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Vol 6 (AAC) No 10

Published 1st August 2013


Nigeria

Diminishing returns in Beijing

The President returned from his July trip with US$1.1 bn. in loans and promises of new projects – but it’s far less than the $3 bn. his goverment had targeted

President Goodluck Jonathan’s state visit to China delivered much-needed finance for infrastructure projects but the final amount was rather less than his officials had originally envisaged. Ahead of the President’s 8-12 July visit, Finance Minister Ngozi Okonjo-Iweala announced that new financing deals worth US$3 billion were on the table. She elaborated with details of generous interest rates and long repayment periods: under 3% over 15 to 20 years. ‘They want more oil and gas,’ she explained. ‘We have something they want now and they have something we want, so you have grounds for negotiations.’ Upon Jonathan’s return, however, the government announced that the President had signed new loans worth just $1.1 bn. for projects including four airport terminals, roads and a hydroelectric plant. No explanation was offered for the difference. 

The government says that $500 million will go toward the construction of international airport terminals in Abuja, Kano, Lagos and Port Harcourt, at least $700 mn. for the Zungeru hydroelectric plant in Niger State and $600 mn. for a light railway in Abuja, which is being built by China Civil Engineering and Construction Corporation. Aviation Minister Stella Oduah confirmed that the airport terminals loan covers a 20-year repayment period at a 2% interest rate. She says that the government insisted the inclusion of a provision in the terms that 30% of the project’s content must come from the local market. CCECC is also building the terminals and expects to complete by March 2015.

Abuja expects China’s purchase of Nigerian oil to rise from current levels of 20,000 barrels per day to 200,000 bpd by 2015. That will help offset the threat of declining exports to the United States, currently Nigeria’s biggest customer for crude, which now intends to become a net exporter of oil by 2030. The trip also yielded a deal between the China Development Bank and Nigeria’s First Bank. The CDB provided a $100 mn. credit facility that First Bank will lend to local small- and medium-sized enterprises. 

The most substantial deal discussed in Beijing – the potential takeover of the Ajokuta Steel Mill by China’s Sinosteel – still faces major obstacles. A legacy of Nigeria’s troubled industrialisation, the mill, which is 80% state-owned, has struggled to perform to full capacity. Musa Mohammed Sada, Minister of Mines and Steel Development, valued the takeover at $6 bn. in mid-July and predicted that capacity would rocket from 1.3 mn. tonnes per year to 5.6 mn. tn. He described the deal as a transfer of management, not a transfer of ownership, and said that formal bids for the mill would not be accepted until the extent of Nigeria’s iron ore deposits has been determined.

On board in Beijing
A number of prominent Nigieran businessmen joined the presidential entourage. Tony Elumelu, the Chairman of pan-African investment company Heirs Holdings, was looking for Chinese private-sector investment to help develop two oil blocks owned by his companies Tenoil and Transcorp. With an eye to developing export capacity, Elumelu sought companies with experience in refining and processing. Nigeria, he said, could become a Chinese partner to rival Angola and South Sudan. Femi Otedola, the Chairman of Forte Oil and a friend of Jonathan’s who also joined the delegation, is working with new Chinese partners  in the power sector.

Outside the dominant oil and gas sector, links between China and Nigeria are quickly taking shape. Chinese companies have made strong advances in the electricity sector. In May, Sinohydro and China National Electric Engineering Corporation began work on the 700-megawatt Zungeru Dam in Niger State. Costing $1.3 bn., the Dam should be finished in four years’ time. China Export-Import Bank has agreed to finance 75% of the project’s cost.

In late June, Bauchi State Governor Isa Yuguda confirmed that China Machinery Engineering Corporation will build a 180-MW thermal power plant at a cost of $260mn., which will be financed by a $170 mn. loan from China Exim Bank. Due to its distance from the Niger Delta, the plant will be supplied by Chad and Niger, Yuguda said, but no deals on that score have been finalised. The project should start by September and be ready within 18 months.

As Chinese state-owned companies move into the electricity sector, they are doing business with the ‘power barons’ who are among Nigeria’s most powerful and politically connected people. The privatisation of the state-owned electricity generation and distribution networks begun last year has yet to be finished. In September, Abuja selected several consortia including Chinese companies as preferred bidders for thermal and hydroelectric power plants.

Nigeria’s Amperion Power and State Grid Corporation of China, through its subsidiary Shanghai Municipal Electric Power of China, are the preferred bidders for the Geregu power plant in Kogi State. The Amperion group is backed by Forte Oil, a company owned by Nigerian diesel-importing magnate Femi Otedola. Another stakeholder is BSG Resources, owned by Israeli diamond dealer Benny Steinmetz. The group agreed to pay $132 million for a 51% stake in the 414-MW plant. The winning bid for the 600-MW Shiroro hydroelectric power plant included North-South Power Company, which has China International Water and Electric Corporation and China Three Gorges Corporation as technical partners. North-South agreed to pay an annual $23.6 mn. and an initial deposit of $111.7 mn.

Eurafric, an oil and gas firm owned by Tony Onoh, and CMEC offered $201 mn. for the 120-MW Sapele power station. On 11 July, the two companies signed a new agreement to expand capacity at Sapele, with CMEC to install a new 500-MW generation unit at a cost of $420 mn.

Solar-cell production
China Great Wall Industry Corporation is to build power infrastructure worth $170 mn. The projects consist of three automated distribution and power transformer production lines, a national high-voltage electrical equipment testing laboratory and Nigeria’s first solar-cell production line. CGWIC also agreed to build a science park with the Nigerian Ministry of Science and Technology.

Chinese companies are also staking their claims in the mining sector, but not without criticism. Tongyi Allied Mining won a licence to explore for lead, zinc and other minerals in November 2012 and production should begin later this year after the processing plant is built. Hong Kong-registered Greenfield Metals is also working with China’s Fujian Sannong Calcium Carbonate on a lead and zinc mine in  Ebonyi State. Chinese company CGC Nigeria, which signed an agreement with the Federal Capital Territory Administration for $1 bn. in social housing projects in December 2009, is also working on lead, zinc and other mining prospects in Gombe and Bauchi states. Multiverse Resources signed a joint-venture agreement with Unicontinental International Engineering for granite mining ventures in June.

In December 2012, Ledum Mitee, the Chairman of the National Stakeholders Working Group of the Nigeria Extractive Industries Transparency Initiative, reported that Chinese and Indian miners were working together in cahoots with local authorities to illegally mine solid minerals. Sunday Ekosin, the President of the National Association of Progressive Miners, argued in July that ‘these so-called investors are here to ravage our natural resources and then exit – leaving an underdeveloped country behind.’ State Security Services arrested two Chinese illegal miners in Niger State in late June.



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