Last month the Nigerian Senate passed a bill to provide for the withdrawal of $1 billion from the Excess crude Account (ECA) for the completion of the Ajaokuta Steel Company. The bill titled: An Act to Provide for the Ajaokuta Steel Company Completion Fund for the Speedy Completion of the Project also puts a stop to government’s planned concession of the steel plant. 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.
This does not make sense. Since its inception in 1979, the Nigerian government has spent $8 billion on the plant and it is yet to produce an ingot of steel. It was built to be the nation’s turning point for industrialisation but has become a sinking hole of government spending. It is grandiose dream that has become a nightmare. Sadly, the Nigerian government is failing to wake up from the nightmare. For most private businesses, when they make a bad investment, the first advice is to cut your 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.
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. In this case, the National Assembly is assuming that, the purchase price of the Steel Mill would be enough to cover whatever cost of repairs are incurred. This is a very faulty assumption because a buyer would 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?
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 despite 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.
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 revenues going to the government?
The government has no business in running a business. It is not suited to doing so and the sooner the government realises that fact, the better for us all as a country.
By our Reporter
