“Without external assistance, there will be little progress on economic reform, reserves will remain scarce, the current account deficit will widen, and the country will remain under pressure” 8

Before looking at the current economic situation in more detail, it is important to point out that any analysis can be distorted by data problems resulting from the following:

(1) The use of the overvalued official exchange rate in measuring some economic statistics. The official exchange rate overvalues the domestic currency (kyat) by some 60 times. This official exchange rate is so out-of-line with the market rate, that virtually all business transactions, except those involving state industry, are now conducted at the parallel rate.

(2) The two quite distinct parts to the Burmese economy: the official or legal economy and a large informal sector and extra-legal, i.e. logging, smuggling and drug exports (the U.S. State Department estimates that 40% of heroin in the U.S. originally comes from Burma), economy not captured in official figures.

(3) Government data that is sometimes of poor quality and often outdated.

Although the Burmese military government unveiled a new 5 year economic plan (running until 2005/2006) in May 2001, it is unlikely to bring about any significant changes. The junta remain focused on the development of the agricultural and energy sectors, firstly to improve domestic supplies (in particular, self-sufficiency in food production) and secondly to provide surpluses for export. No new policies however, have been introduced to promote these two goals and agricultural output remains constrained by high production costs and shortages of key inputs.

Click for Exhibit 1: Key Economic Indicators and Forecasts
(opens in new window)

GDP: growth slowing

“The junta’s own ability to track development and growth is poor, while its management of the economy appears to be conducted on an increasingly ad hoc basis” 9

Reports from the junta show year-on-year GDP growth of 10.9% in 1999/2000, in real terms. This was markedly higher than original official estimates for the year (5.7%), but is supported (with some caveats) by a recent IMF report citing official 1999/2000 data with double-digit agricultural and industrial growth. The Economist Intelligence Unit (EIU) now incorporates this 10.9% figure in its economic model (Country Report, August 2001) but remains somewhat skeptical, believing that growth may have been artificially boosted by extra-legal (or informal) sectors of the economy.

Click for Exhibit 2: Breakdown of Gross Domestic Product - 1998
(opens in new window)

More recent evidence indicates that the economy has since slowed. According to the latest data from the IMF’s International Financial Statistics, real GDP growth slowed to 6.2% year-on-year in financial 2000/2001 in the light of flagging foreign investment, weak domestic and internal demand, depressed construction and property sectors, weak manufacturing growth, shortages of imported inputs and regular power outages. The EIU are forecasting a further slow-down in real GDP growth (illustrated in Exhibit 1) in the years ahead, as a result of considerably slower growth across Burma’s key export markets in South-east Asia. The pace of growth within the ASEAN (Association of South-East Asian Nations) in 2001 is now expected to be less than half the level experienced in 2000.

Inflation: rising
After reported consumer price inflation figures of 18.4% in 1999, the EIU estimate (in line with official data released by the IMF) that inflation fell 0.1% in 2000. This slowdown was largely the result of falling prices for food (rice prices, which have a heavy weighting in the index, fell after good harvests) and clothing. Fuel was the only element of the index to experience an increase during the 2000 period, in line with higher global oil prices. Anecdotal evidence however, suggests that official data understates the real level of inflation, which according to some estimates may actually have been closer to 20% on average in 2000.

The EIU believe that inflation is likely to have risen quite sharply so far in 2001, due to the rising costs of imported goods as the kyat weakened against the dollar, civil servants pay rises, and a pick-up in agricultural prices towards the end of the year. In addition, severe power cuts are likely to have disrupted production and created supply-side pressures. The EIU forecast inflation of 7.1% in 2001 and 8.6% in 2002.

