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2 China's risky bet in
Somalia By Adam Wolfe
The Financial Times reported on July 13
that the Chinese National Offshore Oil Corp
(CNOOC) had signed a deal with Somali President
Abdullahi Yusuf to explore the northern Puntland
region for oil. The initial agreement was signed
in May, and it was endorsed at the China-Africa
summit held in Beijing last November.
A
meeting between CNOOC and Somali officials was
held on
June
24 to finalize the deal. The terms indicate that
the Somali government would retain 51% of the oil
revenues under a production-sharing arrangement.
Further reporting from The Financial Times,
however, revealed that Somali Prime Minister Ali
Mohamed Gedi was not aware of the contract,
suggesting that the oil deal remains vulnerable to
political infighting.
China's willingness
to invest in Somalia - before the Transitional
Federal Government (TFG) completes work on a
national oil law and as the security situation in
the East African country continues to deteriorate
- shows that Beijing has not been deterred by the
growing backlash across Africa at Chinese policies
and remains willing to take on political risks
that Western firms will not tolerate.
Threats to China in
Africa Chinese investments have come under
attack in recent months, and a general wariness
about closer ties with Beijing has become part of
the political dialogue in most African countries
where China does business. Days after the June
meeting in Somalia, a Chinese mining executive was
kidnapped in Niger. The incident followed the
killing of nine Chinese workers in Ethiopia, near
the border with Somalia, in April. Chinese workers
have also come under attack in Nigeria in recent
months.
Politically, Chinese investments
have become a touchy subject. Michael Sata's
opposition campaign in Zambia received strong
backing after he attacked Chinese investments and
threatened to renew ties with Taiwan. He
ultimately failed in his bid for the presidency,
however, after China threatened retaliatory
measures if he was elected. Similar complaints
have been raised in Nigeria and South Africa.
China began this year to address the
growing unease in Africa toward its investments.
President Hu Jintao in February visited Zambia and
South Africa, where he pledged further investments
and a greater focus on community development
plans. China has also publicly used its leverage
in Sudan to press Khartoum to accept the terms of
last year's United Nations Security Council
resolution on the Darfur crisis.
Nevertheless, China's fundamental goals in
Africa have not changed. China is looking to
secure access to the natural resources it needs to
keep its economic expansion humming, as well as
support for its policies at the UN. The CNOOC deal
in Somalia is evidence that China's appetite for
risk has not decreased as it pursues these goals
in Africa.
Investing in
Somalia Somalia has no proven oil reserves,
and only 200 billion cubic feet of proven
natural-gas reserves. Companies including Agip,
Shell (Pecten), Conoco and Phillips (now merged),
and Amoco (now part of BP) spent more than US$150
million on onshore exploration in the 1980s and
early 1990s, but no oil reserves were discovered.
Still, Range Resources, a small Australian-based
oil firm with close contacts to the government in
Puntland, estimates that the region could hold 5
billion to 10 billion barrels of oil based on an
analysis of the previous exploration reports.
Puntland province claims autonomy from the
government in Mogadishu, but not independence like
Somaliland. The region has been relatively calm
compared with central and southern Somalia since
1991, but the political situation remains
uncertain. President Yusuf was certainly involved
in the negotiations with the Chinese firm, as he
hails from Puntland province and maintains close
ties with the local leadership, but the prime
minister of the TFG was left out of the loop.
The fact that Prime Minister Gedi was kept
out of the negotiations suggests that the terms of
the deal are not beneficial to the TFG or
Somalia's other provinces. This could exacerbate
already strained ties between Gedi and Yusuf.
Gedi appears to have led an effort within
the TFG to pass a national oil law that would
allow Western firms to return to Somalia under
production-sharing agreements, which require oil
firms to share their production with the
government after initial costs are covered. He
told the Dow Jones Newswire in April that a
national oil law would be passed within two
months, a deadline that has slipped.
The
oil law in question seems to be similar to the one
pushed in Iraq by the United States, which has
also not been passed. China may have wished to
sign the deal for exploration rights in
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