Rising China and Africa's development: oil
Rising China and Africa's development: oil

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Rising China and Africa's development: oil

5 Chinese oil companies in Africa

Chinese national oil companies (NOCs) were formed out of various ministerial restructurings following the initiation of the major reforms. Reforms in 1982 and 1988 saw a number of NOCs emerging for the first time in Chinese history. Nevertheless, at the early transitional stage from planning to marketisation, the industry was not completely separated from the government. The NOCs went through another wave of transformation in the late 1990s which was occasioned partly by China’s further economic and governmental reforms to establish a socialist market economy as well as the need to position the NOCs for global competition that would result from China’s impending WTO membership. Hence, in 1998 CNPC and Sinopec were restructured to become fully vertically integrated companies with both upstream and downstream operations, and their administrative functions were removed completely.

In theory, Chinese NOCs no longer enjoy administrative ranking in the Chinese political system. However, as the CEOs of the three oil majors are still appointed by the Central Organisation of the Chinese Communist Party (CCP), many believe that the NOCs are in effect vice-ministerial level corporations, though their CEOs could be seen as higher ranking officials.

Between April 2000 and February 2001, CNPC’s subsidiary PetroChina, Sinopec and CNOOC were all listed on international stock markets, allowing the NOCs to better integrate with the international system. However, since the majority of their shares were owned by the Chinese government, the NOCs did not become fully commercial companies through international listing.

Despite the enduring power of the Chinese government over NOCs’ key personnel appointments and ownership of NOCs’ shares, the actual control of the government over the NOCs has been less effective than many could envisage, for two main reasons. The first is NOCs’ bargaining power against the government via political networks among their powerful leaders. Many of the CEOs either have had a close relationship with the top leadership, or were promoted to higher levels after their tenure as CEOs. The second reason relates to the NOCs’ remaining monopoly in China’s oil sector, which not only undermined the government’s efforts to reform the domestic fuel pricing system, but also enabled the NOCs to employ the government’s ‘going global’ strategy to serve their own benefit.

While the three NOCs all emerged from government ministries, significant differences do exist between them, especially with respect to their corporate mission, market position and relationship with the Chinese leadership, all of which are also linked with their history and evolution. CNPC maintains the greatest ties with the Chinese Communist Party and it is able to leverage more government support, while CNOOC, which is currently the smallest among the three, has an advantage in building partnerships with multinational firms because part of its initial mandate was to partner foreign firms in order to develop technological capabilities in offshore operations. Having been incorporated as the downstream producer of energy for direct consumption, Sinopec is ahead of the rest in terms of refining and downstream activities. For now, all three should be viewed as competitors who in many ways still retain their unique characteristics and advantages.

You saw earlier how China began importing oil from 1993, which was around the time it actively went in search of new oil fields. In Africa, this began in Sudan, as you’ll discuss in more detail in Session 4. Now watch Janet Liao and Giles Mohan outline the evolution of the Chinese NOCs in Africa.

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Transcript: Video 5

Because China used to be a planned economy, so you don't have really independent companies. All the companies are the same, I mean as government departments. So initially, there was a petroleum ministry. And the petroleum ministry- it was CNPC, actually- so that the oil fields, all of the fields in China were under that ministry. So the ministry was the company and the ministry. And then petrochemical ministry had this Sinopec later on. So Sinopec, actually all the refineries were under this petrochemical ministry for a long time until the 1980s. So since then we have got quite a number of government reforms, which was aimed to separate the government and the oil companies. But then that was done for nearly 20 years that this was achieved, the goal was achieved. So you do have the independent companies and the government function was removed completely. China National Petroleum Corporation used to be an upstream oil company in China. And then China Petrochemical Company, which is called Sinopec, was a downstream company. And those were the two largest oil companies in China. But in the late 1990s, they were restructured to be upstream and downstream integrated companies. The purpose of this was to break the monopoly of those two companies in the different sectors. But in the end, it didn't really work as planned, because the result was like CNPC, which was the upstream company, then dominated the northern China market and then Sinopec dominated the southern China. So those are the two biggest companies. Now you have the third company, which is offshore. It's China offshore oil company called CNOOC. Then they are the latest. This is the latest established company, but then it's more international in its management and strategic thinking. So it is more influential internationally I think CNOOC, but they were all at the turn of the century. They were all listed at the international markets, the stock markets.
China's national oil companies or NOCs have been engaging with Africa for quite a while now. They first really entered into Sudan first of all and then now have found certain countries, obviously oil producing countries, where they've done some kinds of deals. I think the main way they've engaged actually has been through what's called oil for infrastructure deals. So the idea is that the Chinese need access to the oil or it could be other natural resources. And they also have bank accounts, because of their trade with the rest of the world is full of what's called foreign exchange. So the Chinese have a lot of money that they need to apply and make work for them. So what we saw over the last 10 or 15 years is a lot of big investment loans going into African countries in exchange for the use of Chinese companies to deliver the infrastructure. So it might be that one of the banks lends the money to Ghana, Ghana then uses that money, because of the clause in the contract, to hire in a Chinese company to build a dam. We saw this in Ghana. We see this elsewhere. So these are called oil for infrastructure deals. And they were first applied in Angola. So often people talk about the Angola mode of oil for infrastructures. That's one of the dominant ways in which Chinese oil companies have engaged with Africa. But we're increasingly seeing that kind of diversifying. So one of the other ways now that Chinese companies are coming into African oil markets is through buying out other companies. So you may have, in the case of Nigeria, a Canadian company that was then bought by a Chinese company. So in effect then the Chinese have some control over that oil production block. So there's different ways that they engage. It's not just a one size fits all. And we've seen that changing over the last 10 years.
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