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Footprints of the Dragon: China’s Oil Diplomacy and its Impacts on Sustainable Development Policy in Ecuador and Ghana

Richard Aidoo, Pamela Martin, Min Ye and Diego Quiroga

Abstract

As China continues to invest heavily and strategically in oil fields around the world, the dilemma for developing economies has been juxtaposing the benefits from these investments with the varying environmental and societal costs. As these investments grow in particular countries, they impact and shape various policies and development approaches. In fact, the outcomes in the oil industry, which have been largely eclipsed by policy objectives toward the economic well-being of the various populations, also influence social mobilisation. This paper comparatively draws on the case studies of Ecuador and Ghana to examine the pressures of China within the global economy of oil extraction. The outcomes demonstrate the domestic and international factors that affect the impacts of China oil investment to host countries.

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1. Introduction

1As China invests heavily and strategically in oil fields around the world, the dilemma for developing economies has been balancing the benefits and windfalls from these investments with the varying environmental and societal costs. This is complicated by attempts at social mobilisation by both global and local actors to protect these fuels. In fact, these attempts in the fossil fuel industry have been largely eclipsed by policy choices, such as opting to expand extraction into the Amazon Basin or increasing production in the Atlantic Ocean to meet growing expectations and investor demands, as reflected in this article. Given China’s recent push to expand its energy resources, this article compares two states, one in Latin America and one in Africa – areas of significant Chinese investment and interest – to assess policy outcomes in terms of energy and development, and impacts on social mobilisation.

2With relatively large reserves of crude oil and natural gas in Africa and Latin America, these regions are critical in China’s overseas oil investment strategy. In 2013, states in Africa and Latin America received 33.5 per cent of Chinese overseas oil and gas investment, and contributed to 37 per cent of China overseas oil production (Jiang and Ding, 2014; Tunsjø, 2013). Given that most countries in these two developing regions do not have the economic means or sometimes the trained human capacity to harness these natural resources, governments of these countries often bring in foreign oil companies to help extract and manage them. This enables foreign companies and actors to access to the oil resources. Most recent scholarship on China’s oil diplomacy in the developing world often employs an oversimplified view of China as a monolithic predator of natural resources, with very little concern for either its partners in the developing world or for other local social and economic ramifications of its activities (for examples, see Alves, 2013; Bräutigam, 2009; Bräutigam and Tang, 2012; Ellis, 2009; Power et al., 2012; Taylor, 2009; Xu, 2017; Zhao, 2014; 2015). This article offers an alternative framework by exploring the reasons why Ecuador, OPEC’s smallest producer has chosen to pre-sell a majority of its petroleum supplies for years in advance to China, while Ghana, a newly established oil producer with potentially large offshore supplies, has chosen to diversify its investor portfolio and the impacts these policies have had on social mobilisation and development strategies in these two states. Through a comparative account of the experiences of Ecuador and Ghana, this study looks at China’s oil diplomacy, which provides instructive pathways for further research on the varying impacts of diverse foreign actors on the oil economies in developing countries.

2. China: A Global Footprint

3Since becoming a net oil importer in 1993, China’s demand for oil has consistently outpaced its own production capacity, and the gap between its consumption and its production has widened. According to the 2016 annual report of China National Petroleum Corporation (CNPC), in 2015 China’s dependence on imported oil reached a historic high of 60.6 per cent. China’s increasing dependence on imported oil is further aggravated by the lack of reliable sources and routes, as well as the volatile nature of oil prices. To address these issues, and to increase production, in the 1990s China’s national oil companies (NOCs) acquired oil from the international market through long-term oil supply contracts as well as equity oil deals involving investments in foreign oil projects in exchange for a certain portion of oil produced from those projects. By 2013, spearheaded by China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC), the Chinese NOCs had invested in oil and natural gas projects in over 40 states and controlled more than 946.4 million barrels of crude oil reserve outside China (Chen, 2014).

4Many existing studies take a state-centric approach and assume the Chinese NOCs act simply as an extension of the Chinese government. Considering that all Chinese NOCs are state-owned and the general managers of the big three—Sinopec, CNPC, and COONC—are ranked at the level of cabinet ministers and are directly appointed by the State Council, such a state-centric approach has its value (Chan, 2009; Friedberg, 2006; Jaffe and Lewis, 2002; Taylor, 2006; Zweig and Bi, 2005). Yet these companies are also profit-pursuing enterprises with their own interests. Since 1998, the state’s ownership of assets has been gradually separated from the management of the NOCs’ commercial operations, listing all Chinese NOCs on the stock exchanges in Hong Kong, New York, or China and evaluating top executives on business performance (China, 2014). Recent studies have demonstrated that the Chinese NOCs have considerable autonomy and their behaviour can be better explained by their own calculations, sometimes advancing their own interests even at the costs of the nation (Downs, 2007; Chen, 2008; Liou, 2009; Gonzalez-Vicente, 2011a; 2011b; 2012; Jiang, 2009; Jiang and Sinton, 2011; Jiang and Ding, 2014). As discussed below, a nuanced approach to an analysis of Chinese NOCs in Ecuador and Ghana demonstrates the different roles played by state and other economic factors of policy-making in these countries.

5Compared with their major Western counterparts, these Chinese NOCs are smaller in terms of oil production. They also lack environmental consciousness and expertise (Bina, 2010; Jiang, 2009; Lotspeich and Chen, 1997). However, these Chinese NOCs have comparative advantages. With more than 200 million tons of annual domestic oil and gas production, the Chinese NOCs have a large number of managers, engineers, and workers with the experience of working at low costs in harsh conditions. But the Chinese NOCs’ biggest advantage is the support from the Chinese government and their ability to ask for generous loans from stated-owned banks to finance their overseas ventures (Chen, 2008). The Chinese government can also facilitate Chinese NOCs’ successful oil bids by leveraging other state-owned enterprises’ investment in host states’ infrastructure. As demonstrated by the two cases, these features are pertinent to understanding the impact of Chinese NOCs on policy outcomes in Africa and Latin America.

