of Social Capital (Putnam, 1993) suggests that:

A long history of people getting together in simple organisations like singing groups andfootball clubs creat(ed) the foundations for things like cooperative relationships... thatmake ... (communities) economically successful in the contemporary global economy.

Through a rational and progressive process of building capacity and trust, communities reinforcetheir social ties, through which associations and networks are formed, allowing the rise ofcollective action based on social capital, as well as technology and funds. Nevertheless, to succeed, this process presupposes the existence of institutions that supportthese activities. The public bureaucracy thus plays a specific role at the forefront of thisdynamic, identifying capabilities and providing institutional support of various types, such asregulatory norms. The result is a "State-Society synergy" (Evans, 1997), which can reinforce andstrengthen community actions towards augmentation of social capital at the local level. This approach has been applied widely in World Bank projects in the developing world.However, there is the risk that this model be perceived as a "magic bullet," that effectivelyremoves responsibility from government. To avoid the risk of over-reliance on community basedinnovation, "casting the communities adrift," Evans (1997:10) recommends "an effort to makeevery State a more credible, effective partner in its country's development by matching theState's role to its capabilities and by reinvigorating public institutions". By adopting the social capital philosophy in Camisea, SPDP was careful to avoid supplantingthe State's essential role in establishing the preconditions for community empowerment and localaction, matching local innovation and lower transactions costs with supportive norms and accessto financial services.

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BOX 2: Social Capital and Sustainable Development: Pro-Natura's Role Pro-Natura, an international NGO founded in Brazil in the mid-1980s had considerable experience inapplying social capital and sustainable development precepts through corporate-communitypartnerships in developing countries. In early 1996, after visiting the project area, Pro-Naturaprepared a report outlining a strategy to direct local consultations toward a plan and financingmechanism for conservation and sustainable development for the lower Urubamba region (S.V. Ltda.,1996). In mid-July 1996 in Lima, Pro-Natura organised and facilitated a workshop entitled: "Moving t oSustainable Development Ð Delivering Social Capital". All SPDP management and key personnel ofShell International were engaged in a dialogue. This was the first time the SPDP management grouphad met in its entirety. The workshop won a unanimous commitment from the management teamthat the people affected by project activity should realise a net benefit from the projectÕs presence,complemented by the efforts of other institutions. From the workshop onward, Pro-Natura had a constant role in the project as both advisor andchallenger to the company on a range of social issues. The organisation's principle responsibility wasthat of building internal commitment and serving as a focal point within HSE in design of a long-term corporate commitment toward regional sustainable development. This would be accomplished inpartnership with stakeholders in all areas, including public health and education as well as with actorsresponsible for broader regional development. It also involved advice on how to minimise oreliminate potential social impacts of operations. In this regard, Pro-Natura was closely involved in anumber of key project issues such as the choice between road or helicopter-supported operations andthe practical implications of the offshore policy (see Show-Stoppers, below). Although it would make suggestions regarding the consultation process, Pro-Natura declined t oassume more than a very limited role in direct stakeholder consultation, in order to avoid becomingan intermediary with SPDP. Furthermore, the organisation explicitly avoided any directresponsibility for executing specific community projects. The ideal was that such projects be takenover by the local organisations themselves. As Pro-Natura was engaged in the overall planningprocess, it would take no direct part in their execution. The conditions for Pro-NaturaÕs involvement were fairly straightforward. The organisation wouldhave space within the HSE department; have direct access to all relevant information; would beinvolved in key social decisions, and would be able to approach whoever in SPDP or ShellInternational was considered relevant in the discharge of its admittedly flexible role. Finally, theorganisation proclaimed itself willing to work in this capacity only so long as it sensed that Shell wascommitted to delivering a net benefit to the local people and had not taken any decisions that couldimpair the delivery of that commitment.

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5.1 Attracting Regional Government "Buy-In" and Commitment Besides health care, other challenges facing the communities of the lower Urubamba requireattention, including unmanaged timber extraction, irregular colonisation and extensive cattleranching. To identify and implement such alternatives, however, significant public sectorleadership and planning are needed. The government has unique access to the financing andpolitical legitimacy required to promote long-term regional development (see Box 1). Regions Inka and Ucayali, the governmental institutions responsible for the lower Urubamba,16

act as important catalysts and managers of international support for regional projects.Furthermore, part of the eventual Camisea gas royalties (denominated as the Canon) isearmarked by law for transfer to regional authorities in compensation for intensified developmentpressures. Corporate actions and attitudes have often resulted in neglect by government, so thatcorporations are forced to assume growing responsibility for problems often unconnected withtheir immediate mission or competence. In the lower Urubamba, regional government had onlynegligible initial involvement, limited to modest actions in support of health and education. Theneeds and dynamics of the important city of Cusco have absorbed most of its attention. Thiswas due both to difficulties of access to the small, remote and scattered settlements of thelower Urubamba as well as to the socio-economic and cultural differences that distinguish thenative Amazon peoples of this zone from the highland population of Cusco. There was thereforea concern that government might renege still further as SPDP assumed a more active presence inCamisea. Given both the need for government leadership and the risk of declining involvement, SPDPbegan to actively promote a leadership role for Region Inka by facilitating its engagement in long-term actions aimed at sustainable regional development. These efforts by SPDP began in late 1996 through discussions with Region Inka toward adiagnostic study of socio-economic conditions in the lower Urubamba. This study wasenvisaged from the first as an initial step toward a long-term regional development plan. As partof the diagnostic study, SPDP supported a series of workshops with communities that includedresearch expertise from several university and NGO groups familiar with the region, workingunder government coordination (Region Inka, 1997). SPDP asked the regional government toparticipate in financing the overall effort to promote a sense of ownership. Contrary to mostpredictions, the government actively sought funding, covering 20% of the diagnostic study'scost. Once the diagnostic study was complete in November 1997, the second step began: settingregional priorities for investment in sustainable development initiatives. SPDP supported visits bygovernment planners to meet with local stakeholders in the region to more clearly identify locallydefined needs. The company programmed its support toward collaborative efforts with the regional governmentin discrete stages. This was done on the conscious premise that, should Shell decide againstinvestment in the Camisea project, its support toward planning initiatives could be terminated at a

16 A government restructuring in July 1998 eliminated multi-departmental regional authorities,leaving the Cusco Region (whose boundaries are restricted to the Department of Cusco) responsiblefor 90% of the territory in the area of influence of the Camisea project.

