Thursday, 23 December 2010

Nigeria: NaijaLeaks and why China is bad for Africa

The cables are still coming

The need to continue to mine the WikiLeaks diplomatic cables must not wane even after the spotlights have moved on, there is much to be seen in those cables and this one must be highlighted.

NaijaLeaks, the Nigerian side of the things in this cable [1] presents a very interesting perspective to governance, leadership and accountability issues in Nigeria.

Playing one off the other

At the end of 2009, the Nigerian legislature was busy debating versions of the Petroleum Industry Bill (PIB) which many International Oil Companies (IOCs) thought was not structural or strategic but about asserting greater ownership of our national resources, in ways, this was a disincentive for new investment by IOCs but an opportunity for negotiation for the Government of Nigeria (GON).

Shell Nigeria had brashly suggested to the National Assembly that if the PIB were passed, the “Nigerian oil industry would be dead”, so the GON brought in the Chinese. Considering Shell has the best deal in the Nigerian oil industry they felt they could use that leverage to thwart a legislative process.

For those who advocate Chinese investment in Africa and sing the highest praises of China, this is one cable you should read and comprehend.

Introducing the Chinese in Africa

This is what they did, “The Chinese are very aggressive because they need the oil. They came in with big money, and they were ready with large loans with low interest rates.”

I have to give Nigerians credit for this, playing competing interests against each other whilst keeping control of the process, "We know what had happened in the Sudan and Chad and we know enough about them to know where we want them and where we don't." Then, the person goes on to say, "No one really desires to see the IOCs go when we have worked with them so long. Long-term friendships develop, a lot is learned from them, and we know how they do business.

However, what was most revealing was because the Chinese oil companies are run, by which I think they mean owned by the Chinese government, their representatives in the oil industry do not know how to deal with democratic governments.

The Nigerian democratic experiment can be flawed but the core elements of it are working, efficient, functional and aggressive too in protecting Nigerian interests.

It is not for sale in Mandarin?

The Chinese because of their incentive of cash and softer loans had come to cherry-pick the oil fields and many of those fields were already allocated to other partners in the Nigerian oil industry. The cable says the Chinese acted dumbfounded and I think what was intended was dumb and of the fields already operated by other interests the Chinese said, “You mean we can’t have it?

Therein lays the reason for the Petroleum Industry Bill, to create partnerships and binding contracts where interlopers cannot with their money make us rescind agreements in their favour and the punch line to this episode is, “We are lucky we have a democratic government, under the military, the Chinese and Russians would be here.”

If the Chinese had gotten their way, they would have successfully jettisoned the PIB and abridged our democratic process which is by no means perfect, this crucial bill showed that Nigeria had to keep its nerve and resist the incentives offered to pervert due process whilst protecting partnerships that have existed for decades.

Apparently, the Russians through Gazprom had tried similar tactics and the Nigerians did not like it at all, in fact, it appears Nigerians were more comfortable with the devil they know in the existing IOCs than the moneybag Russians and Chinese along with a willingness to maintain business agreements regardless of alternative business incentive.

Rotten command structure

Interestingly, the labour unions also did not want the Chinese in the Nigerian oil industry, with China featuring in the list of the five worst countries to work for; they do not have industrial relations representatives or formal human resources processes. The immediate supervisor exercises all power without being accountable to anyone and most of the Chinese officials are non-English speaking hindering constructive interaction, according to the cable.

Zambia is another African country that had suffered at the hands of the Chinese and if I recall, the writer of Dead Aid, Dambisa Moyo [2] is from Zambia and I do wonder what she has to say about the unions chasing the Chinese out of Zambia.

The issue of corruption is probably moot as well as it is global, but this is a very cautionary note, “The Chinese have no respect for local laws, and they compromise a lot of things, including safety.” According to the cable, “the Chinese were the first to bribe local officials to win contracts and get around local laws.”

This sets a very dangerous precedent in any setup that the Chinese seek to have influence, especially in Africa, if this kind of business practice is norm, we should not be blinded by the idea that the presence of money is the solution to development at the expense of other rather more established capitalist business practices which include the whole spectrum of management, accountability, industrial relations, human resources and more recently corporate social responsibility.

Know how to handle the Chinese

Therefore, it is, “The poor image of the Chinese helps to explain why they never seriously threatened renewal of the IOCs' oil mining licenses.”

Nigerians were playing the diplomacy game with relish and offered this statement from the minister in charge in which he said, “There was never any consideration of selling or trading one firm for (I think he meant against) another. NNPC has a right to relinquish any part of its equity to any third party that expresses interest and it is in that regard that the discussions with the Chinese have been carrying on.”

Nigerians have signed agreements with the Chinese and Shell get 45% of joint venture deals with the GON compared with other IOCs that get 40% and I would suppose the Chinese might be offered a lot less whilst doing well to keep a rein on their activities within Nigeria.

Sources

[1] Viewing cable 09ABUJA2170, Chinese oil companies not so welcome in Nigeria’s oil patch

[2] Dead Aid - Review [akin.blog-city.com]

Newswatch Magazine - The Draft Petroleum Industry Bill 2009

What’s the Fuss about the Nigerian Petroleum Industry Bill?

The Nigerian Petroleum Industry Bill - Part 2

The Cable – With interesting highlighted bits

E.o. 12958: decl: 11/28/2019

Tags: econ, epet, enrg, einv, pgov, prel, ni, ch

Subject: Chinese oil companies not so welcome in Nigeria’s oil patch

Ref: Abuja 2100

Classified By: Ambassador Robin R. Sanders for Reasons in Sections 1.4 (b) and (d).

