11.1 Project Initiation

The idea of large-scale national steel production first arose as early as 1958 among the soon-to-be rulers of an independent Nigeria when it emerged that the regions at Agbaja, near Lokoja, as well as Udi, near Enugu, had significant amounts of iron ore (Matusevich , 2003: 191). The official view became that “any efforts to increase [a developing country’s] power status through technological advancement must come through their own development of indigenous steel (…) no country can talk about power status or the pursuit of it, and the defense of national interests, in any form without a well-established, integrated, fully operational native steel industry” (Unongo , 1980: 7).

Between 1961 and 1965, several proposals were invited for the construction of an integrated iron and steel complex, but the result was that the (Western) suppliers did not believe this could be done economically using local raw materials. In 1967 discussions about a possible contract were initiated with the Soviet Union in response to Western countries criticizing Nigeria’s civil war (instead of supplying weapons). Gaining a relationship foothold in the largest African country was important for the Soviet Union; soon after, a team of Russian steel experts recommended a blast furnace/basic oxygen facility (using the technology that Russia excelled in rather than the upcoming direct reduction technology that used gas rather than coke); as a result, the Russian firm Technoexpert was awarded a contract in 1970 to examine the quantity and quality of Nigerian ore and coal.

The year 1971 saw the creation of the Nigerian Steel Development Authority (NSDA) to carry out surveys and research and to plan, construct and operate steel plants. The NSDA received several rounds of reports from the Russians, and difficult negotiations took place between the Nigerian government and the Soviet contractor, Tyajz-Prom Export (TPE). There was widespread unease about deepened relationships with the Soviets (Alli-Balogun , 1988: 195), but a contract for the construction of a plant was finally signed in 1979 (just before the military president, General Obasanjo, handed over the government to a civilian). A few months later, the new civilian Shagari Administration declared steel to be a high priority and created a ministry for steel. The contract foresaw an initial phase with a plant of 1.3M tons of annual production capacity, for a sum of $2B (with Nigeria also covering 50% of the cost of transporting and housing 7000 Soviet technicians and their families on-site).

In the words of (former) President Obasanjo: “In my first presidency, there was the general belief that steelmaking was at the heart of industrialization. India had built a 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. I started the project, but then it was executed through the ministry of mines.”

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 candidates, Onitsha was closer to both deposits. However, economic optimality was trumped by political justifiability (in 1974, just four years after the civil war, awarding a strategically important project to one of the strongholds of the rebelling state was not considered prudent) (Oyeyinka & Adeloye, 1988: 26).

Moreover, much has been made of the raw materials dilemma: Nigeria had large ore deposits (albeit with low iron content, below 40%) but a paucity of coking coal, while there was an abundance of gas (from oil production). Therefore, the choice was between an (old technology) blast furnace process, with a relatively cheap “beneficiation” of local ore, and a modern direct reduction process using cheap gas for heating, as well as iron reduction, but requiring higher-grade ore (of around 80%, which would have to be imported because an intermediate step to upgrade the local ore would have been prohibitively expensive). In the end, the blast furnace process was chosen (pushed for by TPE), but coking coal would have to be imported at least initially, because the local coking-ready coal from Lafia/Obi had excessive ash and sulphur content, as well as structural mine problems.

Therefore, the plant would require a dedicated 66 km rail line to transport ore from the mine at Itakpe, in addition to 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 our interview, President Obasanjo commented: “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” (Jimoh, 2021: 144).

However, another aspect of Nigeria’s grand steel ambition was more insidious: Ajaokuta was not the only project in the pipeline. Nigeria’s industrialization 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 Oshogbo 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, and 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 plants (Amzat , 2018). More generally, undertaking these overly ambitious projects at the same time turned the steel dream into a nightmare for Ajaokuta (Oyeyinka & Adeloye, 1988: 15): there simply wasn’t enough money, or talent, to carry out all these projects.