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suitable juncture without undermining the social advances so far attained. For example, thediagnostic study provided a long-term benefit to the regional government by collecting andtabulating baseline information of value to any future planning effort, independent of continuedcorporate presence.17

Building trust and maintaining momentum were among the principal challenges associated withthis strategy. Initially, local communities were skeptical and some organisations expresseddownright hostility to the approach, citing past government failures. Others argued that SPDPshould work only with those organisations already active in the region and not the alreadynegligent government. These organisations viewed the government as a competitor rather than apotential catalyst for broader opportunities. In fact, local stakeholder attitudes toward thegovernment were very similar to their initial views of the company. As was the case with SPDP,to bring about a change in this relationship would require significant commitment, demonstrableresults and, most of all, time. Indeed, after two years, government understanding of the issues had grown with its exposure.Key government leaders had begun to visit the region and had taken action on issues that hadlong resisted solution. On the other hand, to maintain momentum in the process posed another type of challenge.Because the governmentÕs activities in the lower Urubamba were not permanently supported(beyond those associated with basic health care and education), further progress wouldencounter setbacks with shifts in government priorities or changes in administration. Essentialcontinuity would be undermined as key personnel departed and their scarce experience lost.Finally, the degree to which government commitment can be assured remains an unknown, sincein the long term a lasting governmental involvement would certainly depend, at least in part, onrevenues from development and sale of Camisea gas. For this reason, continued support to NGOs, informal associations and federations remains acrucial means to ensure momentum even when government priorities and corporate decisionsshift attention away from regional needs.

VI. TRANSITION TO ALLIANCE CONTROL, CONTRACTS AND FID

6.1 Arrival of the Construction Alliance To develop Camisea, Shell placed an international construction competition open for bids in 1996,and awarded the contract in September 1997. Bechtel, a major U.S. engineering firm withheadquarters in San Francisco, COSAPI Ð a Peruvian company based in Lima, and Odebrecht Ðfrom Salvador, Brazil Ð constituted the winning consortium (the "BCO Alliance"). Once thedecision to build was made, the Alliance was to assume control of construction operations,leaving SPDP to manage the project once its construction had been completed. The Alliance moved part of its design team to Lima in facilities close to SPDP, but was required bycontract to create its own HSE structure to address construction and implementation issues. Toensure that the BCO Alliance adequately followed company policy regarding HSE strategy and

17 It is worthy of note that, even after the negative FID, Shell made a commitment to maintainsupport to the regional planning process during the company's exit from the area, so thatgovernment preparedness would be assured if and when another company assumed control of theCamisea gas fields.

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other critical areas, Shell International placed 22 of its own experienced staff in BCO, includingboth the HSE manager and some key HSE positions. The Alliance also hired its own CLO teamand consultation officer, to secure local agreements on the construction arrangements andcompensation of affected communities along the pipeline corridor, although SPDP retained controlover all activities with communities in the more sensitive lower Urubamba region. SPDP's approach to consultation was somewhat distinct from that of BCO. Thus, although theAlliance community relations program was designed to be equivalent, its execution differed. ForBCO, compensation (legal obligations regarding use rights and externalities) becameinterchangeable with the concept of "net benefit" adopted in Camisea. Compensation is meant tolead to specific negotiations and formal contracts, while social capital requires a differentstrategy, and long-term, far-reaching accords for its achievement (see Contracts: Compensationor Social Capital?, below). This clear and simple interpretation was consistent with BCO managers' views of their "client-contractor" relationship with SPDP. While many in the Alliance were indeed tremendouslyconcerned with social issues, some even more so than their SPDP counterparts, they wanted aclear-cut definition of their client's expectations. If these could not be defined in advance, thenthey felt they should not be required to assume responsibility. Some also felt that many of theseconcerns fell under the rubric of protecting Shell's reputation and should therefore be left toSPDP. SPDP had defined itself more as a partner than to ask "how much do you want?". For thestakeholders, this offered a real possibility for participatory dialogue, in a process that is"consistent, systematic and iterative" (consultation facilitator, pers. comm.). In the case of thepipeline corridor, however, it was felt that the most urgent need was to ensure that operationalimpacts of construction were adequately reflected in design. To BCO, these constituted agreater priority for consultation than the initiation of a longer term regional development process. Such a distinction in approach was also dictated by clear differences in the affectedpopulations. Along the pipeline corridor, which would pass through the Andean highlands alongmost of its route, local communities, though poor and lacking in services and infrastructure, hadbeen long integrated with the national economy. There were also a host of intermediaryinstitutions active in the highlands areas such as Ayacucho, capable of providing support tolonger-term initiatives, whereas in the lower Urubamba, natives suffered by a near institutionalvacuum.

