On the $80 billion ‘game-changer’ from China to Nigeria

If Ibe Kachikwu decides to write a memoir, when he leaves office, it will surely be a good read for technocrats, who might be interested in public service. The oil minister seems to have said and done the right things, but the politics of the land might not let these seeds that he has sown, tearfully, to grow.

A few days ago, the minister announced that Nigeria had secured provisional agreements from China to unleash $80 billion into its oil and gas industry. This memorandum of understanding covers every aspect of the industry – from exploration, production to refining.

While President Muhammadu Buhari got a $6 billion commitment from the Chinese, when he visited, Ibe Kachikwu got an $80 billion commitment. Interesting! Kachikwu’s sales pitch must have been very convincing!

While much have not been heard of the $6 billion that was promised the President, the same ‘investors’ have promised another $80 billion.

Well, one thing is clear. The Chinese are obviously hungry for more energy. At the same time, I hope these are not mere unredeemable promises.

There is a footnote to this deal that can be easily overlooked. The ICC-NDRC, the Chinese commission in charge of implementing cooperation between China and foreign countries, would develop a master plan for this deal and research bankable projects that the Chinese could put their money on.

This research is obviously going to commence without the Petroleum Industry Bill (PIB). In this case, what constitutes a bankable project, would be contentious. This would, no doubt, hinder the free flow of cash into Nigeria.

In 2014, in a similar roadshow, this is what the then petroleum minister, Alison-Madueke, told the Chinese about the PIB and their investments: ‘’The bill will ensure more transparency and accountability and will ensure that investors have much more of a long-term handle on their investment prospects’’.

Interestingly, the Chinese have now promised to invest massively in our energy sector without this bill. Could it be that the very hardworking minister of state is trying to implement some salient parts of the PIB, using some executive reforms?

Well, there have been reforms in the NNPC and in the industry, but these cannot replace the PIB. On major intent of the bill is to raise taxes and boost government’s share of revenue.

If these knots are not tied, one wonders how an investment of this magnitude would come to Nigeria. The fiscal regimes are always the most contentious part in the oil and gas industry.

We need this money. And capital doesn’t wait for politicians – it is always in motion. As long as the PIB is not passed, and fiscal and legal regimes made clear, it is very unlikely that an investor will be willing to part with such capital.

Besides, it is not yet clear how the 38 Chinese companies, who have signed this memorandum, will raise this money. It is a huge sum by any standard.

Funding has been the major problem militating against our joint venture agreement with IOCs. If these funds are available, we might be able to ramp up production in the coming years.

More importantly, oil and gas exploration in the north needs this money, badly. In 2014, a Chinese company promised to invest $10 billion in oil exploration in Bida Basin, in Niger State. There is a very huge chance of finding oil in this basin.  Why have we not heard about the progress of this project? My guess is as good as yours. Major legislations governing this kind of business has to be realigned in Nigeria. Oil business is changing.

Also, in 2009, CNOOC, a major Chinese oil company, was willing to invest $50 billion to buy huge stakes in Nigeria’s oil and gas blocks. But this had some issues with acreages owned by Western oil companies. The question is: will they be willing to make the same offer, presently?

It is very unlikely. Considering the dynamics in the oil industry and the shale oil phenomena, it is only a well-thought-out PIB that could attract such gesture.

Sadly, the kind of news coming from our legislature is not good. They are fighting themselves in the Senate. It doesn’t look like there is any urgency in passing the PIB – they are not even in the right frame of mind to pass such bill.

Western oil companies are currently trying to invest, marginally, on offshore fields – these fields have favourable production sharing contracts. But, much more could have been done if the PIB had been passed.

There are so many uncertainties in our energy industry. Markets and capital do not like uncertainties. Obviously, they don’t wait for politicians. I hope we don’t lose this huge Chinese capital.