11.2 Project Construction and Cessation by 1988

In 1980 the FSDA became defunct and was replaced by specialized companies, one of them being the Ajaokuta Steel Company. TPE had originally been expected to deliver the project in 1989 and to deliver half the capacity as output by 1983. TPE 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), tensions arose between Russian and Nigerian personnel (because the Russians were perceived to be receiving astronomical salaries, among other things, see Alli-Balogun, 1988: 632), and delays and overruns accumulated. By the end of 1983, all work had to be halted because, being in an economic recession, the government ran out of money and stopped paying the contractors. The civil works contractors withdrew their personnel, blocking TPE’s work (Matusevich , 2003: 214), and work essentially stopped.

At the end of 1983 the military deposed the Shagari government and installed General Muhammadu Buhari as a military president. Within days, the Canadian-educated general manager of Ajaokuta was in jail, along with 12 fellow senior managers, accused of “stupendous dishonesties” (corruption and mismanagement), and all work at Ajaokuta was halted. In addition, relationships with the Soviets became so frosty that Nigerian officials accused the Soviets of wanting to bring more “technical personnel” than was necessary, with the Nigerian embassy refusing visas to 500 Russians who wanted to enter Nigeria in 1987.

Discontinuity across administrations was again, as we have seen previously, a factor in this tale. Of course, every administration had its own view. Here is the view of (former) President Obasanjo, who signed the original contract in 1979 (Jimoh, 2021: 145):

Just after the handover to President Shagari, a representative of TPE came to meet Obasanjo in his retirement home with the complaint, “Mr President, you did not hand over well”. The president asked why he felt that way, to which the man replied that the minister of mines and steel was demanding a bribe. The minister had refused to sign the certificates of completion of jobs, which were needed for payment. But they could not pay any bribe from their contract sum since the payment for the contract was from Russia. “We do not have control over such payment since the bribe payment is not part of the bid.” In sum, the project was blocked because of a “lack of enthusiasm for it,” which resulted in the project no longer being given sufficient priority. Obasanjo spoke to his successor, Shagari, about it but did not know whether Shagari ever pushed for completion.

Although Buhari wanted to stamp out wastage, he did not dare to stop the Ajaokuta Steel Project and the symbol of industrial development and self-sufficiency that it represented (not to mention the destruction of 5000 jobs that it provided). A new agreement for the completion of construction was signed in August 1985, just days before the Buhari regime was overthrown by the Babangida regime, but the schedule continued to be pushed back under Babangida, in 1988, 1989 and 1990, following the departure of Soviet personnel (Matusevich , 2003: 215).

Whatever the perspectives of the three administrations involved, by 1990 the project had ground to a halt from a lack of both funds and trust (Fig. 11.1). In the words of Matusevich (2003: 189), “The empty concrete blocks of its township (…) and the still rolling mills (…) stand as silent monuments to the failed ambitions of Nigerian rulers to exorcize by fire and steel the demons of the colonial past. They stand as a silent reminder of the lost grandeur of the Soviet empire, which, terminally ill as it was, tried fitfully to plant its peculiar concept of modernization in an African nation, tried and failed.”

Fig. 11.1
figure 1

Ajaokuta site entrance

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11.3 The PPP Revival of 2000–2007

When Olusegun Obasanjo came back for his second term as (this time civilian) 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. “I thought the project should be completed by the same people who started it, so I went to see the Russian government. But they said no, and it turned out that the original contractor had been Ukrainian anyway, which now was a separate country! So, I went to the Ukraine, but they were not interested either. That was when I decided that we should find a company from the private sector to do it. Against what people may tell you, a concessionaire was chosen by a public bidding process. The winner of this process was an Indian company, founded by the father but run by the two sons, the younger of whom drove this bid – the company was Mittal Steel. But then the sons competed with each other and fell out.”

In other words, 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 process was handled by the Federal Ministry of Mines and Power rather than the Bureau of Public Enterprise (an institution established by an Act of Parliament to sell government assets or agree to the concession of government property).