6.2 Contracts as Instruments for Social Capital In spite of local agreements permitting oil and gas exploration on indigenous land, throughout thedeveloping world local discontent over such intrusion has led to work stoppage, sabotage, andhostage taking and even project abandonment. Even where contracts exist, they have by nomeans guaranteed companies a secure ÒLicense to OperateÓ from local people. In fact, whilecontracts may give companies peace of mind, they often have the opposite effect oncommunities. The effort by companies to obtain legal consent often creates friction andconfusion within a community and misgivings toward the project. As a result, contracts oftengive rise to exactly the civil discontent they are designed to avoid. For SPDP the challenge was therefore to develop contracts that reflected legitimate communityconsent to start operations. As an added objective, contracts came to be seen as an instrumentto fortify community capacity to absorb and monitor the impacts of Camisea development. Yet

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this ultimate objective came to be sought more by joint learning through trial and error, than inaccordance with a previously conceived process. Contract negotiations for use of indigenous lands for Camisea exploration and developmentbegan in March 1996 when SPDPÕs exploration manager met the president of the community ofNuevo Mundo at a regional meeting. There, they discussed a contract to allow construction of abase camp on community land. SPDP Operations (responsible for devising such contracts) hadidentified the president as the most appropriate community representative. On returning to hiscommunity, the president led discussions concerning the negotiations with SPDP. The communitythen sent the company its terms for an agreement. In coming to a decision, the community madeno recourse to external advisors who, in the presidentÕs words, were thought to represent aninterference. In June 1996, SPDP held meetings with the community to negotiate the agreement. In the end, thecompany managed to steer its contractual obligations toward provision of goods or services,most of which would offer lasting benefits, such as a school building, health post orscholarships. But, on one matter concerning a monthly cash rental payment, no substitute wasacceptable to the community, even one of higher value. After finalising this contract, SPDP perceived that the process had suffered by initiating contactwith the local president instead of the community as a whole. Future contract negotiations couldearn better long-term understanding and consensus if the company were to deal directly withcommunity general assemblies. Furthermore, SPDP realised that monthly cash payments onlyserved as a source of confusion. This afflicted both the community and SPDP, because a fewlocal individuals sought constantly to control these funds for personal use. After completing negotiations for the first contract, SPDP officials determined to transferresponsibility over community contract negotiations from Operations to its Community Liaisonteam, reporting to HSE. The team had a better understanding of community dynamics andconcerns. Its long-term perspective was considered superior for this purpose than that ofOperations which by design was focused on the immediate issues of getting the project up andrunning under intense time pressure. As a consequence of these changes, when negotiations began for a second contract for anappraisal well near the community of Cashiriari, constructive changes were soon notable to theprocess.18 For example, discussions took place immediately with the community assembly, ratherthan with individual leaders. SPDP stated from the outset that it would press for contractprovisions that would provide goods and services that all agreed were in the long-term interestof the community rather than with cash. In addition, this community had a close link through itspresident to the native federation to which it belonged, as well as to CEDIA, which may havebetter prepared the community for the negotiation. The final contract (this time for an exploration well) was devised with the community ofShivankoreni for a well site on its land. Reflection on the experience with the previous twocontracts allowed for further improvements, ensuring even better understanding and a sense ofpartnership. During this negotiation, SPDP provided much clearer information regarding itsproposed operations and improved its efforts to gather community input. The company soughtcommunity feedback regarding the exact location of the well to ensure that it avoid any critically

18 This contract was negotiated after Operations had actually begun to prepare the site, due to adelay caused by the reorganisation of responsibility for contract negotiations, cited above.

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important land insofar as possible. This community was perhaps the most organised of the three.Leaders there also sought input from the same federation and from CEDIA, as had Cashiriari. This contract added an additional innovation, by including a clause for community monitoring ofthe operations. SPDP believed that periodic inspections of the well site by the local communitywere critical to prevent misunderstandings. These ranged from a belief that natives were usedas drillbits to concerns over how SPDP disposed of its drilling wastes. Visits by communitymembers to the site ensured that work was accomplished in fulfillment of mutual expectations.Such visits also helped to establish a direct relationship, so that if problems arose, whetherperceived or real, they could be addressed proactively. Community visits by federations, RAP,the Smithsonian and other outsiders were further sources of pressure to do the work right in thefield. After negotiating the first three contracts during the appraisal period, SPDP faced negotiationswith many more communities for the full field development phase. To explain the issues andincorporate community concerns into operations, the company began an intensive nine-monthprocess of consultation, hoping communities would participate in a more informed way in adialogue and eventual negotiation regarding their stake in the overall project. SPDP had by now recognised that all communities of the region should be consulted regardingthe project. The company perceived that it would affect all communities, whether directly orindirectly, despite the fact that agreements for land use would be formally required with only afraction of these communities. The company's ÒLicense to OperateÓ was now seen to depend onfar more than simply formal land use agreements. In addition, agreements that delivered benefitsto some communities and not others that faced virtually the same impacts could contribute toserious frictions at a regional level. For example, while one community might have a well site onthe edge of its territory, many more would face the logistical impacts associated with support forthe construction and operation of these facilities. These were major factors that led to the overall Ònet benefit policyÓ toward the lower Urubambaregion. The company thereby sought to deliver lasting benefits to all communities affected by theproject, not just those that would receive agreements for use of land.19

6.3 Final Investment Decision and Close-Out Although Shell's Final Investment Decision (FID) for Camisea development was originallyscheduled for May 16, 1998, problems arising from the technology and costs associated withextraction of an adequate volume of condensates frustrated an early decision. At this point,SPDP requested a six-month extension of its license contract. Peruvian authorities denied therequest, however, allowing only an additional two months for the company to arrive at FID. SPDP continued preparations for this additional period, during which new well tests wereaccomplished to refine condensates estimates, and to explore different gas marketing scenarios.However, on July 16, 1998, Shell announced its withdrawal from the project, citing gas marketingand distribution issues as the primary motivations for its decision.

19 On the eve of FID, company officials had approved a series of regional agreements assuring netbenefits to all communities in the lower Urubamba, adopted with communities after furtherdiscussion during the sixth consultation round (see Jones, 1998).

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Despite its withdrawal, the company committed itself to a gradual exit strategy and framework toassure lasting benefits to the local communities affected by its pre-investment actions. This study has not delved into the reasons that led Shell and Mobil to withdraw from Camisea.What is important to the study are the lessons learned from the HSE segment of Shell's pre-investment actions in Camisea. These lessons can help devise a model for business-communityrelations and long-term sustainable development in fragile tropical areas affected by majorprojects of this nature.

