After rejecting Ajaokuta Bill, Buhari must now privatise complex
After rejecting the infamous Ajaokuta Steel Company Completion Fund Bill recently, Nigeria’s President Muhammadu Buhari must now begin the process of privatising the behemoth, say experts.
“Privatisation should simply be the next move,” said Ike Ibeabuchi, a manufacturing sector analyst whose firm operates in the chemicals space.
“Divert the resources you channel to the steel complex to education and health. Hand it over to a private company like it was done to Delta Steel,” he added.
The Senate recently sent a bill requesting a $1 billion for the revitalisation of Ajaokuta Steel.
“The inputs of key stakeholders are necessary to create the optimal legal and regulatory framework as well as the institutional mechanism to adequately regulate the steel sector,” Buhari had said while rejecting the bill.
The Ajaokuta Steel was established in 1971 to develop Nigeria’s steel sector and stimulate the exploration of God-given natural resources, especially iron ore.
Between 1980 and 1983, the then federal government stated that it had achieved 84 percent completion of Ajaokuta steel plant, having completed the light mill section and the wire rod mill.
It was also widely reported that erection work on equipment reached 98 percent completion around 1994. Ever since then, Nigerians have been made to believe that Ajaokuta is 98 percent completed.
But here lies the biggest puzzle: Why is a company that is 98 percent completed still failing to produce a sheet of steel over 35 years after its establishment?
Despite being unproductive, government after government has continued to pump billions into the complex. Government records show that successive administrations have pumped $8bn so far into the complex since 1979. The current government of Muhammadu Buhari has joined the party of spenders on a government facility that needs to be in private hands.
In a move that shocked economists and finance experts, the federal government budgeted N3.9 billion in 2016 and N4.27 billion in 2017 for the resuscitation of the moribund Ajaokuta Steel Company, despite an earlier business case in the last administration showing that the complex could only work if properly privatised. There was also a humongous budget on it in 2018.
“So why would anyone continue to pump money into an enterprise that is unproductive?” Ibeabuchi, asked. “The government says new investors are interested in taking over the complex, so why would Nigeria spend that huge fund on it?”
“I do not think Nigeria is doing the right thing by such mammoth investment in Ajaokuta,”a player in the steel sector, who did not want his name in print, said.
“It is like pouring water in an ocean,” he added.
Eleven private investors have expressed interests in the concessioning of Ajaokuta Steel Company, Abubakar Bawa Bwari, minister of mines and steeldevelopment, said in the nation’s capital on January 15.
Bwari said it would be concessioned to a firm with the financial muscle, technical know-how and genuinely committed to the nation’s steel sector development.
Ajaokuta Complex has the capacity to produce one million metric tonnes of steel, one million metric tonnes of coal , manganese and limestone, among others, but it is yet to produce a sheet. It has a managing director and staff members who are paid from tax payers’ funds.
“Currently, I am not sure those technologies at Ajaokuta are competitive in steel making. The world has moved on. What is required now is for the private sector to get more and more involved in the downstream and the upstream segments in the steelbusiness,” Raj Gupta, chairman, African Industries Group, a consortium of 12 companies, including six steel plants, told BusinessDay recently.
BusinessDay’s recent visit to Premium Steel showed that the company employs 160 workers in its rolling mill, which is the only functional section at the moment. There is also a plan in place to revive other sections of the factory with N600 billion.
Nigeria is a cash-strapped economy struggling to pay its workers and meet infrastructure obligations. Federal allocation to states was N660.37 billion in February as against N1.19 trillion in August 2013. Industry analysts believe that Buhari was right to reject the bill and urge him to privatise it as soon as possible, while stopping allocations to it.