FT.com / In depth - Germany demands China signs oil pact

FT.com / In depth - Germany demands China signs oil pact

Germany demands China signs oil pact
By Hugh Williamson in Berlin

Published: April 12 2007 18:01 Last updated: April 12 2007 18:01

An international initiative to promote transparency in the oil industry’s often-murky finances will fail unless China participates, a German official said on Thursday.

The Extractive Industries Transparency Initiative, supported by more than 30 governments and 25 oil, gas and mining companies, will achieve a “level playing field” against corruption only if Beijing joins, said Bernd Pfaffenbach, envoy to the Group of Eight industrial states for Angela Merkel, German chancellor.

The EITI will win full backing this year from the G8 and possibly from the United Nations, according to Mr Pfaffenbach and EITI officials. The envoys from all G8 countries had recently “expressed concern” over China’s booming investments in Africa’s energy sector, and Beijing should be “made to feel more responsible” for its development impact, said Mr Pfaffenbach.

He told members of the EITI board, meeting in Berlin, that while “open China-bashing” should be avoided, the operations of China’s state-run energy companies were problematic.

Beijing is not a signatory to the EITI, under which resource-rich states – mostly in Africa and central Asia – are meant to publish details of revenues received from energy companies. Such action should discourage the misuse or disappearance of revenues – a process said to have blighted economic development in countries such as Nigeria and Angola.

China is responsible for 40 per cent of the growth in oil demand since 2003, say EITI officials. Its recent energy investments in Angola and Sudan have been criticised as nontransparent and environmentally damaging.

Peter Eigen, EITI chairman, said China should do more, but predicted it would “catch up slowly. It is important to engage with, not demonise, the country.”

Mr Pfaffenbach welcomed the EITI’s rapid growth since its launch in 2002 by Tony Blair, the British prime minister, but said it needed an “independent validation process” to ensure signatory countries and companies were complying with the voluntary initiative.

An internal EITI report admits that 16 of the 26 resource-rich nations listed on its website as being committed to its principles “appear not to have met ... indicators” necessary for even starting the validation process. Only Nigeria and Azerbaijan are near to full compliance. Eight western governments are also members. Non-government organisations on the EITI board accused energy companies of using the board meeting to delay by six months implementation of validation steps to protect business interests. “This feet-dragging is unfortunate,” said Gavin Hayman, of the pressure group Global Witness.

Edward Bickham, vice-president of the mining group Anglo-American, said the EITI had to move cautiously. “African governments have welcomed China’s advance because [it] does less finger-wagging” than the west over governance standards, he said.

Mr Eigen said pressure was needed as some EITI countries such as the Republic of Congo were “behaving very badly”. Police there had repeatedly arrested an NGO activist on the EITI board.

The idea that China would lift governance standards in the near future was naive, said energy specialists. Mr Pfaffenbach said Beijing would be invited to a Berlin conference this year on energy sector transparency.

Copyright The Financial Times Limited 2007