Daniel W. Drezner

The trouble with authoritarian joint energy ventures….

The trouble with authoritarian joint energy ventures….

I’ve been reading a raft of books recently arguing that authoritarian capitalism is a more sustainable model than us in the West appreciate.  According to this meme, entities like sovereign wealth funds, state-owned enterprises, and national oil companies will be carving up ever-greater slices of the global economy. 

Whenever I read these arguments, the question that gnaws at me is how these authoritarian capitalist institutions will operate in other authoritarian capitalist countries.  See, this kind of argument presumes a harmony of interests that doesn’t necessarily exist between authoritarian states.  It also presumes a standard of competency and efficiency – or, at least, efficient corruption — that makes these firms and institutions able to compete with private sector firms. 

For see what I’m talking about, see this Washington Times story by Kelly Hearn on China’s growing frustration with Venezuela:

China has poured billions of dollars into Venezuela’s oil sector to expand its claim over the country’s massive oil reserves.

But Beijing is getting relatively little for its investments, and Chinese officials are increasingly frustrated with Venezuelan President Hugo Chavez, according to energy analysts and former managers of the state oil company, Petroleum of Venezuela, or PDVSA as it’s known by its Spanish acronym….

In 2010, CNPC signed a deal to help Venezuela develop a major Orinoco oil field known as Junin 4, which includes the construction of a facility to convert heavy oil to a lighter crude that could be shipped to a refinery in Guangdong, China.

“Although the contract was signed in December 2010, not one barrel of oil has yet been produced, much less upgraded,” said Gustavo Coronel, a former PDVSA board member.

“So far, nothing much seems to be happening, except for the arrival of a large group of Chinese staff to the CNPC’s Caracas office,” he added, referring to the Venezuelan capital, Caracas.

“Apart from money, there seems to be little that China can offer Venezuela in the oil industry,” he said, adding that a “culture gap will make working with China very difficult for Venezuelan oil people, who were mostly trained in the U.S.”….

The Chinese also seem to be increasingly wary.

Internal PDVSA documents released by a Venezuelan congressman show that the Chinese balked at a $110 billion loan request by Mr. Chavez in 2010, after PDVSA officials failed to account fully for where the money would go.

Venezuela is not the only place that Chinese foreign direct investment in energy is running into bottlenecks and roadblocks.   There was Myanmar last year:

fter five years of cozy cooperation with Burma’s ruling generals, China Power Investment Corp. got a shock in September when it sent a senior executive to Naypyidaw, this destitute Southeast Asian nation’s showcase capital, a Pharaonic sprawl of empty eight-lane highways and cavernous government buildings.

Armed with a slick PowerPoint presentation and promises of $20 billion in investment, Li Guanghua pitched “an excellent opportunity,” a mammoth, Chinese-funded hydropower project in Burma’s far north.

Then came the questions: What about the risk of earthquakes, ecological damage and all the people whose homes would be flooded? Is it true that most of the electricity would go to China?

Two weeks later, Burma, also known as Myanmar, scrapped the cornerstone of the project. President Thein Sein, a former general who took office in March, announced that he had to “respect the people’s will” and halt the $3.6 billion dam project at Myitsone, the biggest of seven planned by China Power Investment, or CPI.

As the world’s biggest consumer of energy, China has hunted far and wide in recent years for sources of power — and of profit — for state-owned corporate behemoths such as CPI. The result is a web of deals with often-repressive regimes, from oil-rich African autocracies such as Sudan and Angola to river-rich Burma.

But coziness with despots can also backfire.

Amid a dramatic, though still fitful, opening in Burma after decades of harsh repression, public anger has swamped China’s hydropower plan. The deluge threatens not only hundreds of millions of dollars already spent but also China’s intimate ties to what had been a reliably authoritarian partner, its only East Asian ally other than North Korea.

Beijing still has big interests in Burma, including a multibillion-dollar oil and natural gas pipeline that is under construction. But a partnership forged with scant heed to public opinion has been badly jolted by a barrage of no-longer-taboo questions.

These are just isolated cases — I have no doubt that China has a boatload of successful FDI projects in energy.  What’s telling, however, is that regardless of whether the host regime is democratizing or reverting to autocracy, the political economy of these investments is far from problem-free. 

One must sympathize with the Chinese firms here.  China’s domestic politicsal economy of investment aren’t this messy.  Oh, wait