Saturday, May 21, 2022

Nigeria’s $2.8bn AKK Project Suffers Setback As Chinese Lenders Hold Back Funds

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Nigeria’s critical gas infrastructure project, the Ajaokuta-Kaduna-Kano pipeline is currently suffering implementation delay as Chinese lenders fail to release funds.

As a result, the federal government is seeking $1 billion so that work can continue on the gas pipeline costing up to $2.8 billion after Chinese lenders which had pledged to offer much of the funds did not disburse cash as quickly as expected, three sources close to the matter said.

It is the latest sign of failing Chinese financial support for infrastructure projects across Africa, after years of major Chinese lending for railway, energy and other projects.

A spokesman for Nigerian National Petroleum Corporation (NNPC) which is building the 614-km (384-mile) Ajaokuta-Kaduna-Kano (AKK) pipeline, said it was still negotiating with the Chinese lenders – Bank of China and Sinosure – to cover $1.8 billion of the project cost.

“There’s no cause for alarm,” the spokesman said, without saying whether NNPC was turning to other lenders.

But the three sources told Reuters the company was now approaching others, including export-import institutions, to

continue work on the pipeline that will run through the central states to Kano, the northern economic hub.

Chinese lenders had originally been lined up to fund bulk of the estimated $2.5 billion to $2.8 billion cost of the project, which is central to president Muhammadu Buhari’s plan to develop gas resources and boost development in northern Nigeria.

NNPC, which was funding 15 per cent, said last year it had used its own funds to start construction. The sources said the Chinese lenders would not agree to disburse the cash NNPC had expected by the end of the summer, prompting it to turn to others.

“They are looking at Nigeria as one loan, and right now, they feel they are too exposed,” one source said.

Bank of China said it would not comment on specific deals. Sinosure did not respond to a request for comment

The Nigerian ministries of transport, finance and petroleum also did not reply to requests for comment.

Chinese bank lending to African infrastructure projects has fallen across the continent, from $11 billion in 2017 to $3.3 billion in 2020, a Baker McKenzie report said in April.

Nigeria began building the AKK pipeline in June 2020, saying it would help generate 3.6 gigawatts of power and support gas-based industries along the route. The project was to be funded under a debt-equity financing model, backed by sovereign guarantee and repaid through the pipeline transmission tariff.

NNPC awarded engineering and construction work along three sections of the pipeline to Oando, OilServe, China First Highway Engineering Company, Brentex Petroleum Services and China Petroleum Pipeline Bureau.

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