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Ajaokuta from 1979 – 2018: A long, winding road to nowhere?

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Ajaokuta Steel Company 1979 – 2018

At a time when governments across the world are adopting various forms of Public Private Partnership (PPP) as the preferred model of infrastructure development, it is difficult to understand House of Representatives Speaker Yakubu Dogara’s insistence that the Nigerian government must find money from anywhere, even if it means borrowing, to complete the Ajaokuta Steel Company.

Dogara, who recently made history as the first sitting speaker to lead members of the House on an oversight tour to Ajaokuta Steel Company Limited in Kogi State, told reporters after visiting the massive industrial complex that the National Assembly would strongly oppose any moves to concession the completion of the company, but would support private partnership on the management aspect, since it is an established fact that government is not a good manager of enterprises.

To be clear, Dogara’s arguments for the resuscitation and completion of the Ajaokuta Steel project are quite in order. No doubt, industrialisation is the bedrock of economic development of any nation and a vibrant steel sector is a starting point. This was why the idea of the steel mill was conceived in the first place.

“As independence drew near for Nigeria, the place of steel as the heartbeat of modern industrialization was not lost on the Nigerian political elite. The steel industry provides materials for a limitless range of industrial and construction works,” Onwuka N. Njoku, emeritus professor of History at the University of Nigeria, Nsukka, wrote in Economic History of Nigeria 19th and 20th Centuries (Enugu: Magnet Business Enterprises, 2001).

The huge economic potential of Ajaokuta steel mill is not debatable. In a recent interview after the House of Representatives visited Ajaokuta, Speaker Dogara listed some of the benefits to include 2 million multi-sectoral jobs with at least 10,000 engineers employed, thousands of other jobs for technicians and other staff, and other lines that will open, engaging a lot of people that will bring prosperity to the country.

“And then you can start to talk about plenty of economic activities with people coming here to establish industries because of the availability of cheap sources of energy due to power generated here, as well as access to gas links to the south- south,” Dogara said.

“Right now, we are taking about building the power plant in the North-East; it is going to consume hundreds and thousands tonnes of steel. We are talking about Second Niger Bridge, do you know how many hundreds of thousands tonnes of steel it would consume? So, are we going to send all this money abroad in order to buy steel when we know that with a fraction of that amount, we can complete this plant, supply the entirety of the steel that we need to complete this power plant in Ajaokuta and build the Second Niger Bridge?” he further said.

However, his insistence that the government must find money from anywhere, wherever it could be found, “even if it means borrowing”, to complete the project does not sit well with many Nigerians who know the story of Ajaokuta and how much of a conduit for siphoning public fund it had been over the years.

“Our own resolve is that it must be completed. No matter where we are going to get this money from, as legislators, we are compelled to give the executive the legislative backing to get it to complete this plant,” Dogara said.

“Once it is completed, we can now begin to talk about how to run it and for me, I don’t care even if it is outsourced, the point is the sustenance over a long period of time so that the job does not dry up. What we are doing does not end at the middle of the road that it is completed but sustaining it for the economic prosperity of this great nation,” he said.

But a stock market analyst who spoke on condition of anonymity alleged that the talks about concessioning or finding money to complete Ajaokuta has more to do with raising funds for prosecuting the 2019 general elections than with any thoughts on economic development.

“What do you expect? Elections are close and politicians are looking for money. They have a list of projects to milk election funds from. Trust me, Ajaokuta Steel Company is one of them,” said the stock market analyst.

In the beginning

Onwuka Njoku (quoted above) wrote that the story of the Ajaokuta Steel Company exemplifies most of the indices of Nigeria’s industrial trauma: “utter foreign dependence, hasty planning, absence of coordination, vaulting ambition coupled with a lack of vision, and unbridled presidential robbery”.

The idea to have a steel industry in Nigeria was conceived in 1958 by the government. This was followed by preliminary market studies directed towards the feasibility of establishing rolling mills.

According to Njoku, Western European firms contracted in 1958 to do a feasibility study of the prospect of a viable steel industry in Nigeria returned a negative verdict, citing the quality of Nigerian coal and iron ore. In 1967, however, a Russian firm contracted to do another feasibility study returned a favourable verdict.

“Subsequently, Decree No. 19 of 1971 set up the Niger Steel Development Authority and charged it with the responsibility to see to the establishment of steel mills in Nigeria. In 1979, General Obasanjo laid the foundation of the Delta Steel Complex, Aladja, (DSCA) near Warri. The Aladja mill was described as ‘Africa’s most modern steel complex’. Two years after (1981), President Shagari laid the foundation of the giant Ajaokuta Steel Company (ASC), with a price tag of more than $5 billion,” Njoku said.

