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Dan Kunle is a consultant in the energy and steel sectors, and one of the advisors to the Bureau of Public Enterprises from 2003 to 2007. He spoke to Patrick Ugeh on how the government can get the Ajaokuta Steel Company Limited, its sister outfit, Nigerian Iron Ore Mining Company, Itakpe, and the accompanying rail line to Warri working. Excerpts:

Can you give your assessment of the steel sector?
Today, with the benefit of hindsight, and comparatively, what the Ajaokuta Steel Company has is just 1.3 metric tonnes per annum of liquid steel capacity which, today in China, is not economical. The minimum capacity today in China is 3 million metric tonnes. So, I just laugh when we talk of the potential of this company. This project was good (when it was conceived) because no nation can survive without steel. If you don’t have steel production capacity, you can’t develop. Everything you see today in the construction industry is steel. In the oil and gas industry, this local content they are talking about, steel is the main issue. In ship building, the automobile industry, it is steel. That is why, when you check the history of the US, it is Bethlehem Steel that build America. Check Bethlehem Steel, how Bethlehem Steel built the US.
Recently, the Minister of Steel, Mohammed Sada, mentioned that a number of companies had shown interest in Delta Steel Company (DSC), Aladja, near Warri, and that most of them happen to be automobile companies, but you seem to have issues with that. What is it really?
People must understand the nature and the structure of the Nigerian steel industry. The Nigerian iron and steel industry is largely construction steel. We don’t have flat sheet plant in Nigeria. Ajaokuta doesn’t have flat sheet plant; DSC (Delta Steel Company) doesn’t have. People must understand that the structure that we were building on before we lost momentum in 1984 when Buhari/Idiagbon took over was solid steel – rolling mills, angle rods, wire rods, rims – all the rolls for the construction industry. Because there were no flat sheets, somewhere along the line when Abacha attempted to revisit steel in 1995, out of the pressure some of us put – I remember vividly that I was at the centre of that pressure – I put so much pressure through the then Minister of Solid Minerals – Abacha commissioned Ferrostar to do a study for the flat sheet requirement for Ajaokuta. Without flat sheets, you cannot do much for the automobile industry; you cannot do much until your country produces enough flat sheets of different grades, different qualities, because every vehicle you see on the road is a metal box. However beautiful that car is, it is a metal box. So, Nigerian automobile industry, if they are talking of going into steel, I am a little bit surprised. Because it is not just an investment that you can just … the Nigerian automobile industry today is largely import-dependent. They are all importers of vehicles – whether they call it completely knocked-down (CKD) or whatever they call it. They are all importers, and for them to manufacture, you need flat sheet; you need a flat sheet steel plant. So, if Ajaokuta and Delta Steel are all solid steel plants, where is the relationship between the automobile industry and those plants? And the whole of the automobile industry in the country today – Peugeot Automobile in Kaduna, Volkswagen in Lagos (I was part of the people who sold them), plus Steyr in Bauchi, National Truck Manufacturing and Leyland in Ibadan (I was part of the people who sold them), including ANNAMCO in Enugu. So, I don’t see any correlation unless we are just trying to --- I don’t know what type of game that we are trying to play. But you see - I am not being political here - but President Jonathan’s Minister of Steel should please not try to mislead us. This industry, some of us know it too well that we can’t be misled. Delta Steel that he mentioned in his presentation at the National Assembly is to produce billets, pellets and rolled products. I have the whole configuration of Delta Steel – the foundry there, the oxygen plant there – all these facilities are to support one million tonnes capacity. There is nowhere in Delta Steel that an automobile industry has any business that is competitive or of comparative advantage today. I don’t know how he came about that issue but that does not mean an investor in Peugeot Automobile of Nigeria in Kaduna or Volks or whichever cannot go and invest his money in the steel plant. But I am just saying that the investment is not an investment that has immediate gain because they are all rolling mills – billets and pellets and … there is no flat sheet plant among them. Even if there is flat sheet plant, the automobile industry in Nigeria does not even produce tyres anymore. Dunlop and Michelin have migrated out of Nigeria, and we have the advantage of producing natural rubber from our farms but we are not even doing that. So, I don’t want the minister to mislead us at all. The industry has suffered enough, and now we must get it right.

