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1410 Ibid.; John Lebate and Stephen Fidler, “Sudan Ties Jeopardize Chinese Oil Listing,” Financial Times (London), reprinted in USA edition, Washington, D.C., October 6, 1999.
1411 “Is China Stock a Security Risk?”, October 5, 1999; William J. Casey Institute press release, “Casey's Robinson Testifies Before California Legislature on Prospect of Global ‘Bad Actors’ Penetrating State Portfolios,” Washington, D.C., January 14, 2000.
1412 The U.S. CIRF was created pursuant to U.S. legislation, the International Religious Freedom Act of 1998, 22 U.S.C. 6410 et seq.
well as enslavement.”1413 This pressure came just as the Clinton administration was launching an effort to persuade Congress to approve China’s admission into the World Trade Organization.1414 CNPC Erects a “Firewall” to Satisfy Activists Two days after the U.S. CIRF demand, CNPC’s investment bankers Goldman Sachs restructured the deal. They created a separate company to float the public offering, PetroChina Co., which would operate only inside China.
CNPC’s domestic China holdings would be spun off to PetroChina and the CNPC would exclude its Sudan (and all other foreign) operations from the IPO.1415 Oil analysts had already expressed disaffection with CNPC’s overseas crude reserves, some of which had a low yield (such as in Peru) or political problems (such as in Iraq).1416 The proceeds of the IPO were to be used solely for development of China’s domestic oil reserves1417 and PetroChina would not use any of its funds for Sudanese operations, according to CNPC’s investment bankers.1418 The CNPC claimed it needed the IPO funds to build new infrastructure in China to transport crude as well as oil products within China. The Chinese government had already restricted oil imports so its domestic oil company, now PetroChina, could reap a profit.1419 1413 “Federal Commission Urges President to Ban Foreign Investors on Sudan Oil Pipeline from U.S. Stock Markets,” PR Newswire, Washington, D.C., November 1, 1999.
1414 David B. Ottaway, “Chinese Fought on NYSE Listing,” Washington Post, January 27, 2000.
1415 See “CNPC To Drop Sudan Operations from IPO— report,” Reuters, Singapore, November 3, 1999.
1416 “Investors Skeptical Over CNPC’s Overseas...,” September 6, 1999.
1417 Ibid.; “CNPC to drop Sudan operations from IPO,” November 3, 1999.
1418 Ibid.; “Investors Skeptical Over CNPC’s Overseas...,” September 6, 1999.
1419 “China Finishes Sudan Oil Projects,” July 14, 1999.
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PetroChina would rank as China’s largest company, with 70 percent of the country’s petroleum reserves and accounting for two-thirds of its oil and gas production. It would immediately become the world’s fourth-largest publicly traded oil and gas company, although the Chinese government, through CNPC, would still own 80 to 90 percent of PetroChina’s stock after the public offering.1420 PetroChina maintained it was neither a U.S. nor a Sudanese company nor would it have direct business dealings with Sudan.1421 Upon closer examination, this was not the divorce it first appeared to be for at least two reasons: income and debt. Critics charged that the CNPC, as the parent company, would receive 90 percent of PetroChina’s income, including funds raised in the IPO. PetroChina’s chairman denied the company would use proceeds from its stock offering to fund projects in Sudan.1422 When created, PetroChina inherited U.S. $ 15 billion in debt from CNPC, giving critics the opportunity to point to more overlap: this debt, incurred partly in connection with the GNPOC project, would be borne by PetroChina.1423 Pressure in the U.S. against CNPC mounted: in December 1999 170 civic and religious leaders urged President Clinton to amend U.S. sanctions on Sudan to ban CNPC access to U.S.
capital markets as long as it was a partner in Sudan’s oil development, arguing that “the fungibility of money and the scale of CNPC’s activities in Sudan thoroughly undermine the credibility of this [PetroChina] contrivance.”1424 1420 “Chinese Fought on NYSE Listing,” January 27, 2000.
1421 Eduardo Lachica, “U.S. Religion Task Force to Scrutinize CNPC’s Stock Offer for Sudanese Ties,” Wall Street Journal (New York), Washington, D.C., December 22, 1999.
1422 “PetroChina Head Rejects Criticism,” AP, March 26, 2000.
1424 John Lebate and Stephen Fidler, “China Oil Group Prepares for $7 billion IPO,” Financial Times (London), New York and Washington, D.C., December 20, 1999.
