By John Wasik

PetroChina isn't the kind of company that fits the classic mould of Berkshire Hathaway investments.

While PetroChina may have a profitable future and franchise in a country increasingly ravenous for fuel, there are some compelling corporate governance reasons to divest.

Lately, though, Berkshire chief executive Warren Buffett has taken heat for his stake in China's biggest oil company and its suspect relationship to its parent, the state-owned China National Petroleum Corporation (CNPC), which has been linked to human rights abuses near the oilfields of Sudan.

With Berkshire's annual general meeting approaching, it is likely the Sudan issue will get an airing. Gerald Porter, who holds 10 B shares in Berkshire, has introduced a resolution calling for Buffett's holding company to divest from PetroChina.

Buffett told Bloomberg the plan would be examined at Berkshire's May 5 meeting because "some shareholders will be interested in discussing it".

While most shareholder proposals typically fail by large margins at annual meetings, Buffett's willingness to discuss the issue suggests he may be open to probing how PetroChina is run.

CNPC has supported the Sudanese government, which has channelled oil revenue from Chinese firms into arms purchases, fuelling conflict in southern Sudan and the western province of Darfur. The civil war has claimed 2 million lives and displaced 4 million people.

Berkshire's class A shareholders own the largest single stake in PetroChina's H stock, with 11 percent of the company's Hong Kong-listed shares outstanding, which makes Berkshire one of the largest non-governmental owners of the CNPC subsidiary.

PetroChina fails the test for a truly independent board, one principle often cited by Buffett when discussing corporate governance.

From a governance perspective, CNPC officials are largely in charge of PetroChina, dismissing the idea that the subsidiary or its board are truly independent of the state- owned parent, which doesn't disclose financial information.

Only three of PetroChina's 12 directors are believed to be independent of CNPC, according to a Harvard University study.

PetroChina was spun off from its parent company in two initial public offerings. American depositary receipts were sold on the New York Stock Exchange on March 31 2000, and H shares were sold in Hong Kong on April 9 2000. Activists claim the offerings were conducted to wash PetroChina of its connection to Sudanese oil operations.

When PetroChina went public, it incurred $15 billion (R105 billion) in debt from CNPC. Even more suspect are the highly opaque transactions between the parent and its subsidiary. There are tens of billions in related-party transactions every year, according to PetroChina's 2006 20-F filing with the US Securities and Exchange Commission.