Home Opinion INVESTIGATION: Inside the huge scam leading to sale of Nigeria’s aluminium plant, ALSCON, to Russia’s RUSAL

INVESTIGATION: Inside the huge scam leading to sale of Nigeria’s aluminium plant, ALSCON, to Russia’s RUSAL

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Once booming with life and economic activity, Nigeria’s “Smelter City” suffered an agonizing reversal of fortune following the closure of the Aluminium Smelter Company of Nigeria last year.

ALSCON, Nigeria’s only aluminium smelting plant, was shut down after its managers, Russian aluminium giant, United Company RUSAL PLC, sacked more than 98 percent of its workforce, most of them local hires, following crippling protests against poor working conditions, dwindling productivity and spiralling debts.

Before its closure, ALSCON was the second largest employer of the Ikot Abasi community after the local council. Almost 1,800 direct hires were natives. Over 2,500 others worked for support-services companies.  It was, perhaps, an answer to the region’s quest for solution to its environmental pollution and youth restiveness.

Since its closure last September, over 200,000 residents of this agrarian community located in the oil-rich Niger Delta region, have been living in darkness. Its only source of electricity, extended as token of social responsibility by ALSCON, was cut.

Amaete Ntuk, former head of the local council, said ALSCON’s sudden closure spelt death for a great dream.

“ALSCON was our only major industrial establishment; the mainstay of Ikot Abasi economy,” he said. “The brief period ALSCON operated seemed a beautiful dream for all. Its closure has turned into a nightmare for our people.”

“The privatization of ALSCON to the Russians has brought more pain than gain to Niger Delta people,” said Donatus Uko, the President General, Mboho Ndito Ikot Abasi, a local community development association.

The smelting plant was set up in 1997 to  harness Nigeria’s estimated 187 trillion  cubic feet of gas reserves for aluminium production, industrialization and national economic growth.

At peak operation in 1999, ALSCON earned $324 million in exports of aluminium products. It created jobs, satisfied Nigeria’s aluminium needs of less than 20 percent, and earned income from exporting 80 percent of its products, according to the Bureau of Public Enterprises (BPE), Nigeria’s agency in charge of privatization of public companies.

“The Ikot Abasi Smelter was to bring desperately needed employment to the region”, the head of BPE, Benjamin Dikki, said.

In 1999, the newly elected government of President Olusegun Obasanjo had other plans. Nigeria’s top brass appropriated ALSCON’s sale profits, used RUSAL as a front for the willing buyer, and paid for the smelter with the nation’s funds, documents show.

The Big Ploy

In 1997, one year before the death of dictator Sani Abacha, the oil-rich Nigerian government commissioned Germany’s Ferrostaal AG, a provider of industrial services, and United States’ Reynolds International to build the aluminium smelter plant for $3.2 billion, according to the National Council on Privatization (NCP), Nigeria’s privatization regulatory authority.

Start-up was not until late 1998. But just as operations began, the plant was idled in May 1999 due to inadequate working capital and gas supply. The following year the newly installed government of Mr. Obasanjo put up the smelter for sale under its privatization programme.

Meanwhile, with normal production halted, Ferrostaal continued to maintain the plant on functional mode. It was not until 2006 that the plant was restarted.

But to allow ALSCON’s equity to be restructured for privatization, Ferrostaal and Reynolds agreed to reduce their 30 percent combined shares in the company to just 7.5 percent. The Nigerian government’s ownership stake rose to 91.06 percent, with other private minority shareholders taking 1.44 percent.

Between 2000 and 2004, there were at least two failed attempts to acquire ALSCON. Glencore of Switzerland and BHP Billiton of Australia tried in July 2002, while one of the world’s largest aluminium producers, RUSAL of Russia, had an inconclusive bid in June 2003.

But ALSCON’s sale was more obscure than a simple bid. It took two Nigerian presidents, their bureaucratic machinery and a willing partner to plan the destitution of one of Nigeria’s top industries.

RUSAL was set up to take control of the plant from the start. It was in the interest of President Obasanjo to have the Russians win the bid for the smelter.

But having RUSAL as the sole bidder, “without competition, will fall short of acceptable international standard for disposing public assets,” the NCP told President Obasanjo, who was desirous to see the bid go ahead.

