Strong political will needed to rescue Ajaokuta Steel project, says Esezobor
• How Saboteurs Undermine Policy Formulation In Mining Sector
Engr David Esezobor is Professor of Extractive Metallurgy and Material Processing at the University of Lagos. He is also Co-Chair, Iron and Steel Development, Nigerian Society of Engineers (NSE). He tells GBENGA SALAU how to bring the Ajaokuta steel project back on track and the impact it would have on Nigeria and beyond when it becomes operational.
What is needed to fix Ajaokuta?
What Nigeria needs to fix Ajaokuta Steel Company Limited (ASCL) is strong political will from the Federal Government. It should treat the iron and steel sector as a strategic area of the economy and ensure that a clear vision and viable roadmap is articulated and implemented as a national emergency project. The sector should also be jealously guarded to yield desired goals. Secondly, ASCL and the National Iron Ore Mining Corporation (NIOMCO), Itakpe, its captive, should be taken out of the list of privatisable industries.
Thirdly, Ajaokuta and NIOMCO should be taken out of the purview of a ministry and brought under an independent directorate or authority under the presidency. Meaningful development in the iron and steel sector was witnessed when in 1971 a Military Decree (No 9 of April 14) established the Nigeria Steel Development Authority (NSDA)). The body, charged with the organisation and supervision of the steel programme in Nigeria, did the planning, organisation and operation of the plants, carried out geological surveys with experts, market surveys/studies and metallurgical research and training, and appropriately came up with the most efficient and enduring technology. This is the present technology in Ajaokuta. It is employment friendly because of its great potential for generating downstream industries, which is envisaged to benefit the country tremendously.
Every other progress made was attained when the body was on ground. Unfortunately, it was not allowed to continue its good works. The Federal Government dissolved NSDA in 1979, the only viable agency that could have scientifically and technically managed the country’s steel programme. Its functions were handed over to non-technical bureaucrats of a new Ministry of Steel. Confusion, controversy, internal and external conspirators had their way in ensuring the project was not realised. A lot of activities were haphazardly embarked upon, amid distractions. The initially proposed turnkey strategy for Ajaokuta was reversed to backward integration. Lots of inflated subsidiary projects were simultaneously undertaken. Thus NSDA metamorphosed into several organisations such as Ajaokuta Steel Company Limited; Delta Steel Company, Aladja; Jos, Katsina and Osogbo Rolling Mills; NIOMCO, National Steel Raw Materials Exploration Agency, Kaduna (NSRMEA); National Metallurgical Development Centre (NMDC), Jos; and the Metallurgical Training Institute (MTI), Onitsha.
NSRMEA, NMDC and MTI were to be fully funded by the Federal Government. But that was not the case. The rest were supposed to be limited liability companies that should be self-funding. Everyone can attest to the outcome of these arrangements today. Conspirators orchestrated the dissolution of NSDA. They thought it would block their objectives and they were afraid that if ASCL was allowed to come on board, Nigeria could become another Japan in Africa.
Fourthly, a small high-powered interdisciplinary team of frontline stakeholders drawn from the Nigerian Society of Engineers, relevant professionals from the academia and MDAs should be empanelled and charged with the responsibility of establishing contact with the original Russian Global contractors, TIAJPROMEXPORT (TPE), as well as the Ukrainian counterpart, the owner of the technology. The panel should explore with professional acumen the possibility of bringing TPE back to complete the project.
Again, there is a need for the promulgation of an Act that will provide for the organisation, coordination, supervision, regulation, inspection and effective monitoring of metallurgical activities in the iron and steel sector and raw materials development in Nigeria. The Federal Government should enforce the patronage of locally produced iron and steel products and by-products in line with the Nigerian Local Content Policy, such as inclusion of off-taker agreement in key infrastructure projects of government.
I will also advise that the Federal Government reactivate the completed 40 out of 43 units of the first phase development of Ajaokuta and unbundle them into six industrial units or enterprises, as the second option to the invitation of TPE. Funds should be provided by the Federal Government to finish the uncompleted units.
Does government have the capacity to continue managing Ajaokuta?
