China must play by the rules in oil-rich Sudan

Jul 23, 2003 02:00 AM

by Joshua Eisenman and Joshua Rogin

American policy towards Africa received a long-overdue check-up this month when United States President George W. Bush's whirlwind tour of Africa and tales of Iraqi designs on Niger's uranium attracted the Washington spotlight.
More overdue, however, is an examination of China's role as an emerging power in this volatile, yet resource-rich, region.

Beijing is restlessly searching abroad for resources to meet its citizens' thirst for modernity. Despite its vast land mass, the People's Republic of China has just 2.3 % of the world's known oil reserves and 1 % of natural gas deposits. Chinese foreign policy is thus largely focused on the development of fuel resources to power the economy, and one continent it has long looked to is Africa.
Here, Sudan ranks high on China's collaboration list. Sino-Sudanese cooperation dates back to the 1970s. Since then, China has provided roughly $ 780 mm (S$ 1.4 bn) in economic aid to Sudan, building more than 30 projects.

In 2000, according to recently declassified State Department documents, China agreed to finance and build a 212-MW gas-fired power station and an electrical power generation station, provide a grant agreement worth $ 2.5 mm for “any project” deemed worthy by Sudanese officials, and promised diplomatic support to remove international sanctions.
Beijing has used economic, diplomatic and military influence to secure Sudan's rich oil reserves. China National Petroleum Corporation (CNPC), a state-run company, holds the largest share -- 40 % -- in the Greater Nile Petroleum Operating Company (GNPOC). GNPOC is Sudan's largest oil production project and was founded with Petronas of Malaysia, Arakis Energy of Canada, and local company Sudapet.

According to Sudanese figures, the total production of the three oil fields that CNPC has interests in is expected to increase to 400,000 bpd next year and 500,000 bpd in 2005. Under the agreement that established GNPOC, 80 % of oil profits (after explorationand construction costs have been recouped) go directly into the coffers of the Sudanese government.
In March this year, Sudan's only Western financier, Talisman Energy, sold its interest in GNPOC. The Canadian firm, which had purchased Arakis' 25 % stake in 1998, came under pressure from the US legal system, human rights groups and investors for its role in promoting violence in Sudan.

Talisman is now facing class-action litigation based on the provisions of the Alien Tort Claims Act. Popular with activists and victims groups, this 200-year-old statute has been used since 1983 to sue foreign nationals and corporations in American federal courts. Through this legislation, foreign firms are forced to accept responsibility for their host countries' actions.
Talisman is being called to task for its role in a Sudan that, say plaintiffs, engages in ethnic cleansing and has “annihilated villages by helicopter gunships to clear the way for oil exploration”.

American jurisdiction over foreign firms can only be enforced when a company has significant presence in the US marketplace. As a result, Western companies that own American subsidiaries or have raised money on Wall Street now must choose between cheap oil deals with oppressive governments and continued access to US markets. Although Chinese oil companies are listed on the New York Stock Exchange, their lack of any tangible presence in the US keeps them insulated from this still controversial law. As Western oil firms reluctantly sell their positions in Sudan, they leave a void which less scrupulous companies from the developing world are waiting to fill. For example, Talisman sold its stake in GNPOC to ONGC Videsh, an Indian company.

According to the US Department of Energy, oil production has become the primary source of income for the government of Sudan, accounting for around 70 % of Sudan's total export earnings. If trends continue, this will mean more oil for China, more guns for Sudan's military and more terror for non-Arabs in the disputed areas.
The latest round of peace talks between the Sudan regime and the Southern People's Liberation Movement failed this month. Government spokesman Sayyed al-Khateib stated that the peace process “may get protracted and therefore we cannot say that August or September will be the final date”.

Delegates on both sides cite autonomous control of the rebel areas and the application of Islamic Sharia law in the capital city of Khartoum as the contentious issues. Negotiations have given Khartoum and the rebels valuable time to regroup and rearm, and it seems certain that bullets will fly again on the southern plains this autumn.
The world business community has welcomed China into its ranks, but if international laws and norms cannot be enforced, then the playing field is uneven. Either through their own compliance or the strengthening of international law, Chinese companies must adhere to global standards. If they do not, standards will slip even further as other nations' companies, in an attempt to cut corners and remain competitive, adopt Chinese methods. The consequences of these methods can be seen on the battlefields of southern Sudan.

Joshua Eisenman is a fellow at the New America Foundation, a centrist public policy think-tank in Washington, DC. Joshua Rogin is a research analyst for the law firm representing the people of southern Sudan against Talisman Energy and the government of Sudan.

Source: Straits Times
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