So…?
China today is trying to battle with excess capacity of 57 million metric tonnes of liquid steel. What is the meaning of that? It means they have that excess capacity that they don’t want their producers to produce. They want to transfer that capacity to somewhere in the world. Can’t my President and the Minister of Industry take advantage of such and say Please, bring that your excess capacity here; I’ll give you whatever you need; I have iron ore deposits. If the grades are not good enough, I have ECOWAS Economic Treaty; there is high grade iron ore in Liberia, Guinea, Sierra Leone, and I am part of the Economic Treaty. So I can take advantage of that. So, please come. You create the enabling environment. These are the things some of us have been talking about. So, for the Minister to be in the National Assembly and be telling us that some automobile industries are interested in the rolling mill… immediately I saw it, I said No,No, No, we are going wrong again.
But if the automobile companies are interested in the steel plant, they must have done their due diligence and found that it is going to be useful to them, don’t you think?
Well, okay, then the minister should allow AMCON and not tamper with the process. The minister should not interfere. That’s not how privatisation process was done when people like me were there.

Would you want to expatiate on what you mean by the Minister’s interference?
He should just say some companies are already in the process of being evaluated by AMCON, finish. He is not supposed to allow us know where they are coming from – whether they are from the automobile industry or the construction industry. For me, by that statement he has let the cat from the bag. That is my grouse with that his statement. Again, it also points to the fact that we are again going to get it wrong. Look, we got it wrong from 1984 when Buhari/Idiagbon slowed down Ajaokuta. Delta Steel survived it because they had already started producing as at that time. Ajaokuta never got out of that slow-down Gen Buhari and Idiagbon caused in 1984. Now, Obasanjo came in 1999 and tried to revive Ajaokuta and Delta Steel. Because of the full force of privatisation, the privatisation agency where I was (BPE) we pulled the hand back and said: Privatise it and give incentive for private sector to enter. Then we succeeded in privatising Delta Steel; we did not succeed in privatizing Ajaokuta. The ministry concessioned it. In the privatisation agency we attempted it. We engaged a consultant, BGL. We did everything, just to do the final bidding and make them pay and become core investor. We could not finalise it. The concession they had for Ajaokuta and NIOMCO, Itakpe, and the railway… was with Global Steel Infrastructure but Delta Steel was core investor sales. So, when that concession collapsed in Ajaokuta under Yar’Adua, eventually, it affected Delta Steel because it was the same owner.

Were you are aware that when Global Steel got the concession, they were asset-stripping Ajaokuta and taking some of the things to Delta Steel…?
Thank you. Let me say I am a student of privatisation process. The lesson Nigerian officials have not learnt I will tell you, which is why the country is in a mess. Who enforces post-privatisation or post-concession rules? BPE.
Thank you. If I sell an integrated steel complex to one owner, if he takes something from Ajaokuta to Delta and I who is monitoring – post-privatisation monitoring – I have a record of what he takes (I must know what he takes.) What is the compatibility of that thing he takes from Ajaokuta to Delta? If he brings something from Delta to Ajaokuta, what is the compatibility, what is he using it for? So, should we hold the company responsible or we should hold the people that are supposed to monitor post-privatisation responsible? The federal government of Nigeria still had interest in those investments. It was not 100 per cent sales. So, you should have stopped them from taking the assets there; and then you stop them from producing. I am not an advocate for Global Steel but I am only saying the federal government is the owner of the privatisation agency, the owner of the Ministry of Mines and Steel; the owner of all the regulatory agencies and if it cannot enforce its right in Ajaokuta, Itakpe, on the rail line, and Delta Steel, that is its headache; it is not the headache of the concessionaire because you are to police him, make him do what is right, and conform to what you are doing. Now, see the collateral damage now – they are not there to produce; you have no control over their assets because there is litigation. So, the place is idle since 2009. Those assets have been idle since 2009. You could not put them to use as government; you could not put money into them to complete them because the first goal since 1984 was not even completing Ajaokuta. Some sections were up to 98 per cent complete.
So, who should be held responsible for the non-completion? It’s the federal government that should be held responsible. The government felt at that point that it was better for it to pull out and allow the private sector do it. Why did we complete Delta Steel? Why did the Federal Government complete the refineries? Why did we complete Eleme Petrochemical plant? Why did we complete NAFCON? Why did we complete Aluminium Smelter Company? So, the reason Ajaokuta was not completed by the federal government is the reason the place is suffering. So, if I were the President, I would take Ajaokuta as it is, Itakpe and the railway – because these three assets are one; they must be together. I will call the Chinese and say, I am aware you have excess capacity in your country; please take this plant and put your money and help me complete it so that it will employ Nigerians.