3. Understanding Impacts of Chinese Oil Diplomacy: A Theoretical Framework

6We argue that the impacts of China’s investment in the less developed world should be assessed in a multi-level framework. As illustrated by the cases of Ecuador and Ghana, the politics of the extractive industry require a dynamic structural analysis, one that expands the actors horizontally and vertically to include local peoples and international institutions, and multinational and state-run corporations, but not in a sequential manner as previous studies of transnational networks or global governance have devised (Cutler et al., 1999; Hall and Biersteker, 2003; Keck and Sikkink, 1998; Risse-Kappen, 1995). Actors enter the governance process and work at different levels, and at varying points in the development of new policies. This analysis details significant negotiation and finance strategies between China and partnering developing states in order to provide ‘system resonance’ from our cases to other cases in China’s ‘sphere of influence’ – a sphere that is growing and impacts energy policy not just in these case study countries but globally (Steinberg, 2015).

7This article looks beyond a state-centred approach. Through a state-centred approach to international relations, the changing politics of people in the extraction zones and the extractive process are lost. Similarly, the roles of multinational corporations differ from the accounts of Susan Strange’s (1996) analysis of private power and challenges of MNCs to states. Unlike the 1990s when globalisation was fed by expanded trade from the U.S., Europe, and Japan and primarily fuelled by Western-owned fossil fuel companies, today’s fossil fuel industry is dominated by state-run oil companies that operate within states that demand control and ownership over their resources. In addition, lesser-developed and emerging market regions’ contracts include increased percentage returns for these resource-rich states and expansion of operations in increasingly more fragile areas of the planet (Eisenmen et al., 2015).

  • 1 Quote in Schneyer and Medina Mora Perez (2013).

8China’s role in the extractive industries of developing countries extends beyond its state-run oil companies, and includes development loans (repaid with oil) and other economic and diplomatic means. China is also involved in key development projects such as the construction of large hydroelectric facilities. Illustrating the complexity of the definition of a ‘corporation’ is the fact that China’s strategy in natural resources has been unlike those of the private corporations of the West. China has expanded into crude oil flows via purchasing majority owner shares of already-existing oil blocks embedded in the tenets of loan agreements. ‘“This is part of the increase in sophistication in Chinese companies,” said Chen Ziwhu, a Yale finance professor and China specialist. With oil-backed loans, “Chinese companies are moving away from buying oil fields and wells”’ 1 in an attempt to diversify their approaches. Moreover, the strategies of transnational networks that have traditionally pressured multi-national corporations’ stakeholders at, for instance, annual shareholder meetings, no longer apply (Chevron Toxico: The Campaign for Justice in Ecuador, 2014). Activists, in the case of Chinese investment in the fossil fuel industry, target the Chinese state, its oil companies, and its partners in the developing world.

9Drawing on government and international agency documents, media and NGO reports, participant observation at extraction sites, meetings, and informant interviews conducted in China, Ecuador, and Ghana between 2012 and 2014, our analysis further develops the state-centred and market-centred approaches to development financed by the extractive industries, and builds on the work in the renewable energy field by Hochstetler (2013), and Hochstetler and Koska (2015). As they outline in their research on solar and wind energy in Brazil and China, two states can share the same interests in the energy sector (in our case, petroleum), but have very different policy outcomes based on state-industry financial relations. Additionally, our analysis highlights the distinct role of China as a global energy investor and how that role parlays into a form of oil diplomacy to greater and lesser extents.

10To some extent, China’s stance in global environmental negotiations to differentiate the lesser developed world appeals to those states that, in the past, held heavy debts to the World Bank and/or the International Monetary Fund (IMF). The normative link of equity between the North and South runs through these cases (Stalley, 2013). In the following sections, we analyse Chinese oil companies’ behaviour in two such countries: Ecuador and Ghana. The two case studies vividly demonstrate how the Chinese strategy unfolds in specific environments and engenders different outcomes. Yet, as we demonstrate, it is not clear that the Chinese financing alternative has produced policies that reflect development in the best interests of the planet or the peoples who are impacted.

4. Ecuador’s Amazon – Blessing or Curse?

11Ecuador is no stranger to oil development. It began its foray into black gold in 1909 and entered large-scale exploration and extraction in 1971 when Texaco Oil Company of the United States entered the Lago Agrio region (Acosta 2009, 37-40). Currently, 65 per cent of Ecuador’s Amazon is zoned for oil activities with mineral rights belonging to the state (Figure 1). Since the oil boom of the 1970s, multiple partnerships have formed between the state oil company, now called Petro Ecuador, and transnational oil companies.

12Amazonian peoples rank among the poorest members of Ecuadorian society. Poverty in Ecuador has dropped steadily in recent years to a rate of nearly 29 per cent of the total population (as defined by USD 79 a month), yet Amazonian provinces are still among the poorest in the country with 30-50 per cent of its residents living on less than USD 2.40 a day in a region that is the wealthiest in terms of minerals and fossil fuel deposits (Ecuador, 2015a).

13In terms of oil reserves, Ecuador ranks 4th in Latin America and has 32 petroleum blocks with approximately 5.6 billion barrels of oil (EIA, 2016). Oil accounts for 30 per cent of the country’s exports and is the principal source of state income since 1973 (Simoes and Hidalgo, 2011). Between November 2012 and July 2013, Ecuador opened 13 oil blocks in areas never before open to extraction in the southern and central Amazonian provinces of Pastaza and Morona Santiago with reserves of between 369 million and 1.6 billion barrels of heavy crude (Napo) oil (Ecuador, 2013). Experts estimate that Ecuador earns approximately USD 4 billion a year in oil revenue with diminishing reserves (El Telegrafo, 2010).

Figure 1: Map of Ecuador’s Oil Blocks and New Concessions

Figure 1: Map of Ecuador’s Oil Blocks and New Concessions

Source: Ecuador (Republic of), Secretary of Hydrocarbons, Ministry of Non-renewable Resources, http://www.secretariahidrocarburos.gob.ec/​mapa-de-bloques-petroleros/​ (accessed on 30 June 2017).

