Could Warren Buffettâ€™s Berkshire Hathaway be helping to support genocide in Darfur? The Sudan divestment movement â€”which has persuaded Harvard, Yale and Stanford, among others, to sell holdings of companies doing business in Sudanâ€”says Berkshire should do the same. Buffettâ€™s resisting. Theyâ€™ll tangle over the issue next month at the companyâ€™s annual meeting in Omaha.
It should be a fascinating debate. Berkshire has become a target for the divestment campaign because it owns 2.3 billion shares of PetroChina Co., a subsidiary of the state-controlled China National Petrolum Corp. (CNPC). CNPC has extensive operations in Sudanâ€”it owns a bigger stake in Sudanâ€™s national oil consortia than any other oil company does.
The marriage between the Chinese and Sudanese government is a marriage of convenience. Beijing purchased more than half of Sudan’s oil exports in 2005, accounting for about 10% of Chinaâ€™s growing oil needs, according to the Sudan Divestment Task Force. China has been all over Africa, seeking natural resources, particularly oil.
Sudan needs money and weapons, which it gets from China. Because about 70 to 80% of Sudanâ€™s oil revenue is funneled into its military, China’s oil assets in Sudan are â€œan undeniable and well-documented enabler of Khartoumâ€™s genocidal policy in Darfur,â€ the Sudan divestment activists say. China has also supplied arms and military know-how to the Sudanese government, and it has blocked efforts by the UN Security Council to apply stricter sanctions against Sudan.
The logic of this argument persuaded Harvard, Yale, Stanford, the states of California, Illinois, New Hampshire and, just days ago, Iowa to adopt divestment policies. (To see the state of the divestment movement, visit the Sudan Divestment Task Forceâ€™s excellent website.) Most â€œsocially responsibleâ€ responsible mutual funds have divested their holdings in PetroChina, and the Calvert family of funds went further, creating a website devoted to ending the crisis in Darfor. Harvardâ€™s decision to divest its shares of PetroChina is particularly significant because its $30 billion endowment fund rarely takes such action. Announcing the action two years ago, The Harvard Corporation said:
Although Harvard maintains a strong presumption against the divestment of stock for reasons unrelated to investment purposes, we believe that the case for divestment in this instance is persuasive,
Harvard also said:
Oil production is widely understood to be a crucial source of revenue for the Sudanese government, essential to the government’s capacity to fund military operations, and an asset of exceptional strategic importance to the regime.
Finally, Harvard took a close look at the relationship between the Petro China, and its parent company, CNPC, and found considerable overlap and blurred lines between the two. You can read the Harvard Corporationâ€™s statement here.
To his credit, Buffett has responded publicly (available for download here, as a PDF file) to the divestment campaign and welcomed debate at the annual meetingâ€”although he is under no obligation to do. (This, by the way, is in contrast to Fidelity Investments, which remains a target of a divestment drive. See www.fidelityoutofsudan.com.) In Buffettâ€™s response, he argues, first, that PetroChina itself has no holdings in Sudan and that it does not control CNPC. â€œSubsidiaries have no ability to control the policies of their parent,â€ he says.
He goes on to say that CNPC cannot actually â€œwithdrawâ€ its assets from Sudan since those assets consist of oil in the ground and the fixed infrastructure to transport and refine oil. Should China opt to sell its assets to the Sudanese government, the government would still be able to sell its oil onto the world market. â€œProponents of the Chinese governmentâ€™s divesting should then ask the most important question in economics, â€˜And then what?â€™ Buffett writes.
Good question. There are a couple of possibilities. The first is that Sudan would try to buy out the Chinese, although the Khartoum government is already in deep debt. Another possibility is that the two other major investors in Sudanâ€™s oil, the state-owned oil companies of Malaysia and India, might step in. Either way, severing the economic ties between China and Sudan would have a significant benefit. As the Sudan Divestment Task Forces writes in response to Berkshireâ€™s response:
The sale of CNPCâ€™s Sudan assets would remove Chinaâ€™s economic incentive to enable Sudanâ€™s ongoing genocide. Even short of forcing divestiture of its Sudan assets, pressure on CNPC is likely to change Chinaâ€™s approach towards Sudan diplomacy, especially given how highly China prizes its Sudanâ€™s oil assets.
The truth is, China is unlikely to divest, even under pressure from Berkshire. But Buffett could, at a minimum, engage in discussions with PetroChina. He could ask that PetroChina and CNPC to use their influence in Sudan to ask the government to allow in a peacekeeping force. He could speak to the Indians and the Malaysians and ask them to work with him to oppose the financing of the genocide. He could try to make a difference through strong and sustained engagment with PetroChina. If all of that fails, he could then sell the stockâ€”noisily.
Warren Buffett is, after all, much more than one of the worldâ€™s great investors. He is, by all accounts, a decent, generous man of enormous integrity. When he speaks, much of the world listens. Here he has an opportunity to raise his voice on behalf of victims of genocide. Why not take it?