Wednesday, May 19, 2010

Nigeria and China signed a Memorandum of Understanding that would permit the Chinese government to build 3 refineries and a petrochemical complex in the country. The refineries will be built in Lagos, Nigeria's commercial capital, Kogi State, and Bayelsa State, the home state of President Jonathan. Nigeria already has four refineries which do not function efficiently. This fact forces the country to import 85% of the fuel used domestically and leads to frequent fuel scarcity and long lines at fuel stations in the world's 8th largest oil exporter.

China is already the largest investor on the African continent and this deal, worth $23 billion, only expands China's influence. Both countries will jointly seek financing from Chinese banks for the projects. However, China will provide 80% of the funding while Nigeria will only provide 20%. Once built, management of the refineries and petrochemical complex will be run by the Chinese at least until the value of their financing has been recovered. The refineries will increase current output to at least 750,000 bpd and will create approximately 20,000 Nigerians during the periods of construction and operations. Over the next decade, NNPC desires to eliminate completely, the current flood of imported petroleum products into Nigeria's domestic consumption.

On it's part, Nigerian authorities proclaimed the agreement as a means to

"accelerate the construction of new refineries in Nigeria to stem the flood of imported refined products into the country, currently estimated at 10 billion dollars..."
China described the project as an opportunity to,
"expand its presence on the African continent and establish its footprint firmly in the Nigerian oil and gas landscape."
Nigeria is in desperate need of functioning refineries that can meet the demands of its population. Refineries would also enable the country to sell refined oil products to many neighboring countries which could reduce the cost of petroleum in those countries while increasing Nigeria's oil profits. The jobs created by these projects would also be beneficial to the country, considering that as of 2009, unemployment stood at 28.57%. As a results the potential benefits from the agreement could be immeasurable if things are done correctly. However, it is important to verify that the estimated employment gain from these projects will provide short term and long term benefits to the country.

It is well known that whenever China embarks on an infrastructural project, the Chinese government imports Chinese citizens and materials to complete the task. While this approach typically ensures that the project in question is completed within a short and reasonable time frame, it also means that domestic labor is excluded from many aspects of construction. Thus, although the Nigerian government asserts that 20,000 jobs will be created over the course of construction and operation. It would be interesting to learn what percentage of overall employment the estimation constitutes.

It is also crucial to consider the shrewd political maneuvering that this project represents. Although Goodluck Jonathan is yet to announce that he will run for President in 2011, this project suggests that he will. Chinese infrastructural projects are known for being quick and already, construction of the Lagos refinery is scheduled to begin before the end of 2010. Lagos state will provide the land and infrastructure. Consequently, it is reasonable to assume that the Lagos refinery will be underway by the time election season gets into full gear. Jonathan will then be able to point to the refinery construction as evidence of a concrete project that will benefit Nigerians.

This tentative petroleum project is not Nigeria's first dance with China and hopefully, it will not end up being as embarrassing as the Chinese built satellite that lost power. In 2008, a Nigerian satellite, NigComSat 1, billed as the first belonging to an African country, lost power while in orbit and triggered jokes about how Nigeria's power problems had gone into space and other similar punch lines. As previously noted, China's approach to infrastructural development abroad is to import Chinese labor and materials. That tactic works to the benefit of the China what with its large population and growing need for skilled labor. By having Chinese citizens work on Chinese projects, China is able to gain crucial foreign ties and influence while satisfying its domestic needs. Given this approach, the recent report that China will also build a 150-bed hospital in Abuja raises some concern. Now, while hospice care is essential for Nigeria which is struggling to produce a working health care system, the hospital agreement is an example of the problems Nigerian contracts sometimes present. It makes little sense to build a 150 bed hospital considering that Nigeria has a population of 150 million that is bound to explode exponentially. Hence, a 150 bed hospital will quickly become crowded and insufficient no matter where it is built, and particularly in Abuja, the nation's political capital which attracts millions from around the country and continent.These are just some examples that highlight the need of the Nigerian government to enter into savvy agreements with China and other entities.

Most Nigerians are simply interested in development and will support any plan that will bring it. This is because for years, citizens have seen one failed project after another and have seen a decline in infrastructural development. Despite the expedient need for help in achieving infrastructural development, it is crucial for Nigeria to be strategic in its partnerships and ensure that agreements provide short and long term benefits. Hopefully, this agreement with China will be a step in that direction, and is not an indication that Nigeria is on the verge of caving in to China's desire to purchase one sixth of the nation's oil reserves as revealed in 2009.

Related Articles of Interest:
- Chinese Workers in Nigerian Mines
- 23MN of Nigeria's Youth Are Unemployable 
- Nigeria's Oil Revenue Cut In Half
- Nigeria's Oil Expiration Date Draws Near
- Nigeria's Oil War - A Distraction?
- No Longer King of African Crude? 
- Who Will Develop Nigeria Part 2
- Who Will Develop Nigeria 
- Who Will Fight For Nigeria? (AFRICOM PT 1) 
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Anonymous said...