VII. AVERTING "SHOW-STOPPERS" BY INCORPORATING SOCIAL CONCERNS INPROJECT DESIGN AND EXECUTION If not carefully managed, the design, construction, and operation of the Camisea Project couldhave brought significant social impacts within its area of influence. As a result, SPDP tookconsiderable pains to devise innovative consultation and issue management approaches. Thesehelped to identify and address negative impacts that could result from the operation. Stakeholderconcerns triggered company responses. Among these issues were:

· project effects on uncontacted peoples;· public health and safety;· ensuring safe river transport and waste disposal;· native employment and economic activity;· avoiding immigration of job seekers;· preventing unwanted secondary developments; and· avoiding unsustainable use of regional resources.

While project engineers and operations managers were often ready to seek means to effectivelyincorporate the identified social concerns into project design and execution, occasions arose inwhich management of social issues spurred serious internal debate.

Three issues in particular perhaps best illustrate the actual process of addressing keystakeholder concerns: (1) the decision between use of roads or helicopters for project logisticssupport; (2) local concerns regarding use of hovercraft, and (3) the decision to go Òoffshore".From an operational perspective, these three issues were identified to be among the most likelyÒshow-stoppers". That is, they involved social issues that could risk a serious delay or evencancel the project if not effectively managed. Consequently, these were the issues thatstimulated the greatest internal discussion.

Each of these issues is described in some detail below to illustrate the overall decision-makingprocess within SPDP. This describes how each issue affected operations and how its resolutioncontributed toward improvement in community relations and the prospects for net benefit.Following the cases is a summary of common elements that contributed to the effectiveresolution of these issues and of lessons learned thereby.

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7.1 The Choice between Roads and Helicopters

One major operational challenge for the project was that of transporting the materials, suppliesand equipment required to build the projectÕs massive field facilities in the lower Urubamba. Thekey issue was access, and whether or not to construct roads.

Early consultation added emphasis to the issue by identifying serious stakeholder oppositionregarding road construction within the Amazon. Although some interests could potentiallybenefit, prior experience suggested that road building could engender grave damages. Concerncentered on the devastating economic, cultural and ecological impacts of boom-bust settlement,deforestation, degradation and subsequent abandonment after road construction in tropicalrainforests. Attraction of colonists into the area would inevitably follow, due to depressedconditions elsewhere in Peru and the lure of employment directly or indirectly stimulated by theCamisea megaproject.

At the time the decision was to be made, potential stakeholder alarm over these issues wasconsidered to rival that of the companyÕs recent experiences with Nigeria and Brent Spar.Therefore, SPDP judged the business and economic outcome of roads to be a Òshow-stopper".The company publicly announced a commitment that there would be no roads built into the regionearly in the project to address these concerns.

Operational personnel did not object to the implications of a Òno-roadÓ decision insofar as itbanned road access during the two-year appraisal phase, nor did they contest its ban on roadaccess from Cusco to the area of operations during the full-field development phase. The factwas that, practically speaking, the project's tight schedule did not allow time to delay work onfield facilities until road building had been completed.

However, in mid-1997 internal objections began to be raised against the Òno roadÓ decision as itapplied to Òin-fieldÓ roads between the proposed gas plant and seven well clusters during thefull-field development phase. The alternative to roads would be to use transport barges andhelicopters to move literally thousands of tons of equipment and materials. Operationally, acomparison would have to be made between the time delay, cost, questionable dependability andsafety of significant road construction in the jungle versus increased demand for complex, costlyand also risky helicopter support. The safety risks of using helicopters during the two-yearappraisal phase were considered acceptable, but many cited safety risks as an issue for the fullfield development phase. However, a preliminary analysis suggested that the risks implicit inbuilding an extensive road system and running heavy loads over them through the jungle carrieddangers whose intensity was at least as great as those associated with helicopter support.

Several senior operations managers felt that a road network within the region was the onlyoption to support construction and drilling activity. This was the way gas fields had always beendeveloped and, given the generally conservative stance adopted by company engineers, time-tested methods were considered preferable to innovation on such critical issues. Many people, primarily from the HSE team but also from Operations, opposed this traditional viewand echoed the concerns of local, national and international stakeholders, including the nativecommunities. They maintained that what might become the largest road network in thePeruvian Amazon supporting the countryÕs largest infrastructure project would prove anirresistible attraction to outside settlers looking for both timber and land and the chance tosupplement their income with salaried work.

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They also expected that people would settle progressively alongside the roads and fieldfacilities, increasing local expectation of corporate welfare and making it politically impossible forthe company to remove the road regardless of early commitments. They judged that seriousenvironmental destruction, particularly irreversible biodiversity fragmentation, and social conflictwere inevitable under this scenario. It was also recognized that a decision favoring roads couldlead to the projectÕs abandonment by their long-term partners on social and biodiversity issues aswell as by members of the HSE team (see Box 3, below).

BOX 3: Cumulative Impacts

The weakest part of any impact assessment is often its evaluation of cumulative impacts.Cumulative impacts are those that result from future additions to a project or from changes ingovernment policy or societal action that stem from the project's implementation.

Opposition to a positive FID in Camisea from some members of the international environmentalcommunity stemmed in large measure from the potential cumulative impacts on biodiversity andnative peoples should the many gas and oil projects planned in the Amazon basin be implementedsimultaneously (EWGA, 1998).

Understandably, engineers are often reluctant to assess impacts that extend beyond the borders oftheir operation. This reluctance can border on ridicule when they are asked to predict the impacts ofpossible future project components (that they are not designing), let alone long-term public sectorand societal reactions. After all, such an evaluation becomes almost impossible when designers areworking in a country about which they have little or no information or familiarity.

However, Camisea differed from previous projects in the developing world in that it adopted aconsultation process to actively seek out, identify and address social and environmental issues and t oconsider these potential cumulative impacts. As a result of this process, information was available t othe design team on a wide range of social and environmental concerns, enabling them to acquire areasonable perspective regarding the potential consequences of their actions.

While the cumulative impacts associated with a multiplicity of related projects was a question forgovernments to resolve, in Camisea itself, it was possible for SPDP to arrive at informed decisions inconsultation with concerned local groups.

