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The Business Online: China’s appetite for African oil

Feb 19th, 2006
by admin.

By VIVIENNE WALT of Fortune Magazine
19 February 2006
China, the world’s second-largest energy consumer, now imports about 28% of its oil and gas from sub-Saharan Africa, compared with about 15% for the United States.
In the past few years, China’s leading energy companies – Sinopec, China National Petroleum, and CNOOC – have inked oil contracts from Equatorial Guinea to Algeria to Angola. Chinese President Hu Jintao’s African trips have included pocket-sized Gabon, whose 1.4m people could fit into a corner of Shanghai but which has more than 2bn barrels of oil reserves. When China’s Foreign Minister, Li Zhaoxing, toured the region in January, he spent several days in Nigeria.
“We haven’t been totally invaded by China yet, but it will come,” says Iheanyi Ohiaeri, head of business development for Nigeria’s National Petroleum. “I get calls and e-mails daily from Beijing, from people looking to buy oil.”
The calls are being answered, in part because African governments view China as a more co-operative partner than the West. China has refused to back regular Western rebukes of African corruption and human-rights abuses and last year used its permanent seat on the UN Security Council to block genocide charges against Sudan – source of about 7% of China’s oil – for the massacres in Darfur.
“The US will talk to you about governance, about efficiency, about security, about the environment,” says Mustafa Bello, head of the Nigerian Investment Promotion Commission, who has visited China seven times. “The Chinese just ask, “How do we procure this licence?’”
China has become the biggest foreign investor in Zimbabwe, where President Robert Mugabe’s policies have impoverished the country and left millions homeless. Zimbabwe doesn’t have oil, but it is the world’s second-largest exporter of platinum, a key import for China’s auto industry.
Chinese radio-jamming devices block Zimbabwe’s dissident broadcasts and Chinese workers built Mugabe’s new $9m (£5.2m, E7.6m) home, featuring a blue-tiled roof donated by the Chinese government. While Western politicians railed against Mugabe last year for flattening entire shanty towns, China was supplying him with fighter jets and troop carriers worth about $240m, in exchange for imports of gold and tobacco.
China has also agreed to sell armaments to Nigeria – $251m worth of Chinese fighter jets, financed by China’s Exim Bank – and satellite technology provided by defence contractor Norinco. “If China wanted to go out and develop Europe, it would be impossible,” says Dai Adi, a Chinese journalist in Lagos who moved from Beijing in 2001. “But here they can.”
The next hot spot may be Angola, where offshore oil could transform the country from one of Africa’s poorest to one of its richest. In late 2004, while International Monetary Fund officials were berating Angola for corrupt oil dealings, China gave the government $2bn in credit to repair railway tracks bombed in the country’s long civil war and to construct new office buildings in the capital – all using Chinese contractors. The timing was flawless: When French oil company Total applied to renew its licence on a large oil-production block, Angola refused, handing it instead to Sinopec, with which it then formed a joint venture to bid on other oilfields.
China faces its own challenges in Africa. Tony Chukweke, head of Nigeria’s department of petroleum resources, admits that he often finds it difficult to negotiate with Chinese companies, since each detail requires approval from officials in Beijing. “It is very, very slow,” he says. “They go back and forth. And when they come back, sometimes you find it is not what you agreed to.” Chukweke, who worked for years as a Shell geophysicist in London, prefers negotiating with Western oil companies: “Exxon comes in with clear mandates,” he says. “We can negotiate within those mandates.”
Still, China’s intense energy needs make it an alluring partner. Nigeria’s oil-business development manager Ohiaeri points out that his government can pressure China far more than it can western governments. “They are desperate for our resources,” he notes. That symbiotic relationship continues to grow, and with each passing day – and each new deal – China’s role in the region deepens.

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