Kachikwu’s $80bn Chinese investment as a game changer

05 July 2016, Lagos – After the failed bid by the previous administration to woo Chinese state-controlled oil giant, CNOOC to acquire concessions in 23 prime oil blocks in 2009, the recent signing of deals with Chinese firms for over $80 billion investments by the Minister of State for Petroleum, Dr. Ibe Kachikwu will be a game changer as it will increase the competitiveness of Nigeria’s oil and gas industry. Ejiofor Alike reports

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Kachikwu

Nigeria’s desire to attract Foreign Direct Investment (FDI) and diaspora remittance into the oil and gas industry has suffered in the past decade due to lack of clarity of terms occasioned by the non-passage of the Petroleum Industry Bill (PIB).

With the uncertainty in the operating environment, the western multinational firms, including Shell, Chevron, Total and ExxonMobil, which dominated the sector shunned new investments, citing unpredictability of the environment.

Faced with the challenge of not attracting new investments from its traditional allies in the oil and gas industry, the federal government had wooed Asian investors as alternative to the multinational oil majors.

These Asian investors, who were eager to expand their footprints in Africa, responded positively and signed oil-for-infrastructure deals with the previous administration of President Olusegun Obasanjo.

However, these deals were later marred by corruption and absence of commitments by the investors.
But, in its quest to expand its African crude oil reserves, the Chinese state-controlled oil giant, China National Offshore Oil Corporation (CNOOC) had in 2009 sought to acquire 23 prime oil blocks with six billion barrels of reserves, representing a sixth of Nigeria’s crude reserves, for $50billion in 2009.

The deal, which could have stimulated more investments and competitiveness of Nigeria’s oil and gas sector, could have also potentially created conflict with the western International Oil Companies (IOCs), which already own stakes in the blocks.
But the acceptance of the offer by the federal government would have also broken the monopoly of the IOCs in Nigeria’s oil and gas industry.

It was not however clear whether the 49 per cent stakes CNOOC had wanted to acquire would have come from the stakes being held by these IOCs under the joint venture with the Nigerian National Petroleum Corporation (NNPC).

But a leaked letter from the Office of the President of Nigeria, dated August 13 and published by the Financial Times, contained the detailed talks between CNOOC’s representative in Nigeria, Sunrise, and the office of the late President Umaru Musa Yar’Adua.

According to the letter, the federal government rejected CNOOC’s initial offer estimated between $30 billion-$50 billion (then about £18 billion-£31.4 billon) and informed the Chinese firm that “Your interest in all the listed blocks will be considered if your revised offer is favourable.”
However, there were speculations that the federal government just wanted to use the Chinese offer to extract more favourable terms from the IOCs as most of their licenses expired between 2009 and 2011.

Also, as at the time of the talks with the Chinese, the federal government had planned to approve major reforms in the oil and gas sector by signing the Petroleum Industry Bill (PIB) within three weeks.

The then Presidential Adviser on Petroleum, Dr. Emmanuel Egbogah also later confirmed that Chinese companies offered to buy six billion barrels of oil reserves for $50 billion.
Egbogah said the Chinese companies were in talks with the federal government, but declined to reveal the identities of the Chinese companies.
It was gathered that due to the sustained pressure by the western oil majors, the offer was finally rejected by the federal government.

Kachikwu’s latest efforts
After the failed efforts of the previous administrations to attract the much-needed investments from China, Kachikwu recently provided a game changer, signing Memorandums of Understanding (MoUs) with several Chinese firms for over $80billion new investments, spanning five years, in the oil and gas industry covering pipelines, refineries, gas and power, facility refurbishments and upstream financing.

The minister had told THISDAY from Beijing, China, that the agreements had been executed during the three-day roadshow in the Asian country to attract investments to Nigeria’s oil and gas sector.

The objective of the MoUs was to bridge the infrastructure funding gaps in the Nigerian oil and gas sector.

“I can confirm that we had a successful outing and finally raised investment commitments and signed MoUs worth $80 billion. Out of this, $10 billion approximately was raised on the sides with our steer and push for two Nigerian companies – Delta Tek and Salvic Petroleum – while the balance of $70 billion includes MoUs signed by investors and financiers for projects with the Nigerian National Petroleum Corporation (NNPC),” he said.

Kachikwu also revealed that other than the agreements executed for investments totalling $80 billion, he also secured commitments from Sinopec and CNOOC to commit to further investments in Nigeria’s upstream oil sub-sector to the tune of $20 billion, which would be concluded in the next few months.

According to him, this would effectively bring the total amount of prospective investments by Chinese firms over a five-year period to over $100 billion.

“Outside these (MoUs for $80 billion investments), the two largest oil companies in China, Sinopec and CNOOC, signed investment MoUs agreeing to announce after further discussions on major investment increases in the Nigerian oil and gas in the next few months.
“Given the areas of focus of these two companies, we do not expect that investment to be less than $20 billion. The net effect of these and other agreements in principle reached with investor interest in China on this roadshow will potentially provide investment funds for Nigerian oil and gas of over $100 billion over the next five years.

