China Finds Resistance to Oil Deals in Africa

20 September 2013

The New York Times

In Niger, government officials have fought a Chinese oil giant step by step, painfully undoing parts of a contract they call ruinous. In neighboring Chad, they have been even more forceful, shutting down the Chinese and accusing them of gross environmental negligence. In Gabon, they have seized major oil tracts from China, handing them over to the state company.

China wants Africa's oil as much as ever. But instead of accepting the old terms, which many African officials call unconditional surrender, some cash-starved African states are pushing back, showing an assertiveness unthinkable until recently and suggesting that the days of unbridled influence by the African continent's mega-investor may be waning.

For years, China has found eager partners across the continent, where governments of every ilk have welcomed the nation's deep pockets and hands-off approach to local politics as an alternative to the West.

Now China's major state oil companies are being challenged by African governments that have learned decades of hard lessons about heedless resource-grabs by outsiders and are looking anew at the deals they or their predecessors have signed. Where the Chinese companies are seen as gouging, polluting or hogging valuable tracts, African officials have started resisting, often at the risk of angering one of their most important trading partners.

"This is all we've got," said Niger's oil minister, Foumakoye Gado. "If our natural resources are given away, we'll never get out of this."

Below Mr. Gado's seventh-floor office, reached through a dark stairwell because there is no working elevator, his fellow citizens are living in mud-brick houses without electricity and washing their clothes in the river. Oil production in Niger began nearly two years ago but has yet to make a dent in living standards.
"We've got to fight to get full value for these resources," Mr. Gado said. "If they are valued correctly, we can hope to bring something to our people."

Seven hundred miles away in the oil-producing region, Chinese refinery workers and engineers massed boisterously at a crumbling and otherwise unused airport for their quarterly holiday flights out, one of the many costs that Mr. Gado said Niger, at the bottom of the United Nations human development index, could not afford.

A private auditor hired by Niger recently found bloated costs and unfair charges by the China National Petroleum Corporation, providing Niger with ammunition for its next round of tense negotiations in Beijing, Mr. Gado suggested. Tens of millions of dollars have already been scored off the Chinese through such painstaking revisions.

Across the border in Chad, officials have taken a harder line with China National Petroleum, reflecting a growing confidence after 10 years of oil production that has brought the country new roads and public buildings, a revamped army, and a strengthening of the government's grip on power, though little change in the country's low poverty ranking.

The country's oil minister shut down the Chinese operations in mid-August after discovering that they were dumping excess crude oil in ditches south of the capital, N'Djamena, then making Chadian workers remove it with no protection.

"Just dumped in the open," said Antoine Doudjidingao, an economist who helps lead an oil watchdog group in N'Djamena. "This is a serious case, the first of its kind. You can't just shut your eyes in the face of it. It's a responsible reaction."

Last month Chad's oil minister refused to allow the Chinese to resume operations, even expelling the company's local director-general and his assistant. There would be no resumption, the government said, until the Chinese built remediation and treatment facilities.

"Regardless of the actual spillage, which the Chadian government would normally not care much about, this seems to be a warning, which just goes to show that even the prototypical weak state in Africa can have serious leverage, and that African-Chinese relations are not as unbalanced as is sometimes argued," said Ricardo Soares de Oliveira, a politics professor at Oxford and an expert on African oil.

In Gabon, the government has surprised the oil industry by withdrawing a permit for a significant oil field from a subsidiary of another Chinese state-owned company, Sinopec, turning it over to a newly created national oil company. Officials were quoted last month as threatening to cancel permits to other fields as well, accusing the Chinese of environmental missteps, as in Chad, and mismanagement. Some analysts said Gabon's motive was merely to reap more of the rewards from these fields.

"The Chinese are genuinely unprepared for this degree of pushback," Mr. Soares de Oliveira said.
China's Foreign Ministry rejected the notion that its role had been anything but fruitful. In Niger, it said, it has improved the economy, has hired local residents and is building schools, digging wells and carrying out other "public welfare activities." In Chad, it said, it has urged companies to protect the environment and will seek to resolve the dispute through "friendly negotiation." In Gabon, as elsewhere, it said, it supports cooperation "on the basis of equality, amity and mutual benefit."

Few nations in the world are as weak as Niger, where nearly half of the government budget comes from foreign donors. But the nation long had unfulfilled oil dreams that were largely ignored by major companies. In 2008, two partners came together secretively - the country's autocratic ruler, Mamadou Tandja, and China National Petroleum - and signed an unpublicized deal that seemed to give both parties what they wanted.

But far less clear, then and now, was whether Niger - one of the world's most impoverished countries, regularly threatened by famine - would substantially benefit from the deal.

Mr. Tandja got a costly oil refinery in an area of Niger that he needed to win over with the promise of development, but the need for such a project in this low-energy-consuming nation has been sharply questioned by experts, not to mention the mysterious $300 million "signing bonus" Mr. Tandja's administration received.

In return, the Chinese got access to untapped oil reserves in the remote fields on Chad's border on terms that still make Oil Ministry officials here wince. Beyond that, local residents have protested that the Chinese presence has brought few jobs, low pay and harsh working conditions.

Mr. Tandja is long gone, deposed in a 2010 coup by army officers suspicious of his grab for expansive powers, but the contract remains, as does the white-elephant oil refinery. It sits at the border with Nigeria, a nation awash in subsidized oil that crosses into Niger as contraband. The refinery has a capacity that is three times Niger's consumption, and the overall cost should have been only $784 million, according to a United Nations expert. Niger must still pay 40 percent of the original cost, with money lent to it by the Chinese.

"In the context of this fight, we are revisiting these contracts to correct them," said Mr. Gado, the oil minister in the new democratic government led by an opponent of Mr. Tandja. "In the future, we will pay closer attention, to not make the same mistakes."

The fight has carried Mr. Gado, a soft-spoken chemist, to Beijing several times to haggle with the Chinese. "I wouldn't say we are at daggers drawn," he said carefully. "But we discuss, sometimes over long months. Every time we discover something, we make an adjustment."

Already, the original loan for Niger's portion of the refinery - 10 years, at commercial rates - has been knocked down to a more manageable 25 years at 1 percent, and deferred for seven years.

For Niger, the constant struggle with the Chinese is to keep costs down so it can sell its oil cheaply in a region where Nigeria's subsidized oil is king. "We've got to recover what we've invested before the state can hope to gain something," Mr. Gado said.

For a time, oil at the refinery was piling up because the high price kept buyers away. The Chinese wanted to charge for piping the crude from the oil fields to the refinery; Niger is refusing. The Chinese wanted to charge export-level prices for the crude oil at the refinery; again, Niger is balking. The Chinese maintain a substantial benefits-freighted payroll at the refinery, another cost Niger is expected to carry; it is rejecting that, too.

"This is a lesson we are giving to the Chinese: we are keeping a close lookout on them," said Mahaman Gaya, the Oil Ministry's secretary general. Mr. Gado has not made his last trip to Beijing.

Niger's lesson is being applied elsewhere as well: African governments, grateful as they are for Chinese-built roads and ministry buildings, are no longer passive partners.

"Are we going to continue to ignore what the Chinese companies are doing?" asked Mr. Doudjidingao, the Chadian economist. "I think this is the beginning of a change between African states and the Chinese. It's a consciousness-raising, so they won't be guilty in the face of history."

Original article by Adam Nossiter

Category: Energy

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