Despite N4trn investment, hope dims for Ajaokuta steel take-off

The completion of the remaining two per cent of work on the 43-year-old Ajaokuta Steel Rolling Mill, as promised by the federal government, has been ruled out this year, despite a $10 billion (about N4.155 trillion) worth of investment, Daily Trust reports. A geologist, Professor Ibrahim Garba, said the plant’s chances of taking off are […]

The completion of the remaining two per cent of work on the 43-year-old Ajaokuta Steel Rolling Mill, as promised by the federal government, has been ruled out this year, despite a $10 billion (about N4.155 trillion) worth of investment, Daily Trust reports.

A geologist, Professor Ibrahim Garba, said the plant’s chances of taking off are slim because it was predicated on a low-grade iron ore, an important raw material needed for the smooth operation of the rolling mill.

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Prof. Garba, who served as the 14th vice-chancellor of the Ahmadu Bello University, Zaria, and also former vice chancellor of the Kano State University of Science and Technology, Wudil said it is doubtful if the steel plant will work for Nigeria.

Our correspondent reports that the professor had worked on secondment at the Federal Ministry of Mines and Steel Development, Abuja as Director-General, Nigeria Mining Cadastre Office. 

He spearheaded the development and implementation of the Mining Cadastre System in Nigeria.

Prof. Garba’s verdict on the Ajaokuta Steel Mill came in the wake of renewed efforts by the federal government to salvage the plant which is almost completed.

Recall that the Minister of Mines and Steel Development, Olamilekan Adegbite, had said that the project was thwarted by the outbreak of the COVID-19 pandemic and the ongoing Russia-Ukraine war.

The minister, who disclosed this to State House reporters recently, said President Muhammadu Buhari had approved the release of $2m for the conduct of a technical audit to ascertain the condition of the facility before restarting the work.

He said as demanded by Russian contractors, “Arrangements were being made to commence the process but COVID-19 came and put a halt to all activities, causing a force majeure.”

However, the force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract) that the minister attributed as the reason for the project’s delay has been described by experts as a weak defence for the many years the project has taken without being completed.

‘Plant unlikely to function’

Prof. Garba in an interview with Daily Trust warned that the Ajaokuta plant may never work because the quality of iron ore in Nigeria is very low. 

Because of this, Nigeria had to rely on Guinea’s high-grade iron ore to blend before milling the steel.

He said, “People keep saying that for every government that comes, the minister will collect billions and put it there, the money will disappear and nothing worked.

“This is because Ajaokuta was conceived at the time when we knew little about the issues. The main iron ore deposit for Ajaokuta is at Okene, in one place called Itakpe and the entire deposit is only 300 million tons, which is small and of very low quality of like 35 per cent, when you need about 50 – 60 per cent to have very efficient steel production.

“At that time, what the Nigerian government did was, having known that the Russians built it for us knowing that the iron ore was poor, they went to Guinea and arranged with one big mine in Guinea that produces very high-grade iron ore. 

“In fact, Nigeria took up shares in that mine, so that they can be bringing high-grade iron ore into Nigeria to blend with our low grade to produce the steel,” the professor said.

“That is why they constructed the Alaja in Warri, by the seaside so that when importing the iron ore from there, you come to Alaja and use gas through one technology they called Direct Production and produce steel.”

According to him, this product could then be moved by rail from Itakpe to Warri, which explained the purpose of that railway line between the two towns.

“You bring the iron ore from Guinea, bring it up to Ajaokuta and blend with our own. You see, what it means is that if you need about 50 – 60 per cent iron ore, which means if the rock that contains the iron ore is 60 per cent, you have to remove all the remaining 40 per cent. And, if you have 40 per cent, you have to remove about 65 per cent as waste, and you are going to use the same energy to process these two grades of iron ore.

“So, that means you will not be making money because the people that are producing the steel are producing it from higher-grade iron ores, which means your cost of production will be very high, so you cannot compete.

“That is why for iron ore, we know we have vast amounts of it, but of low grade. We have some that are of high grade around Lokoja, but they have some components that are not wanted and very difficult to remove,” he further explained.

Only advanced technology will save the day

According to Prof. Garba, the Chinese have developed a technology of eliminating unwanted things in that iron ore.

“So we are hoping that if we get some sense, we can actually develop those iron ores through the new technology and begin to produce steel.

“But, as of now, we cannot list iron ore as a comparative advantage in Nigeria because of this low-grade issue and so on.”

Ministry upbeat

But a source in the ministry debunked the claim on low-grade iron ore, claiming that Nigeria has high-grade iron ore to make the industry work at full capacity when completed.

The source, who did not want to be quoted, declared that if there are people who “Have evidence that Nigeria imports iron ore from Guinea, they should tender it.”