Currency: weakening
The currency of Burma is the kyat. The official exchange rate pegs approximately 6.8 kyat to US$1. However the unofficial or free-market rate (used in the majority of business and consumer transactions and tacitly tolerated by the government as necessary to carry on business) of the kyat weakened dramatically to 800 kyat to US$1 in mid-May 2001. The unofficial rate has subsequently recovered slightly and is currently trading at approximately 600-650 kyat to the US dollar.
A “proxy currency” also exists in the form of Foreign Exchange Certificates (FEC). The Burmese government introduced these certificates in 1993 as a substitute for the US dollar to be used inside the country where it was illegal for nationals to handle foreign currency. The FEC originally held a 1-to-1 value to the US dollar but has also suffered a recent decline in value. This was largely the result of over-printing by the junta where the amount of FECs in circulation, estimated at around US$400 million, perhaps twice exceeded the number of dollars collected by the government. A recent article in the International Herald Tribune has indicated that in June the government, in an attempt to stabilize the rate, appears to have switched the peg to a fixed kyat value. Instead of fixing their value to US$1, the certificates are now valued by government-approved dealers at an equivalent of 490 kyat. 10

The free-market kyat has been undermined by a number of factors:

(1) The military government’s lack of proper handling of the economy.
(2) Burma’s serious foreign exchange shortage. Latest data from the IMF’s International Financial Statistics indicate that reserves (excluding gold) had dipped to US$223.0 by the end of 2000.
(3) Disrupted border trade.
(4) Continuing tensions along the border with Thailand.
(5) Attempts to drive up the exchange rate earlier in the year led the junta to buy up the FEC. This buying spree made the situation worse as it simply caused fears amongst the Burmese people that the certificates would be removed from circulation. With the FEC themselves no longer fully backed by sufficient dollars, any attempt to remove the special currency from circulation would mean heavy losses for those holding FEC accounts. People switched their savings into foreign exchange and into gold, adding to further pressure on the kyat.

At the moment there is little evidence that the junta is looking at re-aligning the grossly overvalued official exchange rate and the multiple exchange rate regime.

Negative impact on consumers
The slide in the value of the kyat on the unofficial market has seen the cost of everyday consumer items increase substantially since the start of the year. According to aid officials working in Burma, the price of basic commodities, including items such as eggs, vegetables and oils, has doubled or tripled over the past nine months alone. The price of imported goods, for example monosodium glutamate, medicines and toiletries has also risen significantly. Customers at many of Rangoon's small shops and supermarkets are reportedly stunned by the doubling of prices of many of their regular purchases.11

The government’s limited hard-currency reserves has prompted the need to increase control of the import of goods such as petrol, electricity and cooking oil, and has led to the introduction of rations. In May 2001, petrol rations were reduced from three gallons a week to two, and bus and taxi fares subsequently increased.12 In June, cooking oil æ a commodity that has long been an indicator of Burma’s economic health æ was also rationed. Since the early 1990s, palm oil has largely replaced the more traditional, and healthier, peanut oil as a cheaper cooking oil alternative. The rationed palm oil, drawn from UMEH (the government-owned Union of Myanmar Economic Holdings) reserves, is available only to consumers who present household registration documents and certificates issued by local authorities. The government’s price for one viss (1.53kg equivalent) of cooking oil is 350 kyat, but for those unable to wait in huge lines to collect their rations, the market price can be as high as 1000 kyat.

“The worst thing is that now we have to wait in long queues of over 400 people during the hottest time of the day just to get our half-viss ration per household,” complained one housewife in Rangoon's Bahan Township.

“The country is going straight to hell. Everyone is frustrated with living here.” 13

The expense of everyday (and to an even greater degree, luxury) items is illustrated in a comparison of Exhibits 3 and 4. The Irrawaddy Online news magazine (covering Burma and Asia) provides the following information on goods prices and salaries in Burma.

Click for Exhibit 3: Examples of Goods Prices in Burma
(opens in new window)

Click for Exhibit 4: Examples of Salaries in Burma
(opens in new window)

External sector: current account and trade deficits have narrowed
Burma’s current account balance æ the sum of its external trade, services and private remittance surpluses or deficits æ fell to an estimated deficit of US$293 million in 2000, a narrowing from a deficit of just under US$366 million in 1999. This latest data from the IMF’s International Financial Statistics differs from other official press reports earlier in the year that had suggested a further widening in the deficit. The EIU does however warn of serious inconsistencies and distortions in Burma’s trade data (the impact of widespread smuggling, the extensive drugs trade, the use of 3 different exchange rates), undermining the reliability of forecasts and assessments of the external sector.

