Fresh controversy over PIB, Ajaokuta steel company

WITH divergent positions being maintained by stakeholders over the Petroleum Industry Bill (PIB), it has apparently turned into an unending source of controversy.

Like the oil and gas sector, the United Kingdom Department for International Development (DFID)’s evaluation that described the economic viability of steel production at Ajaokuta Steel Company (ASCO) as marginal drew reactions from stakeholders at the weekend.

The PIB has attracted the attention of   both supporters and critics.  While the supporters of the bill insist that it will develop the sector, its opponents counter that it will favour only a section of the country.

Investigations by The Guardian at the weekend showed that the bill has some features that are similar to petroleum legislations in Malaysia, Norway and the United Kingdom as they pertain to executive/ministerial powers. One of the documents compares ministerial powers in the current petroleum act in Nigeria with the powers proposed in the PIB.

Some opponents of the PIB fault it on the grounds that it gives the minister of petroleum enormous powers. For instance, section five of the bill says: “The Minister of Petroleum Resources shall be responsible for the co-ordination of the activities of the petroleum industry and shall exercise general supervision over all operations and all institutions in the industry.”

The Part One, Section Four (one) of the Malaysian Petroleum Law of 1998 empowers the “Secretary of State” to “make regulations” for the operations of the petroleum sector.

Concerning the powers of revocation which the PIB gives the Nigeria’s petroleum minister, the Malaysian Petroleum Law gives the Secretary of State similar powers. The latter regulation states in Part III; Section 18(2): “If it appears to the Secretary of State that the execution of works authorisation has not begun at the expiry of the period specified in subsection (3), he shall serve on the holder a notice stating that the authorisation is to cease to be in force at a time specified in the notice.”

While the powers for the control of the oil sector are vested in a minister in Nigeria, in the Norwegian Petroleum Act of 1996, such powers are given to the king. The king has the powers to

grant licences, impose on the licensee a specific work obligation. The chapter three Section 3.3 states: “The King in Council may, on conditions to be further stipulated, grant production licence. A production licence may cover one or several blocks or parts of blocks.” Chapter two, Section 2.1 says: “The King may issue regulations relating to the contents of an application for exploration licence, the further conditions of the licence and the fee to be paid.”

In the United Kingdom, the powers are exercised by the Secretary of State on behalf of Her Majesty the Queen. Section three of the UK Petroleum Law of 1998 says: “The Secretary of State, on behalf of Her Majesty, may grant to such persons as he thinks fit licences to search … and get petroleum to which this section applies … Any such licence shall be granted for such consideration (whether by way of royalty or otherwise) as the Secretary of State with the consent of the Treasury may determine , and upon such other terms and conditions as the Secretary of State thinks fit.”

Besides, the assessment by the Nigeria Infrastructure Advisory Facility (NIAF), a DFID- funded programme, advised the Federal Government to avoid a commercial risk exposure by an outright closure of the ASCO since it is not economically viable except if a suitably qualified investor is prepared to take on the considerable financial risks.

But a statement issued and signed by the Executive Secretary, African Iron and Steel Association of Nigeria (AISA), Sanusi Mohammed, noted at the weekend that “it must be re-emphasized here, that the World Bank/IMF from recent history has never encouraged steel development in Third World countries.”

A top management official at the ASCO who sought anonymity said: “This has been the stand of the World Bank/IMF and their imperialistic agents against the (ASCO) project. They earlier advised us in 2001 to turn the entire steel plant into a power generation plant as in the Hatch Associates report. We were equally advised at a certain time by Kobe Steel in the guise of an investor to demolish the blast furnace plant to enable them to install a fast-melt facility in another location in the steel plant. This was vehemently and wisely rejected by the Presidency at that time.”

The Minister of Finance, Dr. Ngozi Okonjo-Iweala had earlier contracted NIAF to carry out a financial and technical appraisal of ASCO with terms of reference to include to examine the overall context of the country’s iron and steel production, consumption and associated domestic or imported natural resources (iron ore, coking coal/coke, limestone, etc) and energy, analyse the state of the different facilities and equipment.”

Others were to evaluate the iron and steel processing plant, its operations and utilisation, examine the raw materials supply from within Nigeria or imports and value chains, examine the state of the logistic network for the transportation of raw materials and finished products, analyse the financial accounts and human resources currently financed and utilised, review commercial analyses and cost models for options.

The NIAF consultants made up of three economists and a meteorologist submitted a draft report with the following recommendations: “The economics of producing steel at Ajaokuta are marginal, and are likely to remain marginal. Operation of Ajaokuta as an integrated steel plant (as originally conceived and constructed) should be considered only if a suitably qualified investor is prepared to take on the considerable financial risks. We recommend Federal Government of Nigeria should seek to avoid commercial risk exposure.

“The steel mills can be made economic. The mills could be operated using steel billets produced at Ajaokuta, Delta Steel Corporation or imported billets.  If steel is produced at Ajaokuta the associated iron ore mine could be sold through an international tender process.

“Associated facilities (workshops, foundries etc.) could be offered as separate businesses and used to catalyse development of an industrial park. This option potentially offers the best return, lowest commercial risks and maximises job opportunities for the existing workforce.”

Though all efforts to reach the Minister of Mines and Steel Development, Mohammed Sada, proved abortive, in an internal analysis of the NIAF report obtained by The Guardian, the Ministry of Mines and Steel Development lamented that “NIAF team only visited ASCO and Nigerian Iron Ore Mining Company for less than 10 hours, yet they came up with such resounding condemnation of the projects.”

The memo argued that “the economics of producing steel at Ajaokuta said to be likely marginal is based solely on immediate commercial considerations without taking into cognizance other advantages such as technological acquisition, multiplier effects (downstream and upstream), national security, national pride, socio-economic importance, etc. In addition, potential markets for the bye products offer great prospect for profit.”

Another source at the ASCO told The Guardian that “The NIAF team that came to ASCO in October, 2012 are not steel leaders, they are not industrialists, they are just bunch of people who don’t know anything about the steel industry. Some of us had discussions with them which exposed their ignorance of steel industry.”

Other stakeholders urged the “award all contracts for infrastructure and mines development that are required for the commissioning and continuous operation of Ajaokuta Steel Plant.

“Vision 20:2020 economic blueprint as approved by the Federal Executive Council clearly recommended that the nation shall produce 12.2 million tonnes of steel per annum by the year 2020 out of which Ajaokuta steel plant is to produce 5.2 million tones/annum, DSC to produce two million tones per annum and the remaining by private entrepreneurs if Nigeria is to join the league of 20 industrialised nations by 2020.”