Why Ajaokuta Steel Company can not function - Kalu Aja

This article was written by Kalu Aja. Aja is a Financial Planner and Economic Strategy Consultant with over 20 years of expertise in the financial services industry.

No Nigerian can visit Ajaokuta Steel Company (ASC) and see investments of more than $8 billion rotting in the African sun and not cry. I went there, I cried. What exactly is the problem? I have written severally on this topic, but today let me do a comprehensive post.

Ajaokuta Steel Company
Ajaokuta Steel Company

Ajaokuta Steel Company is massive; it has a 68km road network and 24 housing estates on the project. Some of the estates have over 1,000 homes, a seaport, and a 110mw power generation plant; there are 43 separate plants in Ajaokuta alone. It is estimated that if Ajaokuta becomes operational, it will create 500,000 jobs.

There is no industrialised nation on earth that does not have a steel sector; it’s that simple. A report by the Central Bank of Nigeria (CBN) shows that Nigeria currently imports steel, aluminium products and associated derivatives of approximately 25 metric tonnes per annum, estimated at $4.5 billion, this figure will continue to rise, and the Nigerian economy continues to expand.

From the 29th - 30th of September 2022, Nigerians worldwide, together with government officials, will hold the biggest business summit on a global scale since independence in the UK. Revitalizing moribund industries and sectors like Ajaokuta will be a focal point for investors to pull resources together, advise the government and re-strategize. See details here and register to attend.

Ajaokuta is an integrated steel company; it was designed by the Russian to be self-sufficient to get all its inputs from Nigeria and make steel. Ajaokuta strength is its weakness; Ajaokuta can only work with all available inputs.

This will be a slightly technical post, but please try and follow.

Steel is an alloy of iron and carbon, amongst other things; iron is the base metal in steel. To make steel, you need Iron Ore, Coke from Coal, and Limestone as the main components. These components are mixed in a blast furnace to produce liquid steel, which can be long steel for rail lines or flat steel for automobile making etc.

For a simple example, look at steel as making jollof rice, iron ore is the rice, the limestone and coke are the pepper and salt the pot is the blast furnace. The blast furnace is ONLY turned on at a steel plane when the steel company is ready to make steel.

Blast furnaces operate continuously and are never shut down. The raw material to be fed into the furnace is divided into several small charges introduced into the furnace at 10 to 15 minutes intervals. This means everything must be in place BEFORE the blast furnace is turned on, the iron ore, the coal, the limestone, everything; why? Because you do not switch off a blast furnace for another 10 years or however its campaign life is.

Nigeria is blessed with all the major raw materials needed to produce steel, including iron ore in Kogi, coal and limestone in Enugu.

Nigerian iron has a very low iron concentration. Agbaja has the largest iron ore deposit in Nigeria, with about 2 billion tonnes, but the Agbaja iron ore has a high phosphate content. Phosphate can cause brittleness in steel, making it fracture; thus, Agbaja was abandoned for Itakpe.

Itakpe iron ore has no issues with phosphate but has low iron content, thus to make steel with Nigeria iron ore, a process called “beneficiation” has to be done to process the Itakpe ores to raise its iron content to meet the required standard for steel production.

Coal? Most of the coal found in Nigeria is non-coking, thus, unsuitable for steel production. Coal deposits in Enugu have no impurities but are non-coking. The good news? Nigeria has an abundant deposit of limestone, and we have natural gas to provide power

So back to Ajaokuta, what really happened? Why can Nigeria not make steel anytime soon? Let’s link up the elements.

Policy Failure

The Ajaokuta contract was signed between the Nigerian government and the Soviet state-owned company, Tiajpromexport (TPE); the company was scheduled for completion in 1986.