Click for Exhibit 5: Burma's Principal Imports and Exports - 2000
(opens in new window)

According to official data, Burma’s trade deficit narrowed through the first 11 months of 2000/2001 (April-February) as a result of both an increase in exports and stagnating imports. The SPDC has taken extensive measures to restrict imported goods, which combined with limited foreign exchange reserves and the drop in the unofficial value of the kyat, appears to have led to a decline in imports. Weak domestic demand and limited foreign investment have also been contributing factors. The rise in exports may be somewhat over-inflated but the outlook for a number of Burma’s export commodities has improved during the financial year.

The EIU are not forecasting any significant improvement in Burma’s trade balance in 2001/2002 as a recent power crisis has forced the import of large quantities of diesel to keep the country’s generators running. In addition Burma’s key export markets (see Exhibit 6) are forecast to experience slower growth during the period. The current account balance is also expected to remain in deficit at a broadly similar level in 2001/2002, doing little to alleviate concerns over low foreign exchange reserves.

Click for Exhibit 6: Burma's Main Trade Parters - 2000
(opens in new window)

The external sector of Burma’s economy (particularly outside of ASEAN) continues to be constrained by the political impasse leading to the loss of many trade privileges, normally associated with a developing country. However, regardless of these restrictions, (which do not at the moment amount to trade sanctions) trade with industrialized countries (such as the U.S. and the U.K.) has risen sharply over the last year (2000/2001.)

Foreign investment: increasing but still limited

“Until we have a system that guarantees rule of law and basic democratic institutions, no amount of aid or foreign investment will benefit our people.” 14

“Foreign investment in most countries acts as a catalyst to promote change, but the Burmese regime is so single-minded that whatever money they obtain from foreign sources they pour straight into the army while the rest of the country is collapsing.” 15

According to official statistics, since the opening up to foreign investment in late 1988, Burma has drawn a total of such contracted investment of US$7.34 billion in 356 projects as of the end of 2000. Investment was severely impacted by the Asian financial crisis in 1997, but has since been increasing once again. Of the leading foreign investors, Singapore ranked the first with US$1.5 billion, followed by Britain with US$1.4 billion and Thailand with US$1.3 billion.16 The EIU has so far only reported figures for the first 11 months of 2000/2001 and these are illustrated, by sector, in Exhibit 7. Another report from Xinhua, a Chinese news agency, has reported figures for the full year 2000/2001 with investments in Burma totaling US$152.8 million. The investments came from nine countries and regions, predominantly the Republic of Korea, Britain, China and Canada, and were mostly injected into the manufacturing, oil and gas and agriculture sectors of the economy.17

Click for Exhibit 7: Foreign Direct Investment - US$m
(opens in new window)

There are many obstacles and risks for a foreign company wishing to invest in Burma. Not only does the official exchange rate, (as previously discussed) significantly overvalue the currency, but Burma also lacks a significant private banking sector, modern banking practices and an independent Central Bank. However, material hurdles such as these aside, perhaps the most significant deterrent to investment lies on more ethical grounds. Widespread condemnation of the human rights abuses perpetuated by the ruling military junta has led to international calls for action to dissuade and actively prevent foreign companies investing and working in Burma. In addition to legislative measures (examples detailed below), foreign investment in Burma is opposed by growing consumer boycotts and advocacy convincing many U.S. and European companies to quit Burma or not to begin doing business there.

Sanctions and international restrictions
In May 1997, President Clinton issued a federal order banning any new investment in Burma by U.S. businesses because “the actions and policies of the SLORC (now SPDC) regime constitute an extraordinary and unusual threat to the security and stability of the region, and therefore to U.S. national security”. These sanctions were renewed by President Bush in 2001, and although they have prevented any new U.S. investment in Burma, they have allowed U.S. companies that had done business in Burma before May 1997 to continue to do so.

