Revealed: How litigation, cannibalisation, asset striping took 23 years off lifespan of Nigeria’s $3.2bn aluminium smelter

Ben Eguzozie

• Plant left with 27.5% value to reach decommissioning stage Only one of two things left for it: full TAM or dispose
• Nigeria spending $234.1m annually importing aluminium Global aluminium futures to rise to $250bn by 2026, with a 6.5% CAGR
• Smelter’s location in the Gulf of Guinea rates it strategic to US, Russia

This is the sad story of Aluminium Smelter Company of Nigeria (ALSCON) located at Ikot-Abasi, Akwa Ibom State, Nigeria’s sole aluminium smelter, with an investment of $3.2 billion by the federal government at commissioning in October 1997.

It had a nameplate capacity to churn out 193,000 tonnes of aluminium ingots and billets per year. ALSCON was established purposely to utilise and enhance Nigeria’s huge gas reserves and to discourage gas flaring, which could be rechanneled to generate electricity for the smelter plant via a gas-to-power model.

Other objectives are: to establish a self-sustaining company; to provide employment to Nigerians; to create an avenue for transfer and acquisition of technology; to conserve and earn foreign exchange by meeting the country’s aluminium need and to export finished products to the international market, and to be feeder to downstream industries which will be utilising ALSCON products as their basic raw materials.

At commissioning in Oc- tober 1997, ALSCON had the following ownership structure: 70 per cent owned by the Nigerian federal government, 20 per cent by Ferrostaal AG of Germany, the plant’s equipment installer, and 10 per- cent to Reynolds of USA.

By this tally, Nigeria held the responsibility of chalking up the majority of its funding for operations. Unfortunately, this was not to be, very shortly after. By 2000 signs were already emerging of a hedgy approach by the federal government.

The then Olusegun Obasanjo administration dillydallied when it progressively hesitated in providing funds to aid the smelter’s operations. Things became increasingly difficult for the operators. The plant barely achieved optimal production shortly after take-off in 1997, achieving 40,000 tonnes before production was suspended due to failure of the Obasanjo administration’s disturbingly non-release of capital to aid operations.

Being the majority shareholder, this no-response approach resulted in the plant’s inability to meet its financial obligations, including settlement of gas bills. It was eventually shut down in 2013, after a series of production hiccups. Even at shutdown, ALSCON’s warehouses were stocked with raw materials and spare parts planned to sustain the company on a continuous production stream of two years minimum.

Since its commissioning in October 1997, the plant has been mired in the crisis of dodgy policy approach by the Nigerian government, which retained 70 percent ownership, litigations by its core investors – Ferostaal AG of Germany and Reynolds of USA, until its last owner, Rusal of Russia and Bancorp Financial Investment Group (BFI Group). The genesis of the legal crisis took roots in September 2002, when the Bureau of Public Enterprises (BPE) commenced a surprise privatisation process of ALSCON.

Five companies had expressed interest in buying over the aluminium smelter. They were: ALCOA Incorporated of America, Glencore AG of Switzerland, UC RUSAL of Russia, ALCAN of Canada and Ferrostaal AG of Germany (initial installer of ALSCON’s machines and aluminium pot rooms). The privatization bid was aborted, as most of the above-mentioned companies shortlisted failed to submit technical and financial templates.

In 2004, BPE began a fresh privatization bid. This time only BFI Group and UC RUS- AL satisfied the initial pre-qualification requirements. BFI Group emerged as the preferred bidder with a bid price of $410 million, while UC RUSAL was disqualified for submitting a conditional bid. But BPE later reported that BFI Group did not meet a deadline of July 8, 2004, for its payment of 10 per cent initial bid price. The privatization agency disqualified the American company, and consequently handed over ALSCON to UC RUSAL at a curiously much-reduced bid price of $250 million, on the basis of a “willing-buyer- willing-seller.”

