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China lends Nigeria $2bn in exchange for oil talks

Financial Times: China lends Nigeria $2bn in exchange for oil talks

By Matthew Green in Lagos
Published: April 22 2008 03:00 | Last updated: April 22 2008 03:00

China has agreed to lend Nigeria $2.5bn for infrastructure projects in a renewed attempt to win access to markets and energy reserves in Africa’s leading oil exporter.

Beijing has extended increasingly attractive offers of financial support to Nigeria in recent months to forge a closer relationship with Umaru Yar’Adua, Nigeria’s president, who took office last May.

Odein Ajumogobia, Nigeria’s oil minister, said Beijing had offered the $2.5bn (€1.6bn, £1.3bn) loan in parallel with talks about gaining energy exploration rights, though he said no specific oil blocks were tied to the agreement.

“They’ve basically committed to these facilities and we’re exploring with them their interest in investing in the upstream,” Mr Ajumogobia told the FT. “We’re working out the details.”

Under the previous administration of Olusegun Obasanjo, an offer of a similar loan in return for oil blocks failed to lead to a deal. CNOOC, the Chinese state oil company, was considered by analysts to have paid above the odds in 2006 for its share of a Nigerian oilfield operated by Total.

While Chinese companies have been increasingly active in Nigeria, until now Beijing’s overtures have yet to translate into an advantage in securing oil or other mineral rights as they have in other African countries such as Angola, Sudan and most recently the Democratic Republic of Congo.

The revived loan agreement suggests China is on a new charm offensive in Nigeria, where western majors such as Royal Dutch Shell, ExxonMobil and Total have traditionally dominated the oil industry.

Mr Yar’Adua led a delegation of ministers and business leaders to Beijing last month for talks about closer economic co-operation. The loan was put on the table alongside a separate offer of a $50bn facility to back projects by Chinese companies in Nigeria made by Sinsoure, China’s export credit guarantee agency.

Shamsuddeen Usman, Nigeria’s finance minister, said he had negotiated more favourable terms than those China was willing to accept when it made a similar loan offer to the previous government. “China is quite aggressive. It’s very clear-headed in terms of its relationship with Nigeria,” Dr Usman said. “The Chinese said: ‘We recognise your problem is basically infrastructure.’ That’s the kind of music that Nigeria wants to hear.”

China’s offers of financing to African governments in return for access to natural resources have raised concerns that countries fresh from winning debt relief from western donors will start piling up new obligations. Nigeria has cleared $35bn under debt reduction deals with western creditors in the past few years, leaving it with very low levels of external commitments.

Dr Usman declined to give details of the terms for the loan, but said they fell within the limits defined by the International Monetary Fund to ensure Nigeria does not start stacking up unsustainable debts.

The $2.5bn loan could be used to fund projects in rail, power or telecommunications. Mr Yar’Adua has made repairing decaying infrastructure a priority.

The facility is comprised partly of a $500m loan taken on concessionary terms from China, which has already been signed. Dr Usman said a deal was close on a second loan for the remaining $2bn from the Export-Import Bank of China, on less concessionary terms.

Copyright The Financial Times Limited 2008

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