Managing energy company security risks in Latin America

Justine Barrett
Control Risks Group Ltd.
London

• Attacks on companies in columbia [34408 bytes]
• Urban murder rates [21266 bytes]
• Colombia's worsening crime problem [33948 bytes]
• Ranking colombia's security risks [69754 bytes]

But the opportunities go hand in hand with risks: complexities in social, institutional, and political arenas mean that successful security planning-to tackle rebel hostility, "green" anger, and crime-is fast emerging as one of the key challenges facing foreign oil and gas companies in the region.

When left-wing guerrillas blew up Colombia's Cano Limón-Coveñas as pipeline, Colombia's largest, on May 1, they were following a pattern set years ago (the attack was the 18th on the pipeline this year and the 460th in its 11-year history).

Colombia's National Planning Department estimated in 1996 that rebel hits during 1990-94 cost the industry at the very least $12 billion. This is the tip of a very large iceberg, with lost oil, lost pumping time, and the immediate repair operation just the start. Environmental clean-up operations and renewed preemptive initiatives hike costs further.

In countries where guerrilla violence is a problem-notably Colombia and Peru-the oil sector is high on the rebel agenda. Peru's Shining Path group bombed a Royal Dutch/Shell Group storage facility in Lima last year.

But Colombia is the biggest headache by far. Estimates from the oil sector suggest that an average 8% of a foreign company's investment in the country goes for security, compared with 1% elsewhere in the region. Occidental Petroleum Corp., the Cano Lim?n pipeline operator, puts the bill closer to 10%.

Why oil? First, the industry is high profile and involves massive investment, most of it foreign. Hostility towards foreign involvement in the economy and so-called imperialism is and always has been a potent rallying cry for the Latin American left.

Second, oil can be a messy business, inevitably attracting the attention of the region's increasingly vocal green and Indian activists, both local and international.

Third, oil operations frequently take place off the beaten track, where state control is weak.

Rebel activity

Nationalism is the most potent mover in countries where rebels brandish anti-foreign slogans to justify their attacks on the oil sector.

Peru's Shining Path guerrillas clearly intended to play the nationalist card with their May 1996 attack on Royal Dutch/Shell, which coincided with the company's signing of a contract to explore the massive Camisea gas field in Peru's central southern jungle.

Peruvian guerrillas' preference for targeted attacks over more large-scale and indiscriminate violence is in line with their declining military capability.

Colombia, however, is home to the world's largest and most dangerous guerrilla insurgency. The country's security forces by and large have the upper hand in the cities-to the extent that a stay in Bogot or Cali might easily leave you asking yourself what all the fuss is about. But it's a different story in the hinterland, where guerrillas are present in more than half the country's 1,050 municipalities, up from 170 in 1985 (see map, p. 46).

There are two main guerrilla groups: the 8,000-strong Revolutionary Armed Forces of Colombia (FARC) and the 4,000-strong National Liberation Army (ELN). Organized into more than 90 fronts, each group has separate territories and specialties, although they have been known to work together.

Broadly, FARC is concentrated in Colombia's central and southwestern departments, while the ELN's strength is greatest in the northeast. Both are also involved in crime, which funds their insurgencies. ELN specializes in kidnapping, extortion, and bombings; the group is behind most of the Cano Lim?n-Cove?as attacks, which are a central feature of its campaign. The group is also partial to firearms attacks; in June 1996, guerrillas shot at a helicopter carrying a crew for Western Geophysical, a U.S. company conducting geological studies for BP Exploration in its Cusiana field. Occidental said in April that five of its contractors' employees have been killed by guerrillas so far in 1997; 14 were killed in 1996.

Extortion backed up by the threat of violence is a favorite guerrilla tactic. It is most common in Colombia but is also a problem elsewhere: Occidental appeared on a list of intended extortion targets for Peru's MRTA in the early 1990s. But, as in other areas, Colombia's insurgents-in particular the ELN-have taken the art of extortion to an altogether higher level: 95% of foreign companies in Colombia have received extortion demands from guerrillas.

Demands come in different shapes and sizes. Companies may initially be approached by guerrillas asking for food or clothing; this may be a precursor to a more ambitious bid or even a kidnapping. Bombing campaigns such as that against Cano Lim?n-Cove?as are usually part of an extortion program. In some cases, a guerrilla group may present itself as a defender of the local community, forcing large companies to spend more and more on local community projects.

As far as is possible, companies should avoid paying extortion demands (paying up rarely pays off). Indeed, companies that submit to extortion demands are rarely immune from future attacks against their staff or property; those that pay once and then stop arguably run a higher risk of being declared a "military target" by disappointed guerrillas. The ELN's sustained bombing campaign against one of the country's pipelines is directly linked to the fact that its foreign operator had halted the "war tax" payments the group was receiving from the pipeline's foreign builder.

The best approach is to preempt possible extortion demands by giving the local community a stake in the project.

