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Eric Ng

Warren Buffett says oil group has no control in parent's investment decisions

Billionaire Warren Buffett's investment firm Berkshire Hathaway has brushed aside pressure to sell its stake in PetroChina, saying that the mainland oil producer has no control over its parent China National Petroleum Corp's  investment decision in atrocity-inflicted Sudan.

Berkshire's stance contrasts with other US institutional investors including Harvard University, who sold or instructed  fund managers to divest shares in PetroChina and Sinopec.  The parent firms of the two oil companies are involved in projects in Sudan with state oil concern  Sudapet.

The sales  were considered as moves to arouse concerns over militia attacks in Sudan, which are widely believed to be funded by the local government who draws much  of its income from crude oil sales.

Berkshire, which owns 1.31 per cent of PetroChina, argued that divesting the stake would not help change the Sudanese government's behaviour as PetroChina could not control the policies of state-owned CNPC and the  central government.

'Berkshire agrees that conditions in [Sudan]  are deplorable and sympathises with people who want to remedy them,' it said.

'We believe, however, that they are wrong in both their analyses of PetroChina's connection to these conditions and their belief that our divesting our PetroChina holdings would in any way have a beneficial effect on Sudanese behaviour.'

Sudan's Darfur region suffered from fierce attacks linked to government-sponsored Janjaweed militia, which reportedly have killed hundreds of thousands and displaced more than one million since early 2003. The United States government called the atrocities genocide.

US companies have been prohibited from doing business in Sudan since 1997, but they can own shares in foreign firms that are operating in the African country.

The continued dismal situation in Sudan prompted  Harvard University to sell its stake in PetroChina in 2005 and Sinopec last year.

Activist groups, such as Sudan Divestment Task Force, have called on international firms to withdraw their operations and investments in Sudan and asked Boston-based fund manager Fidelity, the largest holder of PetroChina's American depositary receipts, to sell them.

Berkshire, controlled by Mr Buffett, the world's second-richest man, warned that asking CNPC to withdraw from Sudan may actually bolster the militia's war chest, as it would be forced to sell its stake cheaply and most likely to the Sudanese government.

CNPC and its 88.2 per cent owned PetroChina could not be reached for comment.

CNPC's Sudan projects recorded  crude oil output of 16.38 million tonnes in 2005, primarily from Greater Nile Petroleum Operating Corp which has been pumping oil from oil blocks one, two and four since 1999.

CNPC has a 40 per cent stake in Greater Nile, while Malaysia's Petronas holds 30 per cent, India's Oil and Natural Gas Corp  owns 25 per cent and  Sudapet has 5 per cent.

The Sudan projects formed a substantial part of CNPC's total overseas output of 20 million tonnes in 2005.

Sudan's importance to CNPC is set to grow as production at oil blocks three and seven started last year and is expected to reach 10 million tonnes  next year.

These blocks are run by Petrodar, which is 41 per cent-owned by CNPC, 40 per cent by Petronas, 8 per cent by Sudapet, 6 per cent by China Petrochemical - parent of listed Sinopec, and 5 per cent by United Arab Emirates-incorporated Al Thani.

PetroChina is not completely unrelated to CNPC's involvement. Its oil refinery in Guangxi autonomous region due for completion next year will process oil from Sudan.

China has been actively investing in infrastructure and economic development in economically backward but oil-rich countries, in a bid to secure crude oil supply to feed its economy.

UNDER PRESSURE

Share disposals by investors due to concerns over Chinese oil major's links to the Sudanese government

April 2005: Harvard University endowment fund sold an estimated US$4.3 million worth of PetroChina American Depository Receipts

March 2006: Harvard University endowment fund sold its shares in Sinopec Stanford University, the University of California, Dartmouth College and Yale University have said they will divest their shares or refrain from investing in PetroChina and Sinopec



Berkshire to keep PetroChina stake despite links to Sudan