Initially, few SPDP Operations staff considered it likely that a social issue, no matter how serious,might come to outweigh a strong operational preference for road building. Yet, when in lateJanuary 1998, the road versus helicopter issue was brought up for resolution in a field facilitiesteam workshop to finalize conceptual design, this issue did acquire precedence. After seriousdebate it was agreed that in-field roads were a Òshow-stopperÓ on social and environmentalgrounds and the project would have to assess the feasibility of changes required for a Òno-roadÓapproach to cluster construction and drilling activity. After hearing the social and environmentalfactors described in detail, one of the engineers later commented that Òa shotgun could not havemade the requirement for change any clearer".

Acceptance of the Òno-roadÓ decision immediately forced design innovations that fundamentallychanged many of the underlying assumptions that had previously supported the case for roads.For example, the original well cluster design would have required almost 1,000 helicopter flightsduring construction of each one. However, following the Òno-roadÓ decision, clusters wereredesigned to reduce the number of flights needed during their construction to fewer than 200.

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An integrated team using information from both SPDP and BCO drilling and pipeline engineering,aviations, and construction divisions made an extensive review of the financial impact of thedecision. At the final project design meeting, which wrapped up the road versus helicopterdebate, BCO presented the helicopter scenario, showing their incremental net cost over roadswould be only about $9 million (in present value terms), with no impact on the project's start date.

After months of serious debate, this final estimate indicated a net cost that was less than one-sixth of the engineers' original projection of $60 million. Thus, respect for what many viewed asthe most important and innovative socio-environmental aspect of the project would haveincreased overall costs by less than 0.3%.

7.2 Hovercraft Ð Demon or Domado?

From the start of the appraisal drilling campaign in mid-1996, owing to shallow water during thedry season, SPDP contracted a hovercraft. The vessel was used primarily to transport fuelwithin the lower Urubamba.

At the outset, Operations dismissed internal concerns regarding possible effects of thehovercraft as unnecessary. It was a dominant view that criticism of the hovercraft would beinsignificant. Higher profile issues such as contact with isolated peoples, contracts withcommunities, construction impacts, health risks and maintaining the newly established "off-shore" policy were seen as requiring greater attention. However, a distinctly different picture quickly emerged. The natives hated the hovercraft andonce actually shot at it. SPDP began to recognize that the situation could escalate to seriousopposition and create risks to both the crews and natives that would halt the hovercraft's useand seriously affect the project. The "learn to live with it" perspective that had previouslydominated had to be reviewed.

The issues underlying opposition to hovercraft were consequently discussed in meetings withcommunities and regional leaders. The first issues identified were those related to thehovercraft's noise, speed, size and wake. Natives were concerned with dangers that they andtheir canoes and cargo would face, both in the channel and when left unattended along theshoreline. Locals also feared fishery and game impact. Furthermore, native cosmology led many to believe that, if the hovercraft was not itself a demon,it certainly must be carrying one on board. This was an even more serious concern, sincewitches were known to cast spells by blowing on their victims. This was taken to imply that thehovercraft could actually propel themselves by casting a curse on all the regionÕs inhabitants.

Following identification of issues, an effort was begun with the natives and hovercraft crew toreduce operational risks to people and cargo. Preliminary discussions were also held with localexperts regarding potential impact on wildlife. These experts held the opinion that the impactswould be minimal. This was communicated to the natives. But not all problems were overcome,nor were local people fully convinced that the hovercraft did not impact wildlife or operate freeof demons.

Concern grew in late 1997 among the HSE Community Liaison team when they learned not onlythat the recently departed hovercraft was not gone forever but that, rather, three or four evenlarger and louder craft would be coming for the full field development. A more proactive

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consultation process focusing on this concern was immediately integrated into ongoing efforts,recognizing that the issue could escalate to become a potential "show-stopper". This could occurif serious negative response from communities provoked a breakdown in relations, or if lack oftransport alternatives were to lead to a delay in the project.

HSE personnel then thoroughly reviewed other environmental impact assessments of projectsinvolving hovercraft. Furthermore, significantly more expertise was sought regarding thepotential impact on fisheries and game, and the EIA for full field development called for a morecomplete fishery study. These again initially confirmed that impacts would be negligible. Theseresults were once again communicated back to natives, although more systematically on thisoccasion.20

Allaying community fears also required significant involvement from the project design team.Interest and involvement of these engineers progressively grew with their direct exposure tocommunity concerns. After consultation with the logistics team, the hovercraft manufacturerdesigned new propellers that reduced noise levels, and remodeled some of the hovercraft'smore frightening physical features such as the propeller turrets and skirting, so as to reducewater spray.

A logistical manager and CLOs demonstrated the new design to communities with scale models,and adjusted operating policies to accommodate local concerns. Red warning boats wouldprecede the hovercraft, which would slow down when passing communities. It was agreed thathovercraft would undergo an "inspection for demons" in every community before the start ofoperations. Some lifejackets would be given to each community for internal distribution. Thenatives also participated enthusiastically in a contest to assign names to each of the hovercraftfor better identification.

One of the last issues resolved was that regarding Sunday operations. Having learned theissues, logistical managers quickly understood the risks associated with operating on Sundays,when more locals were likely to be drinking alcohol and when there was greater river traffic.Many natives also carry weapons on their return from hunting. Therefore, it was decided thatSundays would be reserved for hovercraft maintenance and any transport deficit would bemade up by two extra trips of a low-draft fuel boat. In addition, a river safety booklet wasprepared, approved, and distributed in consultation with local people to cover these and otherissues.

SPDP realised that its river traffic, both hovercraft and barges, caused impacts felt by allcommunities in the region, not only those immediately in the realm of the drilling operations.Although not legally required to do so, SPDP provided two-way radios to all communities,recognizing the broader nature of these impacts and consonant with the companyÕs "net benefit"policy. This would allow communities not only to immediately report incidents, but would also helpthem enormously in their own regional communication and development.