GINL was given a ten-year concession for the Ajaokuta Steel Company in 2004. This was converted to 60% equity in May 2007 shortly before the exit of the Obasanjo government. However, a local company, BUA Group, had initially been chosen as the preferred bidder for Delta Steel and continued to agitate for its claim; soon material appeared in various newspapers alleging that the entire concession to GINL was illegitimate and was robbing the nation via an undervalued transaction. The Yar’Adua government established an investigation panel in October 2007 and cancelled the concession agreement in June 2008, alleging that GINL had failed to meet its performance targets and to pay concession fees while undertaking asset stripping. GINL, however, proceeded to international arbitration (Olawale , 2013; Okafor, 2016) and won the case at the International Arbitration Court in London in 2016. (This settlement foresaw that GINL should be repaid $700M and retain the right to operate the Itakpe mine, which gives us an idea of how much they paid for the concession 12 years earlier.) The parties negotiated but had not found a mutually agreed settlement by 2017 (Udo, 2017), although the government claimed that a settlement had been reached, leaving GINL with Itakpe.

Now the government is attempting to get a new concessionaire, who will make the necessary investments. This process is extremely complicated (legally, and in terms of bringing multiple stakeholders on board), and no solution is currently in sight. According to the Bureau of Public Enterprise in an interview, the key challenge is not a business plan for a reconcession but transparency and credibility (including the understanding of any potentially interested investor that an agreement reached with one administration may be challenged again by the next). Before a final settlement, no contemplation of any revival of Ajaokuta will be possible.

11.4 The State of the Asset

The authors were able to visit the site of the Ajaokuta Steel Company, which is the size of a small city and employs 3000 people (who live on-site in dedicated housing) to maintain the site and keep it from deteriorating (but no steel is produced) (Fig. 11.2). The plant is clean, but the age of the equipment is evident, not by deterioration but by design, and by the absence of modern IT-based control systems that drive critical productivity. This large organization is managed by a “sole administrator”. The administrator made an official presentation, emphasizing that steel production is required for a country to reach the industrial age (with wording that seemed to have been lifted from Minister Unongo’s presentation in 1980, cited earlier), and the presentation stated that the project was “95.6% completed”. To the question of which measure the 95.6% completion rate was based on, the answer was “by the weight of all the materials that have been installed.”

Fig. 11.2
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Ajaokuta Steel Plant’s site in the summer of 2019

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The completeness measurement is a recurring theme—senior officials in Nigeria seem to like quoting precise-sounding completion figures (which we saw in the Second Niger Bridge and several other projects). However, completion figures are only as good as the underlying measures, and a weight measure is not in any way indicative of how much work and effort will be required for the last 3.6% of “weight” installed. This is illustrated by the estimate of how much money will actually be required to get the plant to production (backed up by an official audit that the sole administrator initiated).

The result was that it would take $650M to install missing equipment and replace deteriorated equipment. However, in addition, another $800M, contingent on the earlier $650M estimate, would also be required to complete the surrounding infrastructure (railway and river port). In sum, actually starting up the plant and producing steel would require an additional two years (that’s the good news, says the sole administrator) and a new investment of $1.45B! (His successor made a presentation to the federal government in the summer of 2020 requesting this sum, based on the argument that a new concession would bring in more money for a working plant [Mogbede, 2020].) This sum certainly amounts to more than 3.6% of any relevant funds, both the approximate $6B that the Nigerian government has actually invested in the project so far and the original $2B (for plant plus infrastructure) that was agreed with TPE in 1979.

11.5 Conclusion

What have we seen in this case study? The project started from a reasonable policy stance: using steel to industrialize Nigeria. However, the project was conceived with a mixture of overambition and naivety—the complexity was augmented by political compromises in design and, even more so, by overambition in the total steel programme pursued; this came back to haunt the execution, which took place during a recession, causing the money to run out and the contractors to withdraw. The themes of overambition combined with a lack of solid financial planning are reappearing.

