PetroChina Prospectus Only Intensifies Concerns about I.P.O.

(Washington, D.C.): Opposition continues to mount to the incipient listing of and $5-7
billion
Initial Public Offering by PetroChina on the New York Stock Exchange, and with good reason.
As the following article, which appeared on the front page of the Christian Science Monitor on 3
March, makes clear, this subsidiary of the state-owned China National Petroleum Company
(CNPC) was created solely for the purpose of securing massive, undisciplined cash infusions
from American investors — despite CNPC’s documented role in underwriting, and thereby aiding
and abetting, a regime in Sudan engaged in genocide, slave-trading, proliferation and support
for terrorism. Even if the U.S. investors’ funds somehow were completely prevented from going
to Khartoum, a substantial portion of these monies will be applied to exploiting Tibet’s oil and
gas resources and despoiling its environment.

The newly released draft prospectus on this IPO can only intensify such opposition.
The
following are among the glaring omissions — and commissions — associated with this document:

• CNPC will receive an unspecified, but substantial, amount of the IPO
  proceeds outright.
  No mention is made of the controversy surrounding the parent company’s indirect (if not
  direct) facilitation of the Khartoum regime’s odious behavior.

• The current draft prospectus fails to notify the potential investor of: 1) A likely
  divestment
  campaign against PetroChina’s stock that opponents of this deal have warned more than
  240
  of this country’s leading public pension fund and mutual fund managers — as well as all fifty
  state treasurers — may ensue. And 2) a possible reversal (by the next
  Administration) of the
  Treasury Department’s February decision not to sanction CNPC and other foreign
  participants in Sudan’s oil consortium (and their affiliates and subsidiaries) which
  reportedly control 95% of the Greater Nile Petroleum Operating Company.

• PetroChina states that “[China National Petroleum Company’s] ownership share will enable
  CNPC to elect our entire board of directors without the concurrence of any of our
  company’s other shareholders. Lest there be any doubt as to the completeness of
  CNPC’s
  control of PetroChina the prospectus goes on to say that CNPC will be in a position to: “1)
  control the policies, management and affairs of our company; 2) determine the timing and
  amount of dividend payments; 3) otherwise determine the outcome of most corporate actions;
  4) cause our company to effect corporate transactions without the approval of minority
  shareholders; and 5) CNPC may seek to influence our determination of dividends with a
  view toward satisfying its cash-flow requirements.”

Such declarations raise serious questions not only about the PetroChina deal but
about the
adequacy of disclosure standards with respect to other foreign entities seeking access to the U.S.
capital markets, as well.

Christian Science Monitor, 3 March 2000

Battle Against Oppression Abroad Turns to Wall Street

By Jane Lampman

The first-graders were in the middle of an English lesson outside their Catholic school in
central
Sudan on Feb. 8. Two aircraft swooped in and dropped shrapnel-laden bombs, killing a teacher
and 14 children, and wounding 17.

Their plight is a familiar one in Africa’s largest country. Civilians bear the brunt of a brutal
war
between Sudan’s Islamic fundamentalist government and rebels in the largely Christian and
animist south. But these warplanes were financed in part by a new international joint oil venture
that is channeling large sums into the Sudanese treasury – and may end up tilting one of the
world’s deadliest wars toward the regime in Khartoum.

Now a coalition of religious and human-rights groups in the United States is targeting the
money
trail in an effort to stop what they believe is a war of genocide in the North African nation.

It is part of an emerging new strategy to focus on Wall Street as a way to curb religious
persecution and other human rights abuses around the world. The approach holds immediate
implications for US foreign policy and economic interests. It is winning allies in Congress and
the national-security community concerned about the rising risks of global “bad actors” tapping
US financial markets. As foreign presence on Wall Street has soared in the past five years, so
have the dangers of Americans unwittingly funding entities that directly or indirectly sponsor
terrorism, technology-theft, arms smuggling, money laundering, hostile militaries, or flagrant
rights abuses.

In the case of Sudan, a South Africa-style divestment campaign has already achieved
successes
in getting large pension funds to withdraw holdings from a partner in the oil venture.

Now the religious and human-rights groups are exploring a new kind of sanctions – which
focus
not just on stock portfolios but capital markets. In particular, they want to keep China’s national
oil company – one of the largest partners in the Sudan oil venture – from a listing on the New
York Stock Exchange. The initial public offering (IPO) would be one of the largest in NYSE
history.

“We started realizing that more money is being funneled to rogue regimes now through
capital
markets than through multinational banks,” says Nina Shea, director of Freedom House’s Center
for Religious Freedom. In Sudan’s case, “the regime was becoming more intractable about peace
talks and was rehabilitating itself abroad … because it had money.”

Global Tentacles

The oil venture itself is a partnership between the state oil companies of China, Malaysia,
and
Sudan, and a Canadian firm called Talisman Energy. The massive project began pumping its first
crude from beneath the Sudanese sands last August.

As it has, the US and Canadian governments have been under growing pressure to cut off or
discourage investment in the project. The Clinton administration has long been concerned about
Sudan’s alleged involvement in terrorism, and last fall the State Department designated Sudan
and China among five countries of “particular concern” because of religious persecution. Sudan
is already under stiff US sanctions.

But last month, President Clinton added limited sanctions on the joint oil venture itself,
Greater
Nile Petroleum Operating Company (GNPC), and Sudan’s state oil company. The sanctions
prevent US firms from doing business with the entities. The administration stopped short,
however, of imposing sanctions on China or Talisman Energy, the Canadian partner.

