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Was Buhari right to reject $1bn Ajaokuta Completion Bill?

Ajaokuta-Steel-Company-Nigeria

Last week, Nigeria’s President Muhammadu Buhari rejected the Senate-proposed $1 billion for the revival of Ajaokuta Steel Complex in a bill now known as Ajaokuta Steel Company Completion Fund Bill.

In a synopsis, Buhari said he rejected the bill, among others, because appropriating $1 billion from the Excess Crude Account to Ajaokuta was not ”the best strategic option for Nigeria at this time of budgetary constraints, and the nation cannot afford to commit such an amount amid competing priorities.”

He further said that the Excess Crude Account belonged to the federation so it was necessary to consult with the National Economic Council and the states. He added that the most critical ministries, notably the Ministry of Mines and Steel Development, and the Ministry of Industry, Trade and Investment were not fully consulted.

“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,” he said.

The question now is, was the president right in taking this decision?

To answer this question, it is critical to note that Ajaokuta Steel was established in 1971 to develop Nigeria’s steel sector and stimulate the exploration of God-given natural resources, especially iron ore. Luckily for the country, large iron ore deposits were found in Itakpe, Ajabanoko and Oshokoshoko all in Kogi State. The Ajaokuta Steel Complex and Delta Steel Company were subsequently incorporated in 1979 as limited liability companies.

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?” Ike Ibeabuchi, a manufacturer, asked. “The government says new investors are interested in taking over the complex, so why would Nigeria spend that huge fund on it?”

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.

“But then, why have they not found investors since Kayode Fayemi’s days? We don’t know whether this so-called Ajaokuta is meant for siphoning public funds,” a private sector player in the steel sector, who does not want his name in print, said.

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.

This shows that it makes no sense to continue to allocate scarce resources to a complex which is unproductive. Analysts say the best bet now is to sell it to a competent firm, just like Delta Steel has been sold to Premium Steel.

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.

Moreover, as Buhari stated, 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.

 

ODINAKA ANUDU