2017.04 Maria Tysiachniouk. Benefit Sharing Arrangements in the Russian North and Alaska

Dr. Maria Tysiachniouk chairs the Department of Environmental Sociology at the Centre for Independent Social Research in St. Petersburg and works as a postdoctoral researcher at the Environmental Policy Group at Wageningen University, the Netherlands.


As part of a recent study, we investigated benefit sharing arrangements between oil companies and indigenous communities in several regions of Russia—the Nenets Autonomous Okrug [NAO], Khanti-Mansiiski Autonomous Okrug (KhMAO), Sakhalin—and on the North Slope of Alaska—Barrow, Nuiqsut, Kaktovik. Our analysis demonstrates that indigenous communities are not benefitting equally from oil and gas extraction. The project analysed the procedural and distributional equity of four different types of benefit sharing arrangements: paternalism, corporate social responsibility, partnership and shareholder models.

Costs and Benefits

Oil extraction in remote territories of the Russian North and Alaska brings opportunities for development to remote areas, as well as costs to local communities and indigenous peoples, affecting their subsistence way of life and making land unavailable for traditional resource use. In many cases, it is apparent that the costs of resource extraction to local communities outweigh the benefits. Most transnational corporations working in the Arctic oil and gas sector have declared their commitment to benefit-sharing arrangements that assist indigenous communities and protect indigenous rights to land and access to traditional resources, but the local implementation of these commitments varies.

Ideally, benefit sharing represents a more stringent notion of social equity than corporate social responsibility (CSR), since it claims to reduce the gap between local resource providers and global beneficiaries (Schroeder, 2007). Differences in benefit sharing arrangements depend upon legislation, local and regional contexts and the level of empowerment of indigenous communities. Benefits from oil extraction can be shared by oil companies with local communities in a number of ways: taxes, development of infrastructure, local employment, and through less formal negotiated benefits, such as sponsorship, compensation for damage, oil dividends, and socioeconomic agreements, among others. Ideally, the concept of benefit sharing has to incorporate both procedural and distributional justice that goes beyond compensations for loss.

Our recent literature review has identified four models of benefit-sharing arrangements, including paternalism, CSR, partnership and shareholder types (Tysiachniouk 2016). This study is based on qualitative research methodologies, including semi-structured interviews, participant observation and document analysis. Interviews were conducted with more than 190 oil industry representatives, members of indigenous peoples’ organizations, NGO experts, representatives of regional and local authorities, and local residents between 2011 and 2016.

Field research showed that there are mixed types of benefit sharing arrangements in both the Russian North and Alaska, resulting in different outcomes for local communities and indigenous peoples. In each region, benefit sharing arrangements were assessed from the perspective of procedural and distributional equity.

To assess the fairness of benefit sharing arrangements, we make use of the concept of equity developed by McDermott et al (2013). They make a distinction between procedural and distributive dimensions of equity. Procedural equity refers to participation in decision- making processes—for example, who is involved in the design of benefit sharing arrangements and to what extent can indigenous people participate in them? Distributive equity encompasses the distribution of monetary and non-monetary benefits that indigenous people receive from oil production. The articles in this issue of the Russian Analytical Digest analyze benefit sharing arrangements observed in the Nenets Autonomous Okrug (NAO), Khanti-Mansiiski Autonomous Okrug (KhMAO), Sakhalin, Komi Republic, and the North Slope of Alaska (Barrow, Nuiqsut, Kaktovik).

Major Modes of Benefit Sharing Arrangements

There are four types of benefit-sharing arrangements. Each is described briefly below.

Paternalistic mode:The state is dominant in this mode and it monitors and intervenes in companies’ corporate social responsibility efforts. The company adds to or replaces the state’s efforts to provide support to local communities and indigenous peoples, who do not, or only poorly control, the delivery of benefits. In Russia, the paternalistic mode is rooted in the lingering effects of the Soviet past and often results in the indigenous people’s dependency on the oil companies. Therefore, in some areas, there has been a transition from state paternalism to corporate paternalism. In Alaska, paternalism is perceived by both scholars and indigenous people as rooted in colonialism. Here we show how this system works in the Nenets Autonomous Okrug.

