China signs its biggest overseas contract with US$12b Nigeria railway deal

News of US$12b project in Nigeria comes after Mexico cancelled a high-speed railway deal

PUBLISHED : Thursday, 20 November, 2014, 3:37pm
UPDATED : Friday, 21 November, 2014, 8:46am

China has secured its biggest overseas engineering contract with a deal worth almost US$12 billion to build a railway in Nigeria.

The announcement of the contract win for China Railway Construction Corp (CRCC), announced by Xinhua yesterday, puts back on track China's ambitions for rapid expansion abroad in railway projects.

On November 6, the Mexican government abruptly cancelled on transparency concerns a US$3.75 billion high-speed railway deal awarded days earlier to a consortium led by CRCC.

The Hong Kong-listed company ran into problems with a railway project in Nigeria six years ago. The Nigerian government took over the US$8 billion venture after falling oil prices - a major export earner for Africa's most populous country - made it hard for the government to arrange financing for the project, which involved a line from Lagos to Kano in the north.

The deal announced yesterday would see a 1,402km railway built along the coast from the financial capital Lagos to Calabar, capable of running trains at up to 120km/h, Xinhua said.

The coastal railway project will lead to exports of equipment from China worth US$4 billion, including construction machinery, trains and steel products. It would create up to 200,000 jobs in Nigeria during construction, and a further 20,000 to 30,000 jobs after the railway begins service, Xinhua said.

CRCC shares fell 0.8 per cent to HK$8.05 yesterday.

While more detailed contract terms, such as how the project would be financed, were not disclosed, analysts have expressed concern that aggressive investment in build-transfer or build-operate-transfer projects may reduce the state-owned company's operating cash flow.

"It would normally take three to four years to complete a railway project. It could be longer for overseas projects," Macquarie analyst He Saiyi said. She expects the Nigerian project to bring in revenue of about US$3 billion a year before it is completed, which is equivalent to about 3 per cent of CRCC's total revenue last year.

The company's overseas projects accounted for less than 10 per cent of revenue, He said.

Chinese railway companies have been aggressively bidding for projects in a number of markets including Southeast Asia, Europe and North America.

While the scrapping of the Mexican project had been a setback for CRCC, a statement on the company's website said president Zhang Zongyan met China's ambassador to Mexico, Qiu Xiaoqi, on Tuesday, without disclosing details of the meeting.