“If there is such a thing as a white elephant, this is surely one of its more awesome specimens,” Nosa Igiebor, Time magazine editor, 1993, on the Ajaokuta Steel Company.
Ajaokuta Steel Company was dubbed the “bedrock of Nigeria’s industrialisation”, and it stood as the symbol of Nigeria’s dream of greatness, modernity and prosperity.
However, that dream didn’t materialise. The project spans 24,000 hectares (59,305 acres), almost the size of the Maldives islands in the Indian Ocean, which includes the 800-hectare plant and a town comprising 10,000 houses, a hospital, and a school.
But almost nothing has been completed since construction started 38 years ago.. Of the 10,000 houses envisioned for workers, the 4,000 completed are occupied mostly by retirees. The current workforce of about 1,500 civil servants is tasked primarily with keeping parts of the plant in serviceable condition.
The combined 120 kilometres (75 miles) of internal roads and railroads, including the school, library, and hospital for workers and their families, are largely unused. The clearings meant to store coal for the furnace now serve for cattle graze.
Russian contractor Tyajz Prom Export (TPE) first started construction in 1979. It was estimated to cost between $6 billion to $10 billion. Yet, the steel company has never produced a single bar, coil or rod due to repeated stops and starts, ownership changes, poor governance, and sheer incompetence that hamstrung the project. Today, ‘Made in USSR’ adorns a rusty crane at the Ajaokuta Steel complex.
The Prevailing Argument for Ajaokuta
The official argument was that any efforts to increase a developing country’s power status through technological advancement must come through the development of indigenous steel.
In the words of (former) President Obasanjo:
“In my first presidency, there was the general belief that steelmaking was at the heart of industrialisation. India had built the first steel plant with Russian help, and they built their second almost without help. We thought we needed to achieve that, but we did not have enough money to do it alone. So, we went to the Soviet Union, and there we obtained the best deal on offer: we got a free loan from the Russian government, and we commissioned an experienced Soviet contractor, TPE, to design and build the plant.
The economic imperatives were also clear. Nigeria depends on crude for 90% of its export earnings. With volatile global oil prices, foreign exchange shortages are a daily reality. Nigeria, Africa’s largest oil producer, has little domestic capacity to refine gasoline and thus must pay to re-import its oil.
Those intentions underpinned the construction of Ajaokuta in 1979. At full capacity, it was intended to produce as much as 3 million metric tons of steel annually, enough to largely close the gap between Nigeria’s current steel consumption and domestic output.
Why can’t Ajaokuta make steel?
The choice of location was difficult and ultimately non-optimal. A place close to the available ore and coal deposits had to be found, and while Ajaokuta was one of the options, Onitsha was closer to both deposits. However, economic optimality was trumped by political justifiability (in 1974, just four years after the civil war, it was not considered economically prudent to award a strategically important project to one of the strongholds of the rebelling state).
There was also the raw materials dilemma. Nigeria has large ore deposits (albeit with low iron content, below 40%) but a paucity of coking coal, with abundant gas from oil production. Therefore, the choice was between an old-technology blast furnace process, with relatively cheap beneficiation of local ore, and a modern direct reduction process using cheap gas for heating and iron reduction but requiring higher-grade ore.
Ultimately, the blast furnace process, pushed for by TPE, was chosen. Still, coking coal would have to be imported because the local coking-ready coal from Lafia/Obi had excessive ash and sulphur content, with structural mine problems. Therefore, the plant would require a 66 km rail line to transport ore from the mine at Itakpe and a river port to receive imported coking coal. Thus, it was clear from the outset that the economics of the plant would not be straightforward.
Nonetheless, all these problems ultimately had solutions and were known to the decision-makers, and none were “showstoppers”, in the words of President Obasanjo.
“The Russians warned us that our own iron ore would have to be ‘beneficiated’ in order to feed this plant. So, we knew we would have to invest in this, and also, we would have to dredge the river port to ship the coal, and we committed to building a railway stretching from the iron ore deposit to the plant and further South to the coast. So, we made these three additional commitments at the outset – ore beneficiation, river port and ore railway, to make it work.”
It is interesting to note that Nigeria did not complete the rail line until 2020.
However, another aspect of Nigeria’s grand steel ambition was more insidious: Ajaokuta was not the only project in the pipeline. Nigeria’s industrialisation was believed to require a portfolio of steel mills: 1977 saw the signing of a contract with a consortium of ten German and Austrian firms to construct a 1M ton direct reduction plant, Delta Steel, and 1979 witnessed contracts (with Japanese and German companies) for three rolling steel mills of 200K tons per year in Katsina, Jos and Osogbo to produce bars and wire rods (based on the steel output from Ajaokuta and Delta). More plants were foreseen.
Although Delta was commissioned in 1982, it never produced more than 200K tons per year. Even this declined because of rampant corruption (for instance, paying inflated prices for materials), which led to declining production and, finally, an end to its operations in 1995, which, in turn, shut down the rolling plant. More generally, undertaking these overly ambitious projects simultaneously turned the steel dream into a nightmare for Ajaokuta. There simply wasn’t enough money or talent to carry out all these projects.
Ajaokuta Over the Years
TPE was originally expected to deliver half the capacity of the project in 1983 and the complete output by 1983. It had a track record of on-schedule, on-cost delivery of steel projects, including in Brazil, South Korea and China. However, the Soviets wanted to focus on the steel mill, so Western contractors had to be found for the civil works.
Furthermore, disputes arose, with the Soviets withholding personnel because their accommodation had not been built. Another tension arose between Russian and Nigerian personnel because the Russians were perceived to be receiving astronomical salaries, among other things. Hence, delays and overruns accumulated. By the end of 1983, all work had to be halted because the government ran out of money and stopped paying the contractors. The civil works contractors withdrew their personnel, blocking TPE’s work.
The military also deposed the Shagari government and installed General Muhammadu Buhari as a military president. Within days, the general manager of Ajaokuta was in jail, along with 12 fellow senior managers, halting all work at Ajaokuta.
The PPP Revival 2000-2007
When Olusegun Obasanjo returned for his second term as president in 1999, the project had been stalled for ten years. He still believed in its rationale and wanted to revive it, but the Soviet Union, its previous partner, was no longer in existence.
So when all avenues for continuing Ajaokuta as a government project had run out, President Obasanjo turned to a public–private partnership (PPP) construct. The Mittal Steel subsidiary, Global Infrastructure Nigeria Ltd (GINL), owned by Pramod Mittal, won a concession in addition to the right of way on the railway. GINL also bought the now-defunct Delta Steel for $30M. The Federal Ministry of Mines handled the process and power rather than the Bureau of Public Enterprise, an institution established by an Act of Parliament to sell government assets or agree to concession government property.
Is it time to let the Steel company go?
After 39 years and over $8B, the project requires almost as much remaining investment as the original budget. Yet, no solution exists to make progress until a new investor trusts the government to honour its agreements.
Moreover, simply adding the missing pieces is insufficient. The existing equipment is likely obsolete in design, controllability, optimisation, and automation. And even if functional, it won’t be competitive. However, the plant is deeply embedded in the Nigerian rhetoric of industrialisation and progress that “over the years, Ajaokuta has been the most permanent fixture of the ever-changing Nigeria”, and no administration has dared to question it.
It is time for Nigeria and Nigerians to seriously ask whether Ajaokuta has a future. Remember that the plant has 3000 employees, in addition to site maintenance (and has had for the last 30 years, without producing a single ton of steel). Every year, a decision is postponed, and the country bleeds.