Sunday, May 15, 2011

More on Shell's silly moves in China

China National Offshore Oil CorporationImage via Wikipedia
Apologies for the short write-up yesterday on the Shell/CNOOC spat. Even with the little information that is available there is a bit more to the story, but I was unable to dive deeper into it yesterday. I had some time to think the story over and - although the Volkskrant story was one-sided based on Shell information - my sympathy almost went to CNOOC. Let me explain why I think the move by the Shell official to vent his frustrations in the media was silly at best, but first on the interview itself.

I do not think a journalist needs a decade of China-experience to ask the right questions in this kind of situation, but in this case we are missing crucial background. The Shell/CNOOC joint venture had an 50/50 ownership construction, already when the contracts for the petrochemical installation were signed at the beginning of the century. At the time I frequented many informal, off-the-record meetings where now and then Shell officials emerged there too. The first question everybody asked them was why they set up a 50/50 ownership construction if everybody else thought it was a proven receipt for problems.

They accepted the general perception that you should avoid a 50/50 construction. If you needed a Chinese partner for legal or strategic reasons, one of them should be in charge: you do not want a baked-in stalemate if both partners would fall out with each other. But, the Shell people said, they were different. Their relationship with their Chinese partner was so extremely well, this could not go wrong.

Even when that would be right at the time, we all knew that would be a good foundation for future trouble, when the officials of both sides would have been replaced by others, who did not have a similar close relationship.

That would have been an obvious question for a journalist to ask: why did Shell do it wrong in 2002, and why did they want to continue a proven receipt for trouble?

Otherwise, the move by Shell to complain in the media about CNOOC was silly. CNOOC plans to build a USD 7.5 billion refinery next to the current petrochemical installation, and they invited their current partner Shell over to participate, in exchange for a reduction of their equity. Already in January the CNOOC told in the People's Daily they were going to negotiate:
"Even if CNOOC agrees to let Shell participate, it won't get as high a stake as the 50 percent it has in CSPC because CNOOC is not short on the capital or the technologies needed to build the new plant," said Diao Guotao, secretary of the Communist Party of China Committee of CNOOC Huizhou district.
That might not have made Shell happy, but when CNOOC does not see how its current Anglo-Dutch partner can add any value, does not Shell have to explain how they do? Why are they still needed? By complaining in the foreign media, they suggest they have given up on the negotiations altogether. You can use silly arguments at the negotiation table, but when you start looking silly in the media, you create yourself a problem. CNOOC came with a fair argument and our Shell official replies with conspiracy ideas against foreign firms in general. (Although there are some signals of a tendency, they seem mostly to be used by Chinese partners when it fits their agenda).

It looks like the 50/50 joint ventures has again proven it is a receipt for trouble, so renegotiating is the better option over whining.
(Earlier published at Fons Tuinstra's home)
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