PetroChina faces dilemma in South Sudan
- By Lin Liyao
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E-mail China.org.cn, May 27, 2016
Until now, PetroChina has invested more than US$7 billion in Sudan's petroleum industry, most of which gained returns very quickly with a rate of return on investment higher than 15 percent.
A new dilemma
In 2011, South Sudan announced its independence. But the oil produced in the country had to be sent to the Khartoum crude oil refinery in North Sudan because there was no refinery in South Sudan. Therefore, the South Sudanese government attempted to replace GNPOC with its own company and build a pipeline running from Juba in South Sudan to Lamu Port in Kenya.
On the evening of Dec. 15, 2013, the South Sudanese Civil War broke out. After the large scale conflict, PetroChina withdrew part of its Chinese employees while leaving some to continue production. In January 2014, another armed conflict began and all foreign employees were evacuated except 21 Chinese employees who stayed in South Sudan to maintain basic production.
Thanks to PetroChina's performance during the two conflicts, the South Sudanese government changed its attitude and expanded its cooperation with the Chinese company.
In recent years, oil prices in international markets have remained low, which has gravely impacted the South Sudanese economy since 98 percent of the country's economy relies on petroleum. The low oil prices also brought great loses to PetroChina. In Q1 this year, PetroChina reported a 13.8 billion yuan (US$2.1 billion) loss.
However, the South Sudanese government won't allow a suspension of production in its oil field. "That drags PetroChina into a dilemma," said a PetroChina staff during an interview with a Chinese magazine. "On one hand, PetroChina has to continue production in line with the local government; on the other hand, it must keep the loss at the lowest possible level."
Now, the South Sudanese government is trying to set up a coalition government with opposing forces. Since the opposing forces would control agriculture, mining, transport and other areas closely related with business, a new direction can be expected for PetroChina in the future.
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