What if the Chinese are not interested…?
They are interested. They are interested but there is litigation in NIOMCO, there is litigation in Ajaokuta; the rail… none of these assets is free. So, all the Chinese investors are observing what will be the outcome but they have done their studies of the entire iron and steel sector for the entire West Africa and in fact Africa. Anywhere there is iron ore in Africa, they have mapped it out. I am telling you on authority. Now, they cannot move because even the current management in Ajaokuta again are constituting additional legal bottlenecks for a future investor. Because all the units that make up Ajaokuta, they have started saying they will concession this out to this company to come and repair and put their money into it so that the place will not be idle. None of these people they are doing these things with has the resources and technical capacity to make those things functional on stand-alone basis, none of them. It is makeshift; which, again, is going to create problem. This is why I say in the last four years, the approach of the Minister of Steel to Ajaokuta and Itakpe has been a wrong approach.

In what way, because at a time several companies showed interest, but they were tied by the litigation?
No, the federal government is too big to be tied by litigation. There is no company in the world that can hold the federal government of a sovereign state to ransom. But the law is the law; if you have bought something from a state, legally you are entitled to that thing, and if you are being stripped of it and the process is not right, you are entitled to…
In view of the strategic importance of the iron and steel sector, even if the arbitration warrants that you are to pay penalty, what’s wrong in you paying? That’s the point. They have to wait for the arbitration to complete its course…
For four years? I know. I have been following the arbitration. But if I was the Minister of Steel today, I will go to the Attorney-General, the Minister of Justice, and say this is the life-wire of this country; let us resolve this arbitration. I will go to the president and say, Mr. President… I am aware that Sada has been doing that. I wish him all the best; I don’t have anything personal against him; The President should please de-bottleneck the iron and steel industry because it has employment potential; it is the only trigger for industrialisation in Nigeria.

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Global oil prices have plunged by about half since last summer, when Brent crude, an international benchmark, fell from $115 a barrel in June 2014 to below $45 a barrel in January. On Thursday, Brent crude was trading at $65.84 a barrel, while U.S. crude oil hit a five-month high of $59.40 a barrel.

The drop in price of oil has seen it take a toll on the profits oil giants as reports for the first quarter in 2015, saw most of the oil majors reporting a drop in profit compared to the first quarter of the previous year.

One of the worst hit was Exxon Mobil Corporation which saw its earnings fall 46 percent in the first quarter as a drastic drop in oil prices continued to eat into the energy sector’s profits. The company last week reported quarterly profits of $4.9 billion, or $1.17 a share, compared with $9.1 billion, or $2.10, in the same period last year.

Revenues in the first quarter totalled $67.6 billion, a drop of about 36 percent from first-quarter revenues in 2014 ($106.3 billion).

Exxon Mobil continued to scale back capital and exploration expenditures as part of a multiyear plan to reduce raw material, service and construction costs. The world’s largest publicly traded oil company spent $7.7 billion in the first quarter, a 9 percent drop from a year earlier.

The company had earlier said that it has plans to cut its capital budget every year through 2017, with spending for 2015 reduced to $34billion, or 12percent less than 2014 spending.

Chevron Corporation was no exception to the drop in profit as the company at the weekend reported earnings of $2.6 billion for first quarter 2015, representing a drop of $1.9 billion from the $4.5 billion recorded in the first quarter of 2014.

According to the company’s financial results, foreign currency effects increased earnings in the 2015 quarter by $580 million, compared with a decrease of $79 million a year earlier.

Also sales and other operating revenues in first quarter 2015 were $32 billion, compared to $51 billion in the year-ago period.

The CEO, John Watson said last week while addressing stakeholders said that first quarter earnings declined from a year ago due to sharply lower oil prices, which reduced revenue and earnings in its upstream business. Downstream operations were strong, benefitting from lower feedstock costs and improved refinery reliability.

The Company said that they were responding to the current price environment by capturing cost reductions, pacing new project approvals and further streamlining their portfolio as planned. They are taking a number of deliberate actions to lower cost structure, and they expect these efforts to increasingly show through in the financial results as the year progressed.

The company listed its recent upstream milestones to include the introduction of fuel gas and start-up of the first gas turbine generator at the Gorgon LNG plant, installation of Wheatstone platform topsides and announcement of a natural gas discovery, Isosceles-1, in the Carnarvon Basin in 50 percent-owned Block WA-392-P, all in Australia and the achievement of first liquids from the Bibiyana Expansion Liquid Recovery Unit in Bangladesh.

