$20bn Investment at Risk, Says Study

By Constance Chiogor Ikokwu,
Some $20 billion worth of investments promised by Asian National Oil Companies (ANOCs) in the 2005/06 oil-for-infrastructure deal is at “risk”, according to a report released by Chatham House, the United Kingdom (UK)-based Institute of International Affairs.

The report titled: “Thirst for African Oil: Asian National Oil Companies in Nigeria and Angola,” chronicled the reversal of contracts by the President Umaru Musa Yar'Adua administration that were awarded under former President Olusegun Obasanjo and the failure of other deals sealed during that period.

It further analysed the impact on both Nigeria and its Asian partners that include China, India, South Korea, Taiwan, Japan and Malaysia.

“Following the cancellation of the Korean gas pipeline project and the Lagos–Kano railway contract with China, it now appears that in total some US$20 billion of investment promised by the ANOCs in 2005/06 is at risk,” said the report.

Research shows that the financial arrangement of the Lagos-Kano project for instance, was not favourable to Nigeria, said the study.. The terms of agreement was that China and South Korea would partly fund the project with government-to-government loans.

It also provided that Nigeria would have to find the balance of the funding itself, a situation that could impose a burden on the government over time.

But the proposal put forward by India was that commitments were to be funded by direct investment and the projects undertaken on a build, operate, manage and ownership basis.

The report observed that the downside of the Indian approach was that the projects would not start until the oil blocks were in production – which could take 3–5 years of prospecting.

It gave a damning assessment of President Obasanjo's oil-for-infrastructure deal, saying that “the absence of a detailed assessment by the Obasanjo government of the ultimate value – and cost – to Nigeria of the oil-for- infrastructure scheme was partly responsible for its demise.”

“President Obasanjo's stated grand design to achieve a 'development dividend' through the oil-for-infrastructure scheme with ANOCs has fallen apart – and with it went the impact that it might have made on the Nigerian landscape,” it stated.

The author of the Nigerian angle of the report, Lillian Wong, suggested that the perceived domination of Asian companies in Africa is exaggerated. In reality, most of the deals have not worked out as envisaged, she observed.

Nigeria provides a good example, according to her study.

In contrast to Angola where the China National Petroleum Corporation (CNPC) has been highly successful, the report notes that fraud, mismanagement, poor follow-up mechanisms, conflicting political interests and hidden agenda have hampered Asian investment attempts in Nigeria.

To their detriment, the Asian players failed to study the Nigerian political terrain properly and how business and politics intertwine.

“The tragedy is that the deals were not what they seemed. Unspoken political agendas from the Nigerian side and opportunistic agendas from the Asian side undermined what might have been a mutually beneficial arrangement. Although the initiative came from Nigeria in the first place, once the blocks had been awarded to the ANOCs the initiative passed into their hands,” said Wong.

“Nigeria was thereafter trapped by a set of expensive promises with no mechanism to force the ANOCs to deliver on them. There were no legally binding agreements that would have tied the development of oil blocks to the simultaneous delivery of the infrastructure. This was the key weakness of the whole concept,” she added.

In her analysis, Wong stated that change in government also contributed to the Nigerian case. The 2007 elections gave birth to a new government in Nigeria, which probed previous oil contracts. But President Eduardo Dos Santos of Angola has been in power for almost 30 years, she observed.

The projects in Nigeria, her work noted, were poorly conceived, implemented and coloured by political considerations. Therefore, the ANOCs have made no impact in Nigeria, she claimed.

They have neither produced oil nor started a single downstream commitment, she claimed.

Another factor that contributed to striking results from both countries, her study said, is the fact that Angola has been desperate to embark on post-war reconstruction, of which if successful, will bolster the government's political chances in future elections.

In addition, the study noted that while Western nations shied away from financing the country's post-war reconstruction projects, China grabbed the opportunity, doling out oil-backed loans to the country. This is usually in return for mouth watering oil deals, she said.

The Nigerian case is an “abberation”, she concluded.

Last Updated ( Tuesday, 11 August 2009 08:40 )