Ajaokuta Steel Plant: Like refineries, a story retold, promises unkept
The Ajaokuta Steel Project was conceived to be bedrock of Nigeria’s industrialisation. As an integrated steel plant, it was expected to lay the foundation for Nigeria’s industrial drive. Since 1979 to date, however, the project has not distilled anticipated liquid steel. Despite gulping billions of dollars, the prodigal venture has been mired in high stake politics, monumental corruption and stuck in the mud. For past administrations and those to come, the Ajaokuta sob story will be retold with new promises of how to awaken a giant that never was. FEMI ADEKOYA writes.
The story of Ajaokuta is not new, but the promises of revival are often renewed with every political dispensation. The same promise was made by President Muhammadu Buhari’s administration, which, however, is still dreaming of reviving the steel plant before leaving office in roughly five months.
Like Nigeria’s loss-making refineries, Ajaokuta Steel Complex falls in the grandiose of projects that may never be efficient even when revived going by the developments in global value chains and Nigeria’s peculiar fiscal environment.
Notwithstanding the drama and intrigues behind the redemption songs for the steel complex, the reality of helplessness came to bear with the war in Ukraine reflecting how Russia might be unable to help in reviving the steel complex.
Russia’s Tyazhpromexport built the plant, which was incorporated in 1979. The steel mill reached 98 per cent completion in 1994, with 40 of its 43 plants having been built before it got stuck, with the remaining two per cent for external infrastructure like waterways and viable ports.
Despite the regular budget and allocation of at least N25.44bn to Ajaokuta Steel Company Limited from 2016 to 2023, the company is yet to commence full operations 42 years after, with government making failed attempts at privatisation and concession.
New optimism, same result
INDEED, in October 2019, President Muhammadu Buhari, and Russia’s Vladmir Putin met at the Russia-Africa Summit in Sochi and agreed to revive the uncompleted Ajaokuta steel mill.
The Federal Government subsequently set up the Ajaokuta Presidential Project Inauguration Team with a view to revamping the project based on a government-to-government agreement with funding from the Afreximbank and the Russian Export Centre.
However, before the Russian team that was expected to carry out the technical audit could arrive, the COVID-19 pandemic struck, stifling international travel and trade. This subsequently forced both governments to delay plans by over a year.
In July 2021, however, the minister of mines and steel development, Olamilekan Adegbite, said that the steel complex would function to capacity before 2023, when Buhari’s term ends.
Though President Buhari said the Ajaokuta steel company was ready to be concessioned to private investors at the inauguration of several projects in Kogi recently, there are concerns that the affirmation may be far from reality.
After spending $400 million on the project, Buhari said no other project was closer to his heart than the steel company, which he noted, was inherited in a moribund state from previous governments.
“I am glad to say that through our concerted effort we are able to settle the dispute by paying some money and the company is now ready for concessioning to competent private investors that will operationalise it for the people of Kogi State and Nigerians at large,” he said.
“We are in talks with a reputable company in the United States and by God’s grace Ajaokuta will very soon come back to serve the people of Nigeria.
“The significance of making Ajaokuta steel work again is enormous as it will generate over 500, 000 jobs for Nigerian youths and also generate high revenue for the state and the country to the tune of over $1.6 billion yearly.
“Nigerians should be rest assured that my administration will pursue the issue of Ajaokuta Steel Company to a logical conclusion before I leave office as president of Nigeria”.
A close look at Nigeria’s import data showed that the country spent N1.038 trillion on iron and steel imports between July 2021 and first quarter of 2022, according to the National Bureau of Statistics’ Foreign Trade Statistics.
The total value of basic metal products imported between July and December 2021 was N748.529 billion, while that of iron and steel was N88.232 billion.
In the first three months of 2022, Africa’s biggest economy imported metals valued at N201.08 billion. The value of iron and steel, however, was not captured by the NBS report in the first quarter of 2022 and even in the Q3 2022 data shared in December.
The Manufacturers Association of Nigeria (MAN) estimates that the country has pumped over $8 billion into the idle steel plant so far. The situation is riling the major players in the sector who wonder why the Federal Government watches the country’s huge import bill while Ajaokuta and the local steel sector struggle.
For a country heavily invested in infrastructure projects, steel remains the pillar of construction and accounts for the high cost of projects, considering Nigeria’s heavy reliance on imports and the prevailing high exchange rate.
Insiders familiar with the state of the Steel Complex told The Guardian that the primary units comprising of the Raw Material Handling Plant, Sinter Plant, Coke Oven and By-products Plant, Iron Making Plant and the Steel making Plant, require a technical auditing to determine the state and quality of asset being concessioned considering the years of neglect of the assets.
According to the Director of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, Ajaokuta Steel Company has become an albatross to the Nigerian economy, adding that the rhetoric of reviving the steel complex has not translated into any concrete action over the years.