“These investments cover every facet of Nigeria’s oil and gas sector – upstream, pipelines, downstream, gas and power, modular refining in the creeks, engineering services, etc.
“It has been a fantastic outing and if we can follow through on all these, it will change the face of Nigeria’s oil and gas forever. This will bring hope even to the Niger Delta and is the single biggest amount of MoUs signed on investment in any third world country in a road-show,” he said.

Stabilising operating environment
Before his trip to China, Kachikwu had taken deliberate steps to douse tension in the Niger Delta. This has started yielding results as the talks he initiated with militant groups provided the grounds for the negotiation with the Chinese investors.
Before the federal government ordered the withdrawal of troops from the Niger Delta region early last month, there were allegations of a heavy-handed military response to the renewed attacks on oil and gas installations by the Niger Delta Avengers (NDA), which had vowed to ground Nigeria’s oil production.

NDA had earlier in the year renewed the attacks on several oil and gas facilities, curbing oil and gas production and forcing oil companies to shut some export terminals.

While the residents of the Niger Delta had complained of harassment and indiscriminate arrests by soldiers hunting the militants, the heavy presence of troops failed to prevent the escalation of the militant attacks as oil production fell to a 20-year low.

The attacks also affected power supply as generation dropped below 2,000 megawatts from an all-time high of 5,074MW on February 2, 2016.

However, after a meeting of the state governors of the Niger Delta with the Vice President, Prof. Yemi Osinbajo, the federal government announced the withdrawal of the troops and directed soldiers to continue to patrol only the waterways.

Before the government ordered the withdrawal of the soldiers from the oil-producing region, Kachikwu had announced that President Muhammadu Buhari had directed a two-week cessation of military offensive in the Niger Delta region, to enable the government dialogue with the militants.

Since the various actors in the crisis, including officials of government started beating the war drums, the minister had not hidden his preference for dialogue in resolving the crisis.
At a Town Hall Meeting of Ministers and other stakeholders in Uyo, Akwa Ibom State, Kachikwu had an open disagreement with the Minister of Transport, Mr. Chibuike Amaechi, on the establishment of a Nigerian Maritime University, proposed for Okerenkoko in Warri South-West Local Government Area in Delta State.

Amaechi had told the Senate Committee on Maritime on January 19, 2016 that the government had the scrapped the project, which was to be financed by the Nigerian Maritime and Safety Administration Agency (NIMASA) and whose groundbreaking was done by former President Jonathan in 2014.

Also in response to a question at Uyo, Amaechi also re-echoed his earlier position, insisting that Buhari’s administration lacked the funds to continue with the university project.
“Okerenkoko (Maritime University), I am not against. My argument about Okerenkoko is that land alone is N13billion. If you give me N13billion, I will buy the half of Lagos. That N13billion has built the university already,” Amaechi argued.

He said the Economic and Financial Crimes Commission (EFCC) should recover the N13billion already paid for the land, then “I will build the university for them”.

“What to do: let EFCC retrieve the money and release the money and we build the university. If they bring the N13 billion, I will build the university for them. That is for land alone. I believe the Federal Government does not have money. When we have money, we can continue. The minister of petroleum has said he would look for the money. Minister, give me the money and we continue,” Amaechi added.

But sensing that Amaechi’s outburst could worsen the crisis in the Niger Delta, Kachikwu disagreed openly with the Transport Minister, saying he was in support of the project, and his comment drew a loud applause from the audience.

“First, let me say on Okerenkoko University, I disagree with the Minister of Transport. Any facility that is located in the South-South we should work close to developing it. I don’t care the circumstances under which you are placed. It is not in my position to determine whether land was valued at N3billion or N10billion. The appropriate institution which is at the cost system will determine that. That has nothing to do with development of infrastructure. And as far as I know, so much has already gone into the university. So much physical of assets are being developed. We are not going to throw away the baby with bath water. We deal with the issues but the university will be developed. If he (Amaechi) does not want it in Maritime, I will take it in petroleum,” Kachikwu reportedly explained.

Kachikwu also repeated his call for dialogue with Niger Delta Avengers, insisting that the crisis could not be resolved through counter military attacks by Nigeria’s Armed Forces, but through dialogue.

“We must dialogue first; and if that fails, we know what to do next,” he added.
He said Niger Delta people with “skills and finance” would benefit from allocation of oil blocks because it would be part of “giving back to the chicken that laid the eggs”.

Kachikwu argued that he was one of those who believed that the South-South people should benefit from oil blocks because it would be part of “giving back to the chicken that laid the eggs”.
Kachikwu also announced to the audience at Uyo that he had reached out to the Niger Delta Avengers for a truce with the federal government to end destruction to oil installations.
After the townhall meeting at Uyo, the minister commenced tour of the Niger Delta to dialogue with representatives of the militants and other stakeholders.

With the cease-fire declared by the militants as a result of the peace efforts, crude oil exports have stabilised at 1.9 million barrels per day, while government targets to achieve 2.2 million barrels per day by end of this month.

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