On a local level in the U.S., selective purchasing laws have been passed by New York City, over 20 other municipal and local governments (including San Francisco, and Los Angeles) and the state of Massachusetts, punishing companies doing business in Burma. The Massachusetts law however, which penalized Burma-invested companies when competing for state contracts, was found unconstitutional in 2000 by the U.S. Supreme Court, as it was deemed an infringement on the federal government's prerogative to conduct foreign policy. Alternative strategies, including divestment from companies doing business in Burma, are being pursued in Massachusetts and by some city governments.

Away from the U.S., the EU has removed the generalized system of trade preferences (GSP) privileges on agricultural and industrial goods from Burma.

Multilateral institutions, such as the World Bank, the IMF and the ADB, will not consider giving assistance to Burma whilst the current regime is in power.

In November 2000, the International Labor Organization (ILO), an agency of the United Nations, called on all of its 175 members, which include governments, labor unions, and employers, to review their relationships with Burma to ensure that they are not contributing to forced labor in the country. This unprecedented call came after intensive research over a period of years during which the ILO found "a modern form of slave labor," being committed on a considerable scale by Burma's military regime. The ILO cannot impose sanctions directly, nor can it directly punish those who violate international law on labor rights; the member governments are responsible for determining their individual courses of action.

A team from the ILO spent 3 weeks during September 2001, in Burma and is due to report on its findings to the Governing Body at its November 2001 session. Their aim is to make an objective assessment of the practical implementation and actual impact of various legislative, executive and administrative measures announced by the Government in response to previous ILO action, with a view to determining whether these measures have been effective in eliminating the practice of forced labour.18

“These people are hurrying in to make cozy business deals while pretending that nothing is wrong. They need to be reminded that this is one of the most brutal military regimes in the world and putting money into the country now is simply supporting a system that is severely harmful to the people of Burma.” 19

Aung Sang Suu Kyi’s National League for Democracy believes that foreign investment in Burma only serves to perpetuate and fortify the rule of the military junta.

A number of global organizations have operations in Burma and a summary of some of these major companies is provided in Exhibit 8.

Click for Exhibit 8: Examples of Companies Still Operating in Burma
(opens in new window)

Over the past decade however, many large companies have withdrawn from, or closed their operations in Burma. For some it was a direct response to legislation (particularly U.S. investment sanctions) enforced to prevent companies doing business with Burma. Others have been influenced by consumer campaigns and the threat (and/or reality) of consumer boycotts and shareholder action if their products continued to be associated with the Burmese regime. Examples of these companies, and their major motivations for leaving Burma are illustrated in Exhibit 9.

Click for Exhibit 9: Examples of Companies that have pulled out of Burma
(opens in new window

"The government alternates randomly between odd, desperate and occasionally appropriate measures." 20
“Observers point out that the Burmese authorities have always taken an idiosyncratic approach to the economy.” 21

Unrealistic official exchange rate and unstable market rate
There appears to be little prospect of the junta attempting to realign the official value of the kyat, a move believed by many economists to be a key to long-term recovery of the currency.

Rising inflation
Inflation is forecast to increase going forward after a decline in 2000. Official data is reported to severely understate the degree of upward pressure on prices.

Wide current account deficit
Unlikely to narrow in the near-term maintaining foreign exchange reserves at disturbingly low levels.

Uncertain environment for foreign investment
Consumer boycotts, sanctions, a difficult business climate, import restrictions and limited access to foreign exchange all make foreign investment challenging.

These hazards are set against a backdrop of a slowing global economy

(2) Political Risks:
In addition, to the risks posed by the current economic situation, instability in Burma has been compounded by:

Political uncertainty
The military junta still has a stranglehold on power in Burma. However, both the SPDC and members of the NLD opposition (Aung San Suu Kyi’s party) have confirmed that talks between the two sides are continuing, despite rumours to the contrary indicating that the limited dialogue that began at the end of 2000, had stalled. Although these discussions provide a case for cautious optimism, it is not clear what proposals, if any, are being discussed by the two parties.

The UN envoy to Burma, Razali Ismail, has suggested that the SPDC may be contemplating the formation of a transitional government (including members of the NLD, and most likely a strong military presence) to oversee the completion of a new constitution and pave the way for the possibility of a fresh election. In such an uncertain political climate however, dialogue and potential progress could be brought to a standstill at any time.