He said: “To date, an estimated $10 billion would have been spent on the steel complex and the associated Itakpe Iron Ore plant. For many years, the plant was a victim of multidimensional corruption involving the bureaucrats and politicians.
“Political interference and vested interests compromised the quality of spending, major business decisions and management of the company. There were stories of compromised concessioning processes, asset stripping and many other malpractices”, he added.
He explained that the way forward is to completely decouple the steel company and its sister iron ore company from the politicians and the bureaucrats.
“The plant is too big to be concessioned to a single firm. It should be unbundled into units that can operate as separate business entities. The complex has massive real estate in the form of housing estates; big power plants; machines shops with numerous engineering equipment; steel rolling mills for the production of different grades and dimensions of iron rods and beams; and there is the blast furnace for conversion of iron ore to steel.
“But more importantly, it is imperative to ensure better transparency in the concessioning process. It is still possible to salvage the steel complex if the government is committed to the ideals of transparency and a credible concessioning process.
“The government should no longer commit funds to the plant, but should ensure the provision of infrastructure to complement private capital injection into the plant,” he added.
The problem with Ajaokuta
LEADERS of developed and developing nations often underscore the importance of steel to industrialisation. Steel consumption per capita is one of the indices used to measure a country’s level of industrialisation; because as countries increase their industrial capacity, their steel consumption increases.
Whereas 150Kg is the global average of steel consumption per capita, in Nigeria, steel consumption per capita is at 10kg lower than the African average consumption per capita of 35kg. This is one of the indications of the level of industrialisation in Nigeria.
Indeed, the absence of a viable steel complex has left the nation at the mercy of importers and foreign contractors who ship in materials and labourers to complete tasks for which local capacity could have been leveraged.
Ajaokuta steel project is located in Ajaokuta Council of Kogi State, North Central. The project was situated there because of several factors such as, it is a green-field area located close to the source of water (Niger/Benue confluence) for a steel project of such magnitude. The area is a cross-road that connects about 18 states of the federation. And importantly, it is historically located in an area known for its mining activities, as well as the proximity to Itakpe Iron Ore Mining Company (NIOMCO).
The project design as of 1979 was based on the conventional Blast Furnace (BF) route for iron making and Basic Oxygen Furnace (BOF) for steel making. It is an integrated steel plant designed to produce 1.3 million tonnes of liquid steel per annum in the first phase, 2.6 million tonnes of liquid steel per annum in the second phase and 5.2 million tonnes of liquid steel per annum in the final stage. Apart from the production of steel, it was envisaged that derivatives such as fertiliser to support agriculture and investment in infrastructure around the area would boost the Nigerian economy.
Despite the obvious failure of leadership, policy and actions, the Ajaokuta Steel Project continues to gulp the nation’s funds. Data collated from the appropriation bills available on the website of the Budget Office of the Federation showed that N295.1m was allocated to Ajaokuta in 2016, with N135.2m released by October of that year. In 2017, the total allocation was N4.3bn, with recurrent expenditures at N3.9bn and capital expenditures at N354.1m.
In 2018, the total allocation was N4.3bn, with recurrent expenditures at N3.9bn and capital expenditures at N354.1m. In 2019, the total allocation was N3.6bn, with recurrent expenditures at N3.3bn and capital expenditures at N262m. In 2020, the total allocation was N3.7bn, with recurrent expenditures at N3.6bn and capital expenditures at N147.2m.
In 2021, the total allocation was N4.2bn, with recurrent expenditures at N4bn and capital expenditures at N253.9m. In 2022, the Federal Government approved N853 million for consultancy services targeted at the steel complex’s concession.
For 2023, the Federal Government plans to spend N4.14 billion on the steel company, with N3.58 billion appropriated for personnel cost, N482.8 million on capital expenditure and N80.17 million on overhead. In total, Ajaokuta Steel Complex has taken N25.44 billion within the life cycle of the Buhari administration.
This has been the case since the inception of the project, more allocation, less completion. There are talks to privatize the project once again. The state of Ajaokuta Steel Project is similar to other projects that are considered as white elephant projects. For instance, the Brass Liquefied Natural Gas in Bayelsa has not come on stream despite being initiated since 2003.
The Olusegun Obasanjo-led administration embarked on privatisation of the Ajaokuta Steel Project in 2002; the government signed an agreement transferring the project to Kobe Steel of Japan, a company financed by SOLGAS. Due diligence was not done to ensure the commitment of these companies to the project, in the end, that concession only increased the project’s poor condition.
In 2004, Nigerian leadership signed another contract transferring the company to ISPAT of India, financed by Global Holding Limited (GIHL). The project witnessed a disastrous turn for the worse. There was massive retrenchment from the company. Many highly trained and experienced workers were retrenched.
