Pollution, bribes, more. Nikiforuk pries open the record of China’s oil giant, business partner for Northern Gateway pipeline.
Sinopec, Enbridge’s Chinese business partner for the Northern Gateway Project, has a long record of corruption, human rights violations, environmental pollution and doing business with terrorist-linked governments.
A Tyee investigation found that the world’s seventh largest corporation has been the subject of major bribery scandals at home and has systemically invested in rogue petro states from Angola to Myanmar.
The state-owned company has tried to improve its image in recent years with a series of multi-billion dollar investments in North America and the oil sands.
Yet Sinopec’s earlier deals in Syria and Iran now are the subject of intense global controversy as the United States and European Union intensify sanctions against both countries.
“Today, energy is already the main driver of China’s international behavior. Its energy needs have brought Beijing to turn a blind eye to human rights violations in Sudan, Myanmar and Uzbekistan,” testified oil analyst Gal Luft before the U.S. House Committee on Foreign Affairs last year. “China’s energy deals with Iran have already brought Beijing to block U.S. attempts to the UN Security Council to impose crippling sanctions against Tehran for continuing to develop nuclear weapons.”
Sinopec also stands accused of violating Canadian law. In 2007 the collapse of several storage tanks at Canadian Natural Resources Horizon oil sands mine site killed two temporary Chinese workers and injured several others. A subsidiary of Sinopec flew the workers in for the job yet may have defrauded many of their wages, according to the Alberta government.
Two years later, the Alberta government served Sinopec and CNRL with an unprecedented 53 charges for failing to ensure worker health and safety. (Each charge comes with a maximum fine of $500,000.) Ever since then, Sinopec has stubbornly fought the charges, saying that its subsidiary has no presence in Canada and that the charges weren’t served properly.
Sinopec’s legal team now wants the Supreme Court of Canada to overturn a ruling that would force it to stand trial for ignoring Alberta’s health and safety regulations.
“I’ve been watching Sinopec ever since the tank farm collapse and nothing has lessened my concern about this company. It’s not my idea of a good corporate citizen,” says Gil McGowan, president of the Alberta Federation of Labour.
He says that Canadians should be asking if Sinopec’s investments in the country are “in Canada’s interest or in China’s best interest?”
Biggest refinery complex in Asia
Transparency International and Revenue Watch gives Sinopec one of the lowest rankings for fighting graft and corruption (32 per cent) in their most recent report on oil companies. Sinopec ranks ninth out of 44 leading oil and gas companies.
Formed in 1998 by the Communist Party of China, Sinopec (China Petrochemical Corporation) now operates the greatest refinery complex in Asia with annual operating revenues of nearly US$290 billion and some 600,000 employees.
Yet the firm, whose 30,000 filling stations make it a familiar brand among Chinese citizens, reports meagre profits due to state subsidization of gasoline and diesel fuel prices.
Sinopec is one of three Chinese national oil companies that went public in 2000. The China National Petroleum Corp (CNPC) is now the world’s fifth largest oil company while Sinopec is the largest state-owned firm in terms of revenue. The China National Offshore Oil Corporation (CNOOC) remains the smaller of the three monopolies.
Directors of all three companies are appointed by Chinese Communist Party (CCP) through its Organization Department, an agency created by Chairman Mao in 1924. The CCP still holds 80 per cent of the company’s shares. Every executive of China’s three oil monopolies are, as the Economist magazine puts it, “cadres first and company men second.”
Aided by state banks that provided soft loans and supported by China’s “Going Abroad” policy, Sinopec and CNCP went on a global prowl for energy to feed China’s growing economy. China, the world’s second largest energy consumer, now imports half its oil.
In recent years Sinopec has amassed more overseas assets (oil fields and refineries) than any other Chinese company and recently conducted more mergers and acquisitions (74 deals worth nearly $50 billion since 2004) than Exxon Mobile.
‘Human rights? We care about oil’
After Canada weakened its foreign investment rules in 2010, Sinopec bought a nine per cent stake in Syncrude (Canada’s largest bitumen producer) for $4.5 billion. The controversial deal gave the refining giant the right to veto any Syncrude decision on where to upgrade and refine bitumen.
Sinopec, which also partnered with Total on another oil sands project, is also a key financial backer of the Northern Gateway pipeline.
The $6-billion proposal would pump raw bitumen from Alberta to the port of Kitimat and expose the pristine waters of British Columbia’s Pacific coast to massive supertanker traffic and potential oil spills.