According to a December 2017 report published on Premium Times, the integrated Ajaokuta steel plant was envisaged to have multiplier effects on all sectors of the Nigerian economy, such as the industrial, agriculture, transport and construction sectors, among others.

“The steel plant was designed to produce 1.3 million tonnes of liquid steel per annum in its phase one, with a built-in capacity to expand its production to 2.6 million tonnes of flat iron and steel products in its second phase and phase three plan was planned to produce 5.2 million tonnes of various types of steel products, including heavy plates.

“The steel plant complex also has highly sophisticated assemblage of 43 different plants made up of a web of complex iron, cable and machinery of different sizes and functions.

“Out of the 43 plants, 40 are already completed and can produce independently. Ajaokuta steel has the capacity to become a major producer of industrial machineries, auto-electrical spare-parts, shipbuilding, railways and carriages,” Premium Times reports.

However, 37 years after work began on the steel complex, with more than $10 billion spent and with 98 percent completion as far back as 1994, according to sources, Ajaokuta Steel Company Limited (ASCON) is yet to be fully completed. Instead, government sources say it needs an additional $1.2 billion to complete it, even though Speaker Dogara argues that $500 million can complete the project.

A permanent money-guzzler

Writing as far back as 2001, Njoku painted a sorry picture of Ajaokuta at the time. According to him, the complex, once abuzz with activity, had gone into stupor, even though over $4 billion had already been spent on it. To make it worse, furnace, grounded tractors and vehicles in the complex became quiet haven for livestock and other animals, while birds built their nests in cranes suspended in midair.

He added, however, that to perceptive observers, the fate of Ajaokuta in particular and the steel mills generally was predictable.

“Experts had warned that the quality of Nigeria coal and iron would not support the heavy steel industry planned. As it turned out, iron ore has had to be imported from Brazil and Liberia, a country convulsed by years of fratricidal war. The energy requirements of the two companies (Aladja and Ajaokuta), when in full production, would be more than what the country itself used to consumer,” Njoku said.

He said it was, therefore, not surprising that the World Bank refused to commit money to the project, arguing that Ajaokuta would become “a permanent foreign exchange guzzler”, a prediction that had long come true.

Like Ajaokuta, like Aladja

Njoku, quoting Yakubu Mohammed, said Aladja and Ajaokuta steel complexes provide ample evidence of Nigeria’s industrial ambition.

Built on a 175-hectare expanse of land by a German-Austrian consortium, Aladja was estimated to cost N1.26 billion and was expected to produce about 960,000 tonnes of cast billets per annum.

On the other hand, Ajaokuta, which is five times more ambitious and far costlier than Aladja, occupies 8,800 hectares of land. A highly integrated complex consisting of a pellet plant, a direct reduction plant, among others, Ajaokuta was conceived to be prosecuted in three phases and was expected to produce around 5.2 million metric tonnes of structural steel per annum at full capacity.

Unfortunately, the steel mills have failed to act as the heartbeat of Nigeria’s industrial ambition and have rather been a sort of virus sapping its strength and vitality.

“More than twenty years after their births, none of the two steel mills has been fully completed, not even the first phase of the Ajaokuta complex. In 1992, Aladja was producing only at 18 percent capacity; Ajaokuta lagged far behind,” Njoku wrote in 2001.

One factor that direly affected these mills was the politics of industrial location.

“Aladja is located at ‘the tail end of Nigeria’ while the other mills are located far inland. Oshogbo rolling mill, 400km away, is the nearest to Ajaokuta, 100km farther away. Non-provision of rails as projected impelled transportation and distribution of products by road. Not built to withstand such heavy loads, the roads and bridges deteriorated fast. All these problems have contributed to make locally produced iron/steel far costlier than imported ones. Strangely, none of the mills was producing flat sheets which constituted about 58 percent of the metal goods consumed in the country,” said Njoku.

Ajaokuta ‘steal meal’

While poor planning and conception have severely hindered the full takeoff and efficient running of Ajaokuta and Aladja steel mills in the country, more benumbing is the story of corruption in the two mills. Unfortunately, the two mills have long remained a conduit by politicians to siphon public funds.

For instance, according to Njoku, Paul Unongo, former minister of steel, once accused the then ruling National Party of Nigeria (NPN) of receiving N100 million as kick-back from over-valued steel contracts. Neither the party nor the government denied the charge.

“In August-September 1996, M. Wakawa, the managing director of ASC, conducted kangaroo auction sales which ‘virtually stripped the company bare’. Such critical equipment as plant, vehicles, generators, etc were sold to ‘selected buyers, mostly military men, at ridiculously give-away prices’. It was as if Ajaokuta was for scrap,” he wrote.

