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Columnists

Resuscitation of Ajaokuta Steel Company – an end in sight?

The failure of the project has been blamed on several factors including poor management.

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Ajaokuta Steel Company

Last week, the Senate expressed its readiness to work with the executive arm in reviving the Ajaokuta Steel Company project. This was disclosed by the Senate Leader, Yahaya Abdullahi, who led the Senate team on an oversight visit to Ajaokuta Steel Mill and the Itakpe National Iron Ore Mining Company (NIOMCO). This comes despite the President’s rejection of a bill passed by the Senate seeking US$1bn from the Excess Crude Account to
fund the completion of the Steel Company.

Earlier in May, the FG inaugurated the Ajaokuta Presidential Project Implementation Team headed by the Secretary to the Government of the Federation (SGF), Boss Mustapha with the Minister of Mines & Steel Development as the alternate chairman. According to the SGF, the mandate given to the implementation team is to prepare and submit periodic work plans and develop concession contract terms towards reviving the company. We understand
that the revamp of the steel plant will be supported with funds estimated at US$1.46bn from AFREXIM bank as well as Russia Export Centre.

READ MORE: Why Ajaokuta Cannot Make Steel

The Ajaokuta Steel Company is one of the foremost industrial projects conceived after the discovery of iron ore and coal deposits in commercial quantities in Nigeria in 1970. The Steel company with a capacity to produce 1.3 million tonnes of steel per year was designed and built as an integrated plant by the Russian Steel Company, TyazhpromExport, in 1976, after reaching an agreement with the Nigerian government. By 1983, the project had reached 95% completion and was commissioned by President Shehu Shagari at the time. The agreed plan was that the remaining 5% of the project will be financed using profits generated by the company. However, after almost four decades of several concessions and legal disputes with foreign private companies, Ajaokuta steel company remains in a moribund state.

Over the years, successive governments have made efforts to revive the steel company, unfortunately, such efforts have proved abortive. The failure of the project has been blamed on several factors with poor management being the leading factor. The project has also not been spared from legal battles as the Federal government had been involved in legal face off with the Global Steel Holdings Limited, an Indian firm involved in the failed concession of the Steel Company. In 2016, the Buhari administration settled a pending court case that enabled the FG to take control of the project and accelerate efforts to resuscitate the company. While we applaud the giant strides made by the current administration in reviving the company, it remains uncertain whether there is an end in sight to years of
abandonment.

READ ALSO: Russian company, MetProm Group, identifies problem of Ajaokuta Steel

Nonetheless, we believe the steel company has enormous potentials given its capacity to become a major producer of industrial machinery, auto-electrical spare-parts, shipbuilding, railways and carriages that will lead to job creation and reduce reliance on imported steel.

At a time when the FG is exploring alternative ways of diversifying foreign exchange earnings away from oil, the project is also a veritable source of foreign exchange earnings.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Columnists

Why the proposed Borno power plant may not materialise 

The glaring security challenge cannot be overlooked in considering a major power plant project in Borno State.

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Only a few days ago, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, led a delegation to Borno State to meet with the Governor of the State, Babagana Zulum.

In the conversation with Zulum, Kyari promised the establishment of a gas-fired power plant in Borno State within a maximum of 4 months to solve the recent blackouts that resulted from insurgents cutting off Borno from the national grid since January this year.

In Kyari’s words, “We have talked to each other and we think it’s very possible to establish a dedicated power plant in Maiduguri which will serve current needs of power supply not only in Maiduguri but to other parts of the neighbouring cities.”

Yet, there is a significant possibility that the power plant promised by Kyari may not materialize for many reasons, the first of which is security. In the meeting with Kyari, Governor Zulum had noted: “The ongoing insurgency has cut off the entire Borno from the national grid in the last three months. We put all our efforts and restored it back… but unfortunately, after 48 hours, the same group of insurgents went back and destroyed the main tower again.”

This glaring security challenge cannot be overlooked in considering a major power plant project in Borno State, particularly noting that the State and its surrounding communities have been the hot zone of insurgent and terrorist attacks by Boko Haram insurgents since 2009. Borno, Yobe and Adamawa have particularly been states where the insurgents have set up shop and carried out various activities, including kidnap, extermination of entire communities, burning of markets and religious buildings and the attack on the United Nations compound, in each case claiming tens or hundreds of innocent lives.

