Nigeria will give China four oil drilling licenses in exchange for a commitment to invest $4 billion in infrastructure in a deal to be signed during a visit by President Hu Jintao Wednesday, a Nigerian official said.
Analysts said the deal would be a good fit for the two giants of Asia and Africa. China, the world’s most populous nation, needs more imported oil to fuel its rapidly growing economy. Nigeria, Africa’s most populous nation but also one of the world’s poorest, needs infrastructure to speed development.
The two countries have been in talks for several months about the agreement, said Tony Chukwueke, adviser to Nigerian Minister of State for Petroleum Edmund Daukoru.
China buys a stake
The deal involves China buying a controlling stake in Nigeria’s 110,000 barrel-a-day Kaduna oil refinery and building a railroad and power stations.
In exchange, Nigeria will offer first right of refusal to state-run China National Petroleum Corp. (CNPC) on four oil exploration blocks in a licensing round due to be held in Nigeria on May 19.
“We are doing a cooperation agreement upstream which integrates the Kaduna refinery. We may have to sign off on that during the visit,” Chukwueke, who is also head of the Department for Petroleum Resources, told Reuters by telephone.
“They will be part of the bidding round because of that agreement. They have first right of refusal on four blocks.”
Hu is due to arrive in Nigeria later Wednesday, the latest stop in a world tour that has also taken him to the United States, Saudi Arabia and Morocco.
Nigeria offers 'virgin territory'
Former Nigerian foreign minister Bolaji welcomed the deal, saying stronger ties between the Asian and African heavyweights were long overdue.
“China is an emerging world power with a booming economy. She needs oil. Nigeria needs as much investment as possible, and to diversify the sources of its investment,” said.
Almost all of Nigeria’s current oil production is controlled by five Western multinationals, but China’s CNOOC last week paid $2.7 billion for a 45 percent stake in a major offshore oilfield due to start pumping in 2008.
World oil prices hit record highs of $75 a barrel last week on concerns over tight global supplies. Rising prices have stoked fierce competition between Asia and the West over access to new reserves.
“In the Middle East, the United States regards China’s incursion with alarm, but Nigeria is more virgin territory for suitors and Washington should not be too worried,” said. “It insulates Nigeria from influence by one power.”
China a major investor
Since last year, Nigeria has favored Asian over Western investors because they are more prepared to offer major infrastructure developments in exchange for drilling rights.
Chukwueke said the blocks on offer to China comprise two areas in the oil-producing Niger Delta, one onshore and one in shallow water, and two areas in the higher-risk inland Chad basin, where no oil is currently produced.
China will commit to investing $4 billion, Chukwueke added.
China also has major investments in Nigeria’s fast-growing telecom industry, and has found a ready market for cheap textiles and other finished goods.