Sudan: China and India fill void left by rights campaigners

By Carola Hoyos
February 28, 2006
The Financial Times
Original Source: http://news.ft.com/cms/s/34fc29bc-a788-11da-85bc-0000779e2340.html

Sudan perhaps better than any other African country encapsulates the geopolitical tensions of today’s race to supply the world with enough oil.
The US State Department has labelled Sudan a state sponsor of terrorism and states such as New Jersey, Illinois and Oregon have barred public pension funds from investing in companies active in the country. This has broadened across international borders in the wake of 1997 legislation that bars US companies from doing business in Sudan.
These measures have built on the grass roots campaigns that have been critical in affecting change Sudan in the past five years. Many investors boycotted PetroChina’s initial public offering in 2000 in response to the activities in Sudan of the China National Petroleum Corporation, its parent.
Other international oil companies have also felt intense investor pressure. Canada’s Talisman left Sudan in 2002, concluding that it was no longer worth suffering the company’s depressed share price. OMV of Austria followed a year later.
But none of this has stopped oil from flowing from the war-ravaged country. Sudan produces 500,000 b/d, having doubled its volumes in just two years. Its main western investors may have sold their holdings or at least suspended operations until politics improves, but Indian and Chinese companies, spurred on by their own oil-hungry governments, have shrugged off criticism and filled the vacuum.
Sudan has become particularly important to China, making up more than half of the world’s second largest oil consumer’s foreign oil reserves. CNPC holds a 40 per cent stake in the Greater Nile Petroleum Operating Company, the biggest player in Sudan’s oilfields.
Meanwhile, India’s Oil and Natural Gas Corporation bought several of the blocks sold by western companies due to political and investor pressure. Petronas of Malaysia and Gulf Petroleum Corporation of Qatar are also involved. Western companies hungry for new places to seek and produce oil are not far behind.
Many of them have remained dormant in Sudan, holding on to their licences, rather than selling them, in the hope that the country’s political situation will improve and the projects go ahead.
In January last year, after Sudan ended its 21-year civil war with the signing of a comprehensive peace agreement, France’s Total, Marathon of the US, and the Kuwait Foreign Petroleum Company renewed their exploration rights in the south of the country.
There is good reason for their tenacity. Sudan holds 6.3bn barrels of proven reserves, more than the UK’s 4.5bn and not far off Azerbaijan’s 7bn barrels, according to the BP’s most recent statistical review. Production has risen steadily, especially since the completion of an export pipeline in 1999.
In 2001, Sudan’s status as an important producer of oil was elevated when it became an official observer at meetings of the Organisation of Petroleum Exporting Countries, the cartel that supplies 40 per cent of the world’s oil.
Sudan expects to be able to produce 650,000 b/d soon this year, according to Angelina Teny, a minister of state for energy and mining. At $60 a barrel, the country’s budget has swelled, as has its military expenditure.
“Far from bringing peace, prosperity and security, in Sudan oil development has brought conflict, displacement and widespread abuse. After Talisman came on to the scene in 1998, fighting and displacement in Western Upper Nile/Unity State drastically increased,” a report by Human Rights Watch, the non-governmental pressure group, said in a report published in September 2003.
Military spending of SD90.2bn for 2001 soaked up more than 60 per cent of the 2001 oil revenue of SD149.7bn. Military expenditure officially rose by 45 per cent between 1999 and 2001, Human Rights Watch found.
But the oil companies’ presence not only helped fuel the war, it also hindered diplomatic progress at the United Nations Security Council.
In August 2004 the Security Council, of which China is a permanent, veto-holding member, threatened punitive measures against Sudan‘s oil industry if things did not improve. Three months later, 3,500 African Union troops were dispatched to Darfur to police the situation.
In February 2005 a UN commission concluded that the violence in Darfur was no less serious than genocide.
But China’s ability to use its veto to block any resolution has meant that the Security Council has not followed through on its threat.
Last month, the US Energy Department outlined the impact in a report to Congress of China’s willingness to make deals with oil-rich countries Washington shuns for political reasons.
It said China’s tolerance of despotic regimes could undermine Washington’s strategic goal to spread democracy and free trade.
“Further, if Chinese companies increase their ownership of assets in these countries, this may increase China’s propensity to intervene in order to protect those investments,” the report said.
But it went on to acknowledge that China’s willingness to pull oil from places others avoid means the world oil market is better supplied, reducing oil prices and benefiting consumers.
Most Sudanese have yet to see the upside of their country’s huge oil wealth.
Today, sub-Saharan Africa’s third-largest oil producer must rely on UN food handouts to help the 2m internally displaced people in Darfur and 900,000 more returning from abroad to rebuild their lives.
The UN says it need to supply 800,000 tonnes of food aid this year to feed 6.7m people living mainly in Darfur and the south.