SHOULD NATIONAL IRON ORE MINING COMPANY LTD ITAKPE

SHOULD NATIONAL IRON ORE MINING COMPANY LTD ITAKPE THE HEART OF NIGERIA’S STEEL INDUSTRY BE PUBLIC OWNED, PRIVATIZED OR COMMERCIALIZED? WHICH WAY FORWARD? MARCH, 2009

TABLE OF CONTENTS n n n * • * * * • * * Introduction Commissioning of concentrate plant Production and Delivery of concentrate to ASCL Fine-tuning of concentrate plant by Nigerian Engineers to produce and deliver enhanced grade concentrate to DSCL Production of billet using NIOMCO’s Enhanced grade concentrate by DSCL Production and delivery of concentrates to steel rolling mills at Jos, Katsina and Oshogbo Stoppage of delivery of concentrate to Ajaokuta and Steel Rolling Mills Stockpiling of concentrates Attempt to export concentrates Request to extend storage yard/stoppage of production Skeletal running of plants Stock of concentrates when GINL took over Increase in International Market Price of concentrate/concession Sale of concentrate by GINL NIOMCO’S performance before GINL era Reasons for low capacity utilization Performance of GINL Comparison of performance of NIOMCO before and during GINL. The big question Should NIOMCO be run as a public company? Reason why NIOMCO was concessioned Should NIOMCO be privatized? Should NIOMCO be commercialized? Conclusion - 3 3 3 4 4 4 5 5 5 6 6 6 8 8 9 10 10 10 2

SHOULD NATIONAL IRON ORE MINING COMPANY LTD BE PUBLIC OWNED, PRIVATIZED OR COMMERCIALIZED? WHICH WAY FORWARD? INTRODUCTION v The main objectives for which NIOMCO was established was to amongst others, produce and deliver Iron Ore Concentrates and other steel making raw materials to the steel plants at Ajaokuta and Aladja. COMMISSIONING OF CONCENTRATE PLANT v The concentrate plant which processes raw Iron Ore of 33 – 39% Fe content from the Mine to Iron Ore Concentrates of 63 -64% Fe content usable at Ajaokuta Steel Company was commissioned in 1992. PRODUCTION AND DELIVERY OF CONCENTRATE TO AJAOKUTA STEEL COMPANY LTD. v As far back as in 1993 NIOMCO produced and delivered concentrates of 63 -64% Fe content to Ajaokuta Steel Company. 3

FINE-TUNNING OF CONCENTRATE PLANT BY NIGERIAN ENGINEERS v While waiting for the completion and commissioning of the super concentrate plant which processes concentrate of 63 -64% Fe content to Super concentrate of 6568% Fe content, purportedly required at Delta Steel Company Aladja, Nigerian Engineers at NIOMCO used their talents to fine-tune the concentrate plant to produce and deliver enhanced grade of concentrates of 65 -67% Fe content to Delta Steel Company Aladja as far back as in 1994. THE PRODUCTION OF BILLET USING NIOMCO’S ENHANCED GRADE CONCENTRATE v The enhanced grade Iron Ore Concentrate from Itakpe was processed into billet by Delta Steel Company for each of the three inland rolling mills at Jos, Katsina and Osogbo as far back as 1995. This production of billet testifies that the quality of Itakpe Concentrate is Excellent. PRODUCTION AND DELIVERY OF CONCENTRATES TO STEEL ROLLING MILLS AT JOS, KATSINA AND OSHOGBO v In 1995 NIOMCO also produced and delivered concentrates to the inland rolling mills at Jos, Katsina and Osogbo. STOPPAGE OF DELIVERY OF CONCENTRATE TO AJAOKUTA AND STEEL ROLLING MILLS v Due to various reasons the Ajaokuta & Delta Steel Companies and the three inland rolling mills stopped production and NIOMCO could no longer deliver to these steel companies. NIOMCO is not responsible for stoppage of delivery. STOCKPILING OF CONCENTRATES v NIOMCO did not stop production, it went ahead with production and was stockpiling its products in its concentrate storage yard till the 40, 000 tonnes capacity storage yard was overfilled and NIOMCO had to be depositing the products outside the storage yard hoping that the steel plants would resume production. 4

ATTEMPT TO EXPORT CONCENTRATES v When the steel plants were not forthcoming, NIOMCO explored the possibility of exporting the concentrates but it was not profitable to do so that time because price of concentrate at the international market was low REQUEST TO EXTEND STORAGE YARD/STOPPAGE OF PRODUCTION v NIOMCO was left with the choice of either to extend its storage capacity to enable it continue production or stop production pending when the steel plants would be ready. Due to funds constraints the supervising ministry officials between 1998 – 2004 did not grant NIOMCO Management approval for the extension of storage yard to enable the continuation of production. Production therefore gradually nosedived to zero in 1998. SKELETAL RUNNING OF PLANTS v From 1998 -2004 NIOMCO continued with occasional skeletal running of the plants when dignitaries come to visit NIOMCO to show that the plants could be run and to avoid complete disuse and deterioration. STOCK OF CONCENTRATES WHEN GINL TOOK OVER v In all, a total of estimated 294, 000 tonnes of concentrates was produced with an estimated 198, 446 tonne available in Itakpe and Ajaokuta when GINL arrived Itakpe. INCREASE IN INTERNAL MARKET PRICE OF CONCENTRATE/CONCENSSION v Between the year 2004 – 2005 when the international market price of concentrate increased to the extent that it was profitable for NIOMCO to sell and realize about N 2 billion, NIOMCO requested to sell and use the proceeds for operations. Government first granted the request but for a very short period when between 30 -90, 000 tonnes? of concentrate was sold before Government withdraw the approval to NIOMCO and said NIOMCO’s performance was poor and therefore concessioned NIOMCO to GINL, an India Company in April 2005. 5

