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How Africa is changing Chinese oil companies

Conflict in Sudan and South Sudan has forced Chinese and Indian oil companies to become more responsible global citizens

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Sudan has been a training ground for large state owned Chinese and Indian corporations to test their international competitiveness (Image by ENOUGH Project)

Sudan’s civil war and American sanctions against Khartoum in the 1990s opened the oilfields to China and India. For more than a decade, Sudan fuelled the rise of these national oil companies. But the political turmoil and bloodshed over the division of Africa’s largest country, and the birth of South Sudan, sent Chinese and Indian diplomats scrambling to protect their interests and bring an end to the conflict.

In his new book, “The New Kings of Crude”, Luke Patey describes the oil barons of India and China based on seven years research travelling between the Sudans and Beijing and Delhi where the state-owned oil companies have their headquarters.

He talked to Beth Walker about how Chinese oil companies have been forced to change their approach.

Beth Walker: Amid the intense debate about the impact of China and India on Africa, you argue the influence of Africa on China and India has been neglected. What do you mean?

Luke Patey: Indian and Chinese large multinational corporations have used Africa as a launching pad into the global market place and to make the first big foreign investments overseas. Sudan was the first place the Chinese National Petroleum Corporation (CNPC) – China’s largest national oil company –made a large scale overseas investment. Sudan and South Sudan acted as a vehicle for the company to test its international competitiveness. So Africa has really been a training ground for large state owned Chinese and Indian corporations.

BW: How has this shaped the way these companies behave?

LP: Sudan and South Sudan was the crown jewel for Chinese and Indian national oil industries for over a decade (from the late 1990s until five years ago). In recent years, the insecurity and political instability CNPC faced in Sudan and South Sudan has left a lasting impact on the company.

They made hard and soft changes to their security policies based on their experiences of kidnappings, violence and theft in the Sudans. They installed early warning systems in overseas subsidiaries and carried out security training for international staff in how to respond to kidnappings and other incidents. But more significantly, they started to change their soft approach and engage politically overseas to improve security. They stopped simply relying on the host government and in recent years they’ve started to increase their dialogue with local communities, media and civil society. They’ve taken part in corporate social responsibility workshops hosted by international NGOs and Sudanese civil society, engaged international risk consultants and really opened up as a company. This is all quote a big step for a large closed state owned company in China.

The Sudan experience also caused Chinese and Indian national oil companies to rethink their overall investment strategy. When the oil companies started to go out and invest abroad for the first time in the 1990s they focused on countries like Sudan,  Myanmar, and Iran, where there was little western competition, to get a foothold in the international oil industry. A decade later they found they’d over invested in these trouble spots – and when things flare up – like conflict and civil war in Sudan and South Sudan –oil production and revenues were devastated by oil shut downs.  So now they’re pursuing a diversification strategy, trying to move into the US, Canada and other stable countries in the hope of balancing their international portfolio.

BW: Has public pressure in China and abroad affected companies’ behaviour, or have these changes been driven mainly by an economic imperative?

LP: It’s a little bit of both. The public pressure internationally and particularly in the US over the role of CNPC in the Sudans created an economic imperative for the company in the sense that they find it hard to invest in the US. For example, Chinese companies would like to be more involved in the shale oil and gas boom that is going on right now in the US. But their involvement in the Sudans has fed opposition against large scale Chinese investment in the US.

I think there is an amazing dynamic underway in China now with the pressure on these corporations to be part of improving air and environment standards in China. These changes will probably have a big lasting effect on how companies and how they behave abroad. If the government and Xi Jinping decide to put pressure on the state owned oil companies to improve standards in China it will have an effect on companies overseas as well.

BW: Have the Chinese government’s voluntary guidelines for overseas companies had any impact?

LP: I think the big challenge right now for the Ministry of Foreign Affairs and the Ministry of Commerce is to try to coordinate between the diverse set of Chinese companies in Africa that are following their own narrow interests. I think that the Chinese government is trying to improve dialogue with these companies, pass corporate social responsibility policies and suggest how they should behave. But there still isn’t much coordination. The national oil companies are very strong at home in China. CNPC used to be the Ministry of Petroleum and Sinopec was once the Ministry of Chemicals– and they still have strong role in the government and the communist party.

BW: What about the human and environment costs of the oil industry in Sudan and South Sudan and China’s role in this?

LP: It’s unfair just to focus on China’s role in the environmental degradation that’s come with the development of Sudan’s oil industry. We often blame Chinese corporations because they have poor track records at home and they are repeating this behaviour overseas. But there has never been strong governance over the oil industry from the government in Sudan and South Sudan. Both countries have prioritised the industry over any sort of enforcement of environmental or social measures that might slow down oil production and revenues.  Chinese national oil companies in Canada, for instance, and other places where there is stronger regulation, have largely managed to follow laws and regulations quite well.

Without regulation the oil industry in the Sudans has disrupted local livelihoods in different ways. First of all when companies do seismic surveys for oil exploration they carve up kilometres of territory and sometimes destroy farmland in local communities and road construction has dammed water flows and upset irrigation. There are no mechanisms for local communities to complain against Chinese companies.

The biggest negative environmental impact has been the dumping of wastewater from oil production which has killed livestock, caused illness among locals and built resentment against the companies on the ground (and its mainly Chinese companies who are active in the region). They’ve begun to notice this resentment and want to improve their record in environmental areas as well. But you can’t expect even the most advanced western oil company to self-regulate. Chinese companies need a strong Sudanese government with a clear set of regulations to follow and repercussions if they don’t follow them like any oil company does.

BW: Are there any major differences in the approach of Chinese and Indian companies?

LP: CNPC and other Chinese national oil companies have a more comprehensive approach to international investment than Indian companies. When CNPC invests overseas it brings along the whole value chain for the oil company - a construction subsidiary, a catering company - while the Indian companies, like western companies, are mainly focused on oil exploration and production. This has proven to be a big advantage for Chinese oil companies in countries that lack infrastructure. The Chinese oil companies have been able to make a lot of profit because they’ve been able to offer a range of other services to African countries, such as road construction, building facilities, camps for workers etc.

BW: What major challenges did you face carrying out the research for this book?

LP: At first it was very difficult to make contact with the Chinese national oil companies to speak to me. They were quite closed to meeting with researchers and journalists because they didn’t have much experience of dealing with outsiders and were suspicious of my intentions.  It took me around three years of travelling back and forth from Sudan to meet anyone from CNPC. But it was remarkable by the end of my research – over a seven year period – how CNPC opened up not only to me but to other researchers and journalists. Because of their security problems and the public pressure on the company they realised they had to become part of the conversation and give their opinion.

BW: How has Xi Jinping’s anti-corruption campaign affected oil operations?

LP: It’s had quite a significant impact on CNPC. Dozens of managers and executives have been detained. So many people have been taken by the corruption probe that CNPC has people waiting in the wings to replace executives if they are taken by the probe. It has stalled foreign investment too. A big investment in the oil sands in Alberta which PetroChina was supposed to make earlier this year was stalled during the negotiations after the CNPC country president was detained.

But in the long run, a stronger more efficient CNPC could emerge, one that works more closely with the Chinese government than in the past. CNPC has been known for acting on its own and at times thumbing its nose at regulations at home and abroad. This might change now.

 

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