The Canadian government backs the project, but First Nations, environment groups, labour unions and other civic groups oppose it for a variety of economic, political and environmental reasons.
But Sinopec began its dramatic climb in the global oil business by systematically acquiring assets in troubled petro states throughout Africa and the Middle East, including Myanmar, Sudan and Iran.
“No matter if it’s rogue’s oil or a friend’s oil, we don’t care,” explained one Chinese energy advisor to the Washington Post in 2005. “Human rights? We don’t care. We care about oil. Whether Iran would have nuclear weapons or not is not our business. America cares, but Iran is not our neighbor. Anyone who helps China with energy is a friend.”
Michael Klare, a U.S. oil expert at Hampshire College, says Sinopec choose “the pariah states because that’s where there was an opening. The good stuff was already locked up by western companies.”
Multi-billion dollar investments in Myanmar’s oil and gas fields in 2004 financially strengthened that nation’s brutal military junta. Church groups and non-governmental organizations have strongly criticized CNCP and Sinopec for cooperating closely with the Burmese military rulers.
Darfur and other investments
The Sudan has been another hotspot. Sinopec’s investments combined China’s weapons sales to Sudan’s genocidal government even prompted Harvard University to divest its stock in the company in 2006 due to “deep concerns about the grievous crisis that persists in the Darfur region of Sudan and about the role of Sinopec Corporation.”
Investments in extreme political environments for oil has been part of a coordinated overseas investment strategy that often includes political support for petro states at the United Nations, says a 2007 report published in the Australian journal Security Challenges.
“China is securing deals with the kinds of sweeteners that only its state-controlled entities can provide: billions of dollars in economic and military aid; access to China’s growing markets; and diplomatic support at the United Nations where China can wield its veto power in the Security Council.”
In 2004, Sinopec bought $2-billion worth of oil assets in worn-torn Angola and then invested billions more in the country (China now gets third of its oil from Africa). Although western oil companies (Chevron and Exxon Mobile) and governments have benefited from rampant corruption in the petro state, Sinopec has not raised the bar.
Human Rights Watch reported in 2010: “The rise of China as Angola’s main trading partner has helped the Angolan government resist reforms, not least because China and Chinese companies do not call for good governance.”
In another Africa controversy, Sinopec seismic crews dynamited wildlife habitat, hunted bush meat and contaminated rivers with oil waste in Gabon’s famous Loango National Park.
The incident even prompted a reprimand from the European Union. After the government of Gabon stopped the exploration program, the company explained that they were just acting like other oil companies and weren’t aware of Loango’s sensitive ecological status.
“China is wrecking international efforts to bring economic and political sanity to impoverished and conflict-ridden communities in Africa by bankrolling corrupt and repressive regimes,” declared a 2007 report by AfricaPractice.
Libya, Iran and Syria
Sinopec’s investments in the Libya, Iran and Syria have also drawn widespread criticism.
After Sinopec purchased $2-billion worth of heavy oil assets from a Canadian firm (Tanganyika Oil) in 2008, China has steadfastly defended the regime of President Bashar al-Assad. Last week its Security Council members blocked a UN resolution that called for Syrian President Bashar al-Assad to step aside.
Back in China, a country without a free press, a variety of corruption scandals and chronic environmental violations have quietly dogged the company.
In one celebrated case, a bribery scandal involving the company’s former chairman Chen Tonghai put a spotlight on the extreme level of corruption in China’s powerful state-owned companies.
In 2010, Beijing No. 2 Intermediate People’s Court convicted Chen, former chairman of Asia’s largest oil refiner, for taking $29-million yuan in bribes (US$4 million) between 1999 and 2007. Chen allegedly helped individuals “seeking illegal interests.” The verdict did not name the bribers.
According to the China Times, the Sinopec chairman confessed to his crimes and received a suspended death sentence. Sinopec did not comment on the case at the time but later urged Beijing to crack down on “corrupt” foreign business practices.
One Chinese TV report said that Chen had “taken a huge amount of bribes and abused his power to gain inappropriate benefits for his mistress. He led a decadent life, and his behavior is a severe breach of party disciplines.”
A U.S. state department cable released by Wikileaks later revealed Chen’s mistress had slept with several high ranking party officials and was a spy.
The promiscuous socialite had also been having affairs with several other high-level officials, including Sichuan Party Secretary and former Agricultural Minister Du Qinglin. The woman had been introduced to these men as “someone working with a Chinese military intelligence department.” However, investigators now believe she is a Taiwan intelligence operative.