And so, Bancorp Financial Investment Group Divino Corporation (BFIG), a consortium of U.S.-based Nigerian investors led by Reuben Jaja, joined the privatization bid in response to Obasanjo’s invitation to Nigerians to show interest in the sale.

Unknown to BFIG, the invitation was a mere ploy to give credibility to a scam designed by the Nigerian ruling elite.

The Nitty-Gritty Process

By the time ALSCON was put up for sale, its asset base had depreciated by more than a third to $1.03 billion from its original investment, an audit report by PricewaterhouseCoopers at Nigeria’s Corporate Affairs Commission showed.

Prior to the bid, scheduled for June 2004, BPE held a technical conference that required RUSAL and BFIG to sign a compliance agreement to fundamental issues.

But two weeks later, on the financial bidding day, the head of NCP Akin Kekere-Ekun, accused RUSAL of submitting a bid of a mere $205 million for the $3.2 billion aluminium smelter without evidence the Russian firm had deposited the $1 million bid-bond in the London bank as agreed.

Furthermore, RUSAL’s bid was not only written in Russian language, but also accompanied with three additional conditions in defiance of the pre-bid resolutions.

Both the NCP and BPE saw RUSAL’s conditions a violation of the pre-bid agreements. Consequently, the Russians were disqualified.

BFIG, which made an offer of $410 million, was subsequently declared winner, a development President Obasanjo disapproved.

“If our screening had been right, that group (BFIG) should have been disqualified,” President Obasanjo told reporters shortly after the bid.

“In the aluminium industry today, there are probably three with the technical know-how. I believe if they (BPE) were doing it correctly, they should not have disqualified them (RUSAL). They were asking for certain conditions others considered unimportant,” he stated.

Shortly afterwards, BPE issued BFIG a letter to demand payment of 10 percent of the bid offer, or $41 million, within “15 days of the collection of the letter”, rather than “15 working days of signing the share purchase agreement (SPA)” agreed by both bidders.

BFIG rejected the letter, insisting on agreed terms. But, BPE held on to its position till the expiration of the deadline before disqualifying the Nigerian firm for failing to meet the payment schedule.

Days later, BPE invited RUSAL to take over ALSCON on “willing seller-willing buyer” terms.

BFIG’s Chief Counsel, Thomas Crehan, rejected BPE’s decision and accused it of manipulating the process.

“It’s intriguing why the Nigerian government would invest $3.2 billion of tax payers’ money to build ALSCON, only to be contented with a paltry 22.7 percent of a fair value of $1.03 billion from a foreigner, against a 37.3 percent offer by an indigenous bidder,” said Eze Onyekpere, the lead director of Nigeria’s Centre for Social Justice, a civil society group committed to promoting economic rights.

Regardless, the Bureau went ahead with its negotiations with RUSAL, during which the Russians raised their offer from the initial $205 million to $250 million.

It also restated all its previous conditions, including requests for a revised payment schedule, new ownership structure, fresh terms for gas supply to ALSCON, and an Export Processing Zone status, which freed the company from all tax obligations in its operations.

Curiously, all the concessions requested were granted by President Obasanjo in his response to a memo sent to him by BPE on June 5, 2006, two years after the initial bid sale.

Mr. Obasanjo also approved that $120 million be deducted from the $250 million for Imo River dredging contract, thus reducing the final price paid by RUSAL for ALSCON to only $130 million.

On gas, Mr. Obasanjo also approved that irrespective of the prevailing price, RUSAL would receive supplies at 35 cents per 1,000 metric tons, amounting to about an annual subsidy of $200 million.

Also approved was a new ownership structure, which allotted 77.5 percent equity to RUSAL as core investor, 7.5 percent to the Nigerian government, and 15 percent to Ferrostaal AG, the smelter’s service provider.

Although in 2004 the plant was valued by consultancy firm PricewaterhouseCoopers at $325 million, just 10 percent of the original cost, at the end of negotiations with the government in 2007 the Russians paid a paltry $130 million, or 4 percent of ALSCON’s original price.

Meanwhile, in 2004, BFIG’s president, Mr. Jaja, approached the courts to challenge the decision by BPE to void its win of the bid.

