Hobbled by corruption, Ajaokuta steel mill’s future uncertain
Nigeria’s Ajaokuta Steel Mill built by the Soviets and described by the late novelist, Chinua Achebe, as the “poster child of corruption and white elephant projects in Africa,” has not produced steel, iron or metals since its inception in 1979.
Designed to be the biggest industrial project in sub-Saharan Africa in the 1970s, Ajaokuta would have produced 2.6 million tonnes of steel within the first year, half as plates and the others into structural steel, rods and wires.
The expectation was for a doubling of the production capacity immediately after initial operations commenced. In addition, Ajaokuta was to help expose Nigeria’s industrial metallurgy and economy to the in-house manufacturing of capital goods and was billed to create a total of 500,000 jobs, among other economic benefits.
The ultimate goal, said Maxim Matusevich, professor of History at Seton Hall University, was “to serve as Nigeria’s main platform towards becoming an economic and industrialised global power”.
The initial contract for the construction of Ajaokuta, Matusevich noted, was signed on June4, 1976 for $1 billion, with commercial production scheduled to commence in 1980 or shortly thereafter.
However, the cost, he further observed, was reviewed upward several times before 1985.
“For example, by February 1980, the cost had risen to $12.7 billion (about N7 billion at the time), and it was renegotiated and raised a few times afterwards,” he said.
According to the Manufacturers Association of Nigeria, over $8 billion has been spent on the company with extremely meagre returns so far.
With no returns on investments, cost overruns, decomposing and depreciating assets, electricity debt running into billions of naira and most recently the importation of steel worth N837 billion, Ajaokuta has left many Nigerians befuddled and the nation’s economy dependent on expensive foreign imports of steel and iron.
Flushed with high hopes of industrialisation and diversification of the economy away from the oil industry, Nigeria had hoped to use the steel industry, especially Ajaokuta, to diversify the nation’s economy and income and drive the process of industrial take-off.
These hopes were not to be met. Poor planning and bad politics, which resulted in the non-strategic location of the project, corruption, and the cold war politics between the west and the Soviet Union, coalesced to make Ajaokuta a mirage.
In 2011, Mohammed Sada, the then minister of mines and steel development, said that Ajaokuta might still not be productive even when completed, for lack of raw materials. The behemoth was sited in an area devoid of the critical raw materials needed to churn out steel.
‘It was all about corruption’
More than any other factor, corruption has been primarily responsible for the non-completion of Ajaokuta. “When you hear officials of Ajaokuta talking loudly about reviving Ajaokuta steel company, or NNPC officials squawking about reviving the refineries and asking government for money to do so, just know that they just want to steal the monies,” a former senior Nigerian diplomat told BusinessDay.
A leaked 2003 WikiLeaks report from the US Embassy in Abuja said: “Since 1979, Ajaokuta Steel Complex has been used as a mechanism to grant contracts to contractors performing substandard work at overinflated prices while providing senior Government of Nigeria (GON) officials with large kickbacks.
The GON estimates it has spent at least USD 5 billion on what was to be Africa’s largest steel production facility, while World Bank estimates put the cost at about USD 7 billion (not adjusted for inflation).
“President Obasanjo’s military government in 1979 began the project with Russian and German technical partners. The Obasanjo administration may have thought the project feasible, according to an Irish engineer who was a member of Ajaokuta’s construction team in the 1980s, but within a few months, senior GON officials were already siphoning off millions in kickbacks from real and false contracts for the complex’s construction.
Construction continued until 1983, when the newly installed Buhari military regime cut the project’s funding. From 1990 to 1996, construction of the plant resumed, but it was halted in 1996 by Abacha’s regime with about 90 percent of Ajaokuta completed.”
According to the report, US Embassy sources said Abacha had made all the money he could from Ajaokuta by that point, and never intended to complete or operate the plant.
“For example, Abacha directed the GON to purchase the debt it owed Russia for Ajakouta’s construction for 53 percent of its face value. Abacha then cooked the books to show that the GON had paid the debt in full to Russia, pocketing nearly 75 percent of the debt scheme profit for himself.
Since 1979, the GON has also paid and housed Ajaokuta’s estimated 4,500 workers, and maintained the 24,000-hectare property and steel operations,” it said.
A March 10, 2014 note to the Federal Government by the US Department of Justice highlighted how the Abacha government and their bagman, Atiku Bagudu (current governor of Kebbi state), used Ajaokuta to steal hundreds of millions of dollars.
