-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- From http://www.security-policy.org/papers/2000/00-F13.html {{<Begin>}} Publications of the Center for Security Policy No. 00-F 13 SECURITY FORUM 1 March 2000 A.F.L.-C.I.O. Joins Effort to Block PetroChina's Bid to Penetrate U.S. Capital Markets (Washington, D.C.): America's trade union movement has formally joined forces with leaders of the national security, human rights and religious freedom communities to thwart the $5-7 billion Initial Public Offering that a problematic Chinese oil company hopes shortly to list on the New York Stock Exchange. With the AFL-CIO's resources and horsepower now added to the mix, the prospects for this IPO can only be described as imperilled. A press release issued today by the Nation's most powerful labor organization announces the release of a devastating report concerning the impending stock offer by PetroChina, a holding company that is -- according to its prospectus -- "completely controlled" by its state-owned parent, China National Petroleum Company. The report addresses concerns about shareholder protection, forced labor, environmental and human rights issues. The AFL-CIO's bottom line should further chill what little enthusiasm has been evidenced to date for this offering by U.S. investors (for example, the Nation's two largest pension funds, TIAA-CREF and California Public Employees Pension Fund, have already indicated they will not be purchasing PetroChina shares). In the words of the organization's president, John Sweeney: "This PetroChina IPO has many risky financial holes, and they are covered in an intricate patchwork of human rights and environmental violations....Investing in PetroChina only encourages human rights abuses while at the same time exposing investors to significant risks which they will have few protections against." AFL-CIO Press Release, 1 March 2000 Report Says Proposed $5 Billion PetroChina IPO Laced With Investment Risks And Human Rights Violations; Money Managers Urged to Review Findings Washington, D.C., March 1 -- Today the AFL-CIO released a report marking the beginning of a campaign to focus investor attention on the growing investment, human rights and environmental concerns presented by the $5 billion initial public offering (IPO) of PetroChina, the largest such offering of a Chinese state-owned enterprise. The report, which was sent this morning to the top 100 investment management firms involved in emerging market IPOs, documents the significant financial risks posed by the company's governance structure, ethical issues surrounding PetroChina's human rights abuses in Sudan and Tibet, and the expected layoffs of one million workers in China. "This PetroChina IPO has many risky financial holes, and they are covered in an intricate patchwork of human rights and environmental violations," said AFL-CIO President John Sweeney. "Investing in PetroChina only encourages human rights abuses while at the same time exposing investors to significant risks which they will have few protections against." The report, which can be found at www.PetroChinaWatch.com, concludes: Ownership and control will remain with the Chinese government. PetroChina is offering $5 billion of common stock, representing a 15% stake in the company. The remaining 85% will be controlled by PetroChina's parent company, state- owned China National Petroleum Corporation (CNPC). As a state-owned enterprise, CNPC is controlled by the Chinese government. As a result the majority shareholder, the Chinese government, will be able to control all matters requiring shareholder approval. Shareholders have only limited legal protection in China. So far, all of PetroChina's executive officers and the majority of directors and shareholders live in China and Hong Kong. As a result, outside investors may not be able to enforce legal judgments against the company or its officers including judgments relating to the securities laws of the United States and other countries. PetroChina is associated with forced labor. PetroChina's parent company, CNPC, which is involved in a joint venture with the Sudanese national oil company and Canada's Talisman oil company, has been widely associated with the use of forced labor and displacement of villagers living near the joint venture's operations. Environmental and human rights threats in Tibet. Human rights activists, religious groups, and environmentalists are raising concerns centered around PetroChina's domestic operations. PetroChina's activities in the North could further harm the Tibetan people, as well as disrupt already ecologically fragile areas in Tibet. Over one million unprotected workers could lose their jobs. Press reports have indicated PetroChina intends to lay off up to one million employees in China after its IPO. These workers have no means to represent themselves in this process due to China's ban on independent labor unions. This March, an international consortium of investment bankers, accountants, consultants and others led by the investment banking firm of Goldman Sachs, plans to market the PetroChina IPO to institutional investors, many of which manage pension and defined contribution funds for American workers. If successful, this offering will mark the largest public offering ever in a Chinese state-owned enterprise. It is the first of several large IPOs that the Chinese government is planning to market to Wall Street this year in anticipation of its entrance into the World Trade Organization. "The AFL-CIO will work with unions and worker pension fund trustees, in the United States and abroad, to make institutional investors fully aware of the risks in the PetroChina deal. We will offer an alternative investment perspective to Goldman Sachs' marketing "road show" expected to begin later this month," said Sweeney. The AFL-CIO's Office of Investments plans on hosting a conference call with investment analysts next Thursday. American workers own $430 billion worth of foreign equities through pension funds. Today's Wall Street Journal reported that several members of Congress are sending a letter requesting that President Clinton block the state-owned company from making an initial public offering "until an acceptable use of the proceeds has been assured." The letter warns that some of the proceeds could be diverted to the Khartoum government, which has been waging civil war against Christian and other Sudanese minority communities. The PetroChina IPO has received a skeptical reception from many pension fund investors and workers organizations worldwide. CALPERS, the world's largest public pension fund, has chosen not to participate in the IPO. Other prominent funds have already divested from Talisman. "We are very pleased that CALPERS has chosen not to place our members' retirement assets in a risky investment in a company so deeply involved in human rights abuses," said Service Employee's International Union President Andrew Stern, which represents CALPERS participants. "PetroChina does not recognize its workers' fundamental human rights, " said Fred Higgs, General Secretary of the International Federation of Chemical, Energy, Mine and Mineral Workers' Unions, representing workers in 115 countries, including many in the oil industry. Hans Englebert, the General Secretary of Public Service International, representing 20 million public sector workers world-wide, including participants in CALPERS and the giant Dutch pension fund ABP, said "as a company that is not in compliance with the International Labor Organization's Core Labor Standards, operating in a country that is not in compliance, PetroChina appears to be an inappropriate investment for worker capital." NOTE: The Center's publications are intended to invigorate and enrich the debate on foreign policy and defense issues. The views expressed do not necessarily reflect those of all members of the Center's Board of Advisors. 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