For many observers, political reform provides the key to economic improvement. An end to the political impasse would bring an end to the current aid freeze, the removal of investment sanctions and an end to tourist boycotts. Any government in which the NLD had a significant role in policy formation could also be expected to undertake sweeping economic reforms with the assistance of multilateral organizations. All these developments could result in increased economic growth and a stronger external environment than portrayed in the EIU outlook and forecasts discussed in previous sections. 22

Fighting in eastern borders with Thailand
Tensions along Burma’s border with Thailand remain high after a series of skirmishes between the SPDC and ethnic groups at the start of 2001. The combination of a disputed border, clashes between the junta (with their high military presence in the area) and ethnic groups, and a virulent drugs trade, are likely to ensure that relations remain troubled going forward.

(3) Other Risks:
In addition to the risks outlined above, companies operating, or with business relationships in Burma, can be exposed to serious reputational risks resulting from sanctions, boycotts or public campaigns by customers, governments, international bodies and non-governmental organizations.

Section 2: The Case of Premier Oil
A U.K. Company With Significant Operations in Burma
One of the international companies still operating in Burma is the U.K.’s Premier Oil. Since 1988, the U.K. has been the second largest foreign investor in Burma, with Premier Oil the major contributor. Premier Oil is an independent international exploration and production company with interests in U.K. onshore and offshore production and extensive gas production interests in Pakistan, Burma and Indonesia.

May 1990-1992
Premier Oil first became involved in Burma in May 1990 after it was awarded Production Sharing Contracts (PSCs) to explore sites M13 and M14 in the Yetagun gas field. Yetagun is located in 105 meters of water in the Andaman Sea, 202 kilometers offshore, and 320 kilometers southeast of Burma’s other major offshore field, Yadana.

In September 1991, Texaco and Nippon Oil also joined the Burmese offshore exploration project and a year later in 1992, the combined Premier/Texaco/Nippon group were avoided a PSC in an additional site, M12.

1992-1994
After a period of exploration and data evaluation, the designated Yetagun-1 well became the first offshore Burma western-operated well since the mid 1970’s. Subsequent appraisal wells followed, culminating in the Yetagun field’s 3 sites (M12, M13 and M14) being confirmed as commercially viable in 1994.

1996-1997
In October 1996, the Petroleum Authority of Thailand (PTT) agreed to buy gas from the Yetagun field and shortly afterwards PTT also joined the Yetagun exploration group. Further changes to the development group took place when the Myanmar Oil and Gas Enterprise (MOGE) exercised its option to participate and Texaco withdrew from the group (transferring operating control of the field to Premier) to be replaced by Petronas Carigali.

The current partners in the Yetagun field and their working interests are viewable at this link.

1997-2000
Construction of the Yetagun pipeline

May 2000
First gas flowed from the Yetagun field

July 2000
Main gas sales contract started on July 1

May 2001
Premier releases its Social and Environmental Performance Report on Operations, detailing the impact its gas pipeline has had on local communities in Burma and on other key stakeholders.

“Premier Oil is not only supporting this military government financially, it is also giving moral support, and it is doing a great disservice to the cause of democracy. It should be ashamed of itself.”
Aung San Suu Kyi

“I’m going to make it quite clear, we do not approve of what Premier are doing, they know that perfectly well, we would much rather they stopped and they know that perfectly well.”
Robin Cook (former Foreign Secretary)

“I really expect Premier to do the decent thing without having to resort to legal pressure.”
John Battle, (former Labour Party Foreign Minister)

Criticisms of Premier’s involvement in Burma have not just arisen out of general opposition to any international company operating in Burma, and thus effectively endorsing the oppressive military regime. Criticism has also come after rigorous documentation of human rights abuses resulting from Premier’s (and other international oil companies, most notably TotalFina and Unocal’s) operations in what has become known as the “pipeline region”.

