The (Uncertain) Future of China’s Pipelines in Sudan and Burma

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This has been a historic month for Sudan and Burma, two countries with significant and controversial investment from China in their petroleum sectors. In the past, many parallels have been drawn between Sudan and Burma as both countries are culturally diverse, rich in fossil fuels, and share similar histories including a colonial legacy, decades of armed conflict and civil war, widespread human rights abuses, and economic sanctions imposed by the West. However, with recent national elections in Burma and the independence referendum in South Sudan, both countries are entering new phases of political transition, which raises questions about the future and security of China’s investments in oil, natural gas, and pipeline projects in Sudan and Burma.

In South Sudan, the result of last month’s referendum was officially announced last week, with an overwhelming 98% of the population voting for independence from the north. Sudanese president Omar al-Bashir has publicly accepted the result of the referendum, but many questions remain unanswered about the future of Sudan and South Sudan’s vast oil reserves; how oil revenues will be divided, and the operation of the Greater Nile Oil Pipeline, which spans 1,600 km from oilfields in the south to Port Sudan in the north. China National Petroleum Corporation (CNPC) operates the pipeline and has significant investments in South Sudan’s oilfields, but all the contracts have been negotiated with the government in the northern capital of Khartoum. Prior to the referendum, representatives of the semi-autonomous government of South Sudan called for a renegotiation of all oil contracts, but just a few weeks ago southern oil minister Garang Diing announced that South Sudan “will respect all our contracts signed before the (2005) peace agreement.” Still, CNPC signed several agreements after 2005 and the uncertainty about these investments in South Sudan has led the Chinese government and CNPC to launch a charm offensive to keep the oil flowing.

In Burma, national elections where held in November and culminated, on February 4th, in the appointment of the country’s first civilian president in more than 50 years. Although few consider the election much more than a symbolic change of wardrobe for the military, this latest step in Burma’s seven-point “roadmap to democracy” has raised concerns that foreign investment in Burma will increase under the false pretense of “democratization”. As one of the largest investors in the country, China has applauded Burma’s political reforms, in no small part because they maintain political stability, project an image of progress, and help legitimize investment in Burma’s energy sector. Of particular importance to China are the continued exploration and exploitation of Burma’s oil and natural gas deposits, as well as the construction of the China-Burma Oil and Natural Gas Pipelines that will span the breadth of the country from the coastal town of Kyaukphyu in Arakan State to China’s Yunnan Province. As with the Greater Nile Oil Pipeline in Sudan, CNPC is taking the lead on the China-Burma pipelines, the construction of which began last June, just a few months before national elections.

Now, as South Sudan and Burma move forward, China is taking steps to ensure the stability of its investments in both countries. Interestingly, in a recent interview with China’s First Financial Daily, Xu Xiaojie, of the Institute of World Economics and Politics, comments that one threat facing China’s investments in South Sudan is the possible lifting of economic sanctions and increased competition from western oil companies. The same could be said of Burma as some western countries increasingly favor policies of engagement over isolation, and are reconsidering the effectiveness of economic sanctions. Although Aung San Suu Kyi’s recent address to the World Economic Forum in Davos and the National League for Democracy’s policy statement will likely slow momentum for relaxing sanctions, competition for Burma’s natural resources will continue, with Chinese companies leading the way.

Meanwhile, the debate continues around whether responsible investment in Sudan and Burma is possible at this time. Aung San Suu Kyi’s reminder to countries, companies, and investors to “pay close attention to the costs and collateral damage of our development, whether environmental or social,” underscores the challenges in this industry. Given the ongoing political changes occurring in South Sudan and Burma, China is certainly paying close attention to the development and future of its oil, natural gas, and pipeline investments in both countries.

This post was written by Alek Nomi.

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