tag:blogger.com,1999:blog-9189930829940284211.post4747911081569288442..comments2023-09-18T09:55:35.795-04:00Comments on China in Africa: The Real Story: Chinese Refineries in Nigeria, Chad, Niger & Ghana: The Sudan Model?Deborah Brautigamhttp://www.blogger.com/profile/10813215294689392170noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-9189930829940284211.post-45209358555574819092010-12-13T15:09:49.919-05:002010-12-13T15:09:49.919-05:00Thanks for your reply, Prof. Brautigam.
A rejoin...Thanks for your reply, Prof. Brautigam. <br /><br />A rejoinder, if I may:<br /><br />BOT or turnkey projects and joint ventures wouldn't be mutually exclusive. In fact, is it not usual for BOT or turnkey projects to provide for a joint venture? In any event, I do get your point that the Sudan-China deal isn't a typical infrastructure contract.<br /><br />The details that you have provided about the Sudan-China deal in your reply are more specific than the ones in your original blog post. Maybe those details were in the attached IMF report, but I couldn't find them when I read it. With the specific details you give in your reply, striking similarities do emerge. I can see them now. (And, by the way, if a copy of the Sudan-China deal is publicly available, I'd be grateful if you could send it to me)<br /><br />The best way of determining whether a deal creates a security interest in natural resources would be to look at the terms of the deal. If the terms, as in the case of the DRC-China deal (it's available online), don't expressly create a security interest in the natural resources, on what basis can we conclude that the deal uses resources as collateral? In 1989, the UN Conference on Trade and Development (UNCTAD) published a report in which it clearly said that security in the form of collateral is not significant in major infrastructure and industrial works. Perhaps, the Sudan-China deal is an exception.<br /><br />I know this might sound like some hair-splitting distinctions, but collateral and sovereign guarantees aren't synonyms, although both are guarantees (i.e. they both shift investment risks). The mere fact that Sudan gave a sovereign guarantee to China shouldn't necessarily imply that the oil is collateral for the infrastructure loans. <br /><br />I agree that "China's interests" must be disaggregated. However, Prof. Brautigam, the deals we are talking about are bilateral, and in modeling and classifying these contractual relationships, I think it's okay to personify each side of the transaction.<br /><br />Most probably, I could've put it more clearly, but I didn't mean to say that the deals weren't profitable to China. I simply said that in the DRC-China deal China wasn't interested in a MONETARY profit, since the profit that it gets is the natural resources that it will use for its own purposes. But there's no doubt - and I also agree with you on this point - that if the parties are disaggregated the individual actors (e.g. Sinohydro, China Railways, Eximbank, etc.) are interested in making a decent monetary profit.<br /><br />Finally, I could've explained why I think these "details" (as you call them) of the deals may be central to the issue of debt sustainability, but if I do I'm sure this exchange will go on forever...<br /><br />Thanks<br /><br />DuniaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-9189930829940284211.post-50377536039988414552010-12-13T11:07:47.520-05:002010-12-13T11:07:47.520-05:00Thanks for your comment, Dunia. You and I may be t...Thanks for your comment, Dunia. You and I may be the only people deeply interested in these details (actually, people at the IMF are also deeply interested, too...) But here's my take on your comment:<br /><br />The Khartoum Refinery is not a BOT or a typical turnkey project, but a joint venture, run by a company 50% owned by CNPC, and 50% by the government of Sudan (GOS). It refines crude from another joint venture between CNPC and the GOS, which is the same crude that is used to secure the repayment of the infrastructure. The oil investment and the refinery are separate investments but connected through the guarantee/security provided by the natural resource. This appears to be a sovereign guarantee in Sudan (i.e. guaranteed by the government itself).<br /><br />I think there may be more similarity between this model and the DRC than you do, Dunia, even though the Sudan deal uses the natural resource as collateral, and the DRC deal uses the resource export "directly" to repay several different loans. In both cases there is strong Chinese interest in a natural resource, but there is also strong interest in using that natural resource as a means to finance infrastructure that the host countries consider to be critical for their modernization (and that is profitable for the Chinese companies that build it). The DRC deal was originally structured with a sovereign guarantee.<br /><br />In both cases, from what I've seen, the deals are structured with profit in mind -- on the infrastructure and on the resource side -- and the Chinese financiers are quite clear that they see these as profitable ventures (as Li Ruogu explained to me, that's why they don't require concessional financing). In both cases the natural resource is used also as collateral (in the DRC case, if there is not enough copper/cobalt in the existing mines to repay the loans, the venture has a guarantee of an additional concession).<br /> <br />As to "China's" interests, it may be helpful to disaggregate "China" into the actual actors involved, e.g. Sinohydro, China Railways, China Eximbank, and to look at their interests, which include securing profitable infrastructure contracts for Chinese companies. This is broader than simply securing natural resources.Deborah Brautigamhttps://www.blogger.com/profile/03141925702416939602noreply@blogger.comtag:blogger.com,1999:blog-9189930829940284211.post-22987036271848800432010-12-12T08:03:52.919-05:002010-12-12T08:03:52.919-05:00The structure of the Sudan-China deal is not the s...The structure of the Sudan-China deal is not the same as the DRC-China deal. From the way you describe it, it is evident that the Sudan-China deal is a traditional infrastructure contract, though it is not clear from your or the IMF's description whether the deal is a build operate and transfer (BOT) project or a turnkey project. <br /><br />By contrast, the DRC-China deal is not a traditional infrastructure contract. Unlike the Sudan-China deal, the DRC-China deal does not use natural resources as collateral but as payment (see the DRC-China Framework Agreement). The structure of the DRC-China deal is not one that you will find in any standard foreign direct investment book, even if there are many oversimplifying descriptions of the deal in the China-in-Africa literature<br /><br />In terms of the DRC-China deal, China directly invests in both mining and infrastructure, which requires the deal to comprise both mining and infrastructure sub-contractual arrangements. Conversely, in the Sudan-China deal, China only invests in infrastructure (i.e. the refinery), which only requires the deal to take on any form of traditional project finance. <br /><br />The difference of these two types of investment contracts is fundamental as it translates different intentions and interests of the foreign investor(s). In the Sudan-China deal, China is interested in making a monetary profit, failing which it will accept payments in kind. In the DRC-China deal, China is not interested in monetary profit, but in the natural resources (i.e. copper and cobalt), which it needs to fuel its growing economy.<br /><br />DuniaAnonymousnoreply@blogger.com