Nigeria Approves $4.3 Million Investment to Revive Defunct Ajaokuta Steel and National Iron Ore Mining Company

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Nigerian government has announced plans to spend about $4.3 million to revive and reactivate some units of Ajaokuta Steel Company (ASC) (Ajaokuta, Nigeria) and National Iron Ore Mining Company (NIOMC) (Itakpe, Nigeria) that have been idle since the cancellation of concessions in 2008.

The funds of $4.3 million released to reactivate the complex are just the initial investment needed to totally revitalize the complex. The funds do not include the salaries of the workers, which have been taken up in the 2010 budget figures. The minister indicated that the government would be looking at the involvement of a joint venture partner to perform the complete refurbishment of the complex. The government will monitor the progress of the plant over the rest of 2010 before continuing planning for 2011 and subsequent years.

Nigeria's steel industry can be traced back to the joint Nigeria-Russia surveys in the late 1960s that discovered significant deposits of the necessary components for steelmaking, including a large deposit of more than 200 million tons of iron ore at Itakpe, in the north-central state of Kogi.

ASC was established in September 1979 and was planned to be built over three phases, with the first phase producing 1.3 million tons of steel per year, the second phase increasing production to 2.6 million tons per year, and a final phase to bring production levels to 5.2 million tons per year.

Nigeria entered into a concession agreement in 2002 with Solgas Energy Nigeria Limited (Lagos, Nigeria), a subsidiary of Solgas Energy Limited (Uvalde, Texas), but this was revoked after just two years following dismal performance with no steel produced.

In August 2004, India's Ispat Industries Limited (BSE:500305) (Kolkata, West Bengal) took over and within two months the plant began producing steel. In 2005, Ispat, through subsidiary Global Infrastructure Holdings Limited (GIHL), signed a management contract to run NMIOC at Itakpe.

The last concession agreement for the complex was cancelled in 2008, reportedly because of non-performance and mismanagement. Following this, an interim committee was formed to manage both ASC and NIOMC.

According to Diezani Alison-Madueke, who is the minister of Mines and Steel Development, work will be undertaken on the light section rolling mill, the wire rod mill, a part of the thermal power plant, and engineering workshops at ASC, together with the Bergeaud plant and some mining and processing operations at NIOMC.

Since the beginning of the complex in 1979, the Nigerian government estimates that it has spent more than $6 billion to create an operational and functioning steel complex to progress industrialization of the country and achieve strategic objectives for economic development. Despite this, there remains external infrastructure and critical machinery that still needs to be completed.

The minister indicated that the complex would be operational by the middle of this year and defended the withdrawal of the concessional agreements to GIHL. According to the committee that investigated the situation, the stripping of about $890 million of assets was clear justification for the cancellation.

The reactivation of the complex was driven largely by the negative impact of terminating the employment of about 5,000 workers directly involved, and a further 20,000 workers indirectly employed in associated sectors.

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