While Washington did urge Ottawa to impose sanctions, its posture toward Beijing is more
sensitive. US-China relations may be the most delicate in years due to Beijing’s provocative
statements on Taiwan. The administration faces difficulties in Congress on Taiwan and on Mr.
Clinton’s proposal to grant China permanent normal trade status. Clinton wants to get China into
the World Trade Organization and open the doors for US business.

As a result, both the Treasury and the White House have brushed off appeals from the
religious/human-rights coalition for action against others in the venture.

For its part, Canada commissioned a study on the effects of the oil project on escalation of
the
war. The Harker report confirmed a definite link and found that Talisman’s airstrip was being
used for military purposes by the Sudan government. But Ottawa rejected the idea of sanctions.
In fact, Canada recently reestablished ties with Sudan. The government argues that it would
rather try to effect change on the inside than pull out of the project altogether.

“We’re putting a person into Khartoum … to get information on the ground…” says Lois
Wilson,
a Canadian senator and special envoy to Sudan peace negotiations. “We have to do what we can
to stop the oil revenues, but if Canada weren’t there [in the oil project], France would be.”

Indeed, Sudan’s foreign minister reacted to the growing pressure this week by claiming that
several oil companies would be ready to replace Talisman Energy should the Canadian firm pull
out.

Feeling the Pinch

Despite Ottawa’s reticence to take more concrete steps, the private divestment campaign is
leaving its mark on Talisman Energy, which owns 25 percent of the venture. Several major
pension funds – including New Jersey and California state funds and the Texas Teachers
Retirement Fund – have already pulled money out of the company. Talisman officials said last
week the company would have to buy back as much as $ 247 million worth of its shares in the
next year to help shore up the plummeting stock.

The stakes for China are much higher. It owns 40 percent of the Sudan venture. Initially, the
China National Petroleum Company planned a $ 10 billion IPO in the US. In response to the
pressure from interest groups, the amount was reduced to $ 5 billion, and the company formed a
subsidiary, PetroChina, which it says would do business only inside China – no funds would go
to Sudan. Critics charge, however, that money would still support Chinese repression in Tibet,
where oil projects are planned.

PetroChina filed its IPO application with the Securities and Exchange Commission on
Tuesday.

“The PetroChina deal is potentially a watershed event,” says Roger Robinson, Jr., formerly
senior economic adviser to President Reagan and an expert on national security and global
finance. “PetroChina is the flagship behind which there are scores of Chinese state-owned
enterprises in the queue awaiting entry into the US capital markets should that deal be
successfully concluded.”

He is skeptical about the “firewall” that supposedly would keep funds from going to the
Sudan
project: “The People’s Republic of China doesn’t have the world’s finest track record of standing
by its agreements and promises.”

China’s involvement in Sudan goes deeper than the oil wells. Some 10,000 Chinese work in
the
oil region, where some of the most heavy-handed tactics of the government have been carried
out, such as the forced removal of populations, says Eric Reeves of Smith College in
Northampton, Mass. Derek Hammond, a South African aid worker, reports evidence of Chinese
logistical support for combat efforts of Sudan’s armed forces. Human Rights Watch has
published evidence of an extensive Beijing-Khartoum arms trade.

The coalition recently sent letters to 200 US pension funds urging them not to invest in
PetroChina, should the IPO go through, and have gotten some positive responses, activists say.

Members of Congress concerned about Sudan’s actions are taking a closer look at the IPO as
well. Two letters to the president are being circulated on the Hill, including a request that he use
his broad executive authority to prevent the IPO “until an acceptable use of the proceeds has
been assured.” Congress has oversight responsibilities over the SEC and the NYSE. The US
Commission on International Religious Freedom has set up a task force on global market
sanctions.

Blueprint for Hitting Wallet

Mr. Robinson, chairman of the William J. Casey Institute at the Center for Security Policy,
advocates voluntary measures to limit the access of “bad actors” while not impeding the free
flow of capital. He proposes strengthening disclosure requirements for foreign entities seeking to
raise money in the US. He thinks portfolio managers and prospective buyers of foreign debt or
stock should take into account nonfinancial considerations, such as a nation’s conduct, when
making investments. In extreme cases of national security and human-rights abuses, he could
envision temporarily limiting market access.

Foreign activity in US capital markets has skyrocketed to more than $ 14 trillion, twice the
level
of 1995, and Robinson says increasing penetration by countries and companies supporting
nefarious conduct is a confirmed fact.

“It is only prudent that the US investor community be equipped with the information needed
… to
make purchasing decisions that are consistent not only with their financial goals and
expectations, but with their most coveted values,” he says.

The success of human-rights groups in their campaign against Sudan will likely determine
how
much the go-after-the-money approach is used in the future. “This is the new cutting-edge,
state-of-the-art human rights tool,” Ms. Shea says.

Players in Sudan’s Oil Ventures

President Clinton has barred American firms from doing business with the Greater Nile
Petroleum Operating Co. (GNPC) and one of its partners. The joint venture is drilling for oil in
Sudan, and critics say the revenues that flow to Sudan are helping to finance a human-rights
atrocity there. Below are the four partners that make up the oil venture.

China National Petroleum Co.: China’s national oil company; 40 percent owner in GNPC. A
wholly owned subsidiary, Petro China, is currently seeking to be listed on the New York Stock
Exchange.

Talisman Energy Inc.: A firm based in Canada; 25 percent owner in GNPC; only partner
already
listed on the NYSE.

Petronas: Malaysia’s national oil company; 30 percent owner in GNPC.

Sudapet: Sudan’s national oil company; 5 percent owner in GNPC. The new US sanctions
apply
to this partner.