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In February 2000, President Clinton extended the 1997 U.S. sanctions on Sudan to GNPOC and Sudapet by executive order.1425 In a setback for the campaigners, however, the U.S. Treasury Department answered Rep. Frank Wolf’s letter in April 2000, ruling that the 1997 presidential executive order imposing economic sanctions on doing business with Sudan did not prohibit U.S. citizens from investing in non-Sudanese companies doing business in or with the Sudanese government.1426—describing CNPC and Talisman to a “T.” Some experts claimed it would be unprecedented to apply such sanctions to stock and bond transactions, since sanctions are usually limited to trade and investment. President Clinton said he shared U.S. CIRF’s concerns about new oil revenue for Khartoum. But extraterritorial or third country sanctions, he maintained, would “ultimately prove counter productive and hurt U.S. ability to use diplomatic means to maintain pressure on [Khartoum].”1427 But these protest actions, and those of the other campaigners on Sudan, delayed the Chinese financial offer by at least four months and substantially cut back the funds raised.1428 Opposition Undercuts PetroChina Initial Public Offering, March 2000 After CNPC spun off the PetroChina subsidiary to avoid Sudan protests, the PetroChina IPO was still not quite on track: it was further delayed by extensive questions by the NYSE.1429 U.S. Congressmen on March 1, 2000, signed a letter opposing the PetroChina IPO on human rights and other grounds.1430 1425 U.S. President William J. Clinton, Executive Order 13067, “Blocking Sudanese Government Property and Prohibiting Transactions with Sudan,” Washington, D.C., November 4, 1997, http://www.pub.whitehouse.gov/uri-res/I2R?urn:pdi://oma.eop.gov.us/1997/11/5/2.text.2 (accessed February 24, 2000).
1426 R. Richard Newcomb, director, Office of Foreign Assets Control, Department of the Treasury, letter to Sen. Russell D. Feingold, Washington, D.C., April 13, 2000.
1427 Eduardo Lachica, “U.S. Lawmakers Oppose Plans by China...,” March, 2000.
1428 “U.S. Religion Task Force to Scrutinize CNPC’s Stock Offer,” December 22, 1999.
1429 “China National Petroleum Delays IPO Road Show On NYSE Inquiries” DowJones.com Archives, January 25, 1999; see Ho Swee Lin, “CNPC: IPO Delayed by U.S. Regulator,” Financial Times (London), Hong Kong, February 3, 2000.
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Then the largest American trade union federation, the AFL-CIO,1431 entered the fray, urging investors to stay away from the PetroChina offer. The union claimed the money raised would be used to lay off one million oil workers in China.1432 In response to Goldman Sach’s road show promoting the PetroChina public offering, the AFL-CIO launched its own “alternative road show.” AFL-CIO Chairman John Sweeney, in a teleconference call with forty-two leading global institutional investors in March, warned about the hazards of buying PetroChina’s stock.1433 On March 22, 2000 the AFL-CIO and the NGO Free Tibet co-sponsored a protest at the office of PetroChina’s investment banker Goldman Sachs in New York City.1434 Bill Patterson, director of AFLCIO’s office of investments, was convinced that political opposition and subsequent negative press reduced interest in PetroChina’s IPO: “We haven’t found a single fund yet that even wants to get near this deal.”1435 BP Amoco PLC offered to purchase up to one billion dollars, or twenty percent, of PetroChina’s IPO.
In return, BP Amoco, a long-time investor in China, received the right to establish a gas-marketing joint venture in eastern China.
In response, the broad anti-PetroChina coalition began a boycott of BP Amoco gas stations in the U.S.
in March 2000.1436 Although BP Amoco had not directly invested in Sudan or GNPOC, any affiliation 1430 Eduardo Lachica, “U.S. Lawmakers Oppose Plans by China...,” March 1, 2000.
1431 American Federation of Labor-Congress of Industrial Organizations is a voluntary federation of America’s unions, representing more than 13 million working men and women nationwide. See http://www.aflcio.org/front/faqs.htm (accessed May 22, 2002).
1432 John Burgess, “AFL-CIO Opposes Stock Sale by Chinese,” Washington Post, March 10, 2000.
1433 Eduardo Lachica, “AFL-CIO’s Influence Erodes Interest in PetroChina’s IPO,” Wall Street Journal (New York), March 14, 2000.
1434 Mark Landler, “Stakes in China Suddenly Seem Less Appealing,” New York Times, March 31, 2000; John Burgess, “AFL-CIO’s Influence Erodes Interest,” March 14, 2000.
1436 “PetroChina, BP Amoco Deal Protested,” PR Newswire, April 3, 2000; Tom Doggett, “China Oil IPO Faces a Fight,” Reuters, April 6, 2000.