But it was under Sani Abacha’s dictatorial watch that a death blow was dealt to Ajaokuta through a debt buy-back scam. This was what happened as narrated by Njoku:

“The contracting Russian firm, Tiajproexport (TPE), had bills amounting to around $3.1 billion owed to it by ASC. The Nigerian government, which in effect was synonymous with Abacha, appeared not inclined to settle the bills, to the exasperation of TPE. TPE, it seems, was persuaded by Abacha to sell the bills for $500 million, far below their face value. Panar Shipping Corporation (PSC) of Liberia, apparently fronting for the Abacha family, bought the bills.

“Shortly after, the Nigeria government bought back the bills from PSC at the original price of $3.1 billion (instead of $500 million). The difference ($2.6 billion) was shared between Abacha’s family and Anthony Ani, Minister of Finance, and Bashir Dalhatu, Minister of Power and Steel.”

It was for these reasons that the Nigerian public at one point chose to call Ajaokuta the “Steal Meal”.

Embroiled in fiasco

Beyond the other issues that have held it down since its construction, Ajaokuta Steel Company has also been embroiled in several issues. Several concession agreements have been signed and terminated.

A case in point was the concession agreement entered into with Solgas Energy. In June 2003, Solgas Energy, a limited liability company incorporated under the laws of the Isle of Man, entered into a concession agreement with the Federal Government and Ajaokuta Steel Company to complete, refurbish and expand the Ajaokuta Steel Plant and build a gas processing plant to supply the steel plant with electrical power. On August 11, 2004, Solgas wrote to the Federal government stating that it had been unsuccessful in securing the necessary capital required to fulfil its obligations. On August 12, 2004, Solgas and the Federal Government of Nigeria entered into an agreement terminating the concession.

Thereafter, Global Steel Holding Company, which was earlier subcontracted by Solgas on the Ajaokuta project under the name of Global Infrastructure Holdings Limited, entered a new concession agreement with the Federal Government relating to the steel plant. The concession contract was later terminated by the President Umar Musa Yar’Adua government.

In 2011, the Federal Government rejected an out-of-court settlement with Global Infrastructure Holdings Limited (GIHL) over the cancellation of the concession of ASCON.

Musa Sada, minister of mines and steel development at that time, said then that the government would see the case through as it intended to transform the place.

“As I am talking to you, there is a study of economic rate of return on the two facilities (referring to the Nigeria Iron Ore Mining Company). I think it is about to be concluded very soon. It is being coordinated by the minister of the economy because it is not a technical thing, it is strictly business,” Sada had said.

He had added that the government did not want to repeat past mistakes, and so, had raised an economic team to carry out a study on what to do with the two entities (Ajaokuta and NIOMC), and that the team headed by the coordinating minister for the economy, Ngozi Okonjo-Iweala, would study the possible scale of return from the plants. Seven years after, the picture of Ajaokuta still looks dreary and bleak.

In 2016, President Muhammadu Buhari signed a modified concession agreement with GIHL to enable the firm retain the National Iron Ore Mining Company, while the Federal Government took over the Ajaokuta Steel, thereby settling the legal bottlenecks surrounding the companies out of court. The modified seven-year concession agreement was signed on August 1, 2016.

The move, according to Kayode Fayemi, minister of mines and steel development, was in line with President Buhari’s repeated promise to diversify the Nigerian economy and create jobs through agriculture and extraction of solid minerals.

However, those in the know raised brows over what the future held given that Global Infrastructure Holdings Company, owned by Pramod Mittal, an Indian, has no record of any successful steel business anywhere in the world.

In May last year, Joseph Isah, sole administrator of Ajaokuta Steel Complex, told journalists in Ajaokuta that the Federal Government was considering three options to bring back the plant to life. These options, he said, were outright sale, concession, and joint venture partnership.

That consideration followed the submission of a report on the possible transaction routes that could be taken by the Federal Government to rehabilitate the steel complex by the transaction advisers and consultants, Greenwich Trust Limited.

Isah said that it would cost about $700 million to complete the plant and put it to good use; and another $663 million in external infrastructure financing for the transportation of the plant’s raw materials and final products.

Yet, during the 2018 budget defence of the Ministry of Mines and Steel Development before the joint Senate and Representatives Committee on Power, Steel Development and Metallurgy led by Enyinnaya Abaribe (PDP, Abia South) in January, Fayemi said it would be difficult to fully concession Ajaokuta due to legal issues from the decision of the London Court of Arbitration over the ownership of the steel complex.

Meanwhile, according to reports in the public domain, the Federal Government was planning to re-concession Ajaokuta Steel Complex but stakeholders in the Nigerian Metallurgical Society urged it to complete the remaining 2 percent and operate the plant for few years before any other concession.

Source: businessdayonline.com

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