Premier has tried to defend its Yetagun pipeline on the basis that it was built after Unocal/TotalElfFina’s Yadana field, and that many of the accusations of human rights abuse relate specifically to the Yadana project. However, Premier’s own literature clearly states that it has benefited from Yadana infrastructure, and therefore Premier is clearly associated with the abuses linked to the Yadana pipeline.

“Considerable infrastructure, comprising airstrip, jetty and various roads and bridges, is required to support onshore pipeline operations in the remote Taninthayi region of Southern Myanmar. This infrastructure was originally built by Total Fina on behalf of the Yadana Joint Venture partners. The Yetagun onshore pipeline runs parallel to the Yadana onshore pipeline for much of its length. Thus Premier Oil and Total Fina …have agreed to share the cost of this infrastructure and operate it for the mutual benefit of both the Yetagun and Yadana fields.” 23

In 1996, an impact assessment report about the building of the Yetagun pipeline was produced for Premier Oil and other consortium members. It stated that “the pipeline will create a major security role for the army.” 24 This prediction has been realized and an area with no previous significant or permanent Burmese military presence was suddenly flooded with troops to make it a safe and attractive area for international oil companies to operate. The new army battalions needed barracks and thousands of local villagers had to build them. The Yetagun impact assessment observed:

“Military housing and local infrastructure is provided by underpaid or unpaid labour. The harsh conditions of those carrying out such labour æ including young children æ and the testimony of local people who will go to extremes to avoid it, belie the government claim that such work is voluntary.” 25

Field staff of EarthRights International (ERI) have documented the conditions in the pipeline region. First hand testimonies from victims, witnesses and army defectors were collected and translated after extensive hours of interviews conducted between 1995 and 2000. Interviewees testify to a range of abuses including forced labour, torture and rape. Furthermore, a report from Amnesty International in June this year, documented serious human rights abuses committed by 2 Light Infantry Battalions (LIBs) providing pipeline security. 26

(1) Political and economic risks:
Burma’s considerable political and economic risks have already been discussed in greater detail in an earlier section of this report. Premier Oil’s investments in Burma (its largest asset) expose the company to risks which could have a negative influence on the value of Premier Oil’s shares and its corporate performance.

(2) Legal risks:
Premier Oil may be at risk of legal action aimed at deterring companies from investing in countries with notorious human rights records. In the U.S., legislation has been developed to discourage companies from operating in some countries where there is civil conflict or rule by repressive regimes. 27 In addition, recent cases in industrialized countries have started to open up the opportunities for claimants from host countries to hold companies legally accountable in their home countries. The U.S. has had the largest number of lawsuits exploring corporate liability for human rights violations committed abroad under the 1789 Alien Tort Claims Act (ACTA).28 These developments heighten the possibility that Premier Oil may be exposed to legal risks for complicity in human rights abuses regardless if national laws in Burma fail to allow claims.

The following two examples describe recent cases in the U.S. where companies with operations in Burma have been directly affected by legal action:

Bill S 926 (The Harkin Bill): deterring U.S. investment in Burma
The introduction of national legislation (Bill S 926) by 15 U.S. Senators (Democrat and Republican, including Senator Tom Harkin) would end imports from Burma altogether (“no article that is produced, manufactured, or grown in Burma may be imported into the United States”) within 15 days of passage by the Senate and House of Representatives. The bill was introduced in the U.S Senate in May 2001, and the House of Representatives in June, and is due to be debated in October/November.

Given that that bill would be enacted so quickly after being passed, buyers have already been taking precautions to avoid the possibility of breaking the law. The vice chairman of the Myanmar Garment Manufacturing Association has said that orders from the U.S. (which normally represent an estimated 65% of exports) were down sharply in June and July. In addition, he estimated that about half of the 400 garment factories around the Rangoon area would have closed by mid July, and that in the longer-term, some three-quarters of the country’s industry would close.29

20 U.S.-based corporations (including Wal-Mart, Costco, Sara Lee, Pottery Barn, IKEA and Fila) have, over the last 14 months, agreed to stop importing goods from Burma or allowing such goods to be sold in retail stores.