BFI Group was, however, to drag the BPE before an Abuja High Court in September 2004, arguing that the privatization agency frustrated their attempt to pay the 10 per cent of their bid price within the stipulated period. The Court process was to proceed from the High Court to Appeal Court and landed at the Supreme Court. There were victories and counter victories for both camps until on June 6,

2012, when the apex court ruled that BFI Group was the true owner of ALSCON; and ordered the director-general of BPE to reclaim ALSCON from UC RUSAL, and enact a mutually agreed Share Purchase Agreement (SPA) with BFI Group. But since then, past and present BPE directors-general variously claimed that BFI Group had serially defaulted in meeting its financial commitments as directed by the court. But BFI Group consistently refuted the BPE claims.

Issues came to a dramatic head in December last year (2019), when a Federal High Court sitting in Abuja ordered that Alex Okoh, the director-general of BPE should be remanded in prison for at least 30 days for his disobedience of a June 2012 judgment of the Supreme Court, which had affirmed that BFIG was the true owner of ALSCON. Some

legal experts saw the ruling as justice in action, at least, to save the face of the nation’s Supreme Court from disrepute. Yet, some other geopolitical analysts described the court ruling as: ‘victory of America over Russia.’ At its boom production between 1997 and 2000, ALSCON, with a nameplate as ‘Integrated Aluminium Smelter and Power Plant,’ employed over 2000 workers.

It was yet uncertain why the BPE had insisted on privatizing ALSCON. Kelechi Otuh, national president of Metal Products Senior Staff Association of Nigeria (MEPROSSAN) and trustee of United Labour Congress (ULC), said in an article in August, that it was a surprise to labour leaders that ALSCON was ever enlisted for privatisation alongside moribund companies like Savannah Sugar Company at Adamawa, Nigerian Airways, and others. “Of course, labour leaders resisted the outright sale of ALSCON on the ground that the company could be made to run profitably with an astute and prudent management in place. However, the (federal) government might have its way and sell ALSCON, thereby denying Nigerians the economic benefits of the company,” Otuh said.

Another analyst said it was even more bewildering that BPE was bent on having Rusal to own ALSCON in a bogus privatization scheme. He said its bid price was way less than half the smelter’s value then. And that a higher bid came from the US company. He said during due diligence inspection and assessment, prior to bidding for ALSCON, most prospective investors were surprised that such a brand-new modern plant with state-of-the-art facilities was left unattended to.

Not long after the Russians assumed ownership of the aluminium smelter than allegations emerged of serial cannibalisation of the plant, asset stripping went on; workers were laid off in successive turns. Unionism was banned by disallowing collective agreement.

Friday Udoh, a chartered economist and a gas value- chain expert told Business A.M. that it was obvious that the Obasanjo administration never hid its interest in seeing that ALSCON was acquired and operated by UC RUSAL. As a result, not much was heard from the judiciary over ALSCON’s ownership all through the administration.

However, the administration of late Umaru Yar’Adua took a different approach from 2007 to 2010. In Novem- ber 2007, there was a meeting attended by the American Chargé d’Affaires, Lisa Pat- rick, who represented the then US Ambassador to Nige- ria, Terrence McCurley. BFIG representatives and the late president Yar’Adua were part of the meeting. The ambassador had said that they had already secured the services of the US Port of Los Angeles to carry out the dredging of the Imo Rivers at an estimated cost of $200 million, and were set to generate more support to BFI Group. The proposal from the Americans seemed attractive, but unfortunately, it ended abruptly following the sudden death of the Nigerian president in May 2010.

The exit of President Yar’Adua made it difficult for the hope of ALSCON for a possible resuscitation. Throughout the Goodluck Jonathan administration, it was pretty difficult to deci- pher where the federal government’s interest laid in ALSCON. President Jonathan was generally docile on issues related to ALSCON, even though bilateral relations between Nigeria and Russia increased during his administration.

In the current President Muhammadu Buhari administration, two significant events have taken place to suggest where the central government’s interest lies. On January 19, 2018, at the Ministry of Mines and Steel Development, Abuja, an agreement was signed between the federal government of Nigeria and UC RUSAL of Russia for the sale of ALSCON to the latter. The agreement was tagged ‘renewed share purchase agreement (RSPA). In attendance at the signing ceremony were the Russian ambassador to Nigeria, Nicholai Udovinchenko and his team.

