China and Nigeria’s oil
2011-01-26, Issue 514
China has long been renowned in Africa as the architect behind the continent’s ‘weapons of mass construction’. To date, this trademark is best symbolised by the 1,860 km Tanzania-Zambia Railway (TanZam), constructed from 1970-1975, at a cost of $500 million.
The project, a vital inter-SADC vehicle financed via an interest-free loan, was finished ahead of schedule and served the critical purpose of diminishing Zambia’s dependence on apartheid South Africa and Ian Smith’s Rhodesia (Zimbabwe), crucially aiding in the isolation of the former.
Working alongside thousands of Tanzanians and Zambians were 25,000 Chinese labourers, constructing an alternative route. Since then, prior to Beijing’s official ‘return’ in the late 1990s, infrastructure averaged just four per cent of foreign investment. That changed with the creation of China Export-Import Bank (China Exim) in 1994 – currently the world’s third largest export credit agency (ECA), providing more than $23 billion in easy loans in just over a decade. An estimated 50 per cent of China Exim loans were invested in Africa, with 79 per cent of funds earmarked toward infrastructure, chiefly mega-dams, railways, power plants, mining facilities and telecommunications.
But another project is set to replace TanZam’s legacy in scale and magnitude. Nigeria, Africa’s largest oil producer, via the Nigerian National Petroleum Corporation (NNPC), signed a $28.5 billion Memorandum of Understanding (MOU) with the China State Construction Engineering Corporation (CSCEC), ranked as one of the world’s largest construction companies.
For Nigeria, importing 85 per cent or $10 billion worth of refined oil annually, the proposal for three greenfield refineries and a petroleum complex is the difference between freedom and dependence. Presently, of Nigeria’s four refineries, including Warri (125,000 barrels per day); Kaduna (110,000 bpd); Port Harcourt, Rivers State (150,000 bpd); Port Harcourt, Alesa Elemi (120,000 bpd); only one is said to be operational.
On average, the country generates about 2,000 megawatts, while the electricity capacity stands at 3,100 megawatts (MW), forcing local businesses in Africa’s economic powerhouse, to resort to costly diesel generators. The capital outlay is understood to be financed by a consortium of Chinese banks, backed by the China Export and Credit Insurance Corporation (SINOSURE). The project is estimated for completion within five years once terms and loans are negotiated. The NNPC stated that the deal was designed to benefit not only the domestic market, but also to ‘export refined products to the West African sub-region and other parts of the continent’.
‘This deal still lacks financing, but otherwise it has all the hallmarks of China’s more successful resource-backed infrastructure contracts in Africa,’ said Professor Deborah Brautigam, a Sino-African specialist and author of ‘China in Africa: The Real Story’. ‘The construction will be repaid through exports of refined petroleum. This will help in efforts to secure a long-term loan. Financing is always the big constraint.’
But is there a catch?
Former NNPC head Shehu Ladan revealed that the CSCEC-led consortium would be operated by China holding 80 per cent of shares, until costs were recovered. Given the opacity of accounting, especially concerning mega-developments, this is likely to become a major fault-line replicating Nigeria’s long history with supply and demand-side corruption. ‘The public needs to be informed about when CSCEC expects to complete the recovery of its investment,’ said Nnimmo Bassey, director of Nigeria’s Environmental Rights Action movement (ERA) in an interview. ‘The deal as reported appears open-ended. There is no estimated termination date when CSCEC will handover facilities to the NNPC.’
China’s preferred Build-Operate-Transfer (BOT) model accompanying their resource-for-infrastructure system, is often successfully realised in African countries, despite governments being shortchanged when tenders (and loans) are recycled back to China. The Nigerian government will have no shares and make no contributions whether through financing or in the construction and management phase.
‘The truth is that Nigeria has been unable to manage the four refineries here. It is likely that the petroleum products will be viable, but Nigeria will likely be taken to the cleaners through this potentially toxic deal,’ he said.
The cost (estimated per barrel of capacity in context of construction costs) can be contrasted to that proposed last year between PetroSA and China concerning a 400,000 bpd $10 billion refinery.
Yet, is the deal designed to produce 750,000 barrels of refined petroleum via tangible assets that will be transferred to the government, better than the business-as-usual alternatives?
Recently, a multi-billion secretive deal between Trafigura, the Swiss-based commodity trader and one of three leading oil traders, also infamous for dumping toxic waste in Africa, signed a deal with the NNPC allegedly valued at $3 billion, swopping 60,000 bpd or 27 per cent of overall NNPC production, for open-ended refined products. ‘The contract was done to ensure that we have adequate and consistent product supply for Nigerians in the face of increasing security threat; in the face of the threat by the Movement for Emancipation of Niger Delta (MEND) that it will start attacking the downsteam sector,’ stated the NNPC. The deal, subject to potentially gross mis-pricing and corruption, was described by Peter Esele of Trade Union Congress to Newswatch as the response of a government that had lost hope in the country’s own refineries.
‘Right now, Nigerians are not getting value for their oil anyway,’ said Brautigam. ‘If the government can agree to allow a Chinese company to build and manage these refineries for an extended period of time, they may finally be able to say good-bye to the days of long lines at petrol stations.’
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* This article was first published in The New Age newspaper. Khadija Sharife is the southern Africa correspondent for The Africa Report magazine and a visiting scholar at the Centre for Civil Society (CCS) based in South Africa.
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