The relationship between the Chadian government and the Chinese National Petroleum Company (CNPC) has reached a new low, with the country threatening to take CNPC to arbitration court in Paris over its failure to pay a $1.2bn fine imposed after a number of oil spills were uncovered.
In the week of 11 August, Chad cancelled five of the CNPC’s exploration licences. The move further hampers the company’s exploration and expansion activities, which have been on hold since Chad’s oil minister, Djerassem Le Bemadjiel, announced a suspension in May.
“Despite a first suspension imposed on the company in August 2013, unacceptable practices such as land-filling polluted sites without cleaning them, has continued,” he told Reuters.
The CNPC’s long-standing general manager was forced to leave the country earlier in 2014, and a head office negotiating team from Beijing was sent to deal with the crisis.
The events of the past few months stand in stark contrast to the smiles and handshakes on display at the opening of Chad’s new Djermaya refinery in July 2011. The facility was built at lightning speed, along with a pipeline to the Ronier oil fields 300km to the south by the Chinese National Petroleum Company (CNPC).
President Idriss Deby Itno warmly welcomed the Chinese investment, which looked as if it could contribute to cementing his position just months after an election victory. His administration also hoped the project would allow Chad to move towards achieving energy independence – a goal espoused by many African states.
The license suspensions and fines are grim news for the state-owned Chinese company, which has just completed work on an export pipeline that it was planning to have online within the coming months.
A well-placed source within the CNPC explained the sense of frustration with situation in Chad within the company, claiming that “negotiations between the two sides keep breaking down”. The CNPC has reportedly asked Chad to drop the fine or to accept payment in the form of future oil exports. So far, Chad has refused.
A complicated relationship
This high-stakes dispute between Chad and the CNPC challenges the prevailing narrative of Chinese ‘no-strings’ investment in Africa as an easy alternative to more regulated deals with the West. It also shows that African governments are willing to stand up to China, and that these business deals – often criticised by Western interests for overlooking political realities on the ground – do not automatically silence environmental, social and human rights concerns.
“The narrative has become more nuanced as China’s large energy and infrastructure investments mature and become entangled in the politics of African countries,” says Luke Patey, a senior researcher at the Danish Institute for International Studies.
The CNPC became a major player on the Chadian oil scene in 2006, when it bought up the rights to the Ronier oil field in southwest Chad from Canadian operator Encana. The deal came as Chad broke off diplomatic relations with Taiwan – a prerequisite for relations with China under the ‘One China’ policy. As well, President Deby needed to shore up his administration. Only a few months earlier, a serious rebel attack had reached the gates of the Chadian presidential palace in N’Djamena.
The deal appeared at first to be a textbook Chinese investment into the continent: a ‘no political strings’ transaction sweetened with infrastructure deals. The Chinese promised a wide-reaching programme of infrastructure development, including road building, new schools and hospitals in exchange for rights to the fields. Most importantly, the CNPC also pledged the construction of a refinery at Djermaya to provide cheap fuel for domestic consumption, 20MW in electricity generation, and the promise of oil exports within a few years.
The Ronier oilfield today is an impressive sight from the air. A neat network of pipes and wells stretches out some 30km from the base camp and the central processing facility. Some 15,000 bpd of crude are pumped daily up to Djermaya and turned into gasoline, diesel and kerosene for local consumption. Over the last year, the CNPC built another 100km pipeline to the south to connect with Exxon-Mobil’s Kome oilfields. The plan was to begin exporting through Esso’s 1000km pipeline to the Kribi refinery on the Cameroonian coast, built in 2003 with the help of a World Bank loan.
But the cracks in the CNPC-Chadian relationship began almost as soon as Djarmaya opened its doors. The Chadian authorities twice temporarily closed the refinery in a dispute over the sale price of the fuel.
Civil society groups also complained about the CNPC’s community consultation process. “They did consult, but it was only for a few days. The quality of these consultations left a lot to be desired,” says Nassingar Rim of the monitoring group Publish What You Pay.
But the crux of the dispute lies in the seriousness of alleged environmental damage caused by the CNPC. The first oil spill was uncovered by Mr Le Bemadjiel of the oil ministry, who visited Ronier in 2013. He immediately declared that “a clear violation of environmental standards had occurred”, with oil being dumped in uncovered pits without adequate supervision. He even claimed the CNPC had spilled the crude intentionally “in an effort to reduce costs”.
According to the CNPC source, the story was blown out of proportion: “It was an environmental disaster that did not happen. It was a leak which was contained within the terms of our contract.”
The source claims that efforts were made by the CNPC to quickly clean up the damage. Regardless, these developments put an indefinite hold on the CNPC’s expansion plans.
Though the relationship has been rocky of late, the CNPC does seem to have attempted to address concerns typically associated with Chinese investment in Africa. The company has increased the number of Chadians employed at the Ronier fields. As of a 2013 site visit, roughly half of the workforce were locals. Workers said they had received good training, including English language classes, and a new course in petroleum studies at Mao University near Lake Chad supported by the CNPC.
Chad has also benefitted financially. While the bulk of its earnings from oil still come from the export of crude produced by the Exxon-led Kome fields, the CNPC paid over $45m in taxes and royalties in its first year of production at the Djermaya refinery according to a 2012 Extractives Industries Transparency Report (EITI). That figure looks set to rise if the current dispute is settled.
Regional power plays?
In many ways Chad’s response to oil spills at Ronier reflects the hard-ball approach the country has been taking in recent years as it emerges as a strong regional player within central Africa.
Following the end of a proxy war with Sudan in 2010 sparked by the Darfur conflict, Chad’s army has emerged as one of the strongest in the region. President Deby has spent an estimated $4bn from oil revenues on military equipment. Soldiers were sent to Mali in 2013 to assist in the French-led Operation Serval, and to Central African Republic where they joined the UN peacekeeping force.
Chad has taken a lead in setting up a new regional task force to tackle the Nigerian-based Islamist militant group Boko Haram. The country also recently agreed to France’s new Operation Barkhane – the successor to Operation Serval – being based out of N’Djamena.
Chad’s bargaining position on oil has also hardened. In June 2014 Chad accepted a $1bn loan from commodities giant Glencore, which allowed the national oil company to buy up Chevron’s 25 percent stake in the Exxon-led Consortium which runs the southern Kome oil fields.
The CNPC has much at stake in Chad, and is unlikely to want to walk away from its investments. However Chad’s new-found assertiveness will be a feature in any future developments. “Rather than controlling politics in Africa, Chinese interests are being conditioned by African politics,” Mr Patey says.
These disputes over the future of Chad’s hydrocarbon wealth serve as an example of how the China-Africa relationship is being becoming more nuanced, and often more contentious, as it deepens.