Colombia leads the way in the kidnapping stakes, too. The country has some of the highest abduction rates in the world. Criminals and guerrillas are responsible for the 1,500 or more cases Control Risks logs each year. ELN and FARC rely heavily on kidnapping to fill their war chests, particularly in the wake of anti-drug programs late last year that hit FARC's other main source of funding, protection of the rural drug trade. Typically, guerrillas demand much higher ransoms than criminals and are prepared to hold their victims for months, even years, while negotiations grind on. According to the armed forces, the kidnap business was worth $530 million in 1995, with guerrillas demanding an average $248,000/hostage.

Most abductees are Colombian, but about 40-50 foreigners are kidnapped each year, most of them in the countryside-which is exactly where the oil is. Rebels seized 24 oil workers in 1996, over half of them employed by foreign operators; at least one foreigner was among the victims. In one of the most recent cases involving a foreign oil employee, three ELN gunmen armed with submachine guns seized expatriate Italian engineer Lino Chioccioli from a construction site in Antioquia in August last year. Chioccioli, who works for Italy's Saipem SpA, was involved with the trans-Colombian Ocensa pipeline project. He was released unharmed in January.

Although Colombia holds the most-kidnaps title, a recent spate of abductions in neighboring Venezuela shows how the problem can spread as Colombian guerrillas scent growing opportunities across the border in the wake of 1996's licensing round. Forty kidnaps were reported in the border area in 1996, compared with nine in 1990 (again, we can assume the real figure is much higher). Rebels got off to an early start this year with the kidnap of two local oil engineers in Apure state on Feb. 12. The two men work for the Corpoven SA subsidiary of state oil company Petroleos de Venezuela SA. Guerrillas struck again 2 days later, snatching U.S. national Gerald Schaffer and his Venezuelan pilot in southwestern Apure, close to the Colombian border. Schaffer, operations manager of U.S. oil company Production Operators Inc., was forced to fly over the border into Colombia.

Indians are green, too

Latin America's environmentalists and indigenous peoples can be as big a headache as the region's guerrillas, even if they don't grab as many headlines.

In common with their counterparts around the world, environmentalists are looking increasingly hard at the oil sector.

Shuar Indians in Ecuador kidnapped two foreign scientists conducting environmental impact studies in February to register their opposition to the workers' failure to ask permission before entering Indian territory. The Shuar started with a $2 million ransom demand for what they termed the scientists' theft of ecological information (of which the tribe claims exclusive ownership) but were persuaded to drop it in return for an apparent assurance from Argentine oil company Cia. General de Combustibles that it would seek permission before attempting to re-enter the area. The Shuar also issued a public reminder that they expected to be consulted before any foreign personnel entered their lands.

In Colombia, Occidental faces a protracted legal dispute in the face of U'wa Indians' opposition to its plans to explore the Samor? block in northeastern Boyac department. The ELN is widely held to be a major player in the dispute, providing the U'wa with encouragement and support. In late 1996, the U'wa threatened mass suicide if exploration plans went ahead; Oxy's plans are currently stalled (see related article, p. 36).

Strategies for dealing with a range of pressure groups fall directly within the security purview, not just because of the potential threat their actions pose to oil companies' property and personnel but also because of the central part that community relations programs play in damage limitation strategies.

Crime and impunity

As if these problems weren't enough, foreign oil companies have to face up to Latin America's crime problem.

The region's cities are particular blackspots; crime rates in some urban areas dwarf those of even the meanest of the U.S.' mean streets (see charts, p. 45).

Most Latin Americans have yet to benefit from the region's economic turnaround and, as inequalities widen, crime levels grow. Violent crime is spreading from poor residential districts into wealthier commercial and residential areas. Wealthy locals and foreign expatriates in upscale suburbs are prime targets, and window bars, alarms, and neighborhood-watch schemes are now par for the course even in countries previously regarded as the region's safer states, such as Bolivia, Chile, Costa Rica, and Argentina.

Statistics are hard to come by; those that exist are often dubious.

Many crimes go unreported, although trends in the murder rate provide a good indicator-it's harder to hide a body than a mugging.

In parts of Latin America, ever-increasing crime requires stringent precautions against a range of possible risks. In Peru (and, to a lesser extent, Mexico), the number of short-term abductions-known as secuestros al paso-has increased greatly; foreigners are potential targets. In August 1996, Brazilian mining engineer Amarildo Renoo de Oliveira was kidnapped and killed in Peru's Puno department.

Police forces and judicial systems are ill-equipped to deal with the problem-indeed, they're often part of it. Judicial corruption and inefficiency is another major obstacle to getting crime rates down. Colombia's oft-quoted 97% impunity rate (only 3% of crimes are punished by the law) fuels more violent crime as victims take the law into their own hands or support vigilante and death squads. Mob lynching is the corollary in other countries, notably Venezuela and Central America (in Guatemala lynchings were reportedly running at one every 4 days in early 1997).

The solution

Antonio Urdinola, head of Colombia's state oil company Empresa Colombiana de Petroleos, recently said that the government is committed to ensuring better protection for companies working in Colombia.

It's about time, chorused the foreign oil community.

Energy and Mines Minister Rodrigo Villamizar revealed the same month that BP had threatened to pull out unless security concerns were addressed.

