Ajaokuta Steel - Indian Steel Company Sets to Lose Concession

Teddy Nwanunobi (Leadership),

Abuja

The crisis that have been rocking the nation's steel sector may well be at its end, as there are indications that Indian steel giant, the Global Infrastructure Holding (Nig.) Limited, would be stripped off the rights of control over the Ajaokuta Steel Company Limited (ASCL) and the Nigerian Iron Ore Mining Company (NIOMCO).

This follows the recommendation of the committee set up by the Federal Government to probe the concession and later purchase agreement between government and GIHL on the two steel companies to terminate the agreement with immediate effect.

It would be recalled that the minister of mines and steel development, Chief Sarafadeen Isola, had, on the orders from the presidency, set up a 5-man committee on October 30, 2007 to into the Concession and Share Sale/Purchase Agreement that was entered into between government and the Indian steel company.

LEADERSHIP can authoritatively report that the report of the Mallam Magaji Inua-led committee, which is coming out nearly three months after it was originally billed to be submitted six weeks from the day of the committee's inauguration, spells doom for the Indian company.
Part of the report, which agreed that the agreement was not in the over-all interests of the country, reads: "An overview of the agreement reveals that the covenants were largely skewed in favour of the Concessionaire (GIHL) to the detriment of the government. The panel viewed the conditionality of submission of Business Development Plan five months after assuming full management and control of the company as not to the best interest of the nation as this gave room for complacency. Three years after assuming full control, no workable Business Plan has been submitted to the FGN by the Concessionaire".

Noting the failure of the whole agreement, the report said that "The basic purpose of the ASCL Agreement is to rehabilitate, complete, commission and operate the Ajaokuta Steel plant with a view of producing liquid steel within 12 months, increase the production capacity, maintain the existing facilities of the township for the employees, complete the balance of the civil engineering works necessary for the completion of the project and to submit within five months of the date execution of this agreement, an initial Project Business Plan to the Ministry. From all indications, the basic purpose of the agreement has been defeated as none of those stipulations has been satisfactorily carried out."

It further disclosed that members of the committee also observed that there were so many clauses in the agreement that dispossesed the federal government of powers, and, therefore, recommended that in future, agreements of such nature should be drawn and vetted by the office of the Attorney General of the Federation (AGF).

It also reported that the agreement required GIHL to pay a concession fee of 1 per cent of turn-over annually to government, but the panel could not establish the annual turn-over of the company due to lack of records, adding that there was no evidence that GIHL had paid any concession fee to date.

The panel observed that the company adopted an unwholesome accounting practice by running ASCL and NIOMCO and Delta Steel Company, Aladja as one financial unit, differentiating them only with 'Memorandum Records,' and noted that this contravened Provision 7.1 of the Concession Agreement.

The committee members also reported several other breeches of the covenants of the agreement like cannibalisation and vandalisation of plants and equipment, dangerous engineering practices bordering on lack of maintenance, exporting premium scraps imported for the project by government.

It explained that the summary of statutory obligations alone outstanding against GIHL within three years was estimated at N350m.

In respect of importation of funds to be injected into the project by GIHL, the committee held that there was no evidence of capital importation and therefore no payment for the shares of ASCL has been made.

It said, "Even the assumed investment of $200 million is ruse. The panel has written the Central Bank (of Nigeria) to confirm if GIHL actually imported any funds into Nigeria . On the other hand, GIHL has embarked on massive borrowing from the local commercial banks. Information available gave the total indebtness to Nigerian commercial banks at $192 million as at date, pledging assets of Delta Steel Company as collateral. The panel is at a loss as to where this volume of money has been invested as GIHL has not been able to produce convincing records of injection of such funds into the three companies. The panel is strongly suspecting Capital Flight. The General impression is that GIHL has been diminishing the values of both ASCL and NIOMCO to buoy up their fortunes."

The committee held that for Ajaokuta Steel Company, the Share Sales Purchase Agreement was technically not in force as the Bureau of Public Enterprises (BPE) confirmed that the transfer of shares to the purchaser had not been effected.

"The panel is of the opinion that the non-completion of the transfer of shares process had vitiated clause 8-1 which stipulated that the execution of the SSPA automatically terminates the Concession Agreement. The panel has recommended the immediate termination of the Concession Agreement of ASCL and NIOMCO with GIHL by the FGN as it has largely failed to meet the purpose for which it was contemplated and not in the overall interest of the nation."

For Delta Steel Company Limited, the panel said it established that circumstances which enabled GIHL to emerge as the preferred bidder was faulty ab-initio, noting this perhaps emboldened GIHL to conducts its affairs in a way that does not meet international best practices.