Crude lesson to be learned for China

PUBLISHED : Saturday, 10 March, 2012, 12:00am
UPDATED : Saturday, 10 March, 2012, 12:00am


China should heed the political lesson of having top oil executive Liu Yingcai expelled from South Sudan if it wants to avoid any further costly misunderstandings with the government of the oil-rich African country, analysts warn.

'With the expulsion of Liu, South Sudan is making a statement that it is now in control of its petroleum industry and any act against its interests will be punished,' said Kathelijne Schenkel, programme manager of IKV Pax Christi.

'It would be wise for China to see the expulsion of Liu as a signal that South Sudan is serious about its sovereignty in managing its most valuable resource.'

Pax Christi is a Dutch peace group that is the lead member of the 50-member European Coalition on Oil in Sudan, which is working for peace in the strife-torn country.

'China walks a fine line because of its close ties to Sudan. Now it depends on how China treats South Sudan,' Schenkel said.

Liu, the former president of Petrodar, a Chinese joint energy venture in South Sudan, was expelled by the country's government last month.

The expulsion order, signed by South Sudanese Minister for Petroleum and Mining Stephen Dhieu Dau on February 20, gave Liu 72 hours to leave the country.

The order cited what were called Liu's shortcomings, including a charge that Petrodar was transferring South Sudanese oil to its bitter enemy, Sudan; had understated production; and had failed to co-operate with the South Sudanese government's orders to shut down all the oil production.

Petrodar denied the allegations and said it had been providing daily production reports to the South Sudanese government. It also denied trying to increase production when the South Sudanese government ordered the oil shutdown in late January and that it understated the number of its oil wells.

China National Petroleum Corporation (CNPC), the biggest state oil company, is the largest shareholder in Petrodar, with a 41 per cent stake. It is followed by Malaysian oil firm Petronas, with 40 per cent, and another state oil firm, Sinopec, with 6 per cent.

Dana Wilkins, a campaigner for Global Witness, a British non-governmental organisation, said: 'The explanations provided by Petrodar in response to the allegations appear fair and logical. But if the South Sudanese government remains concerned about these issues, it has every right to implement an independent audit of the operations.'

Irrespective of the merits of the accusations that have been levelled at Petrodar, China must improve relations with South Sudan if it wants to ensure the African nation will supply it with oil, analysts say.

One analyst said: 'The South Sudan government's accusation that Petrodar was not co-operating with the government's oil shutdown is probably not true. Considering how quickly the shutdown was done, Petrodar couldn't have been that unco-operative.

'What started as a technical misunderstanding became much bigger, as it became wrapped up in sensitive political issues,' the analyst said.

Liu's expulsion occurred amid rising tension between South Sudan and its northern neighbour, Sudan, from which the South seceded on July 9 last year.

Before the secession, South Sudan accounted for over three-quarters of the united Sudan's oil production, and oil provides over 98 per cent of South Sudan's budget.

In mid-January, Sudan began confiscating South Sudanese crude oil worth over US$250 million, said Global Witness. South Sudan responded by shutting down all its oil production in late January.

The South China Morning Post obtained letters by Liu to the South Sudanese government days before his expulsion, which appear to support Petrodar's argument that it had co-operated with South Sudan. One letter by Liu said the Sudanese government had been diverting oil from Petrodar's pipeline since January 16, but Petrodar opposed the Sudanese government's action.

Global Witness said: 'The African Union, China, and Western governments must push for an immediate resolution to the oil dispute between Sudan and South Sudan. Public exchanges between the governments have become increasingly tense.'


The number of barrels of crude oil reserves South Sudan is estimated to hold. This puts it in the top 10 countries with proven reserves