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Concerns Over Modified Concessioning Of Itakpe Steel



BY Ruth Tene Natsa

…..the federal government beats its chest over some milestones it recorded with the modified concessioning agreement with India-owned Global Infrastructure Nigeria Limited (GINL) on Itakpe Itakpe Iron Ore Company, storm still rages among industry watchers over the new deal

ccording to the Nigeria Bureau of Statistics (NBS), Nigeria imports 20 million tons of steel and allied products per annum on the average. Based on the finding that dates back to 2011, Nigeria spends about N6 trillion on importations of steel products every year. In recent presentation by the technical assistant to the sole administrator, Ajaokuta Steel Company Limited(ASCL), Engr Suleiman Umar, “the country’s steel production, in spite of its huge capacity is placed at a negligible 100,000 mt per annum while Egypt and South Africa with similar technologies and smaller population figures are producing 5.5 and 6.4 million tons respectively.”

Quoting World Steel (2015), Umar also said because of the non-functionality of ASCL and Delta Steel Company Limited (DSCL), there is no production of crude steel which is the main stay of the steel sector, adding that this anomaly can be corrected with the proper understanding of the collateral issues of steel production and the crucial role of liquid steel production in national development.

The President Muhammadu Burahi-led administration is making serious efforts to change the tide in a good direction, indicative of the administration’s readiness not only to revive the once moribund sector but also revive the near comatose steel plants that have been left moribund for decades.

However, to stakeholders in the industry, the steps so far taken to modify the concessioning of Itakpe steel complex are more desperate than focused. They say it is not properly guided and could become another white elephant project in the making.
In an open letter to the minister of Mines and Steel Development, Dr Kayode Fayemi recently, Vocal Natasha Akpoti raised concerns on a number of issues around the modified concession agreement between the federal government and Global Infrastructure Nigeria Limited (GINL) which provides for return of ownership of the steel company to them for a period of seven years.
In her arguments, Akpoti queried why “Itakpe Iron Ore company would be given to the same Indians who destroyed Itakpe and Ajaokuta for 20 years and also wondered why Nigeria government will pay the Indians $250,000,000 (two hundred and fifty million dollars) in compensation, while GINL will pay Nigeria three per cent of the yearly revenue after tax. She is pained that the federal government will spend millions of dollars rehabilitating Itakpe Iron ore Complex before handing to the Indians, noting that in whichever way, the federal government would pay for the rehabilitation of the firm.

Meanwhile the minister of state, Ministry of Mines and Steel Development, Abubakar Bwari, while addressing the House of Representative Committee on Privatization had said the Modified Concession Agreement was in an effort to avoid a penalty of $520 million to Global Infrastructure Nigeria Limited. He said the GINL had taken the federal government to the International Court of Justice at the Hague for breach of concession agreement entered in 2004, where it was concessioned Ajaokuta Iron and Steel Company and rehabilitation of Nigerian Iron Ore Manufacturing Company NIOMCO, Itakpe for 10 years, construction of Warri – Ajaokuta Railway line as well as Delta Steel Company for 20years.

The minister further recalled that the government of former President Yar’Adua revoked the contract in 2008 when it was discovered that the contract process was shrouded in mystery by the Obasanjo government. Towing the same line, former President Goodluck Jonathan still refrained from endorsing an amended version of the concession agreement, calling for an out of court settlement with GINL. The out of court settlement probably informed the modified concession agreement between the federal government and GINL. It was executed on August 1, 2016 on the directive of President Buhari to settle the dispute between FGN and Messrs Global Steel.

An administrative panel of enquiry that was inaugurated by the former minister of Mines and Steel Development, Sarafa Tunji Ishola on October 29, 2007 to look into the operations of Ajaokuta Steel Company Limited, National Iron Ore Mining Company and Delta Steel Company Limited and submitted December 2007 had discovered that the Yar’Adua administration had called for the annulment of the concession agreement between GINL and the federal government, following the company’s failure to meet up with the terms of concessions.

The report revealed that the concession was crafted in a hurry but purposedly skewed against the government of Nigeria, with open-ended obligations. Some of such instances are aspects that make it impossible to achieve meaningful results in the absence of built-in milestones in a Time-Scale Strategy. The report noted that “It was designed to fail from the beginning; heaping blames and causing unquantifiable losses to the FGN and leaving GIHL with monumental economic leverages. The FGN was short-changed by all those who thought-out and configured the agreements.”

The report stated that GIHL went into ASCL and NIOMCO without the intention to see them through. This is why GIHL did not conduct “due diligence” on both companies, adding that GIHL was unrealistic with its time schedules and unprepared to face the challenges on the ground. Some of the findings of the panel report that was made available to our correspondent include that:

“Throughout the agreement, there is no place where GIHL was pinned down to a fixed time schedule for the completion of any job or implementation of any specific process in the ASCL. There is also no place where GIHL was tied down to providing specific caliber of professionals to execute the project.”

The Magaji Inuwa-chaired panel recommended that with the size and complexity of ASCL, GIHL should have been made to undertake to introduce particular level of professionals from their existing and similar plant to complete and operate ASCL. Noting that the Work Schedule on SCHEDULE III is not contractual but mere monitoring guide, which GIHL had given no regard to.

