Page 2 of 2 China's risky bet in
Somalia By Adam Wolfe
Puntland before
the law was passed, to avoid competition with
Western majors, but the emergence of a national
oil law could threaten the investment.
The
fact that China would enter an agreement in such
an uncertain legal and political environment, to
say nothing of the security concerns, shows that
it is still willing to take on risks that the
Western oil majors cannot tolerate. This remains the
main
competitive advantage for China in the race to
secure natural resources around the world - while
Chinese firms do not have the technology to drill
in some of the conditions that Western firms can,
they do not have the same political and financial
constraints that prevent them from investing in
regions considered off-limits to Western firms.
Last month, for example, China National
Petroleum Corp (CNPC) signed a deal to co-develop
an offshore block in Sudan, where China has been
the dominant player in the oil sector after
sanctions caused Western firms to suspend their
operations or pull out completely. Sudan now
supplies up to 10% of China's oil imports. In
Angola, China provided $2 billion in soft loans to
the government that allowed it to avoid
implementing reforms requested by Western donors.
In return, Angola ensured that it would provide
continuous oil supplies to Beijing.
CNOOC
said this year that it would boost output to 78
million tonnes from 40.3 million tonnes last year.
To maintain growth rates near this level, Beijing
will need to continue to help its oil companies
invest in regions where Western firms cannot. This
means that China will fund infrastructure projects
in countries under Western sanctions, such as
Sudan, or where security concerns dissuade Western
firms from investing more, such as Nigeria.
The decision to invest in Somalia's
Puntland region is part of this strategy. Only a
small firm, such as Range Resources, would be able
to take on a similar risk level, and that firm has
spent several years courting the local government
officials there. With the financial and political
backing of the Chinese government, CNOOC and CNPC
have a distinct advantage over the smaller Western
firms.
Conclusion China's move
into Somalia's oil industry is a further example
of its strategy for securing access to natural
resources around the world. Rather than purchasing
oil on the global markets, as the US does for the
most part, China prefers to secure control of the
resources it needs at the source. However, because
China's oil firms lack the technical capabilities
and political clout of the Western majors, Beijing
prefers to deal with regions that are out of reach
to the competition.
This practice has
sparked a growing backlash across Africa to
China's policies. Many locals see Beijing's
actions as protecting corrupt and often
dictatorial leaders. Beijing has attempted to
counter this perception recently by investing in
infrastructure projects in regions where the
backlash is strongest, leaking reports of its
unhappiness with the most controversial leaders,
and granting local businesses better access to
China's markets in some industries.
The
investment in Somalia's Puntland province still
looks risky, even by Chinese standards. The deal
appears to have been struck with the local
officials in the province, which claims autonomy
from the transitional central government. However,
the president of the TFG, who is from the region,
was involved in the deal. The prime minister of
the TFG appears to prefer another model to attract
investments, passing a national oil law that will
clarify the legal questions that prevent Western
firms from returning to Somalia. The Chinese deal
may well fall victim to the political infighting
that is likely to follow.
Still, the TFG's
claim to control Puntland appears to be weakening
as the central government remains frozen in a
state of political collapse. Two days after The
Financial Times first reported about the Chinese
oil deal, the much-awaited national-reconciliation
conference had to be delayed because security for
the meeting could not be guaranteed in Mogadishu.
Given the TFG's uncertainty, Beijing's
decision to work with the local representatives in
Puntland may well prove to be enough, and China
could soon be pumping Somali oil, if it even
exists.
Published with permission of
thePower and
Interest News Report, an
analysis-based publication that seeks to provide
insight into various conflicts, regions and points
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