5. From Western ‘Development’ to Chinese ‘Development’

14 When then-President Rafael Correa entered office in January 2007 with a cadre of environmental activists in his cabinet and leaders in his new party Alianza Pais, observers expected a change toward post-extractivist policies following on the campaign dialogue. Yet, by 2008, President Correa suspended payments on global bonds claiming odious debt in the amount of USD 10 billion and by 2013 announced oil extraction in the ITT (Ishpingo Tambococha Tiputini) block of the UNESCO Man and Biosphere Reserve, Yasuní National Park (Kueffner, 2008). This sovereign debt default coupled with dismissal of the International Monetary Fund (IMF) and World Bank (WB) left Ecuador isolated from global funding sources. Given that limitation, Chinese funding was critical, with loans rising from USD 1 billion in July 2009 to USD 8.4 billion in loans (some estimates are upwards of USD 11 billion) from China by 2016 (Alvaro, 2014a). In addition to loans, China has invested in various other energy-related infrastructure projects. For instance, in January 2014, China announced a 30 per cent stake in Ecuador’s Pacific Refinery Project, financed by CNPC at a cost of nearly USD 12 billion dollars (China Daily, 2014). It has also backed several hydroelectric projects including the Coca Coda Sinclair and the Sopladora projects (Ray and Chimienti, 2015).

15In response to dropping oil revenues, in November 2014, Finance Minister Fausto Herrera announced the Ecuadorian government was seeking to renew a USD 1.5 billion credit line with China to help finance its 2015 budget of USD 35.5 billion (Alvaro, 2014b). China is Ecuador’s second most important trade partner, accounting for 16.7 per cent of the imported goods to the country, a significant increase over the last ten years (Ray and Chimienti, 2015). Thus, Ecuador’s lack of exposure to international markets for financing has driven the government to pay for state infrastructure projects and social development expenditures via Chinese loans and investments.

16Some scholars argue that Ecuador’s debts to China have led to pressure for new oil concessions in Ecuador’s Amazon (Martin, 2011; 2015). Yasuní National Park, denoted as one of the world’s most bio diverse places on the planet and home to indigenous groups living in isolation, was also the site of the United Nations Multilateral Development Trust Fund to keep its 846 million barrels of oil underground in exchange for international contributions. In addition to being Ecuador’s foremost foreign policy objective from 2007 through 2013, it also would have been the largest global environmental fund and was slated, until its dissolution, as a pathway for bio diverse countries to transition out of fossil fuels production. As will be discussed below, Ecuador’s promise of future oil sales to China has not only pressured future oil concessions in its pristine Southern Amazon, but its debt to China and dropping oil prices have redefined what development means for a country that pioneered rights of nature in its constitution and an alternative post petroleum path of sustainable development called buen vivir.

17While loans always entail repayment conditions, the Chinese loans are unique – a new twist on ‘development’ funding that also guarantees petroleum and minerals for the Chinese economy. The loans have been reported to carry interest rates of between 6.5 per cent and 7.5 per cent and are attached to payment of oil in terms of barrels per day at a negotiated price between USD 25 and USD 50 per barrel. The first USD 1 billion loan carried a 7.25 per cent interest rate and a commitment of 90,000 bpd over a two-year period (Krauss and Bradsher 2015). While Petro Ecuador and the Ministry of Hydrocarbons report that the negotiated price of oil for payment is at internationally competitive rates, others report that Ecuador is selling its oil to China at lower rates and losing somewhere between 44 million and 100 million dollars from contracts signed in 2010 and 2011 (Villavicencio, 2013). This would mean that Ecuador is repaying substantially more than the loan amount with interest and losing the ability to sell its oil on the international market. Renee Ortiz, former Minister of Energy and the Secretary General of OPEC, notes this ‘dramatic shift’ in Ecuador’s policy, arguing ‘[n]ever before has Ecuador committed its oil to a lender’ (Schneyer and Mora Perez, 2013). This extractive strategy differs substantially from previous terms in which transnational companies share profits with the state and/or buy lease agreements from the state. Furthermore, the Ecuadorian policy of loans from China with oil repayment for the balance differs substantially from Ghana’s more market-oriented approach, discussed below.

18As of January 2015, reports indicated 80-90 per cent of Ecuador’s oil is allocated to Chinese firms, with PetroChina and Sinopec extracting 25 per cent of Ecuador’s daily production of 560,000 barrels per day (Krauss and Bradsher 2015). Until 2018, Ecuador has committed 123 million barrels of oil to two Chinese companies, PetroChina and Unipec (El Telegrafo, 2013). The irony of this allocation is that the majority of this oil is refined in the United States (a country that President Correa highly criticised as ‘imperialist’) and bought in the United States for prices above those purchased by China, thus further filling the coffers of the Chinese Development Bank (CBD), and those of U.S. refineries as well (Alvaro, 2014a; Schneyer and Mora Perez, 2013). By mid-2013, China had purchased 83 per cent of Ecuadorian oil. Of that Chinese-purchased oil, 70 per cent of it went to the west coast of the United States and U.S. vessels in Panama. Supplying 17 per cent of the oil to the west coast, Ecuador ranked second to only Saudi Arabia and Canada in its supplies of petroleum to the U.S. via Chinese middlemen. This is roughly the same amount of oil that went to the United States from Ecuador before President Correa took office (Amazon Watch, 2014, 3).

  • 2 Interview with attorney for then Petro Andes now Andes Petroleum in Quito, 14 December 2012.

19In the Ecuadorian Constitution, Article 422 prohibits the Ecuadorian state from entering into contracts that require the state to submit its sovereignty to an international court of arbitration (as it has in the past with Occidental Oil Company and Chevron Texaco), except in cases of financing for the National Development Plan. Hence, contracts with Chinese development banks not only require repayment with oil over multiple years in the future, but are some of the few contracts subject to arbitration outside the sovereign court system (Villavicencio, 2013).2 Thus, ‘development’ in Ecuador is intricately linked to China, and if the repayment time of loans needs to be extended, Ecuador’s development could be leveraged for additional years. David Goldwyn of the US State Department refers to this as a mortgage for Ecuador’s ‘long term future through oil-backed loans’ (Krauss and Bradsher, 2015).

  • 3 Interview with attorney for then Petro Andes now Andes Petroleum in Quito, 14 December 2012.

