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Nigeria and China: The $23 Billion sunshine deal

Federal Republic of Nigeria and People’s Republic of China signed memorandum of understanding – for China to finance and build $23 billion oil refineries in Nigeria. The deal was signed between the state-owned Nigerian National Petroleum Corporation (NNPC) and its Chinese counterpart China State Construction Engineering Corporation Limited for the construction of oil refineries in three strategic centers in Nigeria including Lagos and in troubled Niger Delta. At optimum production the refining capacity is expected to be 750,000 barrels daily.

His Excellency Emmanuel Egbogah, The special adviser to the president of Nigeria on petroleum matters and a powerful member of the negotiation team confirmed the signing of the deal to Financial Times of London. It was reported by Financial Times that Dr. Egbogah said that signing of the memorandum of understanding “is a starting point but it’s a serious proposal.”

China is a big player in Africa and Nigeria in particular especially in oil and gas industry. China has a history of trying to consolidate the deal to refurbish Nigerian refineries. “But previous Chinese offers to build or renovate Nigerian refineries as part of haggling over oil blocks between 2005 and 2007 have run aground. Beijing’s emissaries have had far less success navigating Nigeria’s perilous political terrain than they have in Angola or Sudan, both of which have emerged as crude suppliers to China. The new accord might represent a breakthrough, however.”

China with its big appetite for energy and together with its enormous foreign reserve of $2 trillion has found Africa as its resistible landscape for investments. Africa is rich in natural resources especially in oil and gas. Therefore China the most populous nation and the fastest rapidly growing economy in the world is willing to put her money where her interest can be solidified. The bulk of the financing for $23 billion refineries is from China Export & Credit Insurance Corp. and rest from a consortium of Chinese banks.

This investment can be fruitful and beneficial for both sides and it can become a boost for Nigeria to solve her refined petroleum problem. China can benefit enormously because it will make her foot on Nigeria much stronger and enable her to acquire more oilfields without much ado. Nigeria has major refineries in Warri, Kaduna and Port Harcourt but they are not functioning at an optimum capacity. The problems of corruption, poor management and lethargy have weakened Nigeria’s resolve to run efficient oil refineries.

A successful completion of the deal will enable President Goodluck Jonathan’s administration to bring to an end the scarcity of petroleum products especially petrol in Nigeria. On the money issue, Nigeria has wasted bundle of billions of dollars in the importation of refined fuel for local consumption. It has been estimated that Nigeria shoveled away $10 billion annually in the importation of the refined fuel. The demand for refined fuel in Nigeria is in increased brought by demand from electric energy supply industries and electric generators, factories and the increasing automobiles presence in Nigeria.

This is sunshine deal for the investment is in the core needed-area in Nigeria. A win-win deal for everybody, China will get what she wants – the rights for oil exploration while Nigeria will ameliorate her energy problems.

China has been cultivating interest in Africa for sometime and in 2006 she organized the first major summit between Africa and China. The Chinese President Hu Jintao opened the summit in Beijing attended by nearly 50 African heads of state and ministers. China has pledged to double its aid to Africa and provided $5bn in loans and credits over the next three years. China emphasized that it has no political agenda but doing business with Africa on mutual benefit. China has been accused by the West of downplaying human rights and corruption in Africa.

The President of China, Mr. Hu later embarked on official African tour in 2006 that took him to Nigeria, Kenya, Morocco and others. In Nigeria, President Hu addressed the joint National Assembly and called on greater ties between Africa and China and he made business deals in Nigeria including:

*Seven co-operation agreements were signed by Nigeria and China during President Hu’s visit.
*China will buy a controlling stake in Nigeria’s 110,000 barrel-a-day Kaduna oil refinery
*Build a railway system and power stations in Nigeria
*China National Petroleum acquired right for oil exploration blocks – comprise two areas in the oil-producing Niger Delta – one onshore and one in shallow water – and two areas in the higher-risk inland Chad basin, where no oil is produced at present.
*Chinese state oil firm CNOOC completed a $2.3bn deal to buy a stake in a Nigerian oil field.
*Chinese companies constructed factories in Nigeria and more are planned for a free trade zone in the south-east of the country

Therefore the oil refineries construction deal with Nigeria goes along with China’s strategic and calculative business ventures in Africa and Nigeria in particular. For this significant business deal in Nigeria, China in spite of her ambition in Africa deserves praise. Nigerian economy needs the boost from functioning oil refineries.

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