Construction magnate, Julius Berger, has entered into a strategic joint venture partnership with oil firm Petralon Energy that would see both parties team up to develop oil wells in Nigeria.
This move signals Julius Berger’s intent on exploring business within the oil and gas space industry. The construction firm revealed this plan in a notice sent to the Nigerian Stock Exchange (NSE) on Monday.
For Julius Berger, this presents an attractive opportunity to ease pressures mounting from stiff competition in the Nigerian construction industry, particularly from China. In recent years, Chinese construction firms have gained a significant foothold in the Nigerian market, landing lucrative construction contracts from the country’s federal and state governments.
Nairametrics confirmed that in September 2016, Nigerian government signed a $5.1billion contract with the China Civil Engineering Construction Corporation (CCECC) for construction and rehabilitation of railway lines across the country. Similar deals have been signed with the CCECC for projects in the aviation, healthcare and road sectors. The Chinese firms can get cheap financing from their home country at single digit interest rates, and can also go ahead without being mobilized.
Cheap financing from the Chinese government for home-grown construction companies as well as cheaper equipment puts Chinese competitors at a greater advantage. This has made the construction industry a lot less attractive to Julius Berger.
Julius Berger will be hoping to tap the wealth of knowledge of its current Chairman, Mutui Summonu, who was the former Managing Director and Chairman of Shell Nigeria, as it looks to get into an industry where unfavourable global oil prices might mean cheaper oil assets are up for sale.
Mr Summonu is also the Chairman of Julius Berger’s partner Petralon.
Julius Berger would also look to leverage of the experience of Mike Adenuga who owns Conoil, an established Nigerian oil firm. He is also the owner of Nigeria’s third largest telco Globacom. Mr. Adenuga, a significant shareholder in Julius Berger Nigeria, is reportedly keen on taking a more active role in the affairs of the construction giant.