The London School of Economics and Political Science the Tiger and The
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The London School of Economics and Political Science The Tiger and the Dragon: A Neoclassical Realist perspective of India and China in the oil industry in West Africa Rajneesh Verma A thesis submitted to the Department of International Relations of the London School of Economics for the degree of Doctor of Philosophy, London, April 2013 1 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 98,338 words. 2 Acknowledgments Writing a PhD thesis can be an arduous task, a task made less convoluted, exciting, challenging and full- filling by the support of many. It gives me great pleasure to thank my doctoral supervisor Dr Chris Alden. It was an honour and privilege to be supervised by Dr Alden, a person with a humane heart. Dr Alden has been fundamental and instrumental in providing support in every way possible to ensure that the thesis is completed. Without Dr Alden’s support, I would not have been able to pursue the PhD and the thesis would never have been completed. A special thanks to the Asia Research Centre for the Bagri Fellowship and LSE-TISS-TATA Grant for Research Projects, Travel and Workshops. The Bagri Fellowship provided the indispensable financial support for the PhD. The LSE-TISS travel grant supported and enabled me to conduct extensive research in India. I am grateful to Prof Athar Hussain, Dr Ruth Kattumuri and the Asia Research Centre for providing the letters of support which facilitated interviews in India and China. I was helped along the way by a huge number of people. My academic advisor Prof Chris Coker was a pillar of support and encouragement in times of grave need. Dr Thomas Sattler, Dr Lauren Phillips, Dr Jeffrey Chwieroth and Dr Andrew Walter in the Department of IR at LSE allayed my fears and encouraged me to tread on my chosen path which provided the necessary platform to write the thesis. Prof Michael Cox, Prof Margot Light, Prof Chris Hughes, Dr Jurgen Haacke, Dr Chris Emery and Luca Tardelli provided insightful comments, analysis, suggestions and criticisms which pushed me to clarify my thinking in important ways. I am grateful to Dr Nicholas Kitchen for highlighting the errors, omissions and additions in the draft of Chapter 3. The participants in IR Research Design seminar, Foreign Policy workshop and North-South Relations workshop deserve a special mention. This is a group of talented people that I have had the pleasure to argue with. I am indebted to my family. I am incredibly lucky in the support I have gotten from my family and friends, for comprehending that I could not be with them in their good and bad times. There are numerous other individuals who I have encountered on this journey, who have each contributed in their own way especially Martina Langer and Adnan Khan. A sincere expression of gratitude goes to the Department of IR, and the LSE as a whole, whose staff resources and facilities have been exemplary. 3 To the indomitable spirit of a human being 4 Abstract Can and does neoclassical realism explain the difference in how India and China mobilise oil (a key resource) externally to meet their respective goals and objectives. The thesis illustrates how political economy (political economy as employed in the thesis examines the structure of the economic system, not the foreign policy executive) is incorporated as the intervening variable into neoclassical realism to explain the acquisition of oil blocks by Indian and Chinese oil corporations in West Africa. Consequently, the thesis transcends the existing or prevalent theories of neoclassical realism which either elucidate structural outcomes like polarity or balancing, or deviations from neorealism like under balancing or over balancing. The thesis postulates that the independent or the exogenous variable i.e. the difference in the relative power of India and China elucidates the ability of Chinese oil companies to outbid their Indian competitors and/or be preferred as partners by international oil companies (IOCs) and/or have better quality oil blocks as well as China’s widespread outreach in 11 countries in West Africa compared to India’s presence in two counties namely Nigeria and Gabon. The intervening variable or the difference in the political economy of India and China explicates why China is represented by state owned enterprises (SOEs) in the oil industry in West Africa where as India is represented by SOEs and/or private