Daily Trust recalled that in the second week of this month, the minister of mines said that a local company in partnership with a British firm had offered to execute the technical audit of the Ajaokuta Steel plant at no cost to Nigeria without preconditions.

He disclosed this in a press release signed by his Special Assistant on Media, Ayodeji Adeyemi in response to claims that the Ajaokuta steel plant had been handed over to a British company for rehabilitation.

Minister Adegbite explained that when the technical audit is completed, the result would be shared with all interested investors and potential partners interested in Ajaokuta Steel Plant resuscitation, which they would use to enter their submission bids. 

How FG invested over $10bn in 3 decades

While some experts argued that the billions of dollars spent on the project could have been used to develop industries for other minerals with more comparative advantage, others felt that Nigeria has been losing billions of dollars in revenue and job creation for the last 35 years.

Findings revealed that for the period that the project has lingered, the federal government had sunk over $10bn to start milling. 

The project, which as far back as 1994 had reached 98 per cent completion, has the capacity to provide direct employment for 10,000 technical staff and indirectly 500,000 unskilled upstream and downstream employment, when in operation.

Sadly, till date, with all these huge investments, the multi-billion-dollar project has not produced a single steel product that can contribute to the development of Nigeria.

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

The steel plant complex also has a highly sophisticated assemblage of 43 different plants made up of a web of complex iron, cable and machinery of different sizes and functions. Findings revealed that out of the 43 plants, 40 are already completed and can produce independently.

Also, Ajaokuta Steel has the capacity to become a major producer of industrial machinery, auto-electrical spare parts, shipbuilding, railways and carriages.

How much is Nigeria losing?

Despite these facts, the moribund company had continued to receive regular budgetary allocations and disbursements in the past six years, despite being idle.

Reports say the government allocated a total of N20bn to the idle steel company between 2015 and 2021. Also, based on the 2022 budget details, the federal government had allocated N4.2bn to the Ajaokuta Steel Company Limited for the fiscal year.

The details show that N3.9bn was allocated to cover personnel costs, N186.9m for capital projects implementation, while N75.3m will be expended on overhead.

Under personnel costs, the federal government allocated N3bn to salaries and wages, while N924.6m was designated for allowances and social contributions.

Similarly, the sum of N97.2m was allocated for the provision of water facilities, N59.3m for the maintenance of power facilities and N30.5m for lighting, safety and security.

Nigeria’s peers making billions from steel

The foundation stone of the Ajaokuta Integrated Steel plant was laid in 1980 by a former President of Nigeria, Shehu Shagari, on 24,000 hectares of sprawling green-field landmass. It was envisaged to serve as the bedrock of Nigeria’s industrialisation.

The steel company, built by a Russian company called TyazhpromExport on 800-hectares has four different types of rolling mills inside the plant.

South Korea, which started its steel construction around the same time as Ajaokuta Steel, now has a revenue base of over $60bn per annum and employed over 65,000 staff. According to a World Steel Association (WSA) report, South Africa and Egypt produced 6.1 and 5m tons of steel in 2016. And while South Africa is the 22nd on the list of countries on steel production, Egypt is the 27th.

China, the world’s largest steel producer, topped the chart with a production of 808.4m tons, representing about 50 per cent of global steel output for 2016.

 Why successive govts attempt to concede Ajaokuta

In an attempt to revamp the company, in June 2003, former President Olusegun Obasanjo conceded Ajaokuta Steel to Messrs SOLGAS ENERGY of the USA on a 10-year tenure; in August 2004, the federal government terminated the SOLGAS agreement due to non-performance.

Again, an Indian company, Global Steel Holdings Limited, won the concession of the Ajaokuta Steel Mill for a 10-year period but the agreement was revoked after the federal government accused the firm of asset stripping, a development that led to a court case between the two parties.

The federal government announced in 2016 that the legal dispute had been resolved, after it reportedly ceded the National Iron Ore Mining Company, Itakpe, to Global Steel for the remaining concession period, in line with an agreement reached during mediation talks. However, the resolution has since turned contentious. In 2016, President Muhammadu Buhari fulfilled his campaign promise on Ajaokuta Steel by settling out of court the legal bottleneck surrounding the companies.

However, the federal government signed a modified concession agreement with GINL to enable the firm to retain the National Iron Ore Mining Company, Itakpe. The modified seven-year concession agreement was signed on August 1, 2016, while the federal government took over Ajaokuta Steel.

While the federal government was planning to re-concession Ajaokuta Steel again, stakeholders in the Nigerian Metallurgical Society urged it to complete the remaining two per cent and operate the plant for a few years before concessioning it.