WHY ARE CHINESE FIRMS SNAPPING UP ENERGY DEALS IN AFRICA?

Introduction
Chinese investment and interest in Africa has been well documented. The Sino-Africa engagement over the last decade has been so intense that some commentators have labeled it as a form of ‘neo-colonialism’, that is a new form of colonization to exploit Africa’s natural resources. Chinese-African trade stood at $12billion in the year 2000 but over a decade later, the figure rose to an astonishing $200billion a year.

 A look at the nature of the investments reveals that apart from infrastructure projects, which Africa badly needs anyway, there is a trend towards energy deals in the form of constructing energy plants with attendant supply terms favourable to China, to snapping up minority stakes in Western energy firms.

With a population of 1.6billion, the demands for petroleum and gas to satisfy its huge energy needs are immense. China rose to become the second biggest economy after the United States in the last five years. Backed by government funding, no expense is spared in securing deals to ensure regular energy supply and outbid Western companies, who formally used to dominate the hydrocarbon industry. A sample of some of the energy deals in selected countries reveals the true picture.

Ghana
Ghana discovered oil in 2007 in the Jubilee oilfield and in 2010 began commercial production of same. There are four Jubilee partners-Tullow Oil (British), Kosmos Energy (American), Anadarko (American) and Sabre Oil, Petro SA (now South African). There were no Chinese firms.
But the Chinese found other ways to join in the party. When Ghana wanted to build a new gas processing plant to increase the country’s energy supply, Chinese firm Sinopec won the $750million project. The funds will be supplied as part of a bigger $3billion loan to the Ghana government from the China Development Bank. Information published by local media show that part of that agreement includes Ghana supplying a certain quantity of the oil produce to China.

Ghana is also building a 400MW, $980million hydro-electric dam at Bui, in the Brong Ahafo region. It is being built by Sino Hydro, another Chinese company. Shenzhen Energy Group (SEG), the mother company of Sunon Asogli — an Independent Power Producer in Ghana’s power sub-sector, has announced it is to build a 700MW coal power plant in the country. Sunon has already built a 200MW gas plant in Ghana, together with a few private Ghanaian firms.

Nigeria
In December 2012, Nigeria signed a pact with Sinohydro-Cneec Corporation, a synergy of two Chinese firms (Sinohydro Corporation and China National Electrical Equipment Corporation), to build a 700MW Hydro Power station on the Northern Zungeru River, Niger state. The project is expected to be 163 billion Naira (about $1 billion).
In July this year, Nigerian president paid a visit to China and signed a raft of deals totaling $3billion. Part of the funds will be channeled into a new power plant.
China’s demand for crude oil produced in Nigeria is expected to rise tenfold to 200,000 barrels a day by 2015, according to information provided by a team accompanying the Nigerian president on that visit. A number of Chinese companies are already active in the Nigerian petro-chemical sector.

Kenya
Just last month, Kenyan president, Uhuru Kenyatta, who is snubbed by Western governments because he and the county’s Veep, William Ruto are under investigation at the International Criminal Court, visited China. He was welcomed with a red carpet and a 21 gun salute. Uhuru secured $5 billion (3.7 billion euros) of infrastructure deals with China and a statement by Kenyan officials said “the deals include a batch of energy projects”.
In another development, China Hydro-Power Company will next month, begin preliminary work for the construction of an electricity dam in Kenya.
The project, which is situated at Uasin Gishu county and cost an estimated Sh30 billion ($342 million), would help reduce high production cost in country, already East Africa’s biggest economy.

Uganda
In July ths year, Reuters reported that Uganda has awarded a Chinese firm a contract to build a new dam and power plant on the Nile. The latest 188-megawatt hydro-electric project, the Isimba hydropower dam, would be developed by China International Water and Electric Corporation (CWE) and China’s Export-Import Bank would give Uganda another loan worth $500 million, which would be on concessional terms.
Earlier in June, Uganda gave China’s Sinohydro Group Ltd a contract for the east African nation’s biggest power project yet, Karuma Hydropower, also on the Nile, at a cost of $1.65 billion, partly financed by a $500 million Chinese loan.
Uganda is due to start commercial production of oil in 2016.

Mozambique
Italian energy group, Eni, in July this year completed the sale of a 28.57 percent stake in its East African unit to China National Petroleum Corporation (CNPC).
Eni East Africa previously controlled a 70 percent stake in the Area 4 block of the Rovuma basin, in northern Mozambique, next to the Tanzanian border.
The 20 percent sale to CNPC is at a cost of $4.21 billion. While the Chinese group now has an indirect 20 percent stake in the oil block, the Italian company will remain as lead operator with a 50 percent share.

Egypt
Only last week, China’s state-owned oil major, Sinopec, acquired 33 percent of the Egyptian oil and gas unit of US-based Apache Corp for $3.1 billion, according to the Wall Street Journal.
“Through this partnership, Sinopec is able to enter the upstream oil and gas sector of Egypt for the first time and expand its international upstream portfolio,” Sinopec said in a statement.
The company said the transaction will see its production surge by 130 000 oil barrels a day, or 6.5 million barrels a year.

Conclusion
China became the third-largest investor in mergers and acquisitions in Africa, favouring the oil and gas sector, according to a report by international law firm Freshfields Bruckhaus Deringer that came out this month showed.
Well if the accounts from the various countries are anything to go by, the trend is set to continue.