The company’s website now says, “the Party Committee of Sinopec Group has attached great important to the development of the corruption punishment and prevention system.”
After the high profile scandal, the CCP changed the leadership of all three oil companies in 2011. The current head of Sinopec, Fu Chengyu, known as Chairman Fu, served as the head of CNOOC and was a former party secretary.
But paying bribes remains such a common practice in Chinese business culture that even China’s central bank admitted in 2011 that corrupt Chinese officials smuggled an estimated$123.6 billion out of the country over a 15-year period.
A 2007 Carnegie study concluded that, “The direct economic loss owing to corruption represents a large transfer of wealth — at least three per cent of GDP per year — to a tiny group of elites. This annual transfer, from the poorer to the richer, is fueling China’s rapid increase in socioeconomic inequality and the public’s perception of social injustice.”
‘Luxury liquors scandal’
Meanwhile, Sinopec has had other problems at home.
Most prominent was the “luxury liquors scandal.” In 2011, the Guangdong office of refining giant (Guangdong Province is China’s largest oil market), spent $200,000 on 50-year-old bottles of Kweichow Moutai and Chateau Latife Rothschild, at a time when ordinary Chinese faced stiff oil prices. In response, Sinopec said the purchases were part of its “normal operations.”
One corporate watchdog recounted: “Sinopec’s chairman stated that the public had a right to criticize Sinopec, as it is a state-owned enterprise. Meanwhile, it was reported that Sinopec Guangdong held internal meetings to discuss how the public relations department should handle media interviews and required all departments to trace the leak in order to punish the whistleblower.”
Sinopec’s environmental record is one of serial violations for air pollution and water contamination. It’s one of 175 firms listed on the Hong Kong stock exchange that account for 750 environmental violations in mainland China, home to 16 of the world’s 20 most polluted cities.
In 2007, China’s top environmental agency ordered the company to suspend an oil field operations due to chronic river pollution. Sinopec refused to comment.
In another case, Sinopec added manganese at 98 times its proper concentration to one of its formula gasolines in 2010. The “problem with oil” scandal affected 900,000 tonnes of oil and damaged hundreds of vehicles.
Sinopec later reported that “the worker and involved staff accountable for the incident were severely punished afterwards. In the meantime, we formulated a long-term quality control system as precautionary approach in the future.”
‘Nothing short of shameful’
In Canada, Sinopec is still contesting its role in the death of two of its contract workers in the oil sands in 2007.
“It’s nothing short of shameful,” says McCowan of Alberta’s Federation of Labour. “It’s clear from our perspective that Sinopec’s construction subsidiary puts its workers at risk by ignoring Alberta health and safety rules, standards codes and the rules for temporary foreign workers… If this is the future of Chinese state investment in this country, I think that Canadian workers and the Canadian public should be very concerned.”
Three months after meeting with Sinopec’s Chairman Fu last November, Natural Resource Minister Joe Oliver launched an unprecedented attack against critics of the Northern Gateway pipeline. (Oliver made no mention of Sinopec’s open flaunting of Canadian law.)
The former investment banker accused “environmentalists and other radical groups” of thwarting Canada’s opportunity to diversify trade with China. The minister characterized the largely Chinese funded project as a “nation building project.”
Michael Klare, a global oil and politics expert at Hampshire College in Massachusetts and author of The Race for What’s Left, suspects that the Canadian government’s overtures to China’s national oil companies over the Northern Gateway Pipeline are all part of a coordinated chess game.
“I suspect that Harper is in league with right-wing Republicans in the United States to embarrass President Obama. Look, you are going to lose out on this democratic and wonderful Canadian oil to China and all because of Obama’s extremism.”
Last year, the Obama administration temporarily rejected the Keystone XL pipeline which would have pumped bitumen to U.S. Gulf Coast refineries. “I think it will be one of the top three presidential election issues.”
Canada’s apparent embrace of China’s state capitalism is “all to put pressure on Obama to give in. I don’t think the Northern Gateway project is a serious, genuine play,” says Klare.
Sinopec’s poor record is not unique in the oil patch, even among state owned companies.
“The national oil companies are shaped by the political culture in which they originate,” says Klare. “Sinopec is neither the worst nor the best of the bunch.” Mexico’s national oil company, Pemex, is much more corrupt, adds Klare.
Moreover, Sinopec’s rapid revenue growth is a “recipe for corruption and environmental destruction, wherever it occurs.”
The Tyee, Feb 18 2012
Byline: Andrew3 Nikiforuk