Summary

¶1. (C) Two xxxxxxxxxxxx officials recently volunteered that Chinese oil companies had made a lot of mistakes in Nigeria and neither official welcomed their presence. Nigeria National Petroleum Company (NNPC) xxxxxxxxxxxx said on xxxxxxxxxxxx the NNPC is aware of how the Chinese have behaved in the Sudan and Chad and that the Chinese do not know how to deal with a democratic government.

xxxxxxxxxxxx complained on November 11 that there is no recourse when dealing with the Chinese and that the Chinese do not respect local laws. The poor image of the Chinese helps to explain why they were never a serious threat to the renewal of the international oil companies' (IOCs) oil mining licenses (OMLs).

END SUMMARY.

Ruffled feathers...

¶2. (C) Nigeria National Petroleum Company (NNPC) xxxxxxxxxxxx discussed the Chinese oil companies' recent attempts to obtain deep water oil mining leases (OMLs) with Economic Counselor and Trade and Investment Specialist on November 13.

xxxxxxxxxxxx said that Shell Nigeria had opened the door for the Chinese by resisting GON efforts to pass the proposed Petroleum Industry Bill (PIB) and telling the National Assembly that the "Nigerian oil industry would be dead" if the PIB passed. "So they brought in the Chinese," xxxxxxxxxxxx said.

¶3. (C) Asked about how the Chinese handled themselves in Nigeria, xxxxxxxxxxxx said, "The Chinese are very aggressive because they need the oil." "They came in with big money," he said, "and they were ready with large loans with low interest rates."

But the Chinese also made some mistakes. First, xxxxxxxxxxxx said, "We know what had happened in the Sudan and Chad and we know enough about them to know where we want them and where we don't." At the same time, xxxxxxxxxxxx said, "No one really desires to see the IOCs go when we have worked with them so long. Long-term friendships develop, a lot is learned from them, and we know how they do business."

¶4. (C) Second, xxxxxxxxxxxx said, "Their oil companies are run by the Chinese government and they do not know how to deal with Qthe Chinese government and they do not know how to deal with a democratic government. For example, the Chinese told the NNPC officials which fields they wanted and the NNPC officials had to say, 'No, this field is operated by someone.'" The Chinese acted dumbfounded and said, "You mean we can't have it?"

"The PIB did not come from nowhere," xxxxxxxxxxxx explained. Much consultation occurred before the GON presented the PIB to the National Assembly and all that was not going to be undone because of a Chinese official. "The Chinese caused the problem," he summarized, "and they ruffled a lot of feathers." Xxxxxxxxxxxx added that Gazprom of Russia had used a similar approach. "We are lucky we have a democratic government" he said, "Under the military, the Chinese and Russians would be here."

...and no forwarding address

¶5. (C) xxxxxxxxxxxx colleagues also told visiting Coordinator for International Energy Affairs (S/CIEA) David Goldwyn and his delegation on November 11 that he and his union colleagues did not want the Chinese in the Nigerian oil sector. Goldwyn was asking about the problems faced by xxxxxxxxxxxx said, "The Chinese are here and that is a huge problem!"

"xxxxxxxxxxxx have a list of the worst five countries to work for," xxxxxxxxxxxx said, "and they are on that list." xxxxxxxxxxxx explained that xxxxxxxxxxxx had experienced a problem with ExxonMobil when they "wrongfully fired a worker." xxxxxxxxxxxx applied pressure through the U.S. steel workers and the worker in question was given a choice of being re-hired or compensated and xxxxxxxxxxxx chose the latter. "If xxxxxxxxxxxx a problem with a Chinese company," xxxxxxxxxxxx complained, "who can xxxxxxxxxxxx to?"

(COMMENT: Nigerian xxxxxxxxxxxx have complained to Labor Officer that the Chinese do not have industrial relations representatives or any formal human resources process other than the immediate supervisor who does the hiring and firing. Dealing with non-English-speaking Chinese officials also hinders constructive interaction.

END COMMENT).

¶6. (C) xxxxxxxxxxxx later elaborated by alleging that Chinese labor practices were not good so no one wants to be part of it. "Look at the Chinese mining companies in Zambia," xxxxxxxxxxxx said, "the labor unions there had to chase them out." xxxxxxxxxxxx noted that corrupt people in China were put to death, but overseas they quickly adapt to the local environment, including adopting corrupt practices.

"The Chinese have no respect for local laws," xxxxxxxxxxxx said, "and they compromise a lot of things, including safety."

¶7. (C) Petroleum and Natural Gas Senior Staff Association of Q7. (C) Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) xxxxxxxxxxxx said the Chinese were the first to bribe local officials to win contracts and get around local laws.

By contrast, xxxxxxxxxxxx said xxxxxxxxxxxx played by the rules and was above-board. "xxxxxxxxxxxx proud of xxxxxxxxxxxx company in that respect," xxxxxxxxxxxx said. (See reftel for additional background on Goldwyn's meeting with the xxxxxxxxxxxx).

Comment

¶8. (C) The poor image of the Chinese helps to explain why they never seriously threatened renewal of the IOCs' oil mining licenses (OMLs), the first of which the GON signed with ExxonMobil on November 20. Most of the remainder will be signed in the coming weeks.

Minister of State for Petroleum Resources Odein Ajumogobia told the joint GON-ExxonMobil press conference on the same day that, "There was never any consideration of selling or trading one firm for (against?) another." But he also said that, "NNPC has a right to relinquish any part of its equity to any third party that expresses interest and it is in that regard that the discussions with the Chinese have been carrying on."

The GON owns 60 percent of all the joint ventures with the IOCs (55 percent in the case of Shell). So, the NNPC and the IOCs could still end up having minority Chinese partners -- whether they like it or not.

¶9. (U) Embassy coordinated this telegram with ConGen Lagos.

Sanders

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