Years after the detailed project report on the Ajaokuta Steel Company (ASCL) was unveiled in1979, ASCL is still not fit for purpose. The failure of the company is colossal and unmitigated; mirroring the sordid state and pace of our development as a nation in all spheres since independence. The most annoying episode is our inertness to learning lessons and making necessary changes and adjustments; we are drowned in the river of deliberately repeating mistakes and ASCL is a towering classic.
For some with a not very technical background: here is why ASCL is immensely important to us as a nation: Industrialization is the process of manufacturing consumer goods and capital goods and of creating social overhead capital in order to provide goods and services to both individuals and businesses. As such industrialization plays a major role in economic development than acknowledged by Nigerian economists.
Industrialization or technological advancement is a pre-requisite for economic development as the history of advanced countries shows for development considering that technology is the highest form of capital. Steel Production using the Bessemer process heralded the 2nd industrial revolution during the 18th century in the WEST. Local steel production is the purveyor of Industrialization as it triggers the cheap and sustainable production of capital products and economic capital formation using countries like South Korea and China as a case study.
Economists worth their onions lay emphasis on capital formation as the major determinant of economic growth: it is the process of increasing the stock of capital goods so as to make possible an expansion of consuming output in the future. Capital formation can be more easily realized in manufacturing than in primary sectors like Agriculture or Mining. This is one of the reasons why industrialization is central to national growth and development; and without industrialization, sustainable economic development cannot occur; hence a working ASCL is a pre-requisite for an economically stable and developed Nigeria to evolve in time.
Till the facility is set on purpose, the Nigerian industrialization drive will remain a mirage: ASCL represents the collective yearnings of the Nigerian masses for economic and political emancipation through technological advancement in steel production, and halts the foreign exchange sapping importation of steel products that costs the nation an estimated $3.3 billion annually.
The Ajaokuta Steel Plant design was based on the blast furnace route to iron production with an initial capacity of 1.3 million tons of liquid steel per annum with built –in capacity for possible future expansion to 2.5 million tons per annum in the first phase and up to 5.2 million tons per annum in the second phase.
ASCL consists of the following process units:
- Raw materials preparation unit (including the sintering plant)
- Coke-oven and by product plant
- Iron making unit
- Steel making unit
- Rolling mill
- General Auxiliary unit (Nebo 2012)
Ajaokuta Steel Company was designed and specified in Russian System (GOSH).According to a report written by two former engineering staffs of the firms (Adeloye 2011), the reasons for the firm’s failure can be broadly divided into:
- Finance — shortages of foreign exchange, high indebtedness, and total or almost total importation of capital goods, technology, and engineering services.
- Planning and management — inexperience, low levels of technological and organizational skills, and lack of precedents;
- Politics — control, bureaucratic interference, and shifting government policies;
- Execution– behaviour of the contractor involved in project implementation;
- Infrastructure — available and required;
- Design — concept, fabrication, and modifications;
- Supply — lack of critical inputs such as raw materials, spare parts and consumables, power supply; and
- Personnel — inexperience, particularly of the start-up team
Specifically here are some of the key reasons Ajao Kuta failed; and how Dr. Fayemi can remedy it and set Nigeria on the path to industrialisation:
Original Sin: the designs submitted by TPE (the Russian Contractors) were meant to be constructed by Nigerian engineers- that was the era of indigenization- but due to their incapability, it was transferred to foreign firms. Fougerolle Nigeria Ltd – Fougerolle SA was to be in charge of Raw material plants, coke ovens, blast furnace, thermal power plant; Bilfinger and Berger Bauktiengellschaft – Julius Berger Nigeria Ltd were awarded the contracts for Steel-making shop, rolling mills; Dumez Nigeria Ltd – Dumez Africa got the Auxiliary shops, lime and refractory plants. This irked the Soviets as the transfer of the contracts to third party contractors from other countries went against the spirit of the international technology transfer agreement signed with the soviets. Ironically only Julius Berger delivered on their contract and even mopped up jobs left undone by the other contractors. The contractors also stalled the execution of the project for two years while negotiating for an equitable formula for price fluctuation. The execution of the civil works should have been given to the Soviets.