The refineries will be built in Lagos, Kogi State, and Bayelsa State ??? :) Those are the places Jonathan need immediate political support :) I'm sure there will be other forms of contracts for other parts of Nigeria which will help him and cronies to secure the office of president which they are desperate for. Nigerian and African leaders prefer doing business with China, Russian and Korea because the Chinese, Koreans and the Russians do not grass on corrupt African leaders. Hence, his coice of the Chinese. Chinese, Russian and Korean banks and financial institutions are safe haven for looted monies from Africa's rotten, shameless and thieving politicians. We will never know the full extent of the rotten business the Chinese, Korean and Russians are conducting in Nigeria and in Africa. I'm tired of hearing this or that contract was signed with the Chinese, Korean and Russians. They are allies of our rotten politician who have turned State natural resources as their private asset. It’s just another opportunity for bribery and corruption. Main intention for awarding that contract is to get political support for his quest for presidency. Main contract went to China. I bet you that lucrative subcontracts would have definitely gone to Goodluck Jonathan cronies and associates. People need to wake up. People keep saying Jonathan is not ambitious. Lies. If he's not ambitious how come he is desperate to stand for the next election? 2011 is round the corner. Why use Nigeria's asset to buy election victory??? People need to wake up. There need to be "Register of Members Interests" just as we have here for the House of Commons and House of Lords. I don't want to wait till after 10 years from now when Jonathan is out of office to discover what financial damage Jonathan and his cronies have done to Nigeria. They need to publicly start declaring who owns what percentage in those firms that are winning Federal Government and State Government contracts. LIKE I HAVE SAID IN THE PAST, I HAVE NO CONFIDENCE IN GOODLUCK JONATHAN. Just like his mentor, Olusegun Obansanjo, he will turn out to be another mega disappointment for Nigeria. Every contract awarded while Goodluck Jonathan, his allies and any other awards must be investigated while they are in office. I am fed up of those rotten people taking Nigerians for fools. As far as I am concerned, they are ALL as rotten as as each other, and far corrupt and worse than that rotten James Ibori. I have nothing for James Ibori, ANY politician or against that Goodluck Jonathan. As far as I am concerned, Goodluck Jonathan is NOT the saint he wants us and the world to believe he is. HOW MUCH KICK BACK AND KICK FRONT WERE GIVEN BY THE CHINESE??? THE KICK BACK AND KICK FRONT FROM THIS "REFINERIES" CONTACT SHOULD BE DECLARED IN THE "REGISTER OF MEMBERS INTEREST" so that we know now instead of waiting like fools till gOODLUCK jONATHAN'S YEYE administration IS kicked out of office :)


Anonymous said...

Trout follow their noses and so does our rotten and corrupt “leaders”. The contract is just an excuse to make fast money for those who are going to benefit from it. This is just another "following the money" contract. Nigerians keep falling for the tricks of these clowns. The Office of Nigerian President is a business. They are in office for the love of money. Period. Those clowns are NOT in office for the benefit of Nigerian. They are only in office to fraudulently enrich themselves. I don't blame them. I blame Nigerians both in Nigeria and outside the country who stupidly, year in, year out allow politicians to perpetually make a fool of all of us. NIGERIA needs to wake up to the wholesale looting of public funds and the daily corruption perpetrated by its thieving leaders and public servants. When is it going to stop? It’s only death penalty that can stop Nigerian's greedy leaders from corruptly enriching themselves and their shameless and hopeless supporters.

Kim Jong il
Ajegunle, Lagos, Nigeria.

io said...

i dont get it. is it cheaper to build a new refinery instead of fixing an existing one?

RE - RecycledFrockery said...

I'm hoping that this time the money goes to the state, and not the jokers. the first thing that needs to be done is to get the sanitation systems online and the power grid. Whew,

I'm planning a Mr Linky for Posts on the Oil Disaster. would you please join us, in writing about the disaster and how it's effected your area or what you think of it personally. we're planning the posts for next sunday May 30th.

Sis please let me know if you're interested; because we could use your contribution and your support.

Nigerias Oil Problems should be pointed out to the world - clearly.

Ayodeji said...

The Chinese are hungry and aggressive - taking over every resources they can go after.

There are alot to learn from them and the Indians. Quite interesting...

Anonymous said...

The Chinese won contracts to develop rail lines during Obasanjo's tenure.They were supposed to finance it also but backed off. That contract did not prove to be worth the paper it was printed on. It is reasonable to be cynical but the Chinese are not known to be desperate tippers. If anything, we should be worried they would not do an about turn if they get better offers elsewhere, in Angola for instance.


@ Kiibaati: Long time no see. Actually, I met a lady that played a role in the revocation of that railway deal. The Chinese did not back off. Nigeria, under the Yar'Adua administration, canceled the contract because the terms were non-beneficial to Nigeria and would have put Nigeria at a detriment a la a dead Chinese-made satellite with instructions written in Chinese.

As to your concern about whether China would look elsewhere, well, China will do what is best for China. As it should. My main concern is that for once, Nigeria should do what is best for Nigerians and not for a select few.

Hope all is well with you and yours.

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