In 2012, the Federal Government launched its backward integration policy. Going forward, import licenses for steel products was only granted to companies producing steel locally. TPE, to ensure they could import steel parts for Ajaokuta, simply went ahead and built the rolling mills in Ajaokuta before the actual steel plant was completed; they imported billet from Ukraine to accomplish this. Thus, Ajaokuta was producing steel before the actual steel plant was started. Thus, amazingly Ajaokuta has functional rolling mills but no operational blast furnace; Ajaokuta cannot produce steel from basic iron ore found in Nigeria in her blast furnace.…this is the definition of a cart before the horse.

NIOMCO Factor

The iron ore in Nigeria earmarked for Ajaokuta is from Itakpe; it has low iron content; thus, the FG built National Iron Ore Mining Company (NIOMCO), a 2.15 metric tonnes beneficiation plant designed to process the low-quality iron ore from Itakpe to iron ore suitable for Ajaokuta Steel. If NIOMCO does not operate, Ajaokuta CANNOT operate (unless Ajaokuta uses imported iron ore). As of today, NIOMCO is not operational.

Railway

15 million tonnes of iron ore cannot be moved by road, as it will destroy the roads. Thus, a railway was to be built from Itakpe to Ajaokuta to take iron ore from the beneficiation plant in Itakpe to Ajaokuta.

Itakpe to Ajaokuta by rail is just 52km, and the rail line was to be delivered by March 2019, but the Minister of Transportation, Rotimi Amaechi, revised the delivery date to June 2018 and converted the purely commercial railway also to carry human passengers. These changes meant the cost of the project and delivery dates had to change as passenger wagons and train stations had to be built. To achieve this, 12 new passenger stations and 12 access roads had to be designed and built.

The Itakpe to Ajaokuta (IA) has two stations. As of June 2018, The station IA1 – Eganyi to Itakpe is still under design. Station AW1 – Ajaokuta (standard station), zero percent of work done. Thus, the railways are not functional.

Blast Furnace

The furnace in Ajaokuta is the heart of Ajaokuta, it is the pot where the jollof rice will be cooked. However, it has never been turned on; why? Because there has never been any time, Ajaokuta has had raw materials available to ensure continuous day-in-day out production for 5 years.

Why have there never been materials? Because there is no railway to take iron ore from Itakpe to Ajaokuta. Why is there no railway from Itakpe to Ajaokuta? Because NIOMCO in Itakpe is moribund and not functional and cannot convert Nigeria iron ore to high-grade ore for the furnace in Ajaokuta.

So, it follows that for Ajaokuta to work, we MUST have three key critical paths:

NIOMCO must be functional, Itakpe to Ajaokuta Railway line must be functional, and Blast Furnace operational.

All three are not functional, so it's clear Nigeria cannot make steel in Ajaokuta. Nothing, however, stops a corrupt government official from importing billets and running them in the rolling mills to deceive taxpayers.

So, when anyone tells you Ajaokuta will soon work, ask them, can a steel plant work without NIOMCO, railways and a blast furnace?

All is not gloomy; Kayode Fayemi, as Minister, was able to secure an out-of-court about Ajaokuta; we must build on this.

In closing, Ajaokuta is the only steel plant in the world built by the USSR, sold to Americans, then to Indians; all these teams have come and gone with their own technical style, and there have even been accusations of asset stripping by the Indians.

So why this post? Because I am a patriot, I will not sit by and watch scarce resources be wasted in grand deceit. Probably some corrupt folks have told Mr President that Ajaokuta can produce economically viable steel if “small” dollars are spent. You can already see how the critical rail line delivery dates were moved back to ensure it is done in time for the 2019 elections, yet it is still in the design stage.

Ajaokuta is Nigeria and probably Africa's biggest failure. It has failed. Can it be made to work? Yes, but the cost to integrate Ajaokuta with her mines and rails can be used to build new smaller modern, turnkey, functional steel mills. The government should get out of Ajaokuta, sell the place and allows the private sector capital and expertise to restructure and own it.

If you want to make jollof rice and there is no rice, the solution is not to keep boiling water without rice but to go and get rice.

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