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with PetroChina or CNPC, direct or indirect, continued to invite harsh criticism. The head of one advocacy group warned PetroChina investors with this sound bite: “If you want to be tarred with this radioactive slave stock then we will do that.”1437 Ultimately the PetroChina IPO raised U.S. only $2.9 billion.1438 The anti-PetroChina coalition represented possibly the most effective example of shareholder activism since the South Africa divestment campaign. CNPC continued to hold 90 percent of PetroChina stock.
CNPC did not respond to Human Rights Watch correspondence mailed or faxed to its Sudan office and in care of the Chinese embassy in the U.S.
2001 In 2001, confirming earlier trends, Chinese oil industry officials announced that CNPC had targeted Sudan as the centerpiece of its ambitions to triple overseas production by 2005. CNPC planned to establish two new oilfields in Sudan with a combined output of 180,000 barrels per day, on top of its “biggest overseas windfall,” in the GNPOC concession. The two new oilfields would be in Blocks 3 and 7 (Melut Basin), and Block 6 (Muglad Basin in western Sudan, northwest of the GNPOC concession).
CNPC had received revenue of more than U.S. $ 600 million from the GNPOC concession since exports began in September 1999, and Sudan accounted for two-thirds of CNPC’s overseas production in 2000.1439 CNPC’s dependence on Sudanese crude oil continued to expand, importing 2.69 million tons from Sudan in January to June 2001, up 38 percent from the year before.1440 1437 John Berlau, “Chinese Oil Firm’s Listing on NYSE Faces Fight Due to Terrorist Links,” Investor’s Business Daily (Los Angeles), March 10, 2000.
1438 “PetroChina IPO Finishes Unchanged,” AP, New York, April 6, 2000.
1439 Chen Aizhu, “China CNPC see Sudan pillar for overseas ambition,” Reuters, Singapore, June 18, 2001.
1440 “China Jan-Jul Crude Imports 37M MT, dn 2.5 % - Official,” Dow Jones International News Service, Singapore, August 23, 2001.
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But China’s involvement in Sudan continued to draw criticism and reports of military cooperation. One journalist said that CNPC “reportedly purchased a high-tech radar system for the government last year .”1441 This allegation remains to be investigated.1442 CNPC Participation in Government Refinery The Khartoum refinery, inaugurated with great fanfare on the tenth anniversary of the Islamist-military coup of June 30, 1989, was built to suppl the bulk of petroleum products consumed in Sudan. Described in the press as a private enterprise, it has been described by the IMF as a joint venture between Sudan and the CNPC, with mostly Chinese financing.
The CNPC secured a valuable concession in the contract: if debt service on this refinery is not met, the CNPC has the right to lift the equivalent of crude oil in kind—which would leave Sudan without its domestic fuel to refine. As the IMF put it, as to the debt to CNPC for the refinery, “nonpayment thus is not a realistic option.”1443 Debt service payments for the Khartoum refinery, amounting to U.S. $ 60 million, would have priority over all other debt service payments, such as to the IMF, the World Bank, and other creditors.1444 1441 Mindy Belz, “Blood for oil,” World on the Web, vol. 16, no. 9, March 20, 2001, distributed by the office of U.S. Rep. Frank R.
Wolf, March 7, 2001, sourced to http://www.worldmag.com/world/issue/03-10-01/international_1.asp.
1442 As of July 22, 2003, we know of no further investigation.
1443 IMF Staff Country Report No. 02/245, November 2002, p. 38, fn. 22.
1444 The World Bank has resumed its engagement in Sudan and is preparing a Country Economic Memorandum for Sudan. Its has assisted in research in Sudan in preparation for its full engagement at a later date, presumably when the arrears are paid off. The nonlending program provided assistance in the areas of irrigation and Nile Basin management services. The Bank approved a PostConflict Fund grant to support several analyses, including a survey on selected human resource indicators (a survey that could not
be undertaken throughout Sudan, of course). This program was initiated after the government began repaying part of its arrears off in 1999 at a rate of U.S. $ 2 million a month, which it was forced to suspend because of lower than expected oil prices. Ibid., pp. 41, 57.
Petronas: Partner in GNPOC, Lundin, and Block 5B Concessions Petronas Carigali Overseas Sdn Bhd (Petronas) invested in the GNPOC project (30 percent) on December 6, 1996, and in Lundin’s Block 5A on February 6, 1997 (28.5 percent). It was the second largest owner in both projects, and in 2003 became the largest owner in Block 5A when Lundin sold its interest to Petronas.