Investors lodge mass lawsuit seeking fair compensation for seized oil wells

PUBLISHED : Wednesday, 15 September, 2004, 12:00am
UPDATED : Wednesday, 15 September, 2004, 12:00am

500 plaintiffs claim government action has deprived them of almost 7 billion yuan

A massive class-action lawsuit will be lodged against the Shaanxi government involving more than 500 plaintiffs who accuse officials of illegally seizing their assets and paying unfair compensation.

The legal row stems from a central government decision ordering the local government to reclaim thousands of oil wells in a 580 sq km area in northern Shaanxi's Yulin and Yanan regions that had been opened for private investment.

Zhu Jiuhu , the lawyer representing the plaintiffs, said the case would demand that officials pay fair compensation for their oil wells as stipulated in their contracts and that disputes over seized assets be settled in the courts.

'The government cannot do whatever it wants. It must act according to the law,' said Mr Zhu, who will file the suit within the next two months at the Shaanxi Provincial Supreme People's Court.

Mr Zhu said his clients had suffered economic losses of almost 7 billion yuan as a result of the government's actions.

In 1994, the State Council approved a plan giving the exploration and development rights of the Shaanxi oil fields, then held by the China National Petroleum Corporation, to the local governments.

To get the necessary capital for the field's development, officials encouraged private investors to form joint oil exploration and drilling partnerships.

With government promises of high returns and favourable policies, more than 100,000 rushed to invest, many of them poor farmers who borrowed heavily and sold all their farming assets.

By the end of 1998, more than 5,000 private wells had opened with total investment of more than 5 billion yuan. However without regulation, the oil projects led to mass wastage, chaos and environmental destruction.

To restore order to the region's oil market, premier Zhu Rongji in 2002 told local governments to reclaim the wells and settle with the private investors.

With central government authorisation, the local authorities began seizing the oil wells. But investors accused the cadres of paying unfair compensation for the sites by using below-market prices and underestimating the oil reserves.

In one case, local officials paid one group of investors 70 million yuan in compensation, while the value of the well was estimated at 320 million yuan.

Authorities have also been accused of using illegal strong-arm tactics, such as sending the police to seize the wells if the owners refuse to surrender their assets.