Then came the October 2019 pact between President Buhari and President Vladi- mir Putin of Russia during the Russia-Africa summit, which was a confirmation of Nigeria’s shift towards the Eastern bloc. However, the recent court-ordered jail- ingoftheDGofBPEonthe grounds that he had refused to take over ALSCON from the Russians who are presently manning the plant, has also opened up the aluminium smelter for discussions on a possible Western bloc take-over and a shift to the West.

Why are the two world’s superpowers (although USA is more super than Russia) wrestling for the soul of Ni- geria’s ALSCON, when each can produce larger tonnes of aluminium than Nige- ria? Otuh says he knows the answer – its location in the womb of the Gulf of Guinea. While an average Nigerian may be seeing ALSCON as just a company that produces aluminium ingots, Russia and America are rather seeing an ALSCON located in the strategically important Gulf of Guinea region.

“ALSCON’s location rates it more than just a company for the production of alu- minium. It is located in Ikot Abasi at the heart of the Niger Delta region of Nigeria, not too far away from the Atlantic Ocean on the Gulf of Guinea, which is part of the tropical Atlantic Ocean in the south. The Gulf of Guinea coastline includes more than ten states which have huge economic importance to the United States and the Western bloc. A huge percentage of Africa’s oil production comes from the Gulf of Guinea region. With the recent discovery of offshore hydrocarbon depos- its, activities within the Gulf of Guinea are increasing. There- fore, the unending battle for ALSCON’s soul is more than the average Nigerian sees,” Otuh said.

Aluminium is a lightweight, nonmagnetic, soft and ductile metal present in the boron group. It is widely used in the automotive industry, construction and aerospace industries. It is also used in making household appliances and utensils. The automobile industry is the biggest consumer of aluminium. Packaging remains the second-biggest consumer of aluminium. Aluminium is also a strategic metal for national defence and security, as it is widely used in making various tanks, aircraft structural parts and components, ammunition components, parts of missiles and missile batteries and satellites. Due to its ability to withstand both high and low temperatures, vibration load, and radiation, aluminium finds wide recognition in the defence and aerospace sectors. In the food industry, aluminium foil packaging guarantees quality by averting the loss of valuable aromas. About 75 per cent of aluminium foil is used for packaging and household foil.

As at 1997, a tonne of aluminium on the international market sold for $3,000. This meant that at full capacity then, ALSCON would have been making approximately $600 million annually. In August this year (2020), a tonne of aluminium sold for $2,135, according to data by the Global Market Insights Inc. GMI says global aluminium, valued at $163.5 billion as at 2018, would rise to $250 billion, recording a compound annual growth rate (CAGR) of 6.5 per cent from 2019 to 2026. GMI says rising industrialisation and urbanisation globally will escalate the demand for aluminium products, thus fostering the aluminium market growth. Sadly, Nigeria won’t be part of this boom, at least with the present situation of its sole smelter.

Meanwhile, Germany based IKB Bank forecast that there was global primary aluminium production of 64 million tonnes and recycled aluminium production of approximately 12 million tonnes in 2018. Nigeria is sorely miss- ing in this global aluminium display and calculation.

Udoh, the chief economist at the Institute of Chartered Economists of Nigeria (ICEN), said their findings about ALSCON’s value indicate that the smelter may already be in late-life phase. He said the plant’s present 16 aluminium pot rooms were built to last 30 years before they would be changed. Already 23 of the 30-year lifespan have been wasted without any major achievement by the smelter. Besides, the pot rooms had not received firing for many years (at least since 2013), and might just be unserviceable. He told Business A.M. that only one of two things was open to the aluminium smelting plant: complete turnaround maintenance (TAM) or final decommissioning.

Meanwhile, the ICEN in the south-south region has petitioned President Bu-hari over ALSCON, asking him to revisit and rectify the smelter’s ownership tussle, with a view to getting it back on track. To ICEN, getting the aluminium smelter back into production is a credible economic diversification effort that can create over 61,000 direct and indirect jobs; solve gas flaring; in- crease the manufacturing sector’s GDP contribution by about 4.7 per cent; retain back home the $234.1 million spent on importation of aluminium.