Ajaokuta: Why concessioning is the way out

The raging war of words between the Federal Government and the National Assembly on whether or not the idle and uncompleted Ajaokuta Steel Complex should be concessioned has pitted the House of Representatives against the Ministry of Mines and Steel Development.  The minister, Dr. Kayode Fayemi, recently, finally confirmed that the steel complex would be concessioned. The minister said about $1.049 billion was required by government to put the steel complex fully on stream, but that the Federal Government does not have such money since it was not factored into its 2018 budget.

The steel complex was established in 1979 to produce different types of steel for Nigerian industries and also for the export market.  Work on the construction of the complex started in earnest, and by 1994, it was said to be 98 per cent completed.

TPE, the Russian company, which executed the contract, completed most of the 41 plant units of the steel company as at the time it left the site in 1996, with only a few areas left unfinished. The completed plants include a 110 megawatt captive power plant, the light section and wire rod mills, the water and gas facilities, engineering workshops and the metallurgical training centre; which were all said to have been commissioned. Also, raw beneficiated iron ore for the steel complex was expected to come from the nearby National Iron Ore Mining Company in Itakpe, Kogi State.

 

If the Federal Government cannot come up with the amount needed to complete the steel complex, and since the National Assembly had appropriated money for concessioning of the complex, then the National Assembly should allow the government to go ahead with the concessioning

 

Against the backdrop of the huge $8 billion sunk into the Ajaokuta Steel Complex by successive administrations since 1982, without any dividend and with the steel complex still needing more than $1 billion before it could start production, the Federal Government decided to count its losses on the humongous project.  Consequently, it decided that it would not spend any additional dollar on the steel complex.  Instead, the complex would now be concessioned to a credible operator with proven technical capacity and financial wherewithal, to run it more profitably.

The National Assembly had, in the 2017 budget, appropriated over N2 billion for the concessioning of the same Steel Complex. While the Ministry of Mines and Steel Development got ready and its officials were making appropriate plans to concession the steel complex, the House of Representatives made a U-turn by changing its stand on the concluded concessioning issue.  The Federal Government said the House of Representatives now wanted the Ministry to budget $500,000,000 ostensibly meant for completing the steel complex. This U-turn by the legislators has become a source of worry for the government.

Without doubt, the faux pas that is Ajaokuta Steel Complex is a national disgrace and no patriotic politician would see the complex without calling for its completion and commencement of steel production. Unfortunately, business decisions are not based on emotions but on reality. So, while the House of Representatives wanted the ministry to build $500 million into its 2018 budget for the completion of the steel complex, experts informed the ministry that $500 million could not resuscitate the steel complex. By the ministry’s records, nothing short of $1.049 billion would put the steel complex fully on stream. Unfortunately, in reality, neither the Federal Government nor the ministry could raise such money, especially after it had submitted its budget estimates to the National Assembly.

As things are, there is the need for rapprochement between the minister and the National Assembly in the interest of the country.  If the Federal Government cannot come up with the amount needed to complete the steel complex, and since the National Assembly had appropriated money for concessioning of the complex, then the National Assembly should allow the government to go ahead with the concessioning. But in doing so, the legislators should insist on global best practices, while government must get a credible operator with proven technical capacity and financial wherewithal to run it more profitably.  By concessioning the complex, thousands of Nigerians will continue to get jobs there, while billets, which are normally imported from overseas by smaller steel plants in the country will be sourced from the Ajaokuta Steel Complex.

However, the modality for the concessioning must be well thought out and executed.  At the same time, the Federal Government must ensure that the country is not short-changed in the concessioning arrangement. For example, a situation where the company that gets the concessioning embarks on asset stripping must never happen again. It must be avoided.  The agreement for the concessioning must also leave room for the landlord, that is, the government, to recover the steel complex if the company that gets the concessioning at any time refuses to follow laid down rules and regulations, as contained in the concessioning agreement. Also, regular inspection of the steel complex by the landlord must be allowed.

In addition, the Federal Government must be able to get some yearly rentals from the use of the steel complex. And, if in the future, a decision is taken to complete the uncompleted portion, then the investor who gets the commissioning should split the cost of the new investment with the Federal Government.

Those who are feverishly recommending that government should run the complex after it has completed it must remember the current happening at the Nigerian National Petroleum Corporation today. Its refineries are not run efficiently and the country has had to import refined fuel. Also, government has no business running enterprises. The business of government is to ensure that it puts in place, the enabling environment that facilitates private sector businesses and makes them to thrive and blossom, so that they can positively contribute to the overall development of the economy. If government puts the right concessioning agreement in place, whosoever gets the concession will do well and it will be better for
Nigeria.