DUE DILIGENCE FOR CORPORATE EXCELLENCE AWARD

UNCLAS JAKARTA 010895

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EB/CBA SMITH-NISSLEY

E.O. 12958: N/A
TAGS: BEXP EINV ELAB ETRD KSEP SENV ID

SUBJECT: DUE DILIGENCE FOR CORPORATE EXCELLENCE AWARD
NOMINEE CHEVRON INDONESIA

REF: A) STATE 133146


1. (SBU) Summary. We are not aware of any significant
embarrassment likely to arise should Chevron Indonesia
receive the 2006 Award for Corporate Excellence. Chevron
has been an outstanding corporate citizen and contributed
greatly to community development in Indonesia. The largest
crude oil producer in Indonesia, Chevron's Indonesian
operations provide several hundred jobs in the U.S. both at
its own facilities and those of its contractors. Chevron,
like other large foreign companies operating in Indonesia,
has been the target of labor unrest in the past, the most
significant of which was a 2002-3 labor dispute over
contract labor issues, now long since resolved. End
Summary.


2. In response to Ref A, we reviewed our files on Chevron,
interviewed Jakarta-based Chevron officials, and contacted
local representatives of the American Center for
International Labor Solidarity (ACILS). Based on those
actions, we provide the following information keyed to Ref A
questions.

A) Could there possibly be any downside or embarrassment
caused by the selection of the nominee?

Post is not aware of any high profile lawsuits or other
negative actions against Chevron Indonesia, which could
cause embarrassment. However, Chevron's local operating
unit has been the target of labor protests in the past, the
most recent of which was in 2003 (see answer to question D
below).

Chevron is widely recognized in Indonesia as a top tier
company based on its employment record, contribution to the
local and national economies, development of the country's
people and resources, and exceptional response to natural
disasters such as the tsunami in Aceh in December 2004.
Chevron continues to donate supplies and housing assistance
to employees and communities in the affected areas in Aceh.

Chevron has a strong community development program. In
addition to the community development projects cited in our
nomination cable, Chevron has offered the Caltex Riau
Scholarship program to senior high school graduates since
2001, selecting the top 60 students each year. It also
provides tuition for graduate education and apprenticeships
for 100 university graduates, as well as training for
teachers. Chevron renovated Meranti Pandak Village in Riau
Province, home to 1500 residents, repairing and replacing
housing, improving sanitation and water supply. Chevron has
also contributed to infrastructure development, such as the
Siak River Bridge and the Pekanbaru-Dumai highway in
Sumatra.


B) Do you have any information concerning job creation in
the U.S. resulting from the operations of the company you
nominated?

Chevron pumps 50 percent of Indonesia's crude oil at its
Duri and Minas fields in Sumatra, operates a 55 MW
geothermal power plant at Darajat in West Java, and has a 25-
percent interest in a 2.5 trillion cubic feet gas
development in the Natuna Sea. In addition to the
approximately 20,000 employees of Chevron Indonesia and its
contractors, hundreds of additional employees at Chevron
USA, or its contractors and vendor companies in the U.S.,
support the company's operations on a full-time basis. The
nature of these jobs includes high tech computing and
information technology, engineering design, facilities
construction (especially in Louisiana),and oil field and
drilling support services.

C) What is your assessment of the company's trade and
investment activities with regard to helping stimulate
economic growth in the U.S. and increasing American exports
(what is the U.S. content of its products)?

In addition to creating high-paying support jobs in the
U.S., Chevron's exploration and production activities
contribute directly to bringing important supplies of crude
oil and natural gas into the marketplace.

D) What is the state of labor conditions in the company's
facilities and are workers unionized?

Union members do work for Chevron in Indonesia. Chevron,
like many of the large energy companies in Indonesia,

indirectly employs the majority of its work force through
independent contractors. In 2002-03, Chevron-Caltex
experienced significant labor unrest related to a court case
in which a group of security guards charged that the firm
had promised to convert them to permanent employees, but
reneged. Despite what appeared to be a strong case, Chevron-
Caltex lost in the Indonesian Supreme Court, and eventually
settled with the workers. The Jakarta ACILS office told us
it has received complaints from Caltex contract workers over
allegedly poor working conditions, and alleged efforts by
Chevron-Caltex to frequently roll over contracts to
discourage unionization. However, neither ACILS nor we have
confirmed any of these allegations. The situation calmed
significantly by 2004, when Chevron completed a long-overdue
downsizing of its direct-hire workforce through a voluntary
retirement program. Under this program, Chevron reduced its
workforce by 17 percent without strikes or stoppages.
Neither we nor ACILS-Jakarta have seen any change in this
quiescent situation during 2005 and 2006. ACILS-Jakarta was
continuing to consult with its affiliate in Jambi and unable
to meet our deadline, however.

It is important to note that foreign firms were frequent
targets of labor unrest from 2000-04 in Indonesia's newly
liberalized labor relations system, in large part because of
the perception that they are more concerned about their
corporate reputation than Indonesian companies and have
deeper pockets. We have seen no credible evidence that
western firms, including Chevron, in general treat their
employees unfairly. In fact, the opposite is true-salaries,
benefits, and working conditions tend to be the best in
western firms. Chevron is no exception to this rule, and
has in general enjoyed excellent relations with its 98-
percent Indonesian workforce. Another issue is that the
hiring of contract workers and severance benefits are a
source of ambiguity in Indonesia labor law, and labor issues
have been one of the top complaints of foreign companies
operating in Indonesia. The GOI has acknowledged the
problem, and has committed to revising key severance pay
regulations. The International Finance Corporation in 2005
ranked Indonesia as one of the most "business unfriendly"
countries in the world regarding the hiring and firing of
workers with the highest costs in the region, equal to 145
weeks of salary (compared to 90 in China, 65 in Malaysia 39
in Cambodia and 4 in Singapore).


F. Please Confirm that the Chief of Mission and others
involved in the nominating process do not hold shares of the
stock or have other financial interests in the company.

No senior embassy personnel involved in the nominating
process own Chevron stock directly. However, as the twelfth
largest U.S. company by market cap, Chevron occupies an
important position in the TSP C Fund, S&P 500-based index
funds, and other large cap mutual funds.

PASCOE