Unocal: facing material contingent liabilities due to human rights violations associated with its Burma investments. 30
California-based Unocal is one of the largest oil and natural gas exploration and production companies in the U.S. It is the only U.S. company with significant direct investments in Burma, through its 28.36% stake in the Yadana natural gas joint venture. 31

In September 2000, 15 plaintiffs (Burmese workers forced to work on Unocal’s Yadana gas pipeline project) filed lawsuits, under the Alien Tort Claims Act, against Unocal in both the federal and state courts. The workers claimed Unocal had been complicit in human rights abuses (including forced labour, assaults, and torture) committed by security forces in the area of its pipeline project. The federal court granted summary judgment to Unocal on the grounds that there was insufficient evidence to show that the company was benefiting from the use of forced labour. The case is however, on appeal to the U.S. Court of Appeals for the Ninth Circuit and there has been a ruling in the district court that the case should be heard in a California state court.

If the Ninth Circuit reverses the federal court’s decision, Unocal could potentially face enormous damages. In recent forced labour cases, courts have awarded on average, approximately US$100 million in damages to each individual plaintiff. 32

Foreign direct liability in the U.K.
Of greater significance for Premier Oil (and currently being explored by activist groups) are similar developments in corporate liability that have emerged in the U.K. under the principle of “duty of care”, an obligation that applies to all individuals and organizations in the country. The central issue is whether a parent company has a legal “duty of care“ to people affected by operations of its overseas subsidiaries. The “duty of care” principle applies in cases where the parent company was aware of any dangers and negligence caused by its practices in a country with lower environmental or human rights standards than in the U.K.

Several cases have already been brought before the U.K. courts concerning foreign direct liability. The House of Lords recently decided that a case against U.K.-based mining company Cape plc, concerning claims by over 2000 victims of asbestosis contracted from unsafe practices of the company’s South African subsidiary, could be heard in England because of the non-availability of legal aid in South Africa. There is the potential to make a strong case against Premier Oil based on similar grounds, since there is no legal aid in Burma and furthermore, no independent legal system, so victims have little chance of receiving a fair trial in Burma.

(3) Uncertainty over current shareholder structure:
The 2 largest shareholders in Premier Oil are Amerada Hess and Petronas. Both companies own 25% of Premier’s total outstanding shares. Under Rule 9 of the City Code (U.K. take-over code), any shareholder owning more than 30% of a company is normally required by the U.K. Take-Over Panel to make a general offer to the remaining shareholders of that company. Together, under the Strategic Alliance and Subscription Agreement, signed in October 1999, Amerada Hess and Petronas can individually acquire up to 29.9% of Premier Oil’s shares outstanding, provided that the 2 companies would not, as a result of such an acquisition, together own more than 50% of the issued ordinary share capital of Premier Oil.

This shareholder structure creates 2 major uncertainties for Premier Oil:

Depressing effect on share price value:
The 25% stakes of both Amerada Hess’ and Petronas’ make it virtually impossible for Premier Oil to be taken over by another company. Premier’s shares have subsequently failed to reflect any take-over premium. Although Premier’s board has indicated (in its annual report) that it is looking at ways to resolve this issue, no action has as yet, been taken.

Rumours of Amerada Hess selling its stake:
In July 2001, Amerada Hess acquired Triton Energy for US$3.2 billion. The acquisition immediately fuelled rumours that Amerada Hess could sell its stake in Premier Oil in order to help fund the purchase. The acquisition of Triton has significantly increased debt levels at Amerada, and also exposed the company to further political risk through Triton’s operations in Colombia and Equatorial Guinea. 33

Should Amerada Hess decide to dispose of its stake in Premier Oil, the possibility of a take-over of Premier would obviously increase significantly. The markets have speculated that Petronas could be a potential bidder, but any offer from them would force a general tender for outstanding shares. Although Premier’s share price would appreciate on any take-over speculation, there is no assurance that Petronas’ offer would be attractive to shareholders. In 1998, Petronas bought the remaining 70% (it had acquired a 30% shareholding in 1996) of South African oil company Engen, at half the price it had paid for its initial 30% stake. How much of this price depreciation could have resulted from the depressing effect of Petronas’ stake ensuring that there was no rival bid, and what is the possibility of a similar situation arising at Premier Oil?

