Challenges of the Energy and Mining Sector

Jakarta, March 3, 2011

NOKE KIROYAN

Research & Advisory International

2

Perception of Good of Community

Public Opinion

Ideology

Economic, Social and Political

Circumstances

Governments

Political Attitude

POLITICAL WILL

GOAL: GOOD OF

COMMUNITY

Policies and Strategies

National Policy-Making Process

(Danièle Barberis: “Negotiating Mining Agreements”)

3

Political Will Toward Mining

Year Era Political Will

1945-1950

Revolution No, fighting a war

1950-1957

Early Democracy No, pressing concerns with nationhood

1957-1966

Guided Democracy

No!

1966-1998

New Order Yes!

1998-2005

Reformation Basically yes, but there are more pressing concerns

2005-now

(?) We’re trying to make up our mind

4

Susceptibility of Mining to Crises

Mining in Indonesia is susceptible to crisis for various reasons:

1. Identified with environmental destruction

2. Seen as symbol of capitalism

3. Almost invariably involved in clash of cultures

4. Extracting riches from the ground is emotional laden

5. Viewed as associated with the excesses of the “New Order”

6. The public does not differentiate responsible mining practice and illegal mining

7. Rapidly changing social and political environment have direct impact on mining operations

8. Regions demand bigger share of wealth

5

To make matters worse …..

Susceptibility to crises enhanced by characteristics of many mining companies:

1. Not good at communicating

2. Response to accusations usually technical and defensive

3. Insensitivity to cultural differences

4. Culture of superiority

5. Lack of empathy

6. Reality of regional autonomy slow to sink in

7. Mistaken view of the diminishing role of central government

6

Potential Sources of Crisis in Indonesian Mining

1. Land compensation issues (resolved and unresolved)

2. Environmental issues

3. Industrial action

4. Illegal mining

5. Natural disaster

6. Community relations

7. Community development

8. Ethnic conflict

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Potential Sources of Crisis in Indonesian Mining

9. Intercommunity rivalry and jealousy

10. Intra-community rivalry and jealousy

11. Employment

12. Demands of local government

13. Infrastructure use

14. Technical failure

15. Poor governance/ethics

16. Divestment of shares (certain generations of CoW/CCoW)

8

Issue Lifecycle

“Risk Issues and Crisis Management: A Casebook of Best Practice” – Michael Regester & Judy Larkin, 2005

Media Coverage

Opportunity to influence

Potential Emerging

Period of increasing awareness

Mediation/AmplificationOrigin Organization Resolution

Difficult to influence

Current Crisis

Formal constraints

Development

Pres

sure

Dormant

Issue ManagementEarly issue identification

Elements of Issue/Problem Statement

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1WHAT

is the problem?

2WHERE

is this problem occurring?

3WHENdid this

become a problem?

4HOWdid this

become a problem?

5WHO

is the target, for whom

is it a problem?

6WHY

does this threaten the

organization’sability to fulfill its mission?

(Adapted from “Strategic Public Relations Management: Planning and Managing Effective Communication Programs ,” Weintraub Austin, E. & Pinkleton, B.E., 2006)

Central

Government

Regional Government (Province/ Kabupaten)

Business Association

NGO

Mass Media

4

3

2Capacity

IssueCommun-

icationIssue

Local and traditionalCommun-

ities

Good Govern-

ance

Interest of Business

Community

3

3 3 4

333

1 33

2

2

2

2

2

2

Stakeholder Issue Bubble Graph

10

(“The Pyramid of Corporate Social Responsibility – Toward the Moral Management of Organizational Stakeholders ,” - Carroll, A. B., Business Horizons No. 34, 1991)

Stakeholder

Identification

Who are our stakeholders?

Stakeholder Analysis

What are their stakes?

What opportunities and

challenges are presented by our

stakeholders?

Stakeholder

Engagement

What corporate social

responsibilities do we have to our stakeholders?

What strategies, actions, or

decisions should we take to best deal

with these responsibilities?

Elements of Stakeholder Management

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Stakeholder Identification

12

To whom does the organization have legal obligations?

Who might be positively or negatively be affected by the organizations activities or decisions?

Who manifested concern about the issues or impacts?

Who has been involved in the past when similar concerns need to be addressed?

Who can help the organization address specific impacts?

Who can adversely affect the organization’s ability to meet its important objectives?

Who would be disadvantaged if they were excluded from the engagement?

Who in the value chain is affected?

Who may have an impact on the reputation of an organization?

Who may influence the policy and regulatory environment in which the organization operates?

Who may impact on the value of the organization?

(Adapted from “ISO 26000: Guidance on social responsibility.” November 2010 )

(“The Primordial Stakeholder: Advancing the Conceptual Consideration of Stakeholder Status for Natural Environment ,” - Driscoll, C. and Starik, M. Journal of Business Ethics, Vol. 49, 2004)

(“The Natural Environment as a Primary Stakeholder: the Case of Climate Change,” - Haigh, N. and Griffiths, A. Business Strategy and the Environment, Aug 2007)

Legitim

acy Proximity

Urgen

cyPower

3 3

3 3

4 22

2

2

11

1 1

0 = Non-Stakeholder1 = Latent Stakeholder2 = Expectant Stakeholder3 = Definitive Stakeholder4 = Primary Stakeholder

Stakeholder Attributes and Typology

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