It said: “In October 1995, Bagudu orchestrated a series of transactions whereby the debt instruments were sold in an inflated process to a Liberian company, Parnar Shipping Corporation (Parnar), for 350 million Deutsche Mark. In turn, Parnar sold these bills for 481 million DM to Mecosta Securities (Mecosta), which resold them to the Nigerian government for 973 million DM. General Abacha’s Finance Minister, Chief Anthony Ani, personally approved the Nigerian government’s repurchase of these bills of exchange at the order of General Abacha.
“The Nigerian government purchase of the debt through Mecosta cost the government approximately 500 million DM more than if they bought the debt back directly from Parnar. Abacha and his associates subsequently acquired this money as another form of illicit profit.”
In June 2008, Muhammadu Buhari, who had lost the 2007 election as presidential candidate of the All Nigerian People’s Party, gave Abacha a clean bill of health, asserting that there was no basis for accusing Abacha of corruption.
“Ten years without the late Abacha, the said allegations remain silent because there are no facts. All the allegations levelled against the personality of the late Gen Sani Abacha will remain allegations. It is 10 years now, things should be over by now,” Buhari said at the time, according to newspaper reports.
Since coming into power in 2015, President Buhari’s government has received from foreign governments hundreds of millions of dollars stolen by the late dictator.
A history of concessions
Nigeria’s governments’ efforts to revitalise Ajaokuta have all failed so far. In June 2003, the company was ceded to Messrs SOLGAS ENERGY of the United States on 10-year tenure. The concession gave SOLGAS the sole rights to refurbish the yet-to-operate Ajaokuta Steel Complex, to sell energy to the national grid from the complex’s electric plant, and to operate a yet-to-be-built LNG-fired electric plant.
Promises by SOLGAS and Nigeria’s federal government that Ajaokuta would produce 1.3 million tonnes of steel per year in 18 to 24 months and supply 2,300 megawatts of electricity to the complex and national power grid by 2005 did not materialise, leading to the termination of the agreement by the federal government in August 2004.
That same year, the Obasanjo administration granted a concession to an India company, Global Infrastructure Nigeria Limited (GINL), for Ajaokuta Steel Company Limited and the Nigeria Iron Ore Mining Company (NIOMCO).
Protests that the entire concession to GINL was steeped in underhand deals that robbed the nation through under-valued transactions caused the government of late President Umaru Musa Yar’Adua to establish a five-man probe panel in October 2007.
The concession agreement was then cancelled in June 2008 due to allegations that GINL had failed to meet performance targets and to pay concession fees while indulging in asset stripping.
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GINL proceeded to international arbitration over the matter when it took the Nigerian government to the International Chamber of Commerce, International Court of Arbitration, Paris, commencing arbitration in 2008. Although the Federal Government negotiated a settlement in May 2013, the previous administration failed to implement its settlement agreement.
Olawale Ajai, professor of Legal, Social and Political Environment of Business at the Lagos Business School, in a 2013 article, noted that “Nigeria had closed down a functioning Ajaokuta Steel Company in 2007 on the grounds of a faulty privatisation process but was still paying thousands of staff in a then largely moribund facility in 2013, whilst it attended to a costly international arbitration”.
In August 2016, the Buhari administration modified the concession agreement with GINL.
In May 2020, Global Steel said Nigeria’s government threatened a resumption of the arbitration and announced an anticipated claim in damages of over $10-14 billion against the Nigerian state in respect of the affected five contracts.
Early this month, the federal government said it had settled a $5.3 billion claim made by Indian-owned firms, Global Steel Holdings and Global Infrastructure Steel, over the ownership and control of Ajaokuta Steel Company and iron ore mine.
This deal has “rescued” the Nigerian steel industry from complex disputes, Abubakar Malami, Attorney General of the Federation and Minister of Justice, said.
A statement by Umar Gwandu, the spokesman for Malami, said by the resolution of the dispute, Nigeria would pay $496 million instead of $5.258 billion.
“Nigeria succeeded in reducing the claim in mediation brought by the international firm of King and Spalding, legal representatives of the Global group, by 91 percent. A claim for over $10 billion was threatened in arbitration before the International Chamber of Commerce, International Court of Arbitration, Paris, in respect of five major contracts of 2004-2007 – covering steel, iron ore, and rail,” he said.