It suggested that the agreement’s terms of reference should examine the concession agreements between GIHL and the federal government to establish the extent of compliance by GIHL with the terms of agreement in all ramifications, to establish the extent of breaches, contraventions and any act committed by GIHL inimical to the interest of the federal government and to its holdings. It was also to establish outstanding amount standing against GINL such as royalty etc. and also establish any other acts by either GINL or the federal government that are impediments to the implementation of the project.

The committee in their findings alleged that the GIHL was guilty of cannibalisation and vandalisation, dangerous engineering practice, exporting premium scraps, modification of plant without proper and adequate documentation: compromise of security in ASCL and NIOMCO, failure to pay statutory obligations and insurance premium, diversions of value among several others.

The panel in its recommendations called for the immediate termination of the concession agreements (ASCL and NIOMCO) with GIHL without further delay

It also advised that Nigeria should immediately negotiate with the original suppliers and erectors; “a ministerial/diplomatic visit is strongly advised to emphasise Nigerian’s seriousness to involve the Russians and Ukrainians. “While the assessment and technical audit is being conducted by the original contractors in both ASCL and NIOMCO, the existing Ministerial Monitoring Committee should continue to supervise both companies including personnel matters, The ASCL and NIOMCO should be completed by the FGN. In the case of DSC, the agreement should immediately be reviewed. The FGN should amongst other options, determine the relationship with GIHL considering all the implications.

With all these, it then, becomes imperative that whatever agreement is reached in the modified agreement must be properly followed to ensure Nigeria is not at a losing end and that for once, the right thing is done to ensure the revival of Nigeria’s greatest industrial investment,” the panel recommended.

In a statement signed by the senior assistant on Media to the minister, Yinka Oyebode, he said after four years in arbitration, a negotiated settlement was recognised as being in the interest of the FGN specifically given the fact that the arbitration was proving interminable and the plants at Ajaokuta and NIOMCO could not be utilised as was originally intended. The statement revealed that the federal government was satisfied that the provisions of the modified concession agreement which are claimed to be vastly superior to the original NIOMCO concession agreement of 2005.

It stated that the execution of the modified agreement carries with it eight advantages to the federal government, which included the readjustment of GINL’s interests in Nigeria’s steel space so that it is less dominant, noting that GINL had accepted to give up all its interests in Ajaokuta Steel.

It added that GINL had agreed to waive all its rights to damages for any breach by the federal government of the earlier NIOMCO concession agreement and the Ajaokuta concession and the Ajaokuta SPA, an increase in the concession fee: The federal government was able to negotiate a higher concession fee payable to government from three per cent of turnover to four per cent of turnover.

It added that the renewal of the NIOMCO concession was no longer automatic: “Global had a right to automatic renewal of the concession agreement thus giving it a concession potentially lasting 20 years. The FGN was able to secure the agreement of Global to a renewal of the concession upon satisfactory performance as opposed to the old provision of automatic renewal.”

Other advantages included mutual benefits and the fact that Global had undertaken to discharge all its liabilities and obligations with priority supply to Ajaokuta. Despite these advantages, stakeholders in the sector have described the modified re-concessioning of Itakpe Steel complex as another project likely to fail. In the words of former president, Nigerian Mining and Geoscience Society (NMGS) Mr Akin George, “We have a problem in Nigeria. We have the Nigeria Steel Raw Materials Exploration Agency, NSRMEA, they are the people charged with the responsibility of providing the raw materials for the steel complex, that is why it was founded.

He lamented the need to reconcession the Itakpe Steel Plant to foreigners whom he said “Will only do haphazard work and bastardise the whole thing. NSRMEA should be empowered because, they are the best exploration agency in the whole of Africa and the Nigerian Geological Survey have the best mineral laboratory in the whole of West Africa, they should be empowered to restructure the steel plant,” he said.
Mr Akin opined that if the re-concessioning has been carried out, then it should be reverted. “Those they are being concessioned to, have they got the personnel and requisite equipment to move the plant forward, if not, it should be reverted,” he said
On the flip side, Prof. Olugbenga Okunlola has said Nigerians should give the government a chance in the re-concessioning in the belief that it will work.
He lamented that the failure of Ajaokuta in the past had been an inter play of selfish forces who seek the failure of the system because their interests are not taken care of.
In his words “If some interest are not taken care of, then they must just see that it fails. What has been killing Ajaokuta all along is selfishness and all kinds of inter play just to see that this thing does not succeed.
“Of course the previous government that concessioned the place may have meant well but the concessioneers and some interest groups took advantage of the situation and were doing asset stripping, no government would be happy, but I think the government took a hasty decision in terminating it just before it was due for review. Now that they have brought it back, I think they should just give it a chance and allow it to work”

“I am in support of what the government has done, let’s get this thing standing and let ASCL be completed so that people can get jobs. If the complex is working and running, almost all the technical people: the geologists, metallurgists involved in the construction will be employed so why don’t we give it a chance,? he queried.