Perspectives of British Petroleum and Baku-Tbilisi-Ceyhan Pipeline Project - Example

British Petroleum (BP) and Baku-Tbilisi-Ceyhan (BTC) Pipeline Project Case study prepared by: Table of contents Introduction 3 The case 4 The context 4 Data 5 Methodology 5 Findings 6 Conclusion 8 References 9 Introduction Both stakeholder theory and legitimacy theory would be employed to discuss the role of British Petroleum (BP) in mitigating the concerns of stakeholders in the Baku-Tbilisi-Ceyhan (BTC) pipeline project. For this purpose, both theories are defined first and subsequently they are employed to evaluate the mitigation claims made by BP. The official website, the official document and BP Azerbaijan Sustainability Report 2010 have been taken into consideration. Stakeholder theory discusses stakeholders. Stakeholders are defined as the individuals or groups, outside or inside the organization, that have a stake or can influence the organization’s performance (Chapman et al. 2009:1259). This theory highlights five stakeholders for an organization: shareholders, customers, communities, suppliers and employees. Shareholders, customers and communities are identified as the external stakeholders while suppliers and employees are considered to be the internal stakeholders. Communities include pressure groups, environmental groups, campaigners, regulatory bodies and other types of groups. However, stakeholders remain legitimate sources of requirements (Hull et al. 2011:7). And stakeholder model has been particularly made useful in generating linkages between organizations (Polonsky 2005:1063). Most importantly, defining the stakeholder concept and classifying stakeholders into categories have been two major streams (Andriof et al. 2002: 30). Once the stakeholder map has been figured out, the interest/power matrix can be employed to devise a strategy to manage the different stakeholders (Winch 2010:77). Legitimacy theory posits that organizations attempt to ensure that they operate within the norms and bounds of their respective societies (Guthrie et al. 2006: 4). Within this context, Shocker and Sethi (1973: 67) elaborate the concept of social contract: any social institution, including business entities, function in society through a social contract, implied or expressed, whereby its growth and un-interrupted existence largely rely on: (1) the distribution of social, political, economic advantages to groups from which it obtains its power; and (2) the delivery of certain socially desired ends to society in general. 2. The case 2.1 The context The Baku-Tbilisi-Ceyhan (BTC) pipeline project is one of the largest projects and hugely expensive in the history of British Petroleum (BP) (Hanks 2010:77). On its completion in 2006, the estimated cost of the project was € 2.61 billion, linking the world’s third largest oil reserves in the Caspian Sea in the city of Baku in Azerbaijan to the Ceyhan on the Mediterranean coast. The pipeline covered a total distance of 1100 miles by transporting 1 million barrel a day. The ultimate objective was to diminish the Western countries dependency on Middle Eastern oil along with providing a safe access to oil via NATO member Turkey for the purpose of preventing the negative effects of the political instability in the region. This project was led by eleven oil Multi-National Companies from Norway, Italy, France, Japan, the United States along with British Petroleum (BP), having more than 30 percent partnership in the project. The strategic significance of the pipeline project can be realized from the fact that the project is estimated to provide revenue of more $ 150 billion over the period of 20 years. The project has raised a range of environmental and demographic effects as this project is land-based (Roggenkamp et al. 2012:103). First, many environmentalists believe that construction of the pipeline would create a significant effects on the marine life along with concerns about the coating of the pipeline and the leakage risks particularly in Georgia where oil spills might substantially impact the Bojorni National Park, Georgia’s strategic water resource. Second, there were apprehensions that the project would displace 30,000 civilians along with the pipeline. 2.2 Data BP uses both the official website and the BP Azerbaijan Sustainability Report 2010 for the BTC pipeline-related information. The official website provides different aspects relating to the BTC pipeline project. In which the environmental concerns have been described along with their methods to tackle the environmental issues. Additionally, BP has issued a detailed document, which is officially available at the website, mentioning the technical information, the survey details, the countries involved in the project and all other information relevant to the project. Further, BP has also detailed its progress, performance, interaction, contribution and social and economic participation in countries like Azerbaijan in its Report- BP Azerbaijan Sustainability Report 2010. In the Sustainability Report 2010, BP has mentioned its interaction with all the local stakeholders. It mentions their significance relating to the BTC pipeline project. 2.3 Methodology The researcher has employed both stakeholder theory and legitimacy theory in the paper. The purpose of employing both theories is to understand BP’s aggregate response to the concerns related to the BTC pipeline project. Moreover, what type of measures has been employed to mitigate the effects of the concerns shown by the stakeholders who are directly and indirectly affected by the construction and functionality of the BTC pipeline project? The focus would be on geographical and social, economic and political aspects of the BTC pipeline. Also, legitimacy theory would also be incorporated and discussed. In the light of legitimacy theory, the role and contribution of BP would be discussed. 