Niger tensions threaten Chinese projects, as dam building stops

JUBA, South Sudan -- Rising tensions in Niger are casting a shadow over Chinese interests there, following reports that the construction of a dam has been suspended, adding to worries that a PetroChina-backed export pipeline set to be completed at the end of this year could also face a setback.

Niger has been in turmoil since the military seized power on July 26. Leaders of the 15-member Economic Community of West African States, also known as ECOWAS, on Thursday ordered the activation of a standby force and said no options were off the table in their attempt to restore constitutional order.

"Tensions in Niger are extremely high, as the country has closed its airspace," Tara O'Connor, London-based managing director of Africa Risk Consulting told Nikkei Asia. "Any military intervention -- unless short-lived and effective -- could escalate, get messy and cause further economic disruption."

China is the second-biggest investor in the country after France. But in a sign that China is increasingly concerned by the political chaos there, Beijing on Monday advised its citizens to leave Niger.

On Thursday, Reuters reported that China Gezhouaba Group Co. suspended the $808 million construction of the Kandadji hydroelectric dam after funding dried up following sanctions imposed on the junta.

Development aid from both the European Union and the U.S., constituting 40% of Niger's budget, had been halted after the coup.

In a week of escalation, ECOWAS slapped the junta with more sanctions on Tuesday, adding to measures imposed earlier that were aimed at border closures and cutting off financial and commercial interactions.

"The impact of sanctions on Niger, particularly those similar to the ones placed on Mali, could potentially disrupt the pipeline project and affect Chinese investments," said Kai Xue, a Beijing-based investment lawyer with a focus on Africa, referring to the PetroChina project.

The $4 billion pipeline project -- that will link Niger's Agadem oil field to Benin's Cotonou port -- was touted by Niger's government then as being the biggest investment in the country since it gained independence from France in 1960.

PetroChina has had a presence in Niger since 2011 when it formed a joint venture with the government to produce oil from the Agadem site. The current project was agreed in 2019 and if completed, it will be the longest cross-border crude oil pipeline in Africa.

Contracted by China National Petroleum Corp., the pipeline is now over 75% complete and set to begin commercial oil transportation in late 2023. Niger's government then had said that the oil pipeline could generate up to a quarter of the country's gross domestic product and half its tax revenue eventually, up from 4% and 19%, respectively.

However, all bets are off now, with the stage set for greater confrontation in the region, given the latest threat of military action by ECOWAS. The military leadership of neighboring countries Mali and Burkina Faso, which had both seized power from civilian governments, have taken the side of Niger's junta.

Mali's government, including the prime minister, has been sanctioned since last year by the EU for delaying elections and reforms. There are now also fears that more harsh sanctions in Niger could disrupt supplies and financial stability.

"The [Mali] sanctions led to the country defaulting on debt repayments which made new financing to the region less attractive. These also disrupted fuel and supplies, making life precarious for millions," said Xue. "I hope the regional organizations will exercise restraint in their approach to Niger."

China's Sinopec had also signed an agreement with Niger's government in May for further cooperation in oil and gas projects. But China's interests in Niger extend beyond oil, encompassing solar power plants, agriculture development, infrastructure and construction.

Apart from its plentiful oil and uranium resources, Niger is also an important counterterrorism partner against Islamist extremists, hosting thousands of Western troops and drone bases, as one of the last democracies in the Sahel region that stretches from the West Atlantic coast to the Red Sea.

Elsewhere in West Africa, Chinese investors are involved in lithium mining in Mali and the fishing industry in Mauritania. The China National Petroleum Company is also a major investor in Chad's petroleum sector.

For now, many are hoping that China would step in as mediator to help stabilize the region, given its influence there. The nation has consistently shied away from active military engagement on the continent and it is believed that Beijing will continue to support diplomatic efforts through the United Nations and the 55-member African Union.

"It's crucial for China to step in constructively, highlighting the counterproductively of sanctions, as evidenced in Mali, where they only exacerbated hardship," said Xue.