Political capacity is currently lacking. What we have today is lip service. There is the lack of coherent, well-articulated and consistent iron and steel development policies that strategically interface with other developmental policies such as employment generation; peace and security; economic diversification; and wealth generation activities. It fails to realise that the key to any political agenda is a solid iron and steel base, not necessarily commerce. It fails to realise that the neglect of this sector amounts to gross error and misplacement of priority for Nigeria. Therefore, what we require is a strong political will.
On economic capability, I will say that the government and the people of this country have it. I am in total support of the Nigerian Society of Engineers in advocating the establishment of a Metallurgical Development Fund or Bank. Funds for this bank can be explored from sources such as 1 per cent of the Federation Account and ¼ per cent levy on income or turnover of commercial companies and firms with turnout of N4 million and above, accruable to the National Agency for Science and Engineering Infrastructure (NASENI) Fund (CAP N3 Section 20 (1)(a) and (b)); and 1 per cent surcharges on import of raw materials accruable to the Raw Materials Development Fund (CAP R3, Section 6(2)(a).
Where does the argument for concessioning come in, when so much has already been spent?
What are the benefits of privatising Ajaokuta steel plant now? Have we learnt any lesson from abroad on how their first steel plants were established? I want someone to prove me wrong. There is no industrialised nation in the world that started its first steel project under concession, especially an uncompleted project such as Ajaokuta. I have said it in several fora that the integrated Ajaokuta steel project is not mature for privatisation, due to the huge capital investment required, absence of massive infrastructure support, and high susceptibility to policies and global market situation. Therefore, any attempt to privatise Ajaokuta at this stage of its non-completion and non-removal of the factors mitigating growth and development of the sector will not yield desired results. The Federal Government should only consider the privatisation option upon successful completion and commercialisation of the project.
You said privatisation is not an option until completion, but government is having issues paying salaries. Where would the funds come from?
Strategic projects for national defence or security or wealth creation or industrialisation should never be privatised. But where they have to, they should first be developed to their optimal potential under government’s purview. On the issue of funding, the government cannot fund this gigantic project through budgeting. Egypt, for instance, that started its steel project after we embarked on ours, has completed it. And it is expanding the project, neglecting advice from the World Bank. It floated bonds and shares for the citizenry. These were distributed at a low price. Nigeria can borrow a leaf from Egypt. As I said earlier, Nigeria can establish a Metallurgical Development Bank for the sector. I know notable Nigerians both within and outside that would key into the project. People are thinking that the money should come from the government alone. No. If the right institutional framework is put on ground, the money needed will be generated. And moreover, a non-technical ministry should not handle it. This is because if you have billions of dollars there today, you may not be able to make use of it in the right direction.
Do we have the technical know-how to locally manage our steel industry?
The nation is blessed with human capacity. We have the technical know-how. There are quite good numbers of Nigerian engineers and their counterparts still living today, who managed Ajaokuta when the rolling mills were commissioned and when the Indians were there. Nigerians did every operation that occurred during the concession; the Indians only supervised. There are hundreds or even thousands of metallurgical engineers like me all over the country and abroad. The mineral and material resources are in abundance.
Do you suspect sabotage in the history of Ajaokuta?
This is well known. The Bretton Woods Institutions (the International Monetary Fund (IMF) and the World Bank) were shocked that the communists got the plum job in those days of the Cold War and immediately became implacably opposed to the development of the project. Initially, the NSDA and the Soviet contractor advocated a turnkey strategy for Ajaokuta. Turnkey strategy means the design and preparation of all working drawings, plant foundation civil works, and works services, supply and erection of equipment, structures and materials, and the training of personnel.
Immediately the contract was about to be signed with TPE, the World Bank canvassed for, and succeeded in getting a bite of the pie for West European contractors. All the plant’s foundation civil works and works services were excised from the envisaged contract including all office blocks, water works, electrical sub-station, 16km underground cable and pipeline tunnels, Okene-Ajaokuta expressway, Ajaokuta-Lokoja highway, a 737 aircraft landing strip, Itakpe-Ajaokuta-Warri and Otukpo-Ajaokuta Standard Gauge railways, a river port, management staff housing, city roads, factory internal roads etc. All these and more, although designed by TPE, were awarded in three lots to three reputable Nigerian registered West European civil contractors. The companies were: Fuegerolle (1980); Bilfinger and Berger (1981); and Dumez (1981).
