Ajaokuta Steel: How Fayemi copied 2014 concession agreement

*Experts say new deal with GINL unfavourable to Nigeria

*Dr. Kayode Fayemi, Nigeria's Minister of Solid Minerals.

*Dr. Kayode Fayemi, Nigeria’s Minister of Solid Minerals.

Kunle Kalejaye

31 August 2016, Sweetcrude, Lagos – Less than one month after the Federal Government signed a new agreement to reclaim Ajaokuta Steel Company and concession the National Iron Ore Mining Company, NIOMCO, in Itakpe to Indian company, Global Infrastructure Company, industry experts say the deal with the Indian company is unfavourable to Nigeria.

SweetcrudeReports can authoritatively reveal also that the Minister of Solid Minerals Development, Dr. John Olukayode Fayemi, copied and pasted an agreement dated December 12, 2014, and addressed to former President Goodluck Jonathan.

The agreement prepared by the office of the Honourable Attorney General of the Federation and the Federal Ministry of Justice (under the leadership of Mohammed Bello Ajoke) was, however, not ratified under the Jonathan government following refusal by then Minister of Mines and Steel Development, Architect Musa Mohammed Sada, to sign it on the basis that it was strongly against Nigeria’s interest and therefore unfavourable to the country.

The 2014 Modify Concession Agreement with GINL obtained by our correspondent, which was forwarded to President Jonathan with a memo titled, “HAGF/SH/2014/Vol.2/121” is the same agreement signed on August 1, 2016 by Dr. Fayemi, representing the Federal Government, and Mr. Pramod Mittal of Global Infrastructure Nigeria Limited. It was witnessed by Vice President Yemi Osinbajo and representatives of London Court of Arbitration.

The similarity of the old and new documents is so obvious that mistakes made in the 2014 version were repeated in the latest agreement.

For instance, page 9 section, 7.1.2 of Adoke’s 2014 concession agreement contains a typographical error saying ‘complete’ instead of ‘compete’. The same error was repeated on page 9 section 7.12 of the agreement signed on August 1 by Fayemi and GINL, meaning that it was Adoke’s deal Fayemi executed.

After the signing of the August 1 agreement, Dr. Fayemi said that he negotiated a better deal for Nigeria whereby GINL will pay an increase concession fee from three percent turnover to four percent turn over to the Federal Government. This is contained on page 7 section 5 under the sub-title “Concession Fee”. The same terms are contained in Adoke’s memo to former President Goodluck Jonathan on page 3 (b) under the subtitle, “An increase in the Concession Fee”.

Another evidence of copy and paste on the part of the Ministry under Dr. Fayemi was his comment before and after the signing of the August agreement o the effect that he saved the country from paying $500 million to $700 million to GINL, which he described as a substantial achievement. However, on page 2 and 3 of Adoke’s memo under “(a) Zero Damage”, he (Adoke) said he was able to negotiate zero damages and a waiver of $525 million on behalf of Nigeria.

Of serious concern to industry experts is the provisions of the agreement, which they say are tilted in favour of GINL, and which if implemented as it is, will see Nigeria losing greatly.

For instance, contrary to the seven years period given to GINL to complete their initial 10 years concession agreement, page 6 section 4 of the August 1, 2016 agreement and Adoke 2014 agreement under “Commencement and Duration”, there is an option to renew the concession agreement for another 10 years with GINL.

More worrisome is that the August 1, 2016 agreement contains terms asking Nigeria to pay for the deterioration of equipment which occurred during the eight years pendency of an arbitration case, which the Indian company dragged the Federal Government into after late President Umaru Yar’Adua had terminated their initial agreement with the Olusegun Obasanjo government on the grounds that it was not in Nigeria’s interest.

On page 6 section 4A 1 under the sub-title “Condition Precedent”, the agreement states: “The Obligations of the Parties under this Agreement are conditioned upon the performance of the following matters (each, a “Condition Precedent”) by the Grantor to the reasonable satisfaction of the Concessionaire and or waiver thereof by the Concessionaire:

(a) provision by the Grantor of full access to the Concession Area and all related documentation and information for the conduct of the Due Diligence and the preparation of the Due Diligence Report;

(b) rehabilitation of all plant, equipment and other facilities comprised in the Concession Area to the state in which such facilities were as at 1 April 2008, including remediation of all loss of material, deterioration of equipment, theft, loss of design drawings, spare parts or consumables provided that the Concessionaire may undertake the performance of this Condition Precedent upon commercial terms to be agreed by the Parties after the completion of the Due Diligence.

(c) full hand over to the Concessionaire of the Concession Area, including all uncompleted facilities, spares and other assets comprised therein, and all design document drawings, catalogues, manuals and other related documents

By implication, page 6, section 4A (b) means that Nigeria is also going to pay to rehabilitate NIOMCO to the state it was in 2008, pay for any missing documents and design etc.

The commercial agreement to settle the condition precedent is that if Nigeria fails to undertake the repairs, GINL shall do so and pass the bill to Nigeria. The rehabilitation cost is estimated at €500 million. Section 7 which runs from page 9 to 10 contains obligations of Grantor (Nigeria) to GINL in the course of their operations.

7.1.14 of the agreement states that “any competent authority in Nigeria or any part thereof will not directly, or indirectly, levy or impose on Concessionaire and each such company shall be exempt from any fiscal charge arising out of the generation and/or consumption of power and energy made available from captive sources”. This means that NIOMCO under GINL will not pay electricity bills.

Also, 7.1.15 of the agreement states that Nigeria has the responsibility for the payment of salaries, allowances and all emoluments of the staff of NIOMCO.

7.2 (b) added that “the Grantor (Nigeria) hereby agrees to facilitate all necessary lawful exemption from Fiscal Charges required to enhance the profitability of the Concession”. This means that GINL is to benefit from all fiscal incentives, including tax exceptions and waivers on export charges when selling Nigeria’s ore overseas but will sell iron ore to Ajaokuta Steel Company Limited at the normal commercial prices.

About the Author