BP’s PetroChina Problem(Archive)

It didn’ t have to be like this.
BP Amoco is a company that is willing to come to the table. Representatives of the company are in constant dialogue with shareholders, government officials and NGOs. The company has expertise in the areas of the environment and human rights that is remarkable for an oil company.
Last year, BP Amoco took the high road. It did not challenge a shareholder resolution on climate change and the Arctic Refuge filed by Greenpeace and Trillium Asset Management. This year, however, BP Amoco took a hard line. Faced with four shareholder resolutions, including two on PetroChina, the Oil Company raised numerous legal and procedural obstacles. Through its maneuvering, BP Amoco succeeded in whittling the proposals down to just two: one on PetroChina and one on climate change.
High Stakes
BP Amoco is well positioned for expansion in China. It has made significant investments in PetroChina and Sinopec: China’ s two largest oil companies. These investments have helped BP Amoco win access to key energy deals over its chief rivals: ExxonMobil and Royal Dutch/Shell.
On March 20, the announcement came that BP Amoco had been chosen to take a stake in China’s first liquefied natural gas (LNG) terminal in Shenzhen. BP Amoco is well placed to play a key role in other potential projects in China including retail gas stations, petrochemical factories and natural gas pipelines. However, a question lingers. Does its partnership with PetroChina fit with BP Amoco’s commitment to the environment and respect for human rights?
The Case against PetroChina
Before BP Amoco saved PetroChina’ s Initial Public Offering (IPO), the Chinese oil company was on the ropes. An unprecedented coalition of organizations helped drive down the value of the IPO from $10 billion to just $3 billion. Propping up the IPO was BP Amoco, which bought 20% of the stock offering for $578 million.
Carved out of the China National Petroleum Corporation (CNPC), PetroChina controls more than two-thirds of China’ s oil and gas production including CNPC’s most productive assets. However, PetroChina remains 90% owned by CNPC, which in turn is wholly owned by the Chinese government. PetroChina states in its IPO prospectus: “CNPC will be able to elect all of our directors and otherwise control us….We will be controlled by CNPC, whose interests may differ from those of our other shareholders& .Our operations& are subject to extensive regulation by the PRC government.”
In its analysis of the PetroChina IPO, the AFL-CIO stressed how the linkage between the IPO and the Chinese government’ s plans to dismiss as many as one million CNPC employees. Friends of the Earth (FoE) published a report outlining PetroChina’s potential environmental problems. FoE stated: “In 1998 for example, PetroChina spent US $88 million on environmental capital expenses while Shell Nigeria, which produces less than half the oil of PetroChina, spent US $100 upgrading and renewing its production infrastructure. Similarly, Shell Nigeria committed 20% of their annual budget to conserve and improve the environment, compared to PetroChina’ s 1.5%.”
It is in East Turkestan (Xinjiang) where PetroChina’ s operations currently face the greatest risk from internal unrest. Xinjian’ s Junggar Basin is home to the Cainan and Shixi oilfields, China’s largest desert oilfields. PetroChina’ s also plans to build a West-to-East natural gas pipeline. Political unrest in the Moslem-dominated Xinjiang province has steadily increased since the break-up of the Soviet Union. Xinjiang’s governor told Agence France Presse in 1999 that in the past decade, there have been several thousand Moslem separatist incidents ranging from murder to bomb attacks.
Similar concerns have fueled opposition to PetroChina’ s construction of a pipeline from Tibet. According to the International Campaign for Tibet, the planned pipeline from Sebei to Lanhou will harm the Tibetan environment, facilitate the transfer of Chinese settlers into Tibet and further consolidate China’s military and economic grip on Tibet. The Tibetan Government in Exile, headed by the Dalai Lama, has called for an immediate halt to the construction of the pipeline. BP Amoco has ruled out any direct participation in projects on the Tibetan plateau. However, the British Oil Company has resisted calls for it to use its influence with PetroChina to address these political and environmental concerns.
BP Amoco has also ruled out directly doing business in the Sudan. However, BP Amoco’ s partnerships with PetroChina and its parent CNPC, which has a substantial investment in the Sudan, have connected the British company to the Sudanese government” s sponsorship of slavery, genocide and international terrorism. The U.S. State Department and human rights organizations have reported that the Sudanese government has razed villages and forcibly relocated the population in the vicinity of the oil fields and oil transportation infrastructure. Last year, Sudanese government officials even boasted that new oil revenues had helped the regime to become self-sufficient in the production of weapons.
Legal Maneuvers
In January, shareholders filed two resolutions at BP Amoco on the subject of PetroChina. The first asked BP Amoco “to engage with the board of companies in which BP has strategic investments to promote the implementation of [environmental and human rights] standards consistent with BP’ s own.” The second asked BP Amoco to divest itself of its stake in PetroChina.
On February 7, the Financial Times reported that the British trade minister, Richard Caborn, had urged his Chinese counterpart, Shi Guangsheng, to conduct and publicize a study of PetroChina’ s planned pipeline from Sebei to Lanhou. Oil industry analysts were quoted saying that PetroChina might feel compelled to do the study since its share price would drop if BP Amoco divested.
Two weeks later, BP Amoco sent out letters challenging the shareholder resolutions. Firstly, BP Amoco insisted that the resolution be re-filed instead as a “special resolution,” which requires 75% of the vote to pass. Secondly, BP Amoco rejected the filing of American investors who owned their stake in the company in the form of American Depository Receipts (ADRs).
The British-based Pensions & Investment Research Consultants Ltd. (PIRC) characterized BP Amoco’ s rejection of the shareholder resolutions as “misjudged, unfair and inconsistent.” PIRC Research Director Stuart Bell stated: “It is simply unacceptable that a company can decide apparently arbitrarily what issues it is willing to have discussed at its AGM.”
Despite these obstacles, the Free Tibet Campaign UK succeeded in re-filing its resolution asking BP Amoco to divest from PetroChina. With the controversy over the filing, the remaining resolution now stands to attract greater publicity.
BP Amoco, What Next?
BP Amoco is in an awkward position. Its investment in PetroChina is key to the British oil company’ s expansion into China. However, even as its largest foreign investor, BP Amoco claims to have little or no control over the actions of PetroChina. In the meantime, its connection to the Chinese oil company risks hurting even further BP Amoco’ s reputation.
For as long as BP Amoco tries to block debate of its investment in PetroChina, so will grow the view that the British Oil Company can do nothing about PetroChina’ s connection to environmental and human rights abuses. As a result, the call will increase for BP Amoco to simply divest itself of its stake in PetroChina. By trying to evade discussion, BP Amoco risks not just its good reputation but its entire China strategy.