However, financial planning has been exacerbated by the unwillingness of subsequent administrations to ensure continuity, as seen by the handovers from Obasanjo to Shagari, from Shagari to Buhari, and again from Obasanjo to Yar’Adua (in the latter, journalists quipped that although Obasanjo had supported Yar’Adua, he had to watch “his partners being raked by the new administration in multiple cases”). A lack of continuity has destroyed several of the projects in our sample. A lack of continuity is also relevant in the ability of the country to get PPP off the ground, a structure that has helped many other governments to get infrastructure built with the private sector, helping the government to avoid financial overstretch. If concessionaires cannot rely on the agreements being honoured by subsequent administrations, it will become impossible to find investors (of course, the other side of the coin is that the government needs to build the sophistication to negotiate with hard-nosed and experienced business people who are happy to take advantage of naive negotiation counterparts).

Where does this leave the project? After 40 years and $6B having been spent, the project requires almost as much remaining investment (this is optimistic) as the original budget, and no solution is in sight to make progress until a new investor trusts the government to honour its agreements. Moreover, simply adding the missing pieces is probably insufficient—the existing equipment is probably obsolete (in design, as well as controllability, and in terms of optimization, as well as automation) and, even if functional, won’t be competitive. Thus, the true investment required is probably much higher than $1.45B. However, the plant is so deeply embedded in the Nigerian rhetoric of industrialization and progress that “over the years, Ajaokuta has been the most permanent fixture of the ever-changing Nigeria” (Matusevich , 2003: 189), and no administration has dared to question it.

Olatunji (2018: 344) concluded in his analysis that the Ajaokuta Steel Project “did not deliver its promised potential. It did not fail either.” We disagree. It is time 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, the country bleeds.

First, we have made enquiries about how much it costs to build a steel plant. The answer exists as a first “linearized” estimate analogous to the statement with which we are all familiar for residential homes: “A house in central Lagos costs N ‘xxx’ per square meter of habitable space” (and then we adjust this up or down a bit for budget or luxury design). In this spirit, the estimate for an integrated steel plant is $2000 per ton of annual capacity, which would mean a budget of $2.6B for the 1.3M-ton-per-year Ajaokuta plant. In fact, it is possible that we need to adjust this upwards slightly because fixed costs may play a role, so perhaps we should estimate $3B. This is twice as much as the estimated completion cost of the existing Ajaokuta plant, but it would result in a state-of-the-art plant with modern technologies, controls and automation, which would therefore be competitive. Does this suggest that Ajaokuta in its ancient design should be completed?

However, the questioning needs to go deeper. The logic of the need for Ajaokuta, the “modernization symbol”, is rooted in the 1960s. The leading nations have all lost their steel industries; steel has become a commodity that has undergone extreme price fluctuations over the years. Competitiveness today comes from services (prominently financial services), communication, IT and new developments such as AI, blockchains and intelligent decentralized constructive manufacturing. Nigeria is most competitive in IT and communication services. How damaging is it if steel costs a bit more (probably not much more) than if it were produced domestically? Is the construction of an industrial dinosaur really the path to modernization, or is it a path to the past? And would Nigeria be better off investing the next $3B in the education of young people, in state-of-the-art technologies (albeit with better planning and commitment than in the current government projects)? One of the authors recently visited Kerala, a poor state in Southern India, and was told that they are investing in educating a critical mass of people skilled in blockchain technologies, in a bid to provide services for remotely controlled supply chains globally. Would something of this spirit not be a more proactive industrial investment for Nigeria than an industrial dinosaur?

These are complicated questions. We have no answers, only questions. Nonetheless, we propose that Nigeria should question the rationale behind the Ajaokuta Steel Project stemming from the 1950s and be willing to throw old notions aside if necessary.