20When asked how the terms with Chinese oil companies differed from private oil companies, primarily from Europe and the U.S., in Ecuador’s past, one attorney for Petro Andes (the Ecuadorian controlled Chinese oil company) commented, ‘The Chinese have a much broader vision, much more long term. The American and European investor has a short-term vision because of shares in the market. The Chinese don’t have these preoccupations – 100 per cent state-owned’.3 This model, based on fossil fuels and expansion of extraction, has made China the largest creditor to not only Ecuador, but to Venezuela and Argentina too (Inter-American Dialog, 2016).

21And so, long term ‘development’ loans for repayment with petroleum is a viable financial tool in the Chinese system, and one that has direct impacts on global and local systems and peoples.

6. Development as Well-Being: Buen Vivir and Norms that Challenge Extraction as Development

22In January 2014, Vice President of Ecuador, Jorge Glas said that China ‘has the technological resources required by Ecuador to achieve development, while Ecuador has natural resources important to China’ (Alvaro, 2014a). Yet, Ecuador’s constitutional assembly and its constitution (Ecuador, 2008) define the country’s development under the rubric of sumak kawsay in Quichua, buen vivir in Spanish – meaning well-being or ‘the good life’ - an indigenous term that signifies life in balance and in harmony with nature.

23As Alberto Acosta, President of the Constitutional Assembly of 2008, explains:

Buen vivir requires a post-extractivist transition. It is fundamental that under no circumstance is extraction [of natural resources] the basis of buen vivir because extractivism supports violence against communities and nature. (Fernandez et al., 2014, 109, our transl.)

24And yet, in 2013, the Minister of Non-Renewable Resources, Wilson Pastor, referred to development in the following manner:

Before petroleum operations, companies have to commit to social development. Of the $115 million initial investment to apply for oil block contracts, $5 million must be dedicated to social development. (Ecuavisa, 2013)

  • 4 Interview with Alberto Acosta in Quito, Ecuador, 10 March 2014.
  • 5 Interview with a Shuar woman, Dayuma, Orellana Province, Ecuador, 13 July 2013.

25Herein lies the contradiction of buen vivir, what Acosta refers to as ‘buen vivir marketing’.4 The Ecuadorian state has co-opted the term buen vivir and its use in the National Development Plan as a means to support the very process it was meant to counter – extraction, particularly new extraction even deeper into the Amazon rainforest (Gudynas, 2011). The government argues that extraction is necessary to invest in basic infrastructure, health, and education, and then transition toward a knowledge-based economy. According to reports from local peoples, the government asks them to sign approval for extractive industries in return for infrastructure projects in their towns. One woman of the Shuar tribe in Daymuna, Province of Orellana, who asked to remain anonymous, said ‘the water here is like diesel…but the people of my community don’t say anything; we don’t know what to do’.5 Such contradiction of extraction and development toward harmony with nature under the guiding national principle of buen vivir has outraged indigenous communities and environmental activists, yet also created conflict among members of the same tribe and within communities.

26President of the Confederation of Indigenous Nationalities (CONAIE), Humberto Cholango, has denounced the new round of oil concessions as ‘illegitimate’ and calls for the rights of nature that are guaranteed in Ecuador’s constitution (El Comercio, 2013a). In response to the increased pressure to extract and expand into new areas, protests have surged against the Chinese consulates in various countries, including in Paris, France. Indigenous leaders in Canada have allied with Ecuadorians to protest in Calgary, and NGOs such as Avaaz, Amazon Watch, and Planete Amazone have organised protests against the Ecuadorian government in Paris, Houston, and Calgary. Such organisation and mobilisation was not possible in Peking, China – a stumbling block in transnational network mobilisation (El Comercio, 2013b). Still, Ecuadorians and allies chanted in protest outside of China’s consulate in Quito with signs that read ‘Chinese companies get out of Ecuador’ (Chang, 2013).

  • 6 Communication in person by Franco Viteri, Leader of the Government of the Original Nations of the E (...)

27In October 2013, women from various indigenous communities in the Amazon marched eight days from their villages to Quito to present President Correa and the National Assembly with a proposal against extraction. While the President and others did not receive them, other indigenous leaders and environmental activists met in California at the same time to collaborate on broader transnational activism to support their initiative and oppose this new round of drilling, based on rights of nature and the spiritual and cultural norm of Kawsak Sacha, meaning ‘living jungle’.6

28Unlike the 1990s when the government had little presence in Amazonian towns and communities, the Correa government (and his successor of the same party, Lenin Moreno) increased funding, including a new law called Ecuador Estrategico that gives 12 per cent of the oil revenue profits previously given to the workers of the private companies to Amazonian communities (Ecuador, 2015b). The struggle among communities for such funding sources and between indigenous groups and the government has also created an opening of opportunity for Chinese companies in Ecuador. While poverty throughout the country has decreased and incomes increased, it remains to be seen whether or not the Chinese path to development will lead to the good life (buen vivir).

7. Ghana’s Oil Discovery – A New Path to Development?

29While Ecuador’s development path is linked to Chinese loans and oil repayment, Ghana has taken a different path – one more aligned with free market structures and development linked to private economic growth. The euphoria that surrounded Ghana’s oil discovery in 2007 represents the culmination of efforts by a series of governments – both military and democratic regimes – and the Ghanaian people at pursing oil exploration. This long awaited exhilaration was captured by the often-quoted words of former president John A. Kufuor as he announced the discovery in June 2007 by saying:

Oil is money, and we need money to do the schools, the roads, and the hospitals. If you find oil you manage it well, can you complain about that? Even without oil, we are doing so well, already. Now, with oil as a shot in the arm, we’re going to fly. (BBC News, 2007)

30This represents the result of a long search for hydrocarbons that dates back to the late nineteenth century when five wells were drilled by the West Africa Oil and Fuel Company (WAOFCO). All previous attempts in the early to mid 1900s yielded some oil and gas but not in commercial quantities. Hence, to accelerate exploration, the Provisional National Defence Council (PNDC) under Jerry John Rawlings established an institutional framework with PNDC Laws 64 and 84. This led to the formation of the Ghana National Petroleum Corporation (GNPC), which steered explorative activities through the 1980s and 1990s.