SALE OF CONCENTRATE BY GINL v On arrival at NIOMCO in April 2005, the first action that GINL hurriedly did was that it sold the concentrate and utilized the proceed without giving Nigeria a kobo. NIOMCO’S PERFORMANCE BEFORE GINL ERA v At this juncture, it is pertinent to ask whether it is correct to say NIOMCO’s performance was poor. v In as much as it was true that the capacity utilization of the plant was as low as 3% before GINL took over but it can be proofed that the reasons for the low capacity utilization was due to the following facts: REASONS FOR LOW CAPACITY UTILIZATION 1. Lack of outlet for concentrates in NIOMCO’s concentrate storage yard (because the blast furnance at Ajaokuta was not ready, Delta Steel Company was not funded, price of concentrate at the international market was not competitive at the time to allow for exportation of concentrates profitably. All these factors made it impossible for NIOMCO to evacuate the concentrates in its storage yard and forced production to be stopped. 6

2. Uncompleted installation and modifications within Beneficiation plant to optimize production (i) it was desirable to install a pre-treatment plant to reduce to the bearest minimum fine particles in the raw Iron Ore that is hauled from the mine to the primary crushing plant. This was to reduce blockages in process routes and optimize production. Till date installation of this plant is yet to be completed by Government. (ii) The repartition Bin needed to be modified such that feeding of raw Iron Ore to the three existing production lines could be done simultaneously as reclaiming is going on. This was to avoid idle time of waiting for line 2 to be filled before line 1 or line 3 could receive raw iron ore for processing. This modification is yet to be done. There are other such modifications that would increase production, which are yet to be done. 3. Lack of funds to beef up the existing mining fleet from 20% to 100%. (Many occasions the crushing plant would be running on idle because there is no material coming from the mine because of insufficient mining equipment. 4. NIOMCO’s structure was inline with Federal Government Parastatals but renumeration was tied to the public service. If a staff is paid like civil servants, he would work like civil servants. . 7

PERFORMANCE OF GINL v At the end of the three year sojourn of GINL in Itakpe it operated at only 5% capacity utilization despite its claim of technical, financial & managerial strength, and yet a lot of damages were done on the equipment. The equipment that was at about 80% availability when GINL took over, was brought down to about 45% availability at the end of the concession in April 2008. The slight increase form 3% to 5% capacity utilization when compared to the period before GINL was due to GINL’s freedom from Government Bureaucracy. GINL failed woefully at NIOMCO Itakpe. COMPARISON OF PERFORMANCE OF NIOMCO BEFORE AND DURING GINL. v From all the above it can be stated that NIOMCO’s performance before GINL era was OK given the circumstances under which it operated but performance of NIOMCO during GINL was a failure. THE BIG QUESTION v Since GINL failed in Itakpe and since NIOMCO’s performance before the era of GINL was Ok the question now is should NIOMCO continue to be run as a public owned company, or should it be privatized or commercialized? SHOULD NIOMCO BE RUN AS A PUBLIC COMPANY? v From the past experience , the major problem NIOMCO had was the administrative bottle necks in the name of bureaucratic procedures, that it had to go through in getting things done and this is not good for any company involved in production. To this effect therefore to run NIOMCO as a public company would not be OK except, perhaps if NIOMCO could be placed directly under the presidency to reduce administrative bottlenecks, to the bearest minimum. 8

REASON WHY NIOMCO WAS CONCESSIONED v According to HON AMINU SHEHU SHAGARI, CHAIRMAN HOUSE COMMITTEE ON STEEL, “it is because of low capacity utilization, huge indebtedness to contractors, Industrial disharmony, uncompleted structure and above all accumulation of unpaid salaries of workers that the immediate past administration decided to privatize Nigeria Steel Company”. Possibly including NIOMCO. The HONOURABLE is right. The bedrock of these factors is bureaucracy. This is because the reasons for low capacity utilization, as explained in this write up earlier is due to the slowness of government in taking decision. Similarly, huge indebtedness to contractors, uncompleted structures, industrial disharmony, and above all accumulation of unpaid salaries of workers are all due to the slowness of Government in taking decision. It is in view of this bureaucratic bottleneck that it is hereby recommended that if NIOMCO is to run as a public company, the chain of bureaucracy should be shortened by placing NIOMCO directly under the presidency. In addition a well articulated business plan, indicating activity, time of activity, funds requirement, time funds should be released and time funds to be utilized should be prepared and strictly adhered to. If this is done corruption would be checked and production would be boosted. 9

SHOULD NIOMCO BE PRIVATIZED? v Judging from the abysmally poor performance of NIOMCO when it was privatized (concessioned) to GINL, an Indian company and in view of the believe in some quarters that NIOMCO is too important as the heart of Nigeria’s Steel industry, to be left in the hands of emerging private sector who is teleguided by their foreign owners. Privatizing NIOMCO is completely not advisable. No foreigner will love Nigeria more than Nigerians. SHOULD NIOMCO BE COMMERCIALIZED? v Finally, it is hereby strongly recommended that after the on-going restructuring, rehabilitation of the existing facilities and completion of the required but uncompleted projects, NIOMCO should rather be commercialized and allowed to operate as a commercial entity, so as to generate increasing revenue and positive cash flows that will enable NIOMCO meet her funds requirement and contribute to the National Revenue. CONCLUSION NIOMCO is blessed with many talented, skilled, knowledgeable, dedicated and loyal staff whom, if given the needed equipment, timely/adequate funding and God fearing home grown patriotic leadership, they would turn around the fortunes of the company from its present state of depending on Government to self sustaining and revenue generating company. Mistakes have been made in the past but is never too late to correct them. With God by our side, NIOMCO shall bounce back 10