Jamiu Danga, in a research on ‘Leadership and crises of steel development in Nigeria: Wither Ajaokuta Steel Project?’ stated that worse still, GIHL did not inject the needed fund that the project needed but rather allegedly embarked on the cannibalization of the company by moving critical spare parts to their private holdings. The workers of Ajaokuta Steel Project had to constitute themselves into vigilantes to prevent further removal of critical spare parts from the company.
The concession agreement between the Federal government and GIHL was brought to an end in 2008 when President Umar Musa Yar’Adua set up a committee to consider the concession and the progress made in the ASCL, the committee reported back with critical findings.
According to Danga, it was found that the agreements were done in a way that it favoured GIHL to the detriment of the national economy, that as a result of several actions of GIHL, the agreement had been breached. An instance is that rather than invest in the Nigerian economy by bringing investments, GIHL was borrowing from Nigerian banks using Delta Steel Company as collateral. More so, GIHL pilfered the installed equipment of Ajaokuta Steel Company by moving it to their private companies.
These findings by the committee inevitably led the Federal Executive council to terminate the concession agreements with the GIHL. In fact, new findings by the National Assembly revealed that at the time of signing the concession agreement, the Federal Government did not involve the Bureau of Public Enterprise (BPE), the sole entity responsible for the privatization of public enterprises.
This development confirms what was already viewed as a shady deal with GIHL which some have speculated were brought to rip the country through their connections in high places.
Indeed, Natasha Akpoti, a foremost agitator for the resuscitation of the company had pointed out that it was through Senator Liyel Imoke and Gbenga Obasanjo (the son of the former president Olusegun Obasanjo) that GIHL gained access to the ASCL.
The termination of the concession agreement between the FGN and GIHL resulted in a series of arbitration. GIHL sued the government of Nigeria to the International Chamber of Commerce in Britain and demanded $1 billion dollars in damages for the contract termination.
This arbitration lingered on, for years, thus, ensuring that the FGN was unable to do any major work on the project. Part of the demands of GIHL was that in addition to the huge sum of money, the FGN grant it the National Iron Ore Mining Company (NIOMCO) at Itakpe for 25 years period for free.
The objective was to direct the iron ore in Itakpe to DSC, which is owned by GIHL from the concession processes. They eventually succeeded in obtaining NIOMCO till the initial agreements wound down.
MEANWHILE, a technical audit that was instituted by the FGN after the departure of GIHL, which revealed extensive assets stripping, assets collateralisation and equipment spoilages under the concession.
The Federal Government was unhappy about the whole thing and expectedly, the case before the international arbitration panel dragged under the administrations of both late President Umar Musa Yar’adua and that of former President Goodluck Jonathan.
With the Buhari administration, the Director-General of the Bureau of Public Enterprises (BPE), Alex Okoh, in detailing the efforts made so far in 2022, had last year, said, “Ajaokuta was not privatised, Ajaokuta was concessioned, and incidentally, unlike the ports, the concession was not handled by the BPE. The Ministry handled it. You see, the government is one.
“When a problem crystallises, the government must come together to resolve it. The matter itself also is subjudice, at least, when you are talking about the ownership, all the settlement arrangements around Ajaokuta, Delta Steel, and of course the Itakpe and they are all connected. All of those infrastructure and facilities are connected.
“There is an ongoing effort to untangle and unbundle them because Delta Steel itself has gone to pursue a different track of resolution; but to just sort of combine with all of them and resolve the issues with Global Infrastructure Nigeria Limited.
“That effort is on-going to have a sort of out-of-court settlement. His Excellency, the President, has also set up an inter- agency committee basically to advise on the best way to resuscitate Ajaokuta itself following the out-of-court settlement with GIHL.
“Thankfully, we are part of this committee at this point, and I think that we will be able to advise, given our expertise as the government agency that actually has the mandate and the skills to handle such complex transactions, on how best to address Ajaokuta.
“Some of the ideas that we are looking at involve the numerous business opportunities that abound in Ajaokuta-about 42 to 43 of them, which are all steel-related. But the issue is: do you want to run the plant as one integrated unit? Or do you want to run them as different businesses? So, we will look at the different options and we will advise the government appropriately.
“But again, just like the Aluminum Smelter Company of Nigeria (ALSCON) in Ikot-Abasi, Akwa-Ibom State, I am very hopeful that once we are able to resolve the legal ownership issues we should be able to bring up Ajaokuta operationally in a very short period of time.”
With Buhari leaving office in the next four months and the Russia-Ukraine war raging, the fate of the steel complex hangs in the balance.
Though some stakeholders have argued that Nigeria could also look to China to work on the project, the Chinese option remains unlikely, as Nigeria has been unable to get China to fund its latest rail projects.
Over 40 years later, the story of Ajaokuta will still be told as that of a giant that never left the cradle.