• Thursday, April 25, 2024
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The strange case of the US$1 billion fund to revive Ajaokuta


Strange things happen in government all over the world but stranger things do happen in the Nigerian government. On Thursday, November 13, the Senate ‘strangely’ passed a bill to provide for the withdrawal of $1billion from the Excess Crude Account (ECA) for the completion of the Ajaokuta Steel Company.  The bill, which had earlier been passed by the House of Representatives, also makes provision that additional appropriation can be made from the budget, and also loans and grants can be taken by the federal government to complete the Ajaokuta Steel mill. Effectively, the federal government is being given almost a blank check to get Ajaokuta working again.  Even more strangely, the bill also put a stop to any plans by the government to concession the Ajaokuta Steel plant.

Built in 1979, it is estimated that the federal government has spent US$8 billion so far on the plant even though it is yet to produce an ingot of steel for which it was built. Ajaokuta was built to be the nation’s turning point for industrialisation but it has more or less become sinking hole of government spending. Located on a 24,000 hectares of ‘sprawling greenfield’, the steel plant itself occupies about 800 hectares. Ajaokuta is a grandiose dream that has become a nightmare. Sadly, the Nigerian government is failing to wake up from the Ajakuta nightmare. For most private businesses, when they make a bad investment, the first advice is to cut the losses and run. In the Nigerian government case, it is obvious that there is no cap on the losses that the government can make on an investment before deciding when to cut and run.

READ ALSO: Nigeria government turns to 60 Russian experts to revive Ajaokuta Steel

It is difficult to understand the rationale behind the National Assembly’s decision to pass a special purpose bill to complete Ajaokuta. Why do you need a bill to complete a plant? When the plant is completed, what happens to the bill?  Even more concerning in the bill is the provision that the federal government must complete the repairs of the plant and make sure it starts ‘production at a very significant stage’ before it can be concessioned or sold.

The risk in this is assuming that the plant, when repaired, will be able to pay back whatever has been spent repairing it or be sold at a price that will enable the government recoup whatever it has spent repairing it.  This is a very faulty assumption because a buyer or whoever takes the plant on concession would only pay a market price for the plant, which would be based on projections of potential returns on the plant and not based on what the government has spent getting the plant into shape, if it ever gets into shape.

This means that, even where the US$1 billion plus is sunk into repairing the plant, there is no guarantee that the government would be able to recover the money at the point of sale or even the US$8 billion that has been sunk into the plant from construction to date. Why this insistence on throwing good money after a bad investment? The government, with an eye on what it has spent, risk fixing the reserve sales price or concession fees too high that it discourages potential bidders for the plant. This situation could force the government holding onto a plant that it has proven it has no capacity to manage, except that is the whole idea behind this strange bill in the first place.

Sadly, this attitude of holding onto a bad investment is not totally strange. It is the same rationale that has inspired the federal government holding onto the refineries despite the fact that they have been making losses for more than two decades now. For more than two decades, the federal government has consistently shown that it has no capacity to make the country’s refineries work. This is after several commissioned turnaround maintenance that ends up swallowing billions of naira but fails to deliver refined products from the country’s three refineries located in Port Harcourt, Warri and Kaduna with a combined capacity to refine 445,000 b/d.

As at August, the combined capacity utilisation of the three refineries was 3.02 percent. In the 12 months to August 2018, the highest combined capacity utilisation of the refineries has been 26.99 percent. The refineries have been making losses, not only this year, but almost for as long as they have existed. Yet, this is another asset, the government, especially the National Assembly has resisted all attempts to sell or even concession.

Like Ajaokuta, the federal government is also sourcing for money to repair the refineries which from history, they have not shown any capacity to run profitably.  If past trends are anything to go by, this is another investment about to go down the drain.

It must come to a point when the government must accept that it has no capacity to run some of these assets that it keeps holding on to. What is the benefit to the government and the people of Nigeria that the government is holding on to assets that are consuming money that could be used to provide other social needs like healthcare and education, when it could easily dispose of those assets and allow the private sector to turn it into a money making venture that creates lucrative jobs for Nigerians and boost government revenues?

Indorama Petrochemical plant Eleme, Port Harcourt, Rivers state was a loss making subsidiary of the Nigerian National Petroleum Corporation (NNPC) until it was privatised. Today, the company is not only creating quality jobs, it is also paying significant taxes to the government and has become a pillar of support to its immediate community in Eleme.

A bill that sets up a fund for the completion of Ajaokuta makes no sense. It is likely to end up as another drain pipe on already pressured public revenues. There is no rationale for the government to put money in ventures that the private sector would be happy to put money into. Ajaokuta’s full potential can be realised with private sector investment not with public sector funds that will breed unhealthy control that ends up not being productive but creates a conduit pipe for corruption. If the government has US$1 billion to spare, it should use it to set up an education and health fund. That is much needed than a fund to repair a steel plant that can easily and happily be done by the private sector under the right conditions.

Besides, the federal government has had almost 40 years to make Ajaokuta work. It has not been able to. The issue is not just money. It is also about capacity and competence. The federal government has not shown it has both when it comes to Ajakuta and the refineries. It should just hand them over to the private sector instead of throwing in more money, most of which will end up being unaccounted for.