China to build $8bn oil refinery in Nigeria

NNPC's Malam Shehu Ladan (R) shakes hands with China State Construction Engineering Corporation's Yu Zhende in May

Confirmation came this week that the China State Construction Engineering Corporation will build a $8 billion oil refinery near Lagos, Nigeria’s commercial capital, as agreed in a larger investment deal between the two countries in May. Assuming that it really does go ahead, this is good news for two reasons. Nigeria is woefully short of reliable energy, and despite its role as a big exporter of crude oil, crooked and ineffectual governments have let the (limited) local refinery capacity run down over the years. If more oil is refined in Nigeria, that should be a boon for consumers (and a few local engineers) even if it punishes the ranks of dubious middlemen who ship oil and petrol in and out of the country, often on the black market. The massive city of Lagos, in particular, has grand plans under the go-getting governor of Lagos State, Babatunde Fashola, to develop better infrastructure.

It will be the first of three refineries under a deal signed in May between Nigeria’s state oil company, NNPC, and the China State Construction Engineering Corporation (CSCEC).

The refinery will be built in the Lekki free trade zone of Lagos, Nigeria’s biggest city.

The Chinese will cover 80% of the cost, and NNPC 20%, while the state of Lagos will provide land and infrastructure.

Under the $23bn framework agreement signed in May, NNPC and CSEC will also build two other refineries, in Bayelsa and Kogi, as well as a fuel complex.

Nigeria already has four refineries, but they are widely seen to be poorly maintained and only running at 40% of capacity.

As a result, the African country must currently import refined fuel, even though it is a major crude oil producer and exporter.

It will be the first of three refineries under a deal signed in May between Nigeria’s state oil company, NNPC, and the China State Construction Engineering Corporation (CSCEC).

The refinery will be built in the Lekki free trade zone of Lagos, Nigeria’s biggest city. The Chinese will cover 80% of the cost, and NNPC 20%, while the state of Lagos will provide land and infrastructure.

Under the $23bn framework agreement signed in May, NNPC and CSEC will also build two other refineries, in Bayelsa and Kogi, as well as a fuel complex.

Nigeria already has four refineries, but they are widely seen to be poorly maintained and only running at 40% of capacity.

As a result, the African country must currently import refined fuel, even though it is a major crude oil producer and exporter.

The news is also welcome as evidence that China’s interest in Africa may go beyond the crudest form of extracting natural resources. Critics of China’s growing role in Africa have worried that its massive appetite for oil and other commodities does nothing to encourage more sophisticated African economies. Chinese infrastructure plans in Africa, say the doubters, are too often in the form of roads and railways to speed the removal of natural resources and too rarely help African economies add value to products before they are shipped. Such Chinese investment risks being seen, eventually, as little different from colonial projects of old. But new refineries will at least allow Nigeria to take a fraction of its crude supplies and turn this into something more valuable. Still, there is a very long way to go. Who stands ready to invest in electricity generation and distribution? And will a fanciful (and extremely expensive) plan to pipe Nigerian gas to Europe, via the Sahara desert, ever tempt investors?

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