It will be the first of three refineries under a deal signed in May between Nigeria’s state oil company, NNPC, and the China State Construction Engineering Corporation (CSCEC).
The refinery will be built in the Lekki free trade zone of Lagos, Nigeria’s biggest city.
The Chinese will cover 80 percent of the cost, and NNPC 20 percent, while the state of Lagos will provide land and infrastructure.
Under the $23bn framework agreement signed in May, NNPC and CSEC will also build two other refineries, in Bayelsa and Kogi, as well as a fuel complex.
Nigeria already has four refineries, but they are widely seen to be poorly maintained and only running at 40 percent of capacity.
As a result, the African country must currently import refined fuel, even though it is a major crude oil producer and exporter.
Nigeria’s state-run oil firm, NNPC and China State Construction Engineering Corporation (CSCEC)Â this year signed a $23bn (Â£16bn; 18bn euros) deal.
The two will jointly seek financing and credits from Chinese authorities and banks to build three refineries and a fuel complex in Nigeria.
The project would add 750,000 barrels per day of extra refining capacity.
NNPC hopes the construction of new refineries will stem the flood of imported refined products into Nigeria.
Nigeria is the world’s 12th-largest oil producer and the eighth-largest oil exporter.
But the country imports roughly 85 percent of its fuel needs because of the disrepair and mismanagement of its four state-owned refineries.
“We are about to deepen the existing technical and commercial relationships between China and Nigeria through the signing of a memorandum of understanding,” said Shehu Ladan, head of NNPC.
The three refineries will be built in Bayelsa, Kogi and Lagos states, while a location has to be confirmed for the petrochemicals complex.
The Nigerian government has said that foreign companies must invest in developing Nigeria’s infrastructure and economy first, before they can benefit from its oil and gas exports.