By SPENCER SWARTZ in London and WILL CONNORS in Lagos

Nigeria has decisively reclaimed the mantle of Africa’s top oil producer, with rising output and crude prices spurring growth in the continent’s most populous country. But the same industry driving the economy—oil—faces a host of challenges.

In the next month, Nigeria’s national assembly is expected to approve energy legislation that U.S. and European oil executives warn could curtail investment. The presidential election early next year may reignite fresh violence in the Niger Delta, the West African country’s main oil region, where Royal Dutch Shell says its pipeline was attacked recently.

The sabotage reflects longstanding discontent among the poor in the area. Some attacks are conducted by oil thieves who set up illegal refineries.

Nigeria—which holds the world’s ninth-biggest proven oil reserves— produced almost 2.2 million barrels a day in July, its highest average since November 2007, according to analysts and traders.

The upswing stems largely from a lull in militant violence against Niger Delta oil pipelines and is linked to a government amnesty deal for militants who had been on a bombing spree against oil-industry infrastructure.

Thanks to the relative peace, idle oil fields are pumping again, allowing Nigeria this year to consistently produce more crude than Angola, Africa’s second-biggest producer.

Output has also increased amid the rise in fuel prices this year. Benchmark U.S. crude prices are expected to average $78 a barrel in 2010, up from $62 last year. That could push Nigeria’s economy to expand by about 7% this year, some analysts say, putting it among the fastest growing in Africa. But the rising crude output masks weaknesses in the industry.

An ominous sign for Nigeria’s production is slumping international investment. Foreign direct investment, mostly in the petroleum sector, sank to $5.85 billion last year from $13.96 billion in 2006, according to a recent United Nations report.

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Nigeria has a storied legacy of fierce anti-government musicians, most famous among them the Afrobeat king Fela Kuti (currently enjoying a posthumous popular revival with the hit Broadway show “Fela!”). But since Fela’s death in 1997, there hasn’t been an obvious heir apparent to his musical prowess and political agitations, even among Fela’s two musician sons.

In the magnetic singer Nneka (Nneka Egbuna, 29), the opening act for Nas and Damian Marley’s Distant Relatives summer tour, Nigeria has found another performer capable of drawing global attention.

Nneka pulled herself up from a hardscrabble background in the oil-producing Niger Delta region of southern Nigeria and with no family support emigrated to Germany when she was 19 (her father is Nigerian and her mother is German). After years spent struggling to earn a living - including a stint cleaning bathrooms - Nneka found music.

While she has been recording for years in Germany, her first U.S. album, “Concrete Jungle,” was released just last year. Give it a listen and just try not to have it’s hard-driving first single, “Heartbeat,” get stuck in your head. Nneka also has a track called “Viva Africa,” on “Listen Up!” the official 2010 FIFA World Cup album.

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By SPENCER SWARTZ And WILL CONNORS

Nigeria and China signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, strengthening the countries’ energy partnership.

Nigeria, Africa’s most populous country and one of its top oil producers, has been eager to boost gasoline supply and overhaul its rickety refineries. And by helping Nigeria build new refineries, China may be able to expand access to the country’s high-quality oil reserves.

“This is a deal we need for Nigeria to cut our reliance on imports,” said a senior Nigerian oil official. He added that the refinery deal puts China “in the running” for getting additional access to oil acreage. “This is business, but it builds goodwill.”

Under terms, Nigeria’s state oil company, along with a host of Chinese government-run entities, would build three refineries and a petrochemical complex, according to a statement from the state oil company, Nigerian National Petroleum Corp.

Officials said critical details remain unsettled, such as the pact’s financial terms and who would operate the plants.

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By BENOIT FAUCON, MARGARET COKER and WILL CONNORS

Dubai police have arrested a former Nigerian governor fleeing corruption charges, officials said Thursday, as authorities prepare to take the rare step of extraditing him to the U.K.

James Ibori, the former governor of oil-rich Delta State in southern Nigeria, was arrested in Dubai shortly after arriving there earlier this week, according to Dubai and London police as well as Nigerian antigraft officials.

Interpol—an international police organization—sent out an alert for Mr. Ibori’s arrest before he was picked up. An Interpol spokeswoman referred calls to the Dubai police.

“He was trying to pass through Dubai, but we stopped him,” a Dubai police official said. Dubai police officials confiscated Mr. Ibori’s passport and jailed him, the official said. Judicial authorities in Dubai are currently completing paperwork informing Interpol and the U.K. authorities about the arrest. “We are ready to extradite him,” the official said.

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ABUJA, Nigeria—Two bombs exploded early Monday outside a government building in the city of Warri, a Nigerian oil hub, said officials and witnesses, dealing a blow to a peace deal that aimed to prevent militant attacks on the nation’s oil infrastructure.

The attacks occurred just minutes before state governors were to convene to discuss a government peace program with Niger Delta militants. Several state governors had already taken their seats for the event when bombs in two nearby vehicles were detonated, say witnesses and officials. Although several people were injured, there were no immediate reports of casualties.

Oma Djebah, information commissioner of Delta State, which includes Warri, said the explosions occurred about 200 yards from the meeting and the venue was then evacuated.

