Natural Resources and Violent Conflict - WaterWiki.net

322 john braymanagement. External partners share the commercial risks and—as isseen in the case of Unocal in Myanmar—the reputational hazards. Thethird reason is that they want to gain access to technical expertise.In all these cases, the participation of external partners can createreputational and political risks. An essential part of risk managementis to conduct due diligence checks, both on potential partners’ financialresources and on their reputation for integrity.The involvement of state-owned partners is particularly likely to restrictthe operator’s freedom of maneuver, and the private company maybe tainted by association with the host government, for example, if thelatter is accused of human rights abuses. In extreme cases the stateownedpartner may use its influence to take over control of the project.The involvement of private partners also may lead to reputationalrisks that have to be managed. Companies seek joint venture partnersthat are well connected, often by virtue of senior executives’ personalconnections with political leaders. Those connections may backfire if thepolitical leaders have a reputation for corruption or if the local partnertakes advantage of local contacts to try to seize control of the venture.Commercial codes of conduct now typically contain a phrase tothe effect that the company will seek to ensure that its own standardsare applied in joint venture operations. However, companies acknowledgethat it is difficult to do more than influence projects where theydo not have majority control.Project FinanceCompanies may raise external finance either from private financialinstitutions or from multilateral agencies such as the World Bank’sprivate sector affiliate, the International Finance Corporation (IFC). Asin the case of the Chad-Cameroon pipeline discussed in the appendix,companies value the involvement of influential multilateral agenciesbecause they believe that host countries are less likely to back awayfrom agreements involving institutions that give them valuable supportin other areas. If the World Bank institutions are involved, projectsmust comply with their social and environmental guidelines.The disadvantage of raising funds through project finance is that dealsare often time-consuming, raise costs, and add complexity (MacDonald1998). Companies regard them not so much as a panacea as one amongseveral tools for mitigating risks.InsuranceThe combination of the global economic downturn with the aftermathof the September 11 terrorist attacks has led to a significant hardening