|
 Daily Independent Online.
* Monday, August 09, 2004.
Who takes over ALSCON?
The Aluminium Smelter Company
of Nigeria (ALSCON) is, indeed, passing through hard times. In 1999, when
the Akwa Ibom State-based company was closed down, as a result of
inadequate working capital and sundry operational difficulties, the
construction of the $3.8billion plant was almost 90 per cent completed.
But, its privatisation has been encumbered by several bottlenecks,
resulting in almost a dozen postponements of the process to select a core
investor to take over and breathe new life into the sleeping giant. As
the Bureau of Public Enterprises (BPE) appears set to open the bids this
week, Senior Correspondent, Bassey Udo, examines the intrigues
behind the whole process.
Barring
any further encumbrances, a core investor should, in the next 24 hours or
so, emerge for the multi-billion dollar Aluminium Smelter Company of
Nigeria (ALSCON), Ikot Abasi, Akwa Ibom State. Since December 2002, the
process has suffered, at least, five setbacks, as a result of one hiccup
or the other. If the Bureau of Public Enterprises (BPE) pulls through the
process this time, the curtain would finally fall on a long and tortuous
journey to the revitalisation of the company, knocked into coma more than
five years ago.
Incorporated
in 1989, with the Federal Government, holding controlling equity of 70
per cent and Ferrostaal AG 30 per cent, ALSCON held the promise of
gigantic foreign exchange spinner for the Nigerian economy, benchmarked
to produce world-class aluminium ingot, with as high as 99.97 percent purity.
Today, it is a sleeping elephant.
With
a capacity of about 190 metric tonnes of aluminium ingots a year, ALSCON
was expected to yield about $350 million to the government every 365 days
as revenue. With a capacity to utilise about 34 billion standard cubic
feet of associated and non-associated gas in its operations, ALSCON was
considered one veritable channel to realise the government’s aspiration
to eliminate gas flaring by 2008. The smelter was to only to encourage
local mining of bauxite, the major raw material for aluminium production,
but also to help create jobs. At the time it closed shop mid-1999, its
construction was barely 85 per cent completed, and producing about 4,000
metric tonnes of aluminium ingots per day, against Nigeria’s total annual
consumption volume of over 35,000 tonnes per year.
But,
it ran into troubled waters too soon. The withdrawal of Alcoa/Reynolds,
as technical partners to the project, touched off a barrage of other
reasons, ranging from inadequate working capital, unstable gas price to
drive production and the non-dredging of the Imo River channel to
evacuate finished products.
The
closure of the plant left more than 1, 000 workers redundant, and
subsequently compulsorily laid off. Yet, 688 others, maintaining skeletal
essential services on the plant, are still drawing salaries, which along
with plant maintenance costs, gulps about N60 million monthly. To date,
the government may have suffered a net loss of about N4.2 billion since
the company suspended production.
But,
hope for immediate turnaround beckoned through the government
privatisation programme. Scouting for a core investor for the plant
commenced in 2001 with negotiations with Glencore of Switzerland and
BHP/Bilton of Australia. But, it did not go far when it was halted by the
National Council on Privatisation (NCP) in July 2002. A turnaround
business plan by Ferrostaal did not fall through either.
By
September, NCP called for Expression of Interest (EOI) from prospective
investors for the government’s 70 per cent equity and got three responses
from Glencore of Switzerland, RUSAL (Bratsk) Aluminium of Russia and
ALCOA Incorporated of America. Two others - Ferrostaal AG of Germany and
ALCAN of Canada, joined the fray later, making it five the number
pre-qualified as potential core investors. Three, however, made it to the
Data Room, to qualify to conduct the due diligence on the plant, to
review all documents and assess the state of equipment, plants and
machines. Only RUSAL and Ferrostaal, in the final analysis, breasted the
deadline in June, last year, for the submission of technical and
financial bid proposals.
The
twists in the process were just about to begin. The October 1989
Formation and Turnkey agreements between ALSCON and Ferrostaal AG; the
Metal take-up agreement with Reynolds International, as well as the
shareholding restructuring agreements posed a clog in the wheels and
needed to be vacated before the bids could be opened.