The militant group the Movement for the Emancipation of the Niger Delta claimed responsibility for the attack. Earlier on Monday, MEND sent an email warning to media organizations about the attack.

“The deceit of endless dialogue and conferences will no longer be tolerated,” the group’s statement read. The militant group accused oil companies and government of stealing land “with the stroke of a pen.”

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Oando becomes major player in African country long dominated by foreign energy companies

By SPENCER SWARTZ and WILL CONNORS

LAGOS, Nigeria—In a few months, Oando PLC, a small oil company here, is expected to take a rare step for any Nigerian company by applying for a listing on the London Stock Exchange. The move is an indication of something even more unusual about Oando: it is in position to become this oil-rich country’s first major energy company.

The Nigerian oil market has for years been dominated by major foreign players like Royal Dutch Shell PLC, whose advanced technology and know-how have allowed this West African state to become the world’s eighth-biggest oil exporting nation. But Oando, under chief executive Wale Tinubu, has bucked traditional investor views of Nigerian oil firms, most of which have little track record for being able to execute challenging oil projects.

Oando is parlaying its position as Nigeria’s leading fuel retailer—a status it built just in the last few years—into plans to be a bigger, integrated oil company. With strong management that is seen as credible to the broader investment world, Oando, which is audited by PricewaterhouseCoopers, has separated itself from a raft of other small local players.

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Squabbling Rebels, Corruption Cast Doubt on Peace Plan

By WILL CONNORS

THE NIGER DELTA, Nigeria — Nigerian President Umaru Yar’Adua unveiled an offer in June for rebels to turn in their weapons in exchange for amnesty. Militant leader Ateke Tom watched the news conference on a flat-panel TV at his remote camp deep in this oil-rich expanse of wetlands.

“We want to observe the government’s moves before coming out,” Mr. Tom said a few days later in an interview at his outpost. Outside his concrete residence, young men in camouflage tank tops watched American movies and smoked marijuana in cigar-size joints, their AK-47s lying in the mud beside them.

Mr. Tom, a squat man sporting a G-Unit T-shirt and a gaudy medallion around his neck, said he was negotiating with federal officials, not the state government, which he doesn’t trust. “The governor wants me dead,” he said.

Mr. Tom and other militant leaders have wreaked havoc in recent years on Nigeria’s oil industry — and consequently its economy — from this vast network of densely forested creeks that fan out to the Gulf of Guinea. Now they must decide whether to stop their costly attacks on oil facilities and come out of the creeks once and for all.

Printed in The Wall Street Journal, page A1

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ABUJA, Nigeria — Secretary of State Hillary Clinton condemned Nigeria’s electoral process and high levels of corruption, while pledging U.S. assistance in efforts to bring peace to the volatile and oil-rich Delta region.

During a town-hall meeting in the capital city on Wednesday marked by clapping and hooting, Mrs. Clinton urged Nigeria to fix its “flawed electoral system.” The meeting, which was by invitation, included democracy activists, several state governors and business leaders, including the country directors of U.S. oil companies Chevron Corp. and Exxon Mobil Corp.

Mrs. Clinton said that Nigeria had the potential to be a member of the Group of 20 countries, “but — a big but — the corruption reputation … it is a problem.”

While chiding Nigerian elections, Mrs. Clinton said, to a big laugh from the audience, “I know a little bit about running in elections, and I have won some elections and I have lost some elections. And in a democracy there have to be winners and losers.”

“Our democracy is still evolving,” she added. “You know we’ve had all kinds of problems in some of our past elections, as you might remember. In 2000, our presidential election came down to one state where the brother of the man running for president was the governor of the state, so we have our problems, too.”

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By Will Connors and Spencer Swartz

LAGOS, Nigeria — A high-profile government amnesty program aimed at stopping militants in Nigeria’s oil-rich delta region from bombing pipelines is coming under fire for not seeking permanent solutions to the area’s underlying problems.

The amnesty program, scheduled to begin Thursday and run two months, is the biggest public effort yet by President Umaru Yar’Adua to ease the unrest in the Niger Delta that has cost the country billions of dollars in lost oil revenue.

But Nigerian state governors, analysts, and the militants themselves have criticized the plan because it does little to address the core causes of the militancy and criminality that have plagued the Niger Delta for decades, such as the lack of education, jobs and basic services.

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WARRI, Nigeria — U.S. oil major Chevron Corp. shut down 100,000 barrels a day of Nigerian crude-oil production Monday after an attack on one of its pipelines, as fighting between Nigeria’s military and militant groups in the southern delta region entered a second week.

Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta, took credit for the attack, which occurred in the Abiteye area of Delta state. It claimed that it had also attacked four other pipelines leading to Chevron’s oil tank farm in the region.

Monday’s incident marks the first major retaliation from MEND since a sustained offensive by the Nigerian military’s Joint Task Force began 10 days ago.

“We will continue our cat and mouse tactics with [the Nigerian military] until oil export ceases completely,” MEND said in an emailed statement.

Chevron confirmed the attack on Abiteye and the halt in production but didn’t comment on the other pipelines alleged to have been targeted. The incident is being investigated by the relevant stakeholders, a Chevron spokesman said in a statement.

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