31With a renewed mandate to continue with the exploration of hydrocarbons, GNPC under the Kufuor administration, and with the help of foreign investors, discovered high-grade oil in commercial quantities west of Cape Three Points (see Figure 2). In 2007, Tullow Oil and Kosmos Energy announced the discovery of the Jubilee Field (named after Ghana’s fiftieth anniversary of independence from the British), 60km off the Ghanaian coast. It was estimated to hold between one and two billion barrels of crude oil. For the substantial Jubilee find, Tullow Ghana Limited has the most shares with 35.48 per cent, Kosmos Limited and Anadarko hold 24.08 per cent each, GNPC owns 13.6 per cent, and 2.73 per cent belonging to Petro SA (South Africa’s National Oil Company) (Tullow Oil, 2017). With an estimated 80 per cent of the population living on USD 2 a day, with a GDP that largely depends on primary commodity exports (ISODEC and Oxfam America, 2009), resources from significant oil finds can change the economic fortunes of this West African state. According to World Bank projections based on global oil prices, the effective governmental share in the Jubilee Fields over 19 years of production could be 51.7 per cent, which leads to a total government revenue of USD 19.39 billion (World Bank, 2009).

  • 7 Interview with a chief geologist in Accra, May 2013.

32As succinctly put by a chief geologist of GNPC, ‘Ghana has invested so much resources into oil prospecting, but foreign investors bring in technological know-how and untold amounts of resources that just do not exist in a developing country like ours’.7 Currently, petroleum exploration and production mainly involve three different external interests – Tullow Oil and Gas, an independent Irish exploration and production company; Kosmos Energy, an independent American oil and gas exploration and production company; and Anadarko Petroleum Corporation, also headquartered in the United States. These external interests hold the most shares, and with far less than a quarter held by Ghana’s GNPC (Kastning, 2011).

Figure 2: Ghana’s Main Oil Blocks

Figure 2: Ghana’s Main Oil Blocks

Source: Kastning (2011, 8)

33With both external and Ghanaian interests at stake, the state’s main task has been to ensure the use of the oil windfalls as a catalyst for economic development and avoid the resource curse phenomenon, which has befallen some African oil economies such as Nigeria. Hence, domestic and transnational networks such as Ghana Oil Watch and Africa Oil Watch challenged the state’s objective of harnessing these petroleum resources. In response, the Ghanaian government has opted for transparency. As stated by former president John Mills as he addressed the diplomatic community in Accra:

Your Excellencies, I am aware that in Africa and elsewhere, the onset of oil wealth, in the absence of adequate legal structures and safeguards, tends to erode democratic accountability. This government will take steps to address transparency and governance concerns relating to the nation’s oil find. (Ghana News Agency, 2009)

34To this end, Ghana became a member of the Extractive Industries Transparency Initiative (EITI) in 2010. This organisation aims to encourage the government, extractive companies, international agencies and non-governmental organisations to work together to develop a framework to promote transparency of payments in the extractive industries (Kastning, 2011). This effort came alongside the Petroleum Revenue Management Bill (now Act 815 – the Petroleum Revenue Act), which is intended to regulate the use and management of the rents that will be generated through the oil industry. As noted by Bleischwitz (2014), Ghana is one of three African countries that have outperformed the set of standards issued by the EITI. A GNPC official touts this virtue as he remarked:

  • 8 Interview with a chief geologist in Accra, May 2013.

We are aware of the evils of managing a resource like oil. We are also aware that Ghanaians are impatiently waiting for the benefits of their natural resources. However, as good custodians, we are doing everything to ensure a wise use of this God-given resource. The EITI is a big deal for us.8

35In addition to its EITI initiative, Ghana has relatively stable political and economic institutions, which facilitates effectiveness and efficiency in the management of its newly found oil resources. Kopiński et al. (2013) emphasise the importance of Ghana’s stable political system, its relatively resilient economy and strong civil society as contributing to its capacity to avoid the resource curse. These features have collectively enabled institutional adjustments to be made in the preparation and management of the oil resources, and to ensure public accountability in reporting and use of the windfalls.

8. Oil Politics in Ghana: China and The West

  • 9 Interview with a government official in Accra, May 2013.

36After independence from the British in 1957, Ghana established and nurtured diplomatic relations with both Eastern and Western countries. As the China-Ghana relations evolved from an ideologically driven relationship during the Nkrumah regime to a pragmatic economic engagement, China has continuously shown interest in different sectors of the Ghanaian economy, including loans and investments in infrastructure and fibre optics.9 In addition to these various contributions to the Ghanaian economy, China has also shown interest in Ghana’s oil sector after oil discovery in 2007. As part of its oil diplomacy in African economic engagements, Beijing is making deals with major African oil producers like Nigeria, Angola and Sudan as well as new entrants like Ghana, and Uganda. Conjecturing why China is interested in Ghana’s newly discovered oil, a government worker said:

  • 10 Interview with a worker at the Ministry of Environment and Science in Accra, May 2013.

China needs a lot of oil for its massive population. I think the most sustainable and strategic way to ensure consistent access is to keep scouting for newer wells or concessions. They (China) cannot continuously rely on a Sudan or Nigeria. Do you see how politics change in those places? China needs Ghana’s oil.10

37After involvement in the natural gas industry in Ghana, China advanced towards the petroleum sector. Chinese Petrochemical Corporation (Sinopec) received USD 800 million from the China Development Bank (CDB) to develop infrastructure for oil and gas in 2011 (Chen, 2016). Towards the end of 2011, this offer was then increased by CDB from the USD 800 million to Ghana’s largest Chinese loan agreement of USD 3 billion, which committed Ghana to supply 13,000 barrels of crude oil daily to China for fifteen and a half years (Chen, 2016; Arnold and Hinshaw, 2014). China froze the loan after both governments reached an impasse in renegotiations over falling oil prices on the world market (Chen, 2016). From the signing to the discontinuation of the loan (from 2011 to 2015), this loan and its legality dominated parliamentary debates and proceedings as the then opposition New Patriotic Party (NPP) accused the ruling National Democratic Congress (NDC) administration of not using the appropriate political processes to seek the support for the Chinese loan. Particularly, the opposition claimed the NDC government was breaching the Petroleum Revenue Management Act (PRMA), which stipulates that Ghana’s oil cannot be collateralised for more than ten years (Hardus, 2014). Additionally, the opposition parliamentarians also argued that the ruling party made a lopsided deal to benefit the Chinese to the neglect of the plight of Ghanaians who would end up getting nothing out of the USD 3 billion loan and the subsequent offtaker agreement with the Chinese. This also became part of the campaign rhetoric of the opposition NPP that won the 2016 presidential and parliamentary elections to succeed the NDC government.