enterprises. For case study analysis, the thesis uses a pattern-matching logic in 11 countries in West Africa and employs Angola, Nigeria and Gabon for in depth case studies. The thesis examines not only the bids that Chinese and Indian oil corporations place for the oil blocks but tries to explicate the reason why they are able to place those bids. It examines the rate of return on capital/investment, rate of interest on loans and the ease of availability of loans or finance, the difference in the level of technology and ability to acquire technology, project management skills, risk aversion, valuation of the asset and the difference in the economic, political and diplomatic support received by the Chinese and Indian oil companies from their respective governments. It also discusses the reasons why the Chinese national oil companies (NOCs) are preferred as partners by African oil companies and IOCs. Thus, the thesis provides a more comprehensive explanation for the ability of the Chinese oil companies to mobilise oil in the oil industry in West Africa relative to their Indian counterparts, and makes an empirical contribution to the existing literature on India and China in the oil industry in West Africa. 5 Table of Contents Abstract 5 Table of Contents 6 List of Tables 10 Selected Acronyms 11 Introduction Chapter 1 – Introduction 16-31 Introduction 16 Background Debate 16 India and China 16 Neoclassical Realism 17 Research Question 18 The argument and contribution to the existing literature 18 Neoclassical Realism, Research Methodology, Analytical Framework and Research Design 19 Neoclassical Realism and Research Methodology 20 Analytical Framework and Research Design 20 Data Collection, Hypothesis and Research Methodology 23 Avoiding Potential Ethical Problems 23 Data Collection 23 Hypothesi s 27 Case study analysis, Process tracing and Analytical narrative 27 Thesis Organisation 29 Conceptual Framework Chapter 2: India and China in Africa and West Africa 32-51 Introduction 32 Section I: India and China 32 Section II: Oil industry in Africa and West Africa 35 Section III: Literature Review 38 China in Africa 38 India in Africa 44 India and China in Africa 45 China in West Africa 46 India in West Africa 47 India and China in West Africa 47 Contribution to the existing Literature 48 Conclusion 50 Chapter 3: Neoclassical Realism 52-71 Introduction 52 Section I: Neoclassical Realism 54 Section II: Political Economy and Neoclassical Realism 60 Political Economy and Neoclassical Realism 60 Literature Review 62 6 Neoclassical Realism: Empirical studies 63 Neoclassical Realism: Theoretical studies 64 Neoclassical Realism and Political Economy 64 Contribution to Existing Literature 65 Neoclassical Realism and political economy of India and China 66 Section III: Neoclassical Realism and Foreign Policy Analysis 67 Foreign Policy Analysis 67 Great powers and Middle powers: A Definitional Dilemma 67 India a Middle Power, China a Great Power? 69 Neoclassical realism and the Independent variable 69 Conclusion 70 Hypothesis generation Chapter 4: India and China 72-107 Introduction 72 Section I: Sino-Indian relations 72 Section II: Asymmetries in India’s and China’s power 75 Economic power 77 Political Power 79 Military Power 79 Section III: Political Economy of India and China: a comparative perspective 82 Political economy: An Institutional Framework 83 Political Economy of India 84 Pre-reform Era: 1947-1991 84 Post reform era: 1991 to present 87 Political Economy of China 93 Pre-reform Era: 1949-1978 94 Post reform era: 1978 to present 95 Privatisation, SOEs and the non-state sector 98 Conclusion 106 Chapter 5: Oil industry in India and China 108-145 Introduction 108 Section I: Oil Industry 108 Section II: Oil industry in India 111 Section III: Major oil companies in India 115 Oil and Natural Gas Corporation of India (and ONGC Videsh Limited) 115 Indian Oil Corporation limited 119 Oil India Limited 120 Reliance Industries Limited 121 Essar Energy (Essar Oil) 123 Section IV: Oil industry in China 125 Section V: Major oil companies in China 130 China National Petroleum Corporation 130 PetroChina Company Limited or PetroChina 132 China Petroleum and Chemical Corporation 135 China National Offshore Oil Corporation 136 Section VI: Comparative analysis of Indian and Chinese oil companies 138 Diplomatic, political and financial support 139 Risk 142 Technology and project management 143 Conclusion 144 7 Testing of Hypothesis Chapter 6: India and China in 8 countries in West