Corporate Social Responsibility (CSR) mode: The oil company network is dominant in this mode. The company adopts globally developed standards coming from such sources as the International Labor Organization (ILO) convention, United Nations guidelines, the Arctic Council guidelines, standards of the European Bank of Reconstruction and Development (EBRD), World Bank, and International Finance Corporation (IFC). Companies pursuing benefit-sharing arrangements take into account both global standards and local path-dependent practices in a minimalistic way. This mode of benefit sharing arrangements was observed in several Russian regions: Komi Republic, Khanti-Mansiiski Autonomous Okrug and Irkutskaya oblast. This paper illustrates the CSR mode in the example of the Khanti-Mansiiski Autonomous okrug.

Partnership mode:This type of benefit sharing takes the form of tripartite partnerships among the oil companies, government and indigenous communities. The partnership mode fosters development, empowerment, self-sufficiency and participatory decision-making in the indigenous communities. This mode was studied on Sakhalin Island.

Shareholder mode:The shareholder approach provides residents with dividend funds and shares from regional and village corporations. This mode has been investigated in the North Slope of Alaska.

Empirical Findings

Nenets Autonomous Okrug

The paternalistic mode of benefit sharing arrangements has been observed predominantly in the Nenets Autonomous okrug (NAO) in 2011–2012 (Henry et al. 2016). In the framework of socio-economic agreements between oil companies and the governor, oil money was channeled to indigenous communities through state-led programs and was spent without input from the indigenous people. These practices resulted in housing provided to indigenous reindeer herders that was not adapted to permafrost conditions, loss of money during construction projects, and a variety of other problems.

Direct socio-economic agreements between oil companies and indigenous enterprises until 2013 involved mostly in-kind support as oil companies did not trust indigenous people to manage their bank accounts and the amount of money was dependent on reindeer herders’ negotiation skills. When money was transferred into bank accounts, indigenous enterprises were obliged to submit reports on their spending.

Since 2013, these agreements have been replaced with formal compensation for damage to the pasture lands calculated according to a federally developed methodology. As a result, the amount of money channeled to indigenous peoples increased 5–10 times. Even though both the socio-economic agreements and compensation were negotiated directly between indigenous leaders and oil companies, the participatory equity of the reindeer herders has remained low.

Nevertheless, the distributional equity increased with the switch from socio-economic agreements to compensation. The level of paternalism toward indigenous peoples in NAO in 2015–2016 decreased both because of the economic downturn and the inability of the state and companies to deliver goods and services to indigenous communities, and because reindeer herding enterprises became more mature, self sufficient and independent compared to the early post-soviet years. In this region, the paternalistic mode of benefit sharing gradually transferred towards CSR mode.

Khanti-Mansiiski Autonomous Okrug (KhMAO)

As part of their CSR, companies conclude annual socioeconomic cooperation agreements with the governor of KhMAO and municipalities. These deals include constructing social infrastructure in towns and villages, such as schools, kindergartens, recreation centers, road construction etc. If indigenous people have officially designated territories for traditional use of natural resources (TTNR), “typical agreements” are made directly with households. They provide the same goods to all households, without taking into account to what extent TTNR is damaged by the oil infrastructure and drilling. Therefore, the distributional equity is very low in KhMAO. Heavily and lightly affected households receive the same number of snowmobiles, outboard motors, motor saws, fuel, and clothing. If local residents have no formally designated TTRNs, the company transfers funds to the budget of the district administration, which then distributes the received funds, as in Beloyarski district. Here, state paternalism is strong. The company allots a certain sum to the local administration that distributes it after engaging in only a few consultations with the locals. The amount of material aid and the procedure of distribution are non-transparent.

Several indigenous people in KhMAO are elected to the State Duma, where a special commission for dispute resolution between oil companies and indigenous people has been set up. Indigenous people are active and may oppose oil expansion, as in Numto Nature Park, for example. Generally, while the participation rate of indigenous people in disputing oil development is high and citizens rebel against state and company paternalism, the participatory equity in benefit sharing agreements remains low. Therefore, both distributional and participatory equity in KMAO are recommended to be improved.