Other milestones include the announcement of a joint venture to explore and appraise 24 jointly held offshore leases in the northwest portion of Keathley Canyon in the deep water Gulf of Mexico and the ramped up oil-equivalent production at Jack/St. Malo in the deepwater Gulf of Mexico to more than 70,000 barrels per day, both in the United States.



Royal Dutch Shell also saw its earnings for the first quarter fall by 56 percent compared with a year earlier, as improved performance in marketing and refining failed to offset the effects of the plunge in oil prices, said the company in its press release.

The Anglo-Dutch company’s profit, adjusted for inventory changes and one-time items, was USD3.2 billion, compared with USD7.3 billion in the same period a year earlier. Still, the results beat analysts’ consensus forecasts, and Shell’s shares rose about 1.5 percent in morning trading in London.

But analysts said that there was cause for concern in Shell’s results. In an indication of how quickly a drop in oil prices can erode margins, the company said that its earnings from finding and producing oil and gas were USD675 million for the quarter, compared with USD5.7 billion a year earlier.

Shell said that the price it received for oil in the first quarter was 52 percent lower than the same period in 2014, while the price of natural gas fell by 27 percent. The fall in prices directly cut USD4.7 billion from earnings.

The company confirmed that it would cut capital expenditure through the year till 2018, this development could be seen as the company suspended its $12billion Bonga deep water project in Nigeria which was supposed to be given an FID in December 2014. The company also plans to sell off more assets in the various countries it operates. So far in 2015, the company has sold off two assets (OML 29 and OML 18) for over $2billion in Nigeria.

BP, based in London, reported a drop in earnings of 20 percent. Adjustment for one-time items and inventory changes declined to $2.6 billion, compared with $3.2 billion in the first quarter of last year.

The drop was mostly a result of crude prices that averaged $54 a barrel in the first quarter of this year, compared with $108 a barrel in the period a year earlier. Profit at the company’s crucial exploration and production unit slumped to $600 million, compared with $4.4 billion a year earlier.

Partly compensating for that drop were refining and exploration earnings of $2.2 billion, compared with $1 billion a year earlier, and $449 million worth of tax credits, mainly in the United States and Britain.

BP took an additional $332 million provision for loss claims stemming from the deadly 2010 Deepwater Horizon oil spill in the Gulf of Mexico, bringing total charges to $43.8 billion.

Despite the lower earnings, BP also said it would hold its dividend steady at 10 cents a share.

BP is benefiting from the streamlining measures that Mr. Dudley was forced to put in effect to pay for damages from the Deepwater Horizon spill.

French oil giant, Total, also announced a 22percent fall in first quarter profits due to slumping oil prices and disruption of its activities because of violence in Yemen and Libya.

The company said in a statement that profits for the first three months of the year dropped to $2.6billion from $3.3billion during the same period last year, on 30% lower sales of $42.3billion.

The company also said that the profits slide amounted to 22 percent in adjusted terms compared to the first quarter of 2014. But it said that erosion was partially offset by a 10percent hike in production to 2.4million barrels per day, and capital gains realised on asset sales.

The numbers were largely in sync with the first quarter figures revealed by British rival BP Tuesday which said its profits had dipped 26% to 2.6billion.

The CEO Patrick Pouyanne cited the positive impact of total’s push to cut $1.2billion in operating costs, and profits made on $5billion in assets Total has already sold out of a total of $10billion it has decided to shed.

The Nigerian Stage

The outlook has remained gloom in the oil sector and Nigeria is not isolated from the mix. This has already reared its head in the country’s poorly managed oil and gas sectors with reduced local spending and suspended FIDs on yet to be commissioned deepwater projects.

The oil service companies are hit by the woes in the oil sector as quite a lot of them have had several contracts delayed or cancelled thereby causing them to run on deficits and very lean budgets. As of today, two of the major oil service companies in the country, Haliburton and Baker Hughes have had to cut staff strength globally and their Nigerian operations accounted for a good number of the staff cut. Some other service companies have had cause to cut its staff strength with some other companies preferring to adopt a wage reduction principle.

Local contractors are already hard hit as all the oil majors have listed a reduction in one-off disposable items, construction costs as well as other sundry costs spending. This would affect the local economy and the real sector that had recently been boosted by the growth of the country’s oil and gas sector in its era of prosperity.

It remains to be seen what the outlook would be for the rest of the year with new developments like the Iran Peace Deal negotiations which market analysts and experts predict would cause a further crash in prices, but one certain thing is that the oil majors have all put in place measures to help them check the trend of falling prices.

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