Why the $475m Chinese telecom loan deal is causing so much controversy

Nigeria’s House of Representatives has launched an investigation into the $475 million Chinese telecom loan deal to upgrade the country’s infrastructure.

The now-controversial agreement was signed in 2018 between Galaxy Backbone Limited, a government agency under the Ministry of Communications and Digital Economy, and China’s EXIM Bank to provide fibre Infrastructure under the National Information Communications Technology Infrastructure Backbone (NICTIB) Phase 1 and 2 Projects, billed to be implemented by China’s Huawei Technology Limited.

As part of the Chinese telecom loan deal, the National Assembly approved a $475 million credit facility for the various phases of the Project(s) to be made available by EXIM Bank.

At the time, President Muhammadu Buhari said that the Chinese Telecom loan deal was part of his administration’s “commitment to incorporating the development of information and communications technology into national strategic planning”.

But since then, the deal has been caught in the web of one controversy or the other.

According to reports, during its plenary last week, the House of Representatives, in response to public outcry over the execution of the project, ordered the Federal Ministry of Finance, Budget and National Planning and the management of Galaxy Backbone to suspend all certificates of completion and payments immediately.

This pause in operations is expected to stand until the House Committee on ICT concludes its investigation into the status of the implementation of the project financed by the Chinese telecom loan deal.

The lower legislative chamber reached this resolve after adopting a motion sponsored by a lawmaker, Mzondu Bem, who expressed concern over the ongoing plan to access an additional $328 million (N126.7 billion) credit facility by Galaxy Backbone.

Though the lawmaker acknowledged that Phase 1 of the project — spanning 13 states across the South East, South-South, North-Central, and South-West zones of the country — has been completed and commissioned, he accused the Ministry of Communications of frustrating efforts to perform oversight of the project.

“The House is worried that whereas there has been no oversight to ascertain the level of the job done and verify claims of revenue generated by the Agency, there is a current bid to access an additional $328 million (N126.7 billion) credit facility to develop the NICTIB Phase II which covers 19 Northern States,” he said.

Interestingly, in 2021, the Managing Director of Galaxy Backbone Limited, Professor Mohammad Abubakar, disclosed that the agency needed the sum of N35 billion to provide internet connectivity to various government Ministries, Departments, and Agencies in the country.

Read also: FG launches provision of broadband infrastructure for 22 Higher institutions, MSMEs.

A timeline of the controversial Chinese telecom loan deal

According to AidData, a research lab based at William & Mary University in the United States, in November 2006, Galaxy Backbone signed a $117 million commercial contract with a Chinese corporation, Huawei Technologies Co. Ltd, for Phase 1 of the NICTIB project.

Then in May 2011, China’s EXIM Bank agreed in principle to provide a $100 million preferential buyer’s credit to finance 85% of the cost of the commercial contract. Later in January 2013, the Federal Government and the Chinese Bank signed another $100 million preferential buyer’s credit (PBC) agreement for Phase 1 of the project.

In December 2013, the Federal Ministry of Finance — on behalf of Galaxy Backbone Ltd — paid out the remaining balance of the advance payment ($7.65 million) to Huawei Technologies Co., Ltd and officially requested that Huawei Technologies Co., Ltd. commence project implementation. The NICTIB Phase 1 was completed in August 2018.

The terms of the PBC included the following: 20-year maturity, a 7-year grace period, and a 2.5% interest rate, while the final maturity date of the loan is September 21, 2032. Also, under the agreement, the Nigerian Government was responsible for paying 15% of the cost of the commercial contract with Huawei Technologies Co. Ltd before project implementation.

As of March 31, 2020, Nigeria’s Debt Management Office (DMO) reported that Exim Bank had disbursed 100% of the original face value of the loan.

In September 2018, the Nigerian Government and EXIM Bank signed a $328 million PBC agreement for Phase 2 of the NICTIB Project. Then in July 2020, the Federal Government approved the deployment of Phase 2 of the NICTIB project. The purpose of Phase 2 is to extend the fibre optic cable network to 19 states in Northern Nigeria.

Specifically, the cable will run from Abuja to Plateau, Gombe, Bauchi, Maiduguri, Kano, and the rest of Northwestern Nigeria.

The same month, the House of Representatives Committee on Treaties, Protocols & Agreements discovered a controversial clause that waives sovereign immunity in the loan agreement.

“The Borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets,” read the Article 8(1) of the agreement.

The discovery, expectedly, sparked mixed reactions from different quarters and raised serious questions about China’s real mission in the Nigerian telecommunications space. But Galaxy Backbone insisted that the reports were “never a true reflection of the deliberations in the session”.

For one, the World Bank and International Monetary Fund (IMF) have characterized Chinese loan deals as not transparent, citing their higher interest rates according to findings and questionable non-disclosure agreements considered an indication of China’s debt-trap diplomacy.

China is one of the world’s largest single-creditor nations. Its loans to lower and middle-income countries have tripled over the past decade, reaching $170bn (£125bn) by the end of 2020. Between 2002 and 2018, China lent Nigeria $6.5 billion (N1.9 trillion), according to a legislator, Ben Igbakpa.

Several parties have claimed that China lends money to other countries, which end up having to cede control of key assets if they can’t meet their debt repayments – an accusation that’s been long denied by Beijing.

A recent report by Dataphyte shows that Nigeria is the 6th country with the highest Chinese loan in Africa. About 15 projects are financed by Chinese loans, while Chinese debt makes up 9.47% of the total debt of Nigeria, with a debt per capita of $438 per inhabitant.