7.3 Public Health and the Path "Offshore"

Over a year before the SPDP contract for Camisea was finalized with the Peruvian government,consultations had identified the introduction of foreign diseases among native populations as theprincipal health risk from careless field operations.

20 These studies were still ongoing at the time of this writing, despite negative FID, to provide furtherinformation for eventual project development.

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During its original operations in the area in the 1980s SEPP had been associated with a deadlyepidemic (see Legacy of Shell's Prior Exploration, above). At that time, previously uncontactednatives had been brought by force to the town of Sepahua following a violent encounterbetween the natives and loggers. Before their release Shell gave them gifts (as did others) inorder to calm ongoing conflicts between the natives and its operations. Afterwards, kinsmen ofthose natives returned seeking additional gifts. Tragically, these natives caught the flu andinfected their own families, by some accounts, killing up to half their tribe.

Other serious public health impacts had been registered from contact between workers andnatives, including prostitution, fathering and abandonment of children, violence and other abuses.Such impacts were unacceptable in the new era. Therefore, it was clear that to avoid a Òshow-stopperÓ the operational challenge posed was to design and implement the project so as to avoidhealth-related problems.

The company devised a two-part solution. First, operations would take place as if it were an"offshore" effort. Workers would live at the site, and would not be able to enter localcommunities or mix with local inhabitants. Likewise, these camps would be off-limits to localinhabitants. There would be no social or economic contact between the workers and the nativepopulation beyond hiring a few dozen local men. A small community liaison team would manageall contact with the local communities. Anyone violating this policy would be fired. Second, allworkers were required to receive vaccinations, and the company would provide support to localvaccination campaigns.

These anticipated measures generated significant initial skepticism regarding their actualimplementation. This was particularly true for the Òoff-shoreÓ policy. At a local meeting in late1996 SPDP explained that while it would not become ÒSanta Claus," it would be a good neighbourand would implement strict new policies to control its health impacts. Upon hearing this, a nativehealth worker, reflecting group sentiment, retorted that SPDP would indeed be a ÒSanta Claus,"but that its presents would include disease, pollution, alcoholism, prostitution and abuse.

Initially, this view was also shared by many in the industry and even some in SPDP who believedit would be virtually impossible to prevent workers from mingling with members of nearbycommunities. Some felt that to do so would be tantamount to designing work sites as if theywere prison camps, with guards, fences and watchtowers. Indeed, previous attempts in thisregard had been known to fail.

Yet, by strict adherence to the policy, this isolation principle was established and maintained onlittle more than understanding and commitment. By simply setting an example, dismissal of thefew workers who were discovered visiting native communities established the company'ssincerity. Fences were never installed and the few unarmed security personnel constituted but afraction of the cost had there been offensive worker contact with the communities.

When consulted later, the same native health worker who before had predicted a repeat of thecompany's abuses could not cite a single instance in which SPDP personnel had been reported

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visiting a native community.

Beyond adopting the "offshore" approach, SPDP took steps to further reduce health risksassociated with chance contact with natives. For example, in order to receive a boarding passat the check-in counter for the flight to the base camp, workers were required to present aÒHealth PassportÓ signed by the corporate medical advisor. The passports certified vaccinationagainst illnesses that, although no longer serious elsewhere, had proved fatal to natives. ÒHealthPassportsÓ were also adopted as a part of future pipeline construction.

The Health Baseline Assessment SPDP conducted jointly with government authorities (see FromHealth to Social Capital, above) showed that, despite unprecedented effort to mitigate the chanceof disease from project workers, natives continued to face the threat of disease brought fromother outsiders to the region. In line with the policy to deliver Ònet benefitÓ to the region'sinhabitants, the company's logistics division arranged both boat and helicopter support forgovernment-led vaccination campaigns in local communities. SPDP also provided logisticalsupport for public responses to rabies, malaria and flu epidemics that had broken out periodicallyin the region.

Furthermore, SPDP also began work with partners in government to improve the regionÕs overallpublic health services. Efforts were made to leverage involvement by the Ministry of Health, bysupporting meetings between local health workers, government authorities and otherstakeholders. The goal here was to participate in health care improvement without replacing theresponsible agencies.

SPDP adopted this approach to avoid local abandonment of the governmentÕs public healthstructure in favour of company clinics, which were neither capable nor responsible to deal withthe regionÕs long-term public health needs. One clear example of this thinking was a donation ofsolar refrigerators to strategically located key communities to help implement the government-planned Òcold chain". With refrigeration in place, future vaccination campaigns could be carriedout by boat or canoe during regular visits by local health workers, thus permitting the governmentto accomplish more in the area using the same resources.

7.4 Incorporating Local Concerns into Operations

Beyond illustrating the importance of ongoing stakeholder consultation as a fundamental tool foreffectively managing socio-environmental issues, several elements consistently underlie the waySPDP successfully managed these three potential Òshow-stoppers". The most valuable lessonsfrom this experience pertain to key factors that enabled SPDP to effectively incorporate feedbackfrom consultation into a logical decision making framework.

In essence, this process covered four basic steps (see figure, below). These are detailedfurther in the following sections.

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Commitment Feedback Loop

Identify issues early

It is essential that issues be identified early enough to allow for internalization of social andenvironmental concerns into operations. SPDP was successful when it identified issues aspotential Òshow-stoppersÓ prior to or during the design phase rather than after the start ofoperations. Identifying such issues later in the project cycle would have made effectivemanagement nearly impossible. That is, while SPDP considered each of the examples as apotential Òshow-stopper," none of them ever reached the point where the show actuallystopped.

The potential health impacts of operations and the consequences of road development wereidentified more than a year before the start of operations. On the other hand, the problems thatarose with the hovercraft arose due to the initial decision not to investigate possible communityconcerns. When natives shot at the hovercraft, it was already too late to effectively resolve theissue within the appraisal phase. However, the shooting did accentuate the issue, and led to avery well planned process that began a year before the new hovercraft were due to arrive.

By identifying issues early, project personnel have adequate time to examine the causes ofthese concerns as well as their potential implications for operations. Again, consultation waskey, since by further developing direct relationships with stakeholders those involved inconsultation were better able to explore the root causes of the issues.