The global contract, which was signed in 1979 with the Soviet Union’s TPE now covered the design and preparation of all working drawings, supply and erection of equipment, structures and materials and the training of personnel. TPE also had responsibility to commission and operate the plant, as well as market the products. Thus, a two-year delay in contract execution arose as a result of this time differential in the award of the Global contract (1979) and civil works contracts (1981).
That reminds me of the issue of Delta Steel Company (DSC). Do you know that DSC, Aladja, was completed and commissioned on schedule? This was due largely to the tidy turnkey contract with the German-Austrian Consortium and the even tidier financing arrangement, unlike ASCL. The DSC technology was rejected in both Germany and Austria, the countries that built them. The process is endothermic and therefore consumes a lot of electrical energy, unlike the blast furnace process. The plant does not manufacture iron per se, but only metallised ore, also called DRI (Direct Reduced Iron) or sponge iron in the solid state. Initially, the advocate of this technology (World Bank) wanted Nigeria to replace Ajaokuta with DSC in 1979. But former President Shehu Shagari rightly allowed it to be supplementary to Ajaokuta. So, Nigerians should be grateful to him for that action. The process is useful for the manufacture of high-cost special alloy steels, but not for the large tonnage steel production that Nigeria and Africa need now.
The Federal Government should understand that the high initial capital investment cost of ASCL’s conventional integrated steel plants has never been a reason for any big production country not to spend funds to fully establish its own steel plant. This factor is cancelled out by the high efficiency and low operating cost per ton of hot metal, as with the ASCL type. You will recall that they have always advised us to discontinue ASCL because, as they put it, “It is not viable and it is more economical to import steel and its products than to build the steel plant.” They advised us to scrap the project and convert it to a museum or power generating plant and concentrate more on agriculture.
Today, they have come again to the corridors of power with their unproven proposals, as they did in the late 70s and early 80s, to take over ASCL. But what we should bear in mind is that majority of them are not steel plants builders, but steel producers. There is a great difference between these two. Moreover, no investor will come to Nigeria to build our roads, railways, waterways and seaports, simply because they want to acquire Ajaokuta.
It is claimed there are saboteurs involved. Don’t you think the Nigerian Society of Engineers has failed in checking them?
Not at all, because I was privileged to be the national chairman of the Nigerian Institution of Metallurgical Mining and Materials Engineers, and currently the co-chairman of the Presidential Committee on Iron and Steel Development of the Nigerian Society of Engineers. We have made enormous efforts. Apart from us, other sister bodies have also made efforts. We advised the government on what to do. Unfortunately, these saboteurs have penetrated the executive and those in the ministry. One way or the other, because of corruption, they found their way in. And at the end of the day, they jettison suggestions from professionals.
For instance, in 2014, when the Nigeria Metallurgical Industry Bill was to be passed, we were not aware of the public hearing until about five days. Because we know our role, we went in there and advised that we should be given time to thoroughly look at the bill, to make our contribution. The chairman of the House of Representatives Committee on Steel actually heeded our advice and it was postponed. So, we went back and restructured the initial executive bill submitted by the Ministry of Mines and Steel Development, which will not bring any growth or development to the industry, because everything was just based on one man. So, if that man takes a decision tomorrow, it can mortgage the country forever and the future of our children.
But I don’t know how they did it; they jettisoned our suggestion. The only positive feeling is that it was not signed. These same people went again and repackaged that bill. Now, it is in the Senate. They knew that the House of Representatives was aware of it, so they took it to the Senate. We have also told the Senate, “This bill, in its form, will kill the industry.” We have also submitted our suggestions to the Senate.
What do you think we have actually lost, economically?
For every one dollar that is invested in this steel industry, the return is eight dollars. It is proven. And that is why, no country has ever developed without first developing the steel sector. Japan has nothing. Are they not the ones we are talking about today, because they have their steel base? We are so lucky that we have the raw material and the human resources. Then what is wrong with us? Is it a curse? Ajaokuta complex alone can generate 500,000 jobs. And if I know that Ajaokuta is there, all I need to do is set up one kiosk and I know what I am going to gain from it.
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