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Footnotes:
1 Shridath Ramphal, chairman of the International Institute for Democracy and Electoral Assistance, International Herald Tribune
2 Written submissions to the UNHCR by The Asian Legal Resource Centre in light of findings made by the People's Tribunal on Food Scarcity and Militarisation in Burma, February 2001
3 World Bank, 1999 report, "Myanmar: An Economic and Social Assessment”;UNICEF estimates
4 Evidence submitted to International Labour Organisation (ILO) Commission of Inquiry, July 1998
5 Burma is one of the most ethically diverse countries in the world. Over 100 languages are spoken. Major ethnic groups include Burman (majority), Shan, Karen, Kayah, Mon, Rakhine, Indian and Chinese
6 Amnesty International, 2001
7 World Bank, IMF, US State Department and EU sources have all been consulted when reviewing Burma’s economy. The most detailed and up-to-date economic indicators and forecasts have been found in the Economist Intelligence Unit (EIU). For this reason, this report predominantly refers to this source.
8 EIU (Country Report, May 2001)
9 EIU (Country Report, August 2001)
10 The International Herald Tribune, “Crackdown Does Little to Help Burma's Economy” July, 2001
11 BBC article, “Burmese economy under siege.” 4 May, 2001
12 Irrawaddy online news magazine, May 2001
13 Irrawaddy online news magazine, May 2001
14 Aung Sann Suu Kyi
15 Burton Levin, former U.S. Ambassador to Burma
16 Xinhua ”Foreign Investment in Myanmar” June, 2001
17Xinhua ”Foreign Investment in Myanmar” June, 2001
18 ILO News, August 2001
19 Aung San Suu Kyi discussing foreign investment in Burma
20 The International Herald Tribune: “Crackdown Does Little to Help Burma's Economy” July, 2001
21 BBC: Burmese economy under siege, Friday, 4 May, 2001
22 EIU (Country Report, August 2001)
23 Premier Oil “Yetagun Year 2000”
24 Le Provost Dames & Moore, Yetagun Development Project Environmental and Cultural Impact Assessment and Socio-cultural report. 1996.
25 Le Provost Dames & Moore, Yetagun Development Project Environmental and Cultural Impact Assessment and Socio-cultural report. 1996.
26 Amnesty International, “Myanmar, Ethnic Minorities: Targets of Repression”, June 2001
27 In June 2001, the U.S. House of Representatives, by an overwhelmingly majority, passed the historic “Sudan Peace Act.” The legislation included measures that barred international oil companies operating in Sudan from being listed on the NYSE and NASDAQ, and also required companies to disclose more reporting requirements than they had in the past, especially with regard to the relationship of their operations to violations of religious freedom and other human rights in Sudan. The Act was repealed in September 2001 after the terrorist attacks in the U.S. encouraged the U.S. government to mend relations with formerly hostile governments if they agreed to join the fight against terrorism.
28 This law covers a limited range of charges for severe human rights abuses (i.e. violations of customary international laws such as slavery, genocide, torture, crimes against humanity and war crimes), occurring anywhere in the world as long as the U.S. courts have jurisdiction over the defendants. Alien Tort does pose jurisdictional problems: there has been some debate surrounding whether or not the ACTA has jurisdiction over non-U.S. companies. To date no cases against a non-U.S. company have been accepted in the U.S. courts. [Details from Morley Fund Management Newsletter, 2001].
29 The Wall Street Journal, “Myanmar faces dual blow from US proposed ban “, July 2001.
30 AFL-CIO Office of Investment, “Unocal’s shareholders at risk over Burma operations”, August 2001.
31 Other partners in the Yadana project are TotalElfFina (31.24%), Petroleum Authority of Thailand (25.5%) and Myanmar Oil and Gas Enterprises (15.5%)
32 AFL-CIO Office of Investment, “Unocal’s shareholders at risk over Burma operations”, August 2001.
33 AFL-CIO Office of Investment, “Letter to Amerada Hess”