Government raw materials policy: most of the raw materials for the operation of the steel company were to be locally sourced, mined, beneficiated, refined and stockpiled enough to last five years of continuous route production as is the case with blast furnace steel mills, before the commencement of operations by ASCL; but sadly that never occurred due to the policy of backward integration. Aside NIOMC being handed over to Indians by the Court of Arbitration based in London as settlement for the revocation of the sale of ASCL to them, much data is not available on the state of the company. When this writer was travelling from Auchi through Itakpe to Lokoja; the firm was looking moribund and dilapidated.
Backward Integration: backward integration meant we commissioned ASCL when it wasn’t ready for production through mining and beneficiation; ASCL rolling mills were completed before the iron and steel making mills; illusively hiding the poor planning and execution of the Job, just to score cheap political points. The government blueprint for the project should have been followed to the letter. The policy of backward integration is the single most conspicuous reason for the current state of ASCL.
Infrastructure deficit: even if ASCL was completed on schedule, it still wouldn’t have commenced production because critical supply lines were yet to be completed by the FG as part of its commitment to the project; the critical Itakpe-Ajaokuta-Warri rail line meant to transport iron ore and imported raw materials to the plant is quoted in the controversial 2016 budget as project FMT14A018420 at the cost of N 9,647,252,509; thirty six years after it should have been completed. The Itakpe iron-ore mine (NIOMC) and other mines for the sourcing of limestone, dolomite, and refractory clay and their transport facilities are not yet ready.
Politics: our usual politics of ethnic and regional hegemony contributed to the long gestation period of the project: The location of the project at Ajaokuta appeared to be politically motivated. Three sites (Onitsha, Warri and Ajaokuta) were initially selected for the project, and Onitsha was the economically preferred site. But due to political consideration above national development, the project was sited at Ajaokuta. The same political considerations influenced the location of the three inland rolling mills at Oshogbo, Jos and Kastina, which are meant to receive billets from far away Delta Steel Company with attendant prohibitive logistical costs incurred. Politicians should desist from playing politics with technical and engineering installations in the overall interest and welfare of the nation.
Training: NSDA engineers were not sufficiently trained in time for the purpose of overseeing the set-up of ASCL. Also, when government allocated resources for the mill dwindled, allocations for training were the first casualty. Most departments of the mill are either understaffed or overstaffed by certain class of staffs.
Foreign Technical Assistance: FTA should be scrapped as it has failed to achieve its purpose of technological aid. Instead of FTA, expatriates should be retained on long term basis and assimilated to identify with the project; this should trigger a deliberate program of naturalisation of eastern Asian and former soviet bloc nation’s expatriates as they are the most open to transferring technology to third world nations.
Improper feasibility study: a project which was expected to import 70% of raw materials for a commercial venture is a failure from design. This was the unfortunate case of Delta steel company, an offshoot of the ASCL project. Those who carried out the feasibility study were either mischievous or lacked due diligence in the execution of their task. Also NSCDA engineers made mistakes in their choices of suitable design and technologies as their choice were not based on industry experience or hindsight.
Unnecessary linkages and centralization of AjaoKuta Steel Company: the management of ASCL should be decentralized into sections tasked with certain affairs like blast furnace operations, Administration, Marketing etc with each section headed by a technical director who reports to the overall general manager. The top management positions should be advertised and open to experts worldwide considering that steel is a very technical intensive business.
Linkages of the steel plants (ASCL, Delta steel company and the three inland rolling mills) for non-technical reasons also contributed to the derailing of the evolution of the Nigerian steel industry.
The completed sections of the mill like the repair shop should be open to uses outside the steel industry to generate income and also stimulate indigenous technology development.
Corruption during privatisation: since the Nigerian government has proven over time of being incapable of running a profitable business, the privatisation of the firm was the final call. But the privatisation of the firm was not transparent and corruption riddled under Obasanjo’s administration. The firm was undervalued and sold to companies with no proven record in the steel business and in running soviet equipments. The legal complications arising from the sale and resale of the firm to Solgas Energy, USA (2003-2004) and Global Infrastructure Holding Ltd (GIHL) member of Ispat industries Ltd, India (2004-2013) is one of the factors militating against the future of the firm which must be trashed out with urgency.
Any privatization attempt as suggested by the Minister must be above board; with proven technical proficiency in the steel business being the prime criteria for the selection of the preferred bidder.