  • 11 Interview with a GNPC official in Accra, May 2013.

38China also continues to offer external aid and technical assistance to the oil sector. China offered four helicopters and patrol boats to be used by the Ghana Navy for security (Ghana Business News, 2011). These and other supports extended to the Ghana government can be construed as overtures towards gaining access to existing oil blocks for production. However, the loans and the various aid and technical assistance are yet to fully materialise into significant access to the oil sector dominated by Western companies (US Government Accountability Office, 2013), which have been central to the prospecting and production of oil. According to a GNPC official, ‘Chinese enterprises are also putting in bids to enter the Ghanaian oil industry, but they are yet to be successful’.11 Apart from Western companies’ dominance in this sector and their reluctance to give shares to Chinese counterparts, there are other factors that have contributed to Beijing’s status.

  • 12 Interview at Awaso in the Western Region of Ghana, May 2013.

39First, China’s recent image in Ghana has been affected by the Chinese involvement in illegal gold mining (known locally as galamsey) in most parts of the country. China has often been characterised by weak environmental policies, and this latest engagement of the Chinese in a rather unregulated and dangerous sector has stirred up anti-Chinese sentiments in the country. This illegal industry is not only viewed as the preserve of the local people, but an unregulated practice that degrades the environment. This issue complicated the diplomatic actions of both countries as decisions made by the Ghanaian government in response to the increasing unregulated mining activities, including deportation of Chinese galamsey culprits, interestingly coincided with renegotiation arrangements regarding the USD 3 billion CDB loan leading to various speculations that fed anti-Chinese rhetoric in the Ghanaian media and populace (Hess and Aidoo, 2016). This gradual slide in unpopularity among the Ghanaian population is evidenced by the 2013 Pew Research survey on global attitudes, which shows China’s favourability drop from a 75 per cent in 2007 to 67 per cent in 2013, while that of the U.S moved up from 80 to 83 per cent in those same years (Pew Research Centre, 2013). As angrily put by a local of Awaso in the Western region of Ghana (the region where the oil industry is based), ‘the Chinese galamsey operators must be arrested, jailed and deported out of the country before they start aiming at our oil industry’.12 In a more measured tone, a young female graduate of the University of Ghana explained:

  • 13 Interview with a female graduate student of the University of Ghana (doing a dissertation on the oi (...)

The reason why people are calling for the Chinese to stay away from our oil is the greed they have shown by taking advantage of unregulated galamsey, without any regard to environmental destruction and people’s lives…. If they move into our newly found oil like they did with galamsey, Ghana will stay perpetually poor and underdeveloped.13

40Ghana’s relationship with the West has deepened as China’s economic engagements in the country expand. In the 1990s, as Ghana entered its Fourth Republican democratic dispensation away from decades of military in politics and close Soviet ties, its embrace of Western neoliberal arrangements has attracted more Western actors and investors into most of its economic sectors. The granting of USD 547 million under the U.S Millennium Challenge Compact to enhance economic development as well as other contributions from Western countries and institutions like the World Bank and International Monetary Fund (IMF) have further increased Western investors. Intriguingly, when China curtailed the USD 3 billion loan, with economic uncertainty looming, Ghana turned to the IMF for a USD 918 million loan to stabilise growth and foster economic development with ambitious targets (IMF, 2015). In spite of growing ties involving infrastructure development, foreign direct investments, and technology transfer with China, this particular instance is a reminder of the pivotal role that Western institutions have played and continue to play in Ghana’s economic history. The initial enthusiasm that the Ghana government displayed for the USD 3 billion loan from the China Development Bank (CBD) withered away as internal opposition and Ghana’s deteriorating fiscal situation pushed the Mahama administration to reconsider and renegotiate the CBD loan facility (Chen, 2016). With a drop of the price for crude from USD 115 in June 2014 to USD 53 in January 2015, and persistent declines in prices of gold and cocoa – a drop of USD 1.3 billion in foreign exchange for Ghana in 2013 – the government’s ability to access or repay the USD 3 billion CBD loan was hampered, ending the CDB agreement by 2015 (Chen, 2016). In dire fiscal straits, Ghana turned to the familiar IMF to help resuscitate its struggling economy, and put its development agenda back on track. This was a flashback to the 1990s when the Rawlings administration turned to the IMF and World Bank to institute an adjustment programme to rescue the economy from years of economic and political maladies.

9. Multiplicity of Actors: Scramble for Oil or Securing Development?

41The postcolonial Ghanaian state has been largely driven by developmental objectives through a neoliberal agenda which some have argued has led to some environmental challenges as natural resources have been plundered to take advantage of world market prices and the insatiable demand from emerging economies. When oil was discovered in 2007, the euphoria expressed by the government gradually gave way to discussions of how to extract the oil resources judiciously while avoiding the resource curse phenomenon that has been a bane of most African oil economies. The Ghanaian government’s position has been to emphasise the role that democratic institutions play in maintaining the sustainable extraction of these resources. Its stance has manifested in an all-inclusive approach, which brings both domestic stakeholders and foreign actors together to help achieve a broad based and sustainable agenda for the oil industry. As aptly put by a GNPC executive:

  • 14 Interview with a GNPC executive in Accra, May 2013.

The Ghana government truly wants the best out of this oil find for Ghanaians, this is why we are including local groups as well as foreign actors like the Norwegians in an effort to build a consensus on how to use the oil resources to enhance development…only time will tell, if the government adopted a right path.14

42Both domestic and global environmental activists have already started to tally the environmental costs of the offshore drilling taking place along the Ghanaian coast. Friends of the Nation (FoN) – a non-profit, non-governmental organisation involved in socio-environmental advocacy – has called the government’s and the world’s attention to an unusual amount of dead whales that washed onto the country’s shore. Although vehemently refuted by the Environmental Protection Agency (EPA), this was directly linked to the increasing offshore oil exploration (The Guardian, 2013). Relatedly, a group of local traditional rulers (chiefs) from the Western Region of Ghana have also raised an alarm about the effects of the oil drilling activities on the local fishing industry (Ghanaweb, 2014). Such mobilisation pressures authorities and encourages accountability at different levels of governance.