Sakhalin Island

The partnership mode of benefit sharing arrangements was observed in the oil companies/operators of the two large transnational consortia: Sakhalin Energy and Exxon Neftegaz Limited on Sahkalin Island. There, the success of benefit sharing practices depends upon the corporate policy of the consortium operator and on whether loans from investment banks are received. Sakhalin Energy, through loans and investments, was profoundly influenced by the global rules of international financial institutions related to the environment and indigenous people. The consortium adopted a multitude of global standards, including free prior and informed consent, and became subject to annual third party evaluations (Wilson, 2016). The Indigenous Minorities Development Plan that evolved under the influence of the International Finance Corporation and the World Bank, incorporating the full range of global sustainability standards, was relatively complex and was available to all districts populated by indigenous people. It included the participation of indigenous people in distributing grant funding to community groups. Although this approach was popular, it also generated some conflict among community members around the distribution of funds. In contrast, Exxon Neftegaz Limited depended less on loans and was not significantly influenced by international financial institutions. The benefit sharing arrangement is less complex and more flexible, including grant funding available to communities where drilling occurs, but not for other communities. It has been less prone to conflict than benefit sharing by Sakhalin Energy. Tripartite partnership benefit sharing arrangements adopted by both consortium operators proved to be high in both participatory and distributional equity. As we will see (see Tulaeva, Tysiachniouk in this RAD issue), only consortium operators on Sakhalin Island explored the partnership mode of benefit sharing arrangements, while Russian companies proceeded with paternalism.

North Slope of Alaska

Benefit sharing arrangements in Alaska are extremely complicated and involve several layers of governance. In Alaska, every resident annually receives Permanent Fund Dividends. Indigenous people of the North Slope are almost always shareholders of the Arctic Slope Regional Corporation (ARSC) and usually of one of the village corporations and receive dividends from both. ASRC contracts with many oil companies and receives royalties from oil extraction on native-owned land. The village corporation for the community of Nuiqsut (Kuukpik Corporation), for example, is very successful, owns the surface title to the land, receives royalties through surface- use agreements with industry and with ASRC, is involved in oil-field services and benefits from contracts with oil company ConocoPhillips. This results in significant dividends from Kuupik to its shareholders, while dividends from less successful village corporations may be much lower. ConocoPhillips provides additional support to the Nuiqsut, including free natural gas for the community, scholarships to students and sponsorship of events, and contributes to community infrastructure. For unavoidable impacts to subsistence and culture, mitigation money is provided through the Northeastern NPR-A Regional Mitigation Strategy. In addition, multiple benefits come to indigenous people through the State of Alaska and the North Slope Borough, both of which receive taxes from oil infrastructure. The North Slope Borough is the largest employer, has its own hospitals and police, builds houses for indigenous families, and funds schools.

However, there are multiple conflicts and tensions in communities around benefit sharing and distribution of funds, participatory equity is high, while distributional equity is low. Tensions emerge between the city, tribal government and Kuupik Corporation in Nuiqsut around distribution of funds as these three governance entities have different interests. Tribal governments are not benefitting from oil, are more environmentally oriented, and are often not in favor of future oil development. The city government is usually neutral or prodevelopment, while Kuupik Corporation is pro-development. Therefore, difficulties occur in decision making around mitigation funds.

Another set of tensions occur between those who are born before 1971 and younger “afterborn” people in Nuiqsut. ASRC and several village corporations give fewer rights to “afterborns,” but still provide shares, while the Kuupik Corporation distributes dividends only for those born before 1971 or who have inherited shares. Tensions continue within indigenous families around gifted and inherited shares. Despite tensions it is important to acknowledge that income from oil extraction is shared between companies and indigenous communities and indigenous peoples have broad opportunities for economic development. The relationships between the North Slope Borough and indigenous communities remain paternalistic as Inupiat people expect multiple benefits, such as medical care, housing and infrastructure. With Conoco-Phillips the relationships fluctuate between the CSR and partnership modes, while the shareholder mode experiences multiple pitfalls due to the lack of distributional equity and overall conflictual environment.

Conclusion and Policy Recommendations

This article demonstrates that indigenous people in all research sites become dependent on oil money and experience significant impacts from oil extraction on their subsistence lifestyle and culture. The benefits from oil extraction are highly variable. The articles collected in this issue contribute to policy development for benefit sharing in the Arctic. We urge the Arctic Council Sustainable Development Working Group to conduct a study with the aim of finding the best practices, reproduction of lessons learned, and development of guidelines for companies on benefitsharing arrangements. Further development of benefit sharing policies for the Arctic regions is essential. It is important that the extractive industries share a portion derived from the resources they extract with native inhabitants in an equitable way. Ideally, the concept of benefit sharing should incorporate both procedural and distributional justice that goes beyond simple compensation for loss.

This article was originally published by the Center for Security Studies of the ETH Zurich, in May 2017.

Original publication at the ETH Zurich web-page:

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