One report reveals that at least 37, 500 people have been killed by the insurgent group since May 2011, a modest number, some say. Also, till date, some of the secondary school girls kidnapped in the April 2014 Chibok incident are yet to be returned to their families. It is then bewildering how Kyari intends to see to the construction and operationalizing of this gas power plant.

Additionally, while the Minister of Petroleum for State, Chief Timipre Sylva, announced last year about the discovery of oil and gas deposits in the North, we have not seen any exploration and production kick-off. It then begs the question of where the gas for the Borno power plant intends to be sourced. The only gas pipeline that runs through the North – the AKK- is still in its first phase of construction out of three phases and has been earmarked at the earliest, to be completed in 2023 – not counting the typical delays the project will experience along the way.

Should the AKK by some stroke of luck materialize much earlier than the target date, the pipeline route is a considerable distance from Borno. It runs the route of Ajaokuta-Abuja-Katsina-Kano, its endpoint, a striking 481km from Borno State. Thus, there would have to be construction of a tie-in pipeline almost as long as the AKK from Kano to Borno State to get gas to Borno.

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Optimists may reference the oil and gas discovery in the North and how production may start soon, thus obliterating the need for a 481km pipeline. This optimism however is not well-founded, as insecurity has been shown to be a major risk to oil and gas projects everywhere in the world. One of the major reasons the Trans-Saharan Gas Pipeline proposed to run from Nigeria to Algeria was abandoned was due to security challenges posed by Nigeria’s Movement for the Emancipation of the Niger Delta (MEND), the Tuareg guerilla movement in Niger and other insurgent groups along the proposed route of the pipeline.

These increased the risks across board, including for completion and operations through the lifecycle of the project. As such, failing to fix the security threats in northeast Nigeria makes any proposed gas plant project a pipe dream. Transporting gas via LNG trucks is not a better option, given that the drivers and their cargoes would be in danger of being kidnapped, shot at or bombed. The risks for both personnel and investors are high.

In any event, promising a power plant in 4 months for the people of Borno is unconscionable, since a typical gas power plant will take between 1 to 6 years to construct in relatively peaceful regions. What the government needs to do instead of making promises it cannot keep is to work arduously to fix the security challenges in Northern Nigeria and at the same time consider using decentralised solar power to provide power supply to homes, government institutions, schools and businesses while plans to produce gas in the region or transport gas to it are underway.

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Columnists

IMF revised growth projection: a tale of vaccinated optimism

In Q4 2020, the economy surprisingly escaped recession evidenced by the 0.11% y/y rise in GDP.

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Explainer: What does GDP actually mean, and how does it affect you?

Yesterday, the International Monetary Fund (IMF) revised its Nigerian growth projection for FY 2021 from 1.5% to 2.5% in its World Economic Outlook.

According to the IMF, the improved optimism stems from the expectation that available vaccines would continue to quell the diverse mutations of the coronavirus, which had surfaced in different strains recently. The IMF also cited the effectiveness of policy supports in the short to medium term.

Recall that the Nigerian economy closed FY 2020 in the negative (-1.8% y/y), having suffered consecutive growth contraction in Q2 and Q3 2020, leading to the economic recession. Worthy of note is that in Q4 2020, the economy surprisingly escaped recession evidenced by the 0.11% y/y rise in Gross Domestic Product (GDP) following the relaxation of the lockdown measures starting in July 2020.

READ: Real estate sector GDP positive in Q4 2020, but still in the woods

The recent adjustment of the IMF’s forecast is hinged on some expectations. One, the OPEC+ alliances will continue to manage crude oil supply. Hence, more activities in the Nigerian oil sector which constituted an average of 8.52% of the total GDP in the last two years. Secondly, the coronavirus curve will continue to flatten amid the mass deployment of vaccines, while the stop-gap measures adopted at the heat of the virus would continue to spur economic activities toward the pre-pandemic levels thus fuelling the necessary recovery.

Whilst we note that the forecast is achievable going by the current macro-economic clime amid the low base from the dip in FY2020, there are some downside concerns. For instance, the continued spate of insecurity does not bode well for the agricultural sector (which contributed 25.54% to GDP in the past two years).

READ: IMF lifts 2021 global GDP growth to 6%

The ongoing NIN-SIM integration portends the likelihood of stiffening the performance of the telecommunication sector (one of the key drivers of the recovery in Q4 2020) if not quickly nipped.

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Reiterating our positions on the need to optimize the economy further, the government needs to bridge the existing infrastructure deficit, diversify its source of foreign exchange receipt, eliminate bureaucracies that stifle businesses, and promote measured economic liberality that suits the nation.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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