43Actors from various levels of the international community continue to play a role in monitoring the legal parameters for the extraction of these resources. In a recent attempt to align Ghana’s new oil industry realities with existing regulations, Oil Watch warned that the existing Ghana Environmental Protection Act of 1994 (Act 490) does not extend effective powers to the Environmental Protection Agency, which is one of the custodians of environmental resources in Ghana. This is seen as a major loophole in the country’s environmental policy, which, if not rectified, could undermine attempts to ensure sustainable extraction and production of oil in the country.

44In developing countries like Ghana, extractive industries have attracted investors like the Chinese or Western companies that have been criticised for treating the local populations rather unfairly while repatriating oil windfalls. This was the case in a 2014 impasse over the income disparities between the expatriate workers and local workers of oil firm Schlumberger (Myjoyonline, 2014). This exemplifies the connections between transnational agenda and actions of local groups.

10. Ecuador and Ghana: A Comparative Analysis

45These two developing economies identify with one major challenge that generally besets the developing and non-industrialised world – drawing a delicate balance between the preservation and sustainable use of natural resources to meet development goals, which may differ among the diversity of peoples in both states. In the following table, we summarise the comparison between the two countries. While Ecuador has a long history of oil extraction, Ghana is a newcomer to the industry. Yet Ecuador, despite President Correa’s initial work with environmental and indigenous organisations in 2007, has adopted policies that have incited protests from these organisations. These include the cancellation of the Yasuní ITT Initiative to keep oil underground in Yasuní National Park. Ecuador is also highly dependent on its extractive processes for its budget, a level of dependence not yet reached in Ghana. However, with a much less extensive history and experience with oil, Ghana’s oil resources could suffer a similar fate like its other counterparts in Africa, whose oil resources and management are largely dominated by external actors, and sometimes leading to the degeneration of the engagement into messy politics and economic contraction (Patey, 2014). Nonetheless, Ghana has currently included NGOs in its governance framework for extraction and is working to include local concerns within the Extractive Industries Transparency Initiative – a growing transnational initiative and one in which Ecuador does not participate. This indicates a significant difference in policy outcomes and responses to social mobilisation between the two cases.

Table 1: Comparing Ecuador and Ghana

Ecuador

Ghana

Entry into oil extraction

1971

2007

State transparency

Low

High

Chinese debt reliance

High

Low

IMF and World Bank investment

Low

High

Western investment

Low

High

Working relationship between the state and NGOs

Low

High

Source: Authors’ elaboration.

46While prior to its 2010 tax change for extractive industries, Ecuador had strong ties with the West and private companies, it opted for a state socialist approach under President Rafael Correa, forcing many private companies to leave and opening opportunities for state-run companies, like the Chinese NOCs, as oil buyers. Having defaulted on its bonds and, until recently, relinquishing its relationship with the World Bank and IMF, Ecuador sought funds from China to bolster the many new state-funded programmes.

47Ghana, on the other hand, since the 1990s has had a neo-liberal economic agenda open to international financial institutions from the West. This has avoided sole dependence on Chinese investment in its oil and extractive sectors, and diversified its markets. While both states use Chinese funding for ‘development’ projects, the dominance of private-run companies from the West often contributes to the preponderance of Western market values that filter through economic arrangements in Ghana. Additionally, these markets and economic arrangements mobilise and empower links between and among domestic and international actors to monitor and hold government accountable for the drilling and sustainable use or otherwise of oil resources. In spite of the growth in trade and investment between Ghana and China, the latter still lags behind other trade and investment partners like the U.S., France, United Kingdom, Italy, and Netherlands – all from the West (Looney, 2014).

48Surrounded by examples of failed oil economies on the African continent, but buoyed by its institutions and good governance, Ghana’s quest to embrace best practices of oil management, and its use to generate prosperity has led to a preponderance of Western actors over the Chinese in the Ghanaian oil sector. This strategic and global outreach of the Ghanaian government underscores the importance of a particular model of oil resource management that it is trying to establish, as it gradually makes its way into a highly volatile global oil market. For instance, with good relations between GNPC and Statoil (Norway’s State Oil company), the Ghanaian government has encouraged the exchange of ideas and technical know-how to help avoid the resource curse/Dutch Disease – a feature mostly associated with oil economies in most parts of the developing world.

49By contrast, a lack of shareholders to pressure in Chinese state run companies has complicated social mobilisation against incursion into the Southern Amazon in Ecuador. Following the August 2013 government cancellation of the Yasuní ITT Initiative to leave oil underground in the ITT block of the Amazon, a grassroots movement called Yasunidos gathered over 700,000 signatures to call for a national referendum to stop the oil extraction. With little ability to impact the Correa regime and no Chinese shareholders to pressure, the Yasunidos members had no recourse when the Ecuadorian National Electoral Commission did not accept almost a third of their signatures (El Universo, 2014). Oil production in this pristine block is expected in 2017. While the Ghanaian government opened dialog with NGO groups, Ecuador’s Sino-centric funding based on oil closed pathways to compromise with civil society.

50Regarding social mobilisation, Ghana has engaged various NGO stakeholders to ensure an inclusive and sustainable use of the oil resources. Groups like the Public Interest and Accountability Committee (PIAC), and FoN serve as pressure groups for equitable distribution of oil revenue, through the Petroleum Revenue Management Act (Ghana News Agency, 2015) while the Africa Centre for Energy Policy (ACEP) monitors issues broadly pertaining to oil and other energy policy issues.15 Such working relationships between the government and NGOs have been a bane on China’s attempts to gain major access to Ghana’s oil (in addition to its current stake in natural gas).16 Ecuador, while originally allied with the NGO sector, diverged over the course of the Correa regime to use extractive industries to fund its social agenda, despite protests from indigenous communities. China’s relationship with the Ecuadorian regime not only impacted its development policy of buen vivir, using extractive processes to pay for a large socialist state budget, but it challenged the intent of the 2008 constitutional norm of harmony with nature, a significant impact on long term policy.

