Chinas $23 billion offer to build oil refineries and
other petroleum infrastructure in Nigeria could prove a
watershed for the countrys ailing energy industry
and its waning economic fortunes.
Although the plan is in its early stages, a memorandum of
understanding signed mid-May between China State Construction
Engineering Corporation and the Nigerian National Petroleum
Corporation (NNPC) for three new oil refineries and a fuel
complex could provide Nigeria with a substantial economic
Despite being Africas leading energy producer,
Nigeria imports roughly 85% of its fuel, as the bulk of its
existing refineries languish in disrepair. To do so, the state
pays a $10 billion subsidy, roughly equivalent to its entire
annual capital spending.
In recent years, Nigerias position as king among
Africas petroleum producers has begun to look
increasingly untenable as investment in the sector has all but
dried up. An ongoing struggle with militants in the oil-rich
Niger River delta, together with losses from theft and alleged
corruption in oil and gas administration, and a funding
shortfall for new explorations have all weighed heavily on the
Moreover western oil companies have been disinclined to
build and operate refineries in Nigeria because of poor
But this has hardly stopped China. The new refineries are
expected to add some 750,000 barrels per day capacity in
Nigeria and position NNPC in the international trading of
refined petroleum products.
Meanwhile Africas most populous country is also
seeking to reposition its oil industry, as it vies with Angola
to be the continents top oil producer. Under a proposed
oil industry law still being debated in parliament, the
government hopes to make the sector more profitable and
transparent. If passed, the so-called Petroleum Industry Bill
would restructure the state-owned NNPC to allow it to compete
with international oil firms operating in the country.
But foreign oil companies have slammed the proposed
legislation as a resort to resource nationalism. Ann Pickard,
Shells former vice-president for Africa, has said the
bill is a cumbersome document that lacks insight into the
very basics of our industry. She has also warned that the
country could lose $50 billion in investment in the next decade
if the bill is passed in its current form.
The draft law would significantly tighten Nigerias
hydrocarbon fiscal regime, according to its critics, making the
sector one of the least investor-friendly in the world. The
bill would also allow for the reacquisition from international
firms of marginal fields; moreover, existing joint venture
arrangements could be altered, threatening the operational
independence of foreign firms. There are also concerns about a
removal of fiscal incentives for offshore drilling.
The worry is that other emerging oil states, including
Ghana, Uganda and Equatorial Guinea could prove more
competitive destinations for fresh investment. And for a nation
where crude oil exports account for over 90% of foreign
exchange receipts, the consequences of a loss in investment
could be severe.