ISSUEIDENTIFICATION

COMMITMENT UNDERSTANDING

MAKING THE CASE

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Involve operational managers and project designers in consultation

SPDP was most effective in resolving the Òshow-stoppersÓ when it involved operationalpersonnel directly in the consultation process. This not only built internal understanding of socialissues among decision-makers, but it enabled operational personnel, rather than HSE, to makethe more effective case for change to the rest of the team.

For example, in debates over roads versus helicopters and use of hovercraft, these issuesmight not have been resolved successfully had project designers not participated directly inmeetings with communities and other stakeholders and then taken the lead to address theseconcerns. Similarly, discussions that followed an initial violation of offshore policy involvedmanagers who, with the understanding they acquired, took immediate action when it becamenecessary to uphold the policy thereafter.

The decision making process is team-driven. However, internalization of social issues oftenstarts with individuals, and spreads into the group through a process of education,communication and exchange of ideas among members of the team. As greater understanding isattained, the group's ability to identify and resolve complex socio-environmental issues growsapace.

Before social issues are clearly understood, internal opposition towards change should beexpected as a natural response. Conflicts are to be anticipated. Nevertheless, such conflicts areoften the starting points for learning and thus become a route to understanding and eventual"buy-in".

Commitment is key

Finally, a commitment to this process is required at every level of the company, from the top-down. Beyond making a personal commitment, managers must communicate this commitment tothe entire company.

In all of the examples cited, the process began and ended with commitment. For example, SPDPcommitted itself to a ÒNo Roads" policy early and then had to undergo a learning process tounderstand how the company would comply with this policy, demonstrating further commitment.

In sum, once social considerations were perceived as critical to the project, commitment grewwithin operations. As engineers assumed "ownership" of each issue, solutions emerged andinnovations were introduced into the process. By assuming ownership of an issue, theircommitment was further reinforced. This, in turn, created momentum that helped resolvesubsequent issues. This process became the principal driver that Òraised the bar".

Recognition by stakeholders of the company's commitment to social issues is also fundamental.This recognition improves relationships with all stakeholders and thereby strengthens theirresolve to identify and respond to issues as they arise.

VIII. CULTURAL ASYMMETRY, SURPRISE AND SOCIAL CAPITAL

As a near "show-stopper," the hovercraft issue came almost as a complete surprise to SPDP.The communities' concerns were difficult to identify in advance, despite consultations from the

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outset. Native peoples often react in ways unpredictable to Western conceptions of rationality,since their perceptions are forged through a distinct cultural inheritance. They are thus unable toimagine the implications of modern technology. Since hovercraft are not part of their everydayreality, they became fused with part of the collective imagination and mythology, which was theironly cultural reference point.

One of the lessons learned from the surprise element in the hovercraft case is that "show-stopper" issues could in fact surface at any time with little advance warning. The nativecommunities could not readily conceive of what was to come and SPDP was not equipped topredict how natives might respond to its operations. For example, some communities wereunexpectedly receptive to use of helicopters and were actually reticent to move away from thetransport corridor, hoping thereby to have access to helicopters in emergencies. It was difficultto communicate how intense and disruptive this traffic would become to convince villagers of theneed to relocate temporarily. This illustrates the advantages of a consultation process that isboth dynamic and flexible.

SPDP had recognised that to convey abstract concepts in this context would require obtaininggreater information on local cultural values, along with use of better communication tools.Improving communication tools throughout the consultation process would allow a betterunderstanding of local community dynamics and power relations. This, in turn, may allow thecompany to anticipate when outcomes might be perceived as inequitable or culturallyinappropriate.

A relationship is built upon mutual understanding, trust and commitments. Contracts andcompensation agreements serve as effective mechanisms for preserving rights in a context inwhich local institutions are well organised and recognised as the legal and legitimaterepresentatives of community interests. Had this been the case, the native communities wouldhave been able to assess proposals for agreements with SPDP built upon a pattern of mutuallyreinforcing interchange that could have grown with positive relations with the company. Yet, thiswas neither the institutional context encountered in the lower Urubamba nor the prior experienceof local communities with Shell (see Legacy of Prior Exploration, and Public Health, above). Bothlocal institutional capacity to assess company proposals and an improved corporate-communityrelationship had to be built.

Organisations that are market-driven and those for which the major concern is maintenance oftraditional culture have distinct priorities. There is hence a fundamental asymmetry in therelationship between communities and corporations. That is, their level of organisation, relativefinancial power, and integration with national and global society are tremendously differentiated.As a risk for operations, the surprise element thus gains additional weight due to natives' inabilityto predict and communicate their concerns to their more powerful partner.

When, as occurred initially, a contract was first negotiated with a local leader identified by SPDPas a legitimate community representative, the ensuing divisiveness soon led to the realisation thatanother approach was necessary to provide legal support to company operations on communitylands. SPDP then determined that all community members should be involved in the agreementsthrough their communal assemblies. Although this decision appeared to resolve the problem inthe short-term with regard to specific contracts, it was obvious that it would becomeincreasingly unworkable as time went on regarding broader social capital issues. The "everyonematters" strategy would have growing transactions costs, impeding progress toward commonobjectives.

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As there is no generalised motivation for participating, societies build representative institutions inorder to guarantee rights even to those who for some reason are unable or unwilling toparticipate. The company thus soon recognised the need to build the capacity of indigenousfederations and of groups organised around particular interests that could more effectivelyconfront specific problems as they arose. For this reason, SPDP's approach demonstrates theeffectiveness of maintaining a broad participatory framework, but the need to graduallyemphasize support to local associations for specific developmental tasks to build long-term socialcapital.

Therefore, one lesson learned through the corporate-community relations strategy adopted bySPDP in Camisea was the need to begin institution-building efforts from the very outset of projectactivity. Such efforts began gradually, but received a growing priority when local associationsdemonstrated readiness to take on new tasks. Initial efforts to mobilise regional and NGO supportto development of a health baseline and regional diagnostic thus engendered a growingresponse from local groups mobilised in response. Modest efforts addressed to awakencollective action assured the necessary preconditions for both delivering social capital andhelped to resolve issues that arose associated with contracts and compensation.