3. Findings BP has clearly mentioned the range of issues relating to the BTC pipeline project. BP has actively consulted, cooperated, contributed and assisted to the range of stakeholders who are directly and indirectly related to the BTC pipeline project in Azerbaijan. In the BP Azerbaijan Sustainability Report 2010, BP has identified communities, employees, Government, civil society, and the media as the main stakeholders. “We continued to operate the grievance mechanism in place along the BTC/SCP (Baku-Tbilisi-Ceyhan/South Caucasus gas pipeline) route” (BP Azerbaijan Sustainability Report 2010: 29). This statement cannot be verified from the independent sources. There would be many questions that need further clarification. For instance, what type of compensatory steps is being taken to redress the local grievances? To what extent these steps have been effective in obtaining the desired level of objectives? Obviously, there would be no way to obtain impartial, independent and representative reply. It is a common practice that the companies put this kind of information in order to portray a positive image. They need to maintain a positive image as they are required to ensure continued sale of their products. As customers are also their external stakeholders, they would cease buying if they hear that BP is working at the cost of local communities which are based near to the BTC pipeline. Subsequently, the report mentions that BP has continued to support sustainable development initiatives in communities living nearby the facilities in Azerbaijan (BP Azerbaijan Sustainability Report, 2010: 29). In the light of the legitimacy theory, BP attempts to play its social role and obligation by providing the necessary developmental programs to the social communities near to the facilities. For this purpose, BP arranged and held three public meeting in Sangachal, Umid Villages and Azim Kend with an aim of increasing their engagement with the facility. The entire objective was to communicate business updates with the members of communities, share the results of health impact assessment, and listen to the concerns or questions of the local communities. Undoubtedly, BP is attempting to interact with the important stakeholders who are directly affected with the BTC pipeline. As far as BP Azerbaijan Sustainability Report 2010 is concerned, BP has mentioned that it is its obligation to satisfy the stakeholders and has attempted to meet the requirements of legitimacy theory. However, it would be difficult to fully rely on the claims made by BP. Additionally, the report claims that BP has continued its involvement with the Azerbaijan Social Review Commission (ASRC), a neutral but independent external advisory group established to provide advice, assurance and challenge to BP’s social performance in Azerbaijan (BP Azerbaijan Sustainability Report 2010: 29). The establishment of ASRC is another attempt by BP to claim that it has been serious to reduce the impact of the BTC pipeline project on the social communities living in Azerbaijan. Additionally, BP has cooperated with civil society via the Extractive Industries Transparency Initiative (BP Azerbaijan Sustainability Report, 2010). BP tries to engage with the civil society in Azerbaijan as it is fully aware of the influence of this stakeholder. If the civil society begins to show its serious concerns over the effects of the BP facilities, it would be very difficult for BP to continue operating within the region. It is highly necessary for BP to ensure active and constant interaction, involvement with the civil society in Azerbaijan and with the communities living near to the BTC pipeline. 4. Conclusion BP has attempted to satisfy the requirements highlighted by the stakeholder theory and the legitimacy theory. BP has clearly mentioned the stakeholders who are directly affected by the BTC pipeline project. The local communities, civil society, government remain the primary stakeholders in the BTC project. In order to ensure healthy relationships with the local communities, BP has initiated a range of social and environmental programs designed to serve the interests of these external stakeholders. By establishing grievance mechanism, BP has attempted to interact with the local communities. With such social measures, BP has also tried to meet the requirements, mostly relating to the social ends, inbuilt in the legitimacy theory. In addition to that, BP has tried to share the benefits with the social, economic and environmental and political groups living in Azerbaijan. By doing so, BP has met with the main measures highlighted by Shocker and Sethi. References Andriof, J, Waddock, S, Husted B, & Rahman, SS (eds) 2002, Unfolding Stakeholder Thinking: Theory, Responsibility and Engagement, Greenleaf: Sheffield. BP Azerbaijan Sustainability Report (2010), British Petroleum Reports, Available at: http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/A/Azerbaijan_Sustainability_Report_2010.pdf (Accessed: 27 November, 2012). Chapman, C, Hopwood, A, & Shields, MD (eds) 2009, Handbook of Management Accounting Research Volume 3, Elsevier: Oxford Guthrie, J,Ward, L, & Amatil, C2006, Legitimacy Theory: A Story of Reporting Social and Environmental Matters within the Australian Food and Beverage Industry, The University of Sydney: Sydney. Hanks, RR 2010, Global Security Watch: Central Asia, ABC-CLIO: California. Hull, E, Jackson, K, & Dick, J2011, Requirements Engineering, 3rd ed. Springer: New York. Polonsky, MJ (ed.) 2005, Stakeholder Thinking in Marketing, European Journal of Marketing, vol. 39, No. 9-10, p.951-1025. Roggenkamp, MM, Barrera-Hernandez, L, Zillman, DN, & Guayo, ID (eds.) 2012, Energy Networks and the Law: Innovative Solutions in Changing Markets. Oxford University Press: Oxford. Shocker, AD, Sethi, SP 1973, An approach to developing societal preferences in developing corporate action strategies, California Management Review, pp.97-105. Winch, GM(2010), Managing Construction Projects, 2nd edn, Blackwell Publishing: Iowa. Read More