Security issues are tied up with pressure on the government to improve tax terms, in part to offset high security costs. But most foreign companies know that even a dramatically boosted state security force presence is not the answer. No amount of foot soldiering can replace an integrated in-house team building a sound and lasting relationship with the local community and keeping a close eye on the hiring and conduct of company personnel.

Exhibit 1. Terrorist attacks against large multinationals are far more numerous than those against smaller, less well-known companies. The reasons behind this are complex, although leftist guerrillas' professed nationalist agenda makes it easier to demonize, and therefore target, the big names. In addition, the greater protection larger companies can afford may itself provoke attacks. But smaller companies, which can ill afford complex security arrangements, are vulnerable in other ways. For them, a strategy formed through early pre-entry security planning is paramount. The composition and control of personnel is crucial for all foreign operators in Colombia, but smaller companies are well advised to give extra emphasis to maximizing the proportion of Colombians on the payroll and reducing as far as practical the number of foreigners on the ground (a red flag to a bull as far as the guerrillas are concerned).

Exhibit 2. In countries where terrorism is a problem, notably Colombia, cooperation with the state security forces is clearly necessary but can be open to misinterpretation, particularly internationally. Companies have to find a way to ensure good relations with the local military while maintaining a clear distance. One big no-no is staffing the highest ranks of your company's security team with military figures or personalities closely associated with the state security forces. BP in October 1996 faced well-publicized charges in the European Parliament that it had "acquiesced" in human rights violations by the Colombian security forces through its security team's close association with the local army (OGJ, Apr. 21, 1997, p. 42). The Colombian army is regularly singled out for special criticism by Amnesty International.

Exhibit 3. Good relations with the local community must be at the heart of any long-term security strategy. Locals expect benefits from the presence of a foreign oil company. In the remote areas in which most oil installations are found, communities live in poverty, with little infrastructure, income security, or education. These communities expect some benefits from a foreign company that has come to extract what they see as Colombian wealth. The real challenge is persuading the local community that local initiatives are not mere security precautions but part of a genuine desire to better their lot. In areas where foreign companies appear aloof, disinterested, or even afraid of the local community (conditioned perhaps by Colombia's reputation as a violent frontier land), the ground is fertile for the guerrillas. On the other hand, local communities that believe they are empowered by a foreign company to advance themselves, build schools, set up small businesses, and generally develop the area will not want guerrillas jeopardizing their opportunities. The Shell Foundation in Huila sponsors educational and other projects for members of the local community in the area in which Shell works. The foundation is a prime example of a foreign company becoming an established patron of the local community. Occidental and Amoco Corp. have undertaken similar initiatives in Ecuador (OGJ, Apr. 21, 1997, pp. 37, 44, and 50).

As a result, Shell, potentially a prime guerrilla target as a large and high-profile multinational, has avoided being singled out by rebels and-despite its Nigerian controversies-by environmentalists.

Team up

The ideal oil security team in Colombia would include a civilian strategist in the leadership and would incorporate middle-ranking military figures to ensure good army cooperation.

It would include input from social scientists-typically sociologists and anthropologists-in the design of a successful community relations program.

Within this scheme, the company's security team designs strategy and employs private guards to secure property and installations. In an ideal scenario, the state security forces are relied on only for those tasks that private security people cannot perform themselves.

Prevention better than cure

An in-depth pre-entry study is an invaluable starting point for a long-term security plan. A typical study would address the following questions as a minimum:

• In high-risk countries such as Colombia and Peru: What is the guerrilla threat in the area where I am planning to operate? Bear in mind that guerrillas usually gravitate to areas where foreign companies are likely to be.

• In other countries: What are the main pressure groups active in the oil sector and what are their tactics? How do they view foreign investment? How can I redress their negative preconceptions?

• In all countries (1): What is the experience of previous operators in my geographical or sectoral area? What about my predecessor in this project-might their poor relations with the local community/dealings with guerrillas prejudice me from the start? How can I win the trust of the local community? (2): what is the threat from crime? In all my security dealings, what support can I expect from the local authorities? Should I be wary of implicating my company in any dubious practices of the local state security forces? What is the government's stance on the key security issues, and what legal safeguards or other provisions are in place to protect foreign companies?

These ingredients form the basis of an effective security strategy in Colombia-and provide the ultimate basis for successful security planning throughout the region.

Golden rules

In short, Latin America is attractive to foreign oil companies because of its expanding opportunities and new-found political and economic openness.

Many large foreign operators have been there for decades-the most eloquent testimony that the advantages outweigh the problems. However, problems there are-and they can be complex.

In short, there are three golden rules for tackling the region's main political risks:

• Rule 1: Prevention is better than cure. Pre-empt potential challenges with an in-depth pre-entry evaluation of the full range of possible problems.

• Rule 2: Construct a stakeholding society. Give the local community an interest in the success of your project through a comprehensive and well-presented community relations program.

• Rule 3: Security is rarely only a military problem. Implement an effective security and crisis management strategy drawing on multi-disciplinary expertise.

The Author