The recent controversy over the waiver-of-sovereignty clause in the rail construction contract between Nigeria and China was misplaced. It was wrongly focused on the technical issue of the waiver of sovereign immunity rather than on the underlying acute problem of Nigeria’s over-reliance on Chinese money and firms for its railway development.
Waiver-of-sovereign-immunity clauses are universal provisions in international contracts between private and sovereign parties. Private parties will usually seek such clauses upfront to prevent a sovereign party from invoking its sovereignty to shield its assets against any future enforcement of an arbitral award.
The position that a sovereign state should not use its sovereignty to deny a private party its entitlement in purely commercial transactions is well-established in English law. Lord Denning held in Trendtex Trading v Central Bank of Nigeria (1977) 1 QB 529, a case involving Nigeria and a private company, that if a government operates in the market place, it “should be subject to all the rules of the market place.”
But a waiver-of-sovereign-immunity clause in any contract between China and a developing country is a different matter. This is because it won’t be purely commercial transaction. Rather, China uses its Belt and Road Initiative (B&RI) as global investment and lending programme to trap vulnerable countries in unsustainable debt. As a global infrastructure development strategy, the B&RI is being used to fund infrastructure projects in developing countries that are not economically viable or affordable.
Yunnan Chen, a scholar at John Hopkins University, said, in a paper for the United States Institute for Peace, that the modus operandi of China’s Export-Import (Exim) Bank is to help Chinese firms in winning overseas contracts, encouraging those state-owned firms to “push economically unviable projects with the backing of Chinese state finance.”
Even when feasibility studies do not support a project, even when multilateral lenders, such the World Bank and the IMF, refuse to lend towards a project, and even when bilateral lenders and private investors would not touch a project with a barge pool, China will always give loans for it, particularly with respect to railway constructions, a core focus of the B&RI.
But while China uses cheap loans and lax conditions, including turning a blind eye to acute policy and institutional defects in a country, to secure rail construction contracts, it’s also willing to play hardball to collect the loans, using the waiver-of-sovereign-immunity in such contracts to force through its will.
The foregoing is the prism through which to see China’s role in Nigeria’s railway development. Chinese firms and finance play a monopolistic role in railway construction in Nigeria. This stems from the fact Nigeria, under President Buhari, is hungry for Chinese money to develop its rickety rail infrastructure, while China, the world’s second largest economy, is determined to use its money to gain influence around the world.
To be sure, successive Nigerian governments have always wanted to develop railway infrastructure. For instance, in 2002, President Olusegun Obasanjo commissioned a 25-year strategic vision to modernise the rail network; the vision was amended and ratified by President Goodluck Jonathan in 2012. But it is President Buhari’s ambitious plans for railway network connecting all the state capitals that have triggered a floodgate of Chinese money and firms in Nigeria.
The railway-related loans from China are probably close to $20bn. Recently, the transport minister, Rotimi Amaechi, said $1.6bn was needed to fix Lagos-Ibadan route; $5.3bn for Ibadan-Kano route; $3.2bn for Part Harcourt-Maiduguri route and $11.1bn for Lagos-Calabar route. None of this spending comes from savings; none from private finance. Rather, it is to China that Nigeria turns for all the money. And China is always willing!
Already, it’s estimated that there are 17 different Chinese loans to fund different categories of capital projects. In 2017, China pledged to double existing investment (mainly loans) in Nigeria by another $46bn.
The American statesman John Adams famously said: “There are two ways to conquer a country. One is by the sword. The other is by debt.” China is believed to have chosen the latter. But Nigeria has made itself a willing pawn in the Chinese debt-trap diplomacy.
Which brings us back to the anti-sovereignty clause in the railway construction contract signed in 2018 by the Federal Ministry of Finance, on behalf of Nigeria, and the Export-Import Bank of China. Article 8(1) of the contract says that “the borrower (i.e. Nigeria) hereby irrevocably waives any immunity on the grounds of sovereignty 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 thereof …”
Now, as stated earlier, there is nothing unusual about this clause. It’s the kind of the waiver-of-sovereign-immunity clause that exists in any contract between sovereign and private parties. Yet, the implication is that if Nigeria cannot pay back the Chinese loans, China can seize Nigerian assets, including assets linked to the railways.
What makes this scarier is that China is aggressive in enforcing such anti-immunity clauses. In 2018, when Sri Lanka could not service the loans it took from China to build its Hambantota port, China forced its government to hand over the port and 15,000 acres of land around it for 99 years!
The Buhari government says Nigeria will pay back the Chinese loans in 20 years. But how? Railways are only viable through large passenger numbers. When the construction of the Crossrail in the UK started in 2009, Transport for London, TfL, said: “Once Crossrail is fully open, TfL expects total annual revenues from the line of nearly £500 million per year in 2022/23 (its first full year of operation) and over £1 billion per year from 2024/25.”
Can the government make similar projections about any railway route in Nigeria? In a country branded “the poverty capital of the world”, where over 50% of the population live below the poverty line, who will use the railways? Can they recoup their cost through user fees? Absolutely not! Furthermore, with world oil prices and, thus, oil revenue, destined for permanent downward spirals, how would Nigeria, a mono-economy, repay the multi-billion-dollar loans? As Chen rightly notes in the USIP paper, “A long-term question remains over how the (Nigerian) government will service these loans.”
So, who really owns the railways in Nigeria? If you buy a house on a mortgage, it doesn’t belong to you until you have paid back all the money. Technically, it belongs to the bank, which, if you can’t pay back the loan, can sell the house to recover its money. Similarly, the Chinese-funded railways in Nigeria belong to China until Nigeria can pay back the Chinese loans. If it can’t, the waiver-of-sovereign-immunity clause allows China to claim ownership of the railways.
Previously, China tied its loans to Nigeria to oil acquisitions under the oil-for-infrastructure model. But now, with the so-called sovereignty-waiver clause, China will seize Nigerian assets if it cannot pay back its loans. President Buhari wants railway development to be his legacy, but he is willing to trap Nigeria in unsustainable foreign debt to secure that legacy.
Which is why Buhari’s recent renaming of railway stations in Nigeria after “prominent” Nigerians is curious. It’s a blatant attempt to disguise of the danger of Nigeria’s future subjugation to an expansionist foreign power through unviable debt-fuelled railway development.
Those prominent Nigerians have been implicated in the indebtedness and subjugation of Nigeria. For if Nigeria can’t repay the Chinese loans and China takes ownership of Nigeria’s assets, those Nigerians whose names are attached to the railway stations would be associated with the Buhari legacy!
What’s more, the railway stations named after them and the rail lines linked to those stations do not belong to Nigeria – at least, not yet! China has a claim to them!