By the close of the project, this lesson had been more fully internalised. SPDP had begun tofortify collective actions directed toward preventive health care and had facilitated theformalisation of community associations.21 These measures offered effective means to gaugecommunity temperament and maturity to mobilise themselves toward generation of social capital.

Social capital should thus be understood as a means to mobilise community cooperation and todevelop the necessary trust in order to organise and reach for common goals. Their level ofunderstanding of collective action and capacity to build social organisation can obtain initialmomentum through local groups' experiences in organising modest ventures.

While corporations have important roles to play in this process, social capital depends on a jointeffort involving all stakeholders: government, NGOs, businesses and, most of all, local peoplethemselves. Corporations can act primarily to facilitate participation and leadership by otheractors. By doing so, the corporation only helps to create an opportunity that other stakeholdersmay find useful to their long-term collective advantage in pursuing social capital ventures.

8.1 Lessons for Future Social Capital and Sustainable Development Efforts

Within this context, the Camisea experience has provided many lessons for future private sectorparticipation toward social capital and sustainable development.

The consultation process adopted by SPDP raised some expectations not immediately answeredwith concrete benefits. Beginning early with a gradual social capital development processavoided burgeoning of an unrealistic level of expectations that would have become impossiblefor the company to satisfy. Given the company's legacy in the region and institutional asymmetryvis � vis the native communities, there was a lack of initial agreement on goals and shared tasks.Once specific needs and opportunities to promote long-term benefits were agreed upon, itbecame possible to launch modest initiatives in this direction.

21 One successful experience in this regard was Shell's provision of legal assistance to facilitatelegal recognition of Mothers' Clubs and other groups as civil organizations, bringing the notaries tothe communities to complete this process, and educating participants as to their rights andresponsibilities.

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In hindsight, additional and possibly more appropriate measures in this direction could have beeninitiated from the outset of the consultation process. Some of these, such as a preventive healthtraining program and community education efforts to build their capacity to monitor socio-environmental indicators, were only begun toward the end of the design phase. But, to takethese initiatives, the company first needed to go through the learning process that became partand parcel of the experience in Camisea.

Even by the time of FID, it must be admitted that the CLOs were not yet fully prepared to becomethe instigators of such endeavours. As discussed earlier, they required additional training. Theirlearning curve and that of the remaining participants (community members, operational personnel,governmental officials, etc.) attests to the crucial role of creative individuals in management.Freedom, agility and flexibility to be creative were essential to this undertaking, as was somemeasure of insulation from the pressures of project scheduling. These preconditions werechampioned by key HSE managers in Camisea, but were also supported at higher levels in boththe project and corporate hierarchy.

It is essential, above all, that management recognise that building intercultural relationships in aproject setting implies interaction of distinct but mutually dependent societies. The social capitalstrategy aims to encourage the emergence of innovative "hybrid" institutions whose actionsrespond to both corporate and community objectives.

A goal for future projects should be to start building such relationships as early as possible in theprocess. At the outset of project consultations, it is thus important to designate or work towardscreating an institution responsible for establishing the much-required social benchmark fordecision-making. Such a strategy can involve a NGO partner, or an organisation such as aregional foundation that can mobilise local groups and resources to implement projects,generating collective benefits.

It is thus recommended that, at the very outset, project management field a well-trainedinterdisciplinary Community Liaison team. The team should respond to local needs and level ofpreparedness with a fairly open agenda. But it should operate with an unambiguous objective toinitiate shared social actions, however modest, and to patiently await results. These actions canthen establish the basis for further relationships to emerge.

The design and management of the community liaison process is thus critical. It is important tochoose the right people, regardless of their professional background, working to strengthen theirteam-building, conflict resolution and communications skills. The team must begin to work in thefield early in the process, and be empowered to represent the company in native communitymeetings. Not only must the CLOs be prepared in this way, but all workers and managementstaff should be screened and provided with training in cultural sensitivity and interpersonal skills.It is necessary to dedicate considerable resources, time and energy to achieving a unified,comprehensive team, which delivers a harmonious message, yet recognises distinctpersonalities and competencies.

Only once the enterprise has sensed the local dynamics, identified and helped to strengthen thecommitted institutions (whether governmental or non-governmental) and put trial initiatives to thetest, will it become advisable to propose agreements and to elaborate plans for the future. Byadopting this strategy, companies could ensure a more efficient and participatory decision-making process. More important, they could establish an innovative mechanism to mitigate risks,acquiring a competitive edge from a proactive stance toward socio-environmental concerns.

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8.2 Corporate and Community Roles and Rewards

A number of central lessons were gleaned from the study for other efforts to build mutuallybeneficial corporate-community relationships in fragile environments. These are summarised,below:

1) Companies first must build sensitivity through stakeholder consultation, thus permitting theirearly identification of socio-environmental issues at stake;

2) Management then must internalise these issues and reward staff advances in understanding

and learning with stakeholders; 3) A fair and transparent process will help to achieve long-term relations of trust during project

development and implementation;4) Companies must make early commitments at the highest managerial level to rigorously uphold

socio-environmental policies throughout the enterprise; 5) The company should seek to ensure staff continuity, recognising how important are

individuals themselves as guardians of corporate memory and commitment; and 6) Throughout, the company must emphasise setting creative and modest targets rather than

unattainable or costly ones, thus enhancing credibility with stakeholders.

Above all, the Camisea experience showed how important it is to provide a framework forcollaborative learning among civil society, government and private enterprise. With a complexcultural and environmental milieu, there were no "right answers" at the outset Ð lessons had tobe learned along the way. These lessons are broadly replicable and allow all players to buildtheir capacity to identify and contend with socio-environmental conflicts not only during designbut also throughout the process of implementation of major natural resource developmentprojects.

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