51Furthermore, and linked to the above is Ghana’s decision to assume agency in the shaping and negotiating of Chinese engagements within its borders (Mohan and Lampert, 2013). As diverse actors, both internal and external, converge in Africa for resources, most of the African countries display an inability to demonstrate agency. By contrast, Ghana is working to shape policies that impact relations with China. However, as the Chinese NOCs expand their presence and localise in Ghana, agency on the part of the Ghanaian government is highly constrained by factors like a profit maximisation objective, market competition and political pressure (Kernen and Lam, 2014). In Ecuador’s case, its style of governance and the state’s control over oil resources afford the new administration (of the same political party) under Lenin Moreno some leverage and influence in its engagements with China, albeit limited given the absence of Western actors.

52These two cases reflect the complexity of the relationship of lesser-developed countries working alongside Chinese NOCs. With different global and local actors encircling the oil industries in Ecuador and Ghana, the power of the state has become nuanced as it is pressured to attempt a balance of development goals and the preservation of these critical oil resources, embedded in rather volatile environments. These cases point to further research questions regarding the impacts of future oil sales on policy outcomes and social mobilisation in other lesser-developed countries, such as Venezuela or Angola. Are there patterns of policy impacts and social mobilisation outcomes in the lesser-developed world as a result of future oil sales-based development versus a more diverse portfolio? How can these broader findings help policymakers and citizens balance development and natural resources? These cases provide a platform for future studies. Addressing the demand for natural resources from China at the outset of post 2015 Sustainable Development Goals, places the experiences of Ghana and Ecuador within the larger examination of global environmental governance and points to future research regarding the search for ‘the good life’.

Bräutigam, D. (2009) The Dragon's Gift: the Real Story of China in Africa (Oxford: Oxford University Press).

Zhao, S. (2015) China in Africa: Strategic Motives and Economic Interests (London: Routledge).

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Notes

1 Quote in Schneyer and Medina Mora Perez (2013).

2 Interview with attorney for then Petro Andes now Andes Petroleum in Quito, 14 December 2012.

3 Interview with attorney for then Petro Andes now Andes Petroleum in Quito, 14 December 2012.

4 Interview with Alberto Acosta in Quito, Ecuador, 10 March 2014.

5 Interview with a Shuar woman, Dayuma, Orellana Province, Ecuador, 13 July 2013.

6 Communication in person by Franco Viteri, Leader of the Government of the Original Nations of the Ecuadorian Amazon, at the Stillheart Institute, California, 21 October 2013.

7 Interview with a chief geologist in Accra, May 2013.

8 Interview with a chief geologist in Accra, May 2013.

9 Interview with a government official in Accra, May 2013.

10 Interview with a worker at the Ministry of Environment and Science in Accra, May 2013.

11 Interview with a GNPC official in Accra, May 2013.

12 Interview at Awaso in the Western Region of Ghana, May 2013.

13 Interview with a female graduate student of the University of Ghana (doing a dissertation on the oil industry) in Accra, May 2013.

14 Interview with a GNPC executive in Accra, May 2013.

15 Africa Centre for Energy Policy, http://www.acepghana.com/ (accessed on June 25, 2017).

16 Africa Centre for Energy Policy, http://www.acepghana.com/ (accessed on June 25, 2017).

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List of illustrations

Title Figure 1: Map of Ecuador’s Oil Blocks and New Concessions
Credits Source: Ecuador (Republic of), Secretary of Hydrocarbons, Ministry of Non-renewable Resources, http://www.secretariahidrocarburos.gob.ec/​mapa-de-bloques-petroleros/​ (accessed on 30 June 2017).
URL http://poldev.revues.org/docannexe/image/2408/img-1.png
File image/png, 8.3M
Title Figure 2: Ghana’s Main Oil Blocks
Credits Source: Kastning (2011, 8)
URL http://poldev.revues.org/docannexe/image/2408/img-2.png
File image/png, 259k
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Cite this article

Electronic reference

Richard Aidoo, Pamela Martin, Min Ye and Diego Quiroga, « Footprints of the Dragon: China’s Oil Diplomacy and its Impacts on Sustainable Development Policy in Ecuador and Ghana », International Development Policy | Revue internationale de politique de développement [Online], 8.1 | 2017, Online since 16 November 2017, connection on 21 November 2017. URL : http://poldev.revues.org/2408 ; DOI : 10.4000/poldev.2408

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About the authors

Richard Aidoo

Richard Aidoo is an Associate Professor of Politics at Coastal Carolina University. His current research focuses on the different engagements between countries in Sub-Saharan Africa and China. He has contributed to several scholarly works, including articles in different academic journals such as African and Asian Studies, Journal of Asian and African Studies, Asian Survey, and the Journal of Current Chinese Affairs. Aidoo is also the co-author of Charting the Roots of Anti-Chinese Populism in Africa.

Pamela Martin

Pamela L. Martin is a Professor of Politics at Coastal Carolina University in Conway, South Carolina, where she teaches courses in International Relations and Environmental Politics. Martin was a Fulbright Scholar in Ecuador and has published on environmental governance and energy issues, including Ending the Fossil Fuel Era an edited volume with MIT Press (May 2015), winner of the International Studies Association 2016 Harold and Margaret Sprout Book Award.

Min Ye

Min Ye is a Professor in the Department of Politics at Coastal Carolina University. His research interests include international conflict, foreign policy analysis, East Asian politics, and formal modeling. He is the author or co-author of articles published in Studies of Conflict and Terrorism, Korean Journal of Social Science, Journal of Political Science Education, Journal of Political Science, Korea Observer, Pacific Focus, and Foreign Policy Analysis.

Diego Quiroga

Diego Quiroga is a Professor of Anthropology at Universidad San Francisco de Quito. He teaches Human Ecology, People, and Politics in the Andes. He is the Dean of Research and External Affairs and the Director of the Galapagos Academic Institute.

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Copyright

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International Development Policy is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

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