Honourable Members,  I consider it a great opportunity to once again be invited to contribute to the discussion on the way forward to complete and operationalise the Ajaokuta Steel Plant.  My discussions will focus on the following:

1. Highlights and matters arising from my last presentation at the sectoral debate of 01-03-18.
   1. Areas of focus to complete and operationalise the steel project.
   2. Options available to complete and operationalise the steel plant – their merits, demerits and limitations.
2. Contracting method for the construction of Ajaokuta and the EPC Contractor TYAZHPROMEXPORT (TPE) and the issue of Performance Guarantee Test for the Ajaokuta Steel Plant.
3. What are the critical areas of concern and suggested mitigations arising from above discussions.
4. Conclusion
5. Matters arising from my last address

1.1  Nigeria as per the Vision 2020 plan is to produce 12.2 mt/yr of steel in the year 2020 out of which Ajaokuta Steel Company is to produce 5.2 mt/yr,  Delta Steel Company to produce 2mt/yr and the remaining by private sector if Nigeria is to join the league of 20 industrialized nations by 2020

1.2  The two integrated steel plants at Ajaokuta, Delta and the iron ore mining company Itakpe constitute the nation’s steel base and still remain so. This means they presently constitute the assets upon which our quest for industrialization is hinged upon.

1.3 The completion of Ajaokuta is put at 98% and this percentage completion refers to the “plant proper” and does not take cognizance of completion of supporting infrastructure required to effectively and efficiently operate Ajaokuta.

1.4 The areas of focus to complete and operationalise Ajaokuta are as follows:

• Completion of the balance 2%
• Completion of supporting infrastructure which includes internal and external facilities such as rail link to Jakura Limestone deposit, Osara dolomite deposit, supply of rolling stock and rail tracks etc. Limestone and dolomite constitute some of the major raw materials required for production at the Ajaokuta Steel Plant.
• Availability and readiness for National Iron Mining Company Itakpe to supply about 2.2 million tons per year of iron ore.
• Working capital for initial one year operation for imported coke, ferro alloys
• The estimated cost to realize the above with the exclusion of the working capital is put at about USD 1.4 billion to commission the first phase of the Ajaokuta Plant designed to produce 1.3 million tons of liquid steel per year.

1.5 The options available to complete and operationalise Ajaokuta Steel Plant, their merits and demerits are tabulated in table 1 below.

In discussing the table below, it is important to state that privatization is different from concession and they are not synonymous to each other.

Concession versus Privatization

Concession is not synonymous with privatization.

When you sell a property for example, it is as if you privatize the property, you sold the property and it never comes back to you, it is not yours anymore! The concession is as if it were a rent, the person will pay a monthly payment during a period and at the end of that period is obliged to return the house under the previous or better conditions”  Nelson Barbosa.- Brazilian Professor and one time State Minister of Planning and State Minister of Finance of Brazil.

Privatization sells the assets of the state enterprise, the public assets, and transfers such to private ownership. The concession, by contrast, the transfer is temporary and the company has defined deadlines, which may or may not be renewed, at the end of the contract.

2.       Contracting method for the construction of Ajaokuta and the EPC Contractor  TYAZHPROMEXPORT (TPE)  and the issue of Performance Guarantee Test for the  Ajaokuta Steel Plant.

2.1  The Ajaokuta Project just like such complex project was executed as an Engineering, Procurement and Construction (EPC) Contract which involved many contractors   ( companies)  working as a consortium under the consortium leader which in this case was  TPE .  The consortium members were made up of companies from the former Soviet Union primarily Russia, Ukraine and Belarus republics.  

   2.2   Typically, each of these units and the entire plant should undergo a performance guarantee test (PGT) which is the test scheduled after completion of the plant  for the   purpose of comparing its performance with the guarantees  ( design specification and nameplate capacity ) for the project.  It is after the successful conduct of the PGT that a  Final Acceptance Certificate is issued to the plant supplier/constructor.

   2.3  The responsibility for the outcome of the PGT is therefore a critical issue for the  successful completion and handing over of the Ajaokuta Steel Plant.

   2.4  If the PGT is not conducted we have built a plant that is not PGT certified.

3. What are the critical areas of concern and suggested mitigations to ensure a successful completion and handing over of the Ajaokuta Steel Plant.

• While it is indisputable that the Ajaokuta Steel Plant had been short-changed in concession arrangement, it does not imply that concession cannot be made to succeed.
• It is also indisputable that those who midwife those concession agreements going by their contents and the modality for selecting the concessionaires did not observe due diligence and professionalism.
• It must however be stated that granted that a road is dangerous does make it impassable. Commuters  on such road will only need to exercise necessary caution and observe safety tips.
• Therefore in view of our past experiences on failed concessions and the need to tread cautiously, the following under listed areas of concern have been identified and mitigations suggested to engender a win-win situation for all stakeholders.

4. Conclusion

From the above discussions and the shades of opinions on the Ajaokuta Steel Plant, it is clear that there are two clear positions namely:

• Complete and operationalise the steel plant under the Federal Governmnet sole ownership without concession.
• Complete and operationalise the steel plant under the Federal Government sole ownership under concession.

It is to be noted that even the advocates of completing the steel plant under the FG sole ownership without concession do acknowledge that after completion the steel plant by the Federal Government using its resources,   a concession or management contract agreement for the operations and management of the steel plant is inevitable as the country presently lacks the in-country experience to operate and manage the steel plant.

If this is going to be the true position, the nation stands a higher risk to concession after completion by government to a party that does not have any stake or commitment in the project.

On the contrary, if the plant is concession to a credible concessionaire that satisfies all due diligence requirements and who must have invested over a billion united states dollars  in the completion of the project, we are more likely to get a good result.

Thank you.

Anthony Madagua

MD Peatts Engineering and Development Co.

( Former MD Delta Steel Co. Limited)