Last
December, all the agreements were reviewed, with Ferrostaal waiving its
pre-emptive rights under the Memorandum and Articles of Association and
agreeing to exercise its right in favour of restructuring of the
shareholders’ equity to reflect the Federal Government’s 91.06 per cent
from 70 per cent, Ferrostaal, 7.5 per cent from 20 per cent, and
Reynolds, 0.94 per cent from 10 per cent.
The
Memorandum and Articles of Association are to be amended to convert
ALSCON from a private limited liability company to a public limited
company, while the government is to confirm the tax exemption of
Ferrostaal in accordance with the Turnkey agreement. Ferrostaal, which is
to maintain presence at the plant till next month, could be retained by
whoever emerges this week as the core investor on mutually agreed terms.
But,
the big question that lingers in the minds of concerned Nigerians is: Who
takes over ALSCON among the companies, jostling for BPE’s nod to be
selected as the core investor? What quality should an investor
possess?
Ferrostaal
and ALCOA were minority shareholders in ALSCON. Besides its contributions
to the original plant concept and building of the production lines,
Ferrostaal appears to have garnered core competences in the company’s
operations through its involvement in the management since its inception
in 1997.
Reynolds,
on the other hand, transferred an updated pre-bake cell production
technology to ALSCON and, until it pulled out of the company, September
2001, was in charge of the production and marketing of finished metals.
Its aces may be its deep knowledge of the nuances of the world metal
exchange market.
On
its part, RUSAL, established March 2000 from the merger of some the
world’s largest smelters and aluminium producers is reputed to be the
second largest aluminium producer in the world. The company accounts for
more than 75 per cent of Russia's primary aluminium output and 10 per
cent of the global market.
There
is also an American-based consortium, sponsored by young, rich and
enterprising Nigerian investors interested in attracting foreign
investments to help revamp the nation’s aluminium industry, who are also
staking their expertise to emerge as the preferred bidders. All parties
claim to possess the competences to turn things around for ALSCON.
But,
beyond sentiments, if the selection process offers a transparent, fair
and equitable level-playing field for all the players, the expectation of
the average Nigerian is for the emergence of a company with the financial
muscle to complete the ALSCON project and invest in the necessary human
and material infrastructure needed to speedily restore the company on the
path of accelerated growth and profitability.
Such
a company must not only possess the technical know-how to run the
business in a competitive business environment and generate the expected
dividend for the Nigerian people, it should possess the crucial
management know-how and requisite capabilities to turn around the fortune
of the enterprise, particularly the financial muscle, not only to pay
competitive prices, like those for gas and other operational costs, but
ability to turn around the company’s fortune, without any recourse to
government assistance.
The
core investor expected to take over ALSCON should be one with the
requisite technology, experience and managerial acumen to fully develop
the infrastructure for the country’s benefit, its shareholders and other
stakeholders in the industry.
At
the time ALSCON was closed, its construction was yet to be completed. The
plant, including a four-room 432 pots production line and carbon anode,
comprising green mill, kilns and anode rod facilities, waste and fume
treatment facility, have remained unused these years.Only an experienced
player in the aluminium market would appreciate the intricacies of
current industry trends to complete the remaining smelter pots at
competitive costs.
The
company’s original products sales ratio was 70 per cent to 30 per cent in
favour of the foreign market. With its current production capacity in
excess of local requirements, the core investor that would emerge must be
a major player that would not be a stranger on the international spot
market.
The
future of ALSCON is, without doubt, attractive. With surplus gas from the
nation’s oil reserves, sustaining production at the plant is guaranteed, as
supply to the 540 MW-capacity power plant, would hardly pose a
problem. The country is
blessed with an abundance of the raw materials, while demand for aluminum
at home and abroad is significant to ensure a profitability level that
would cater for the more than 1,500 jobs when it begins full-scale
production again, and over 22,000 more from secondary smelters in
Nigeria.
The missing link is a
competent manager to drive the growth process. ALSCON deserves the best.
And the challenge is for the government to ensure a transparent process
that would give Nigerians just that.
|