Reuben Jaja, Chairman BFIG Nigeria
Reuben Jaja, Chairman BFIG Nigeria

In its application before the Federal High Court in Abuja, Mr. Jaja pointedly accused Mr. Obasanjo of encouraging RUSAL to engage in “unfair competition” by conspiring with the BPE and NCP as well as their top officials to manipulate the ALSCON sale bid process against its interest.

An investigation by Nigeria’s lower house of parliament in April 2005 showed that Nigerian government’s decision to accept $250 million, of which only $130 million was actually paid by RUSAL, compared to $410 million by BFIG, was rooted in “corruption, fraud and impunity.”

“The conduct of the Presidency,” the parliament stated, “in inducing the termination of BFIG’s bid and fraudulently attempting to sell ALSCON to RUSAL at a very low price without competitive and transparent bidding process amounts to corruption and fraud to the nation.”

A U.S. Embassy cable  from Abuja to the U.S. State Department in August 2004 noted the Nigerian government’s romance with RUSAL, saying it “reflected a lack of transparency in the bidding process, and perhaps some corruption as well,” a Wikileaks document showed.

BFIG’s President Jaja said the Russians were mere puppets in the unseen hands of persons in the highest levels of the Nigerian government using Nigerian funds to pay for ALSCON shares.

Obscure Payment Maneuvers

RUSAL’s payment for ALSCON in 2007 coincided with the period the Swiss government was repatriating part of the millions of dollars it had agreed, in 2002, to return to the Nigerian government from various bank accounts kept by former dictator Sani Abacha in Switzerland.

Mr. Abacha, who ruled Nigeria from 1993 till his sudden death in 1998, is believed to have stolen about $4.3 billion while in office. He ranked with Congo’s Mobutu Sese-Seko as one of Africa’s most avaricious kleptocrats.

The Obasanjo government negotiators demanded “commissions” from the $600 million the Abacha family was to receive from its Swiss banks, according to another U.S. Embassy cable by U.S. Ambassador to Nigeria, Howard Jeter, in 2002.

Following the arrest of Mohammed Abacha by Nigeria’s anti-corruption agency the Economic and Financial Crimes Commission (EFCC), the family conceded to forfeit $300 million in a ‘money for freedom’ deal approved by Mr. Obasanjo on “compassionate” grounds.

However, court documents showed a possible link between the payment for ALSCON shares and the ‘commission’ from the ‘Abacha loot’.

The documents tell how Abacha’s bankers in Switzerland transferred millions of dollars of Nigerian money to Dayson Holding, a blind trust shell company affiliated to RUSAL and registered in the British Virgin Islands as special-purpose vehicle for ALSCON’s acquisition.

On Feb. 2, 2007, Dayson, although registered in the Caribbean, opened an account in a private bank in Riga, Latvia, with $354.19. A week later the account received a credit transfer of $130 million by Abacha’s Swiss bankers via Deutsche Bank Trust Company.

That same day, Dayson wired the $130 million to BPE/NCP escrow account in Nigeria.  Dayson’s account has not recorded any other transaction since then, according to bank documents.

Neither former President Obasanjo, nor former Minister of Justice in his administration, Kanu Agabi, who led government negotiations with the Abacha family responded to requests for clarifications on the whereabouts of the “commissions” Ambassador Jeter described in his cables released by Wikileaks.

Calculated Race to the Bottom

That year a KPMG financial statement showed ALSCON’s value dropped by 92 percent to $261 million from its initial valuation of $1.03 billion. By 2012, ALSCON’s value had plummeted by about 98 percent to $73 million.

Alscon valuation since 2006
Alscon valuation since 2006

The current worth of the plant could not be determined independently, as 2013 and 2014 audit reports were yet to be published before final shutdown last September.

The audit firms, however, said all reports for the years RUSAL has been in charge of ALSCON were prepared based on qualified opinions, as access to all information about the company’s activities were limited.

Since 2007, ALSCON’s aluminium production under RUSAL never exceeded 11.4 percent of its 193 metric tons installed capacity attained in 2012.

In 2008 the smelter produced only operated at 4.97 percent of capacity. That same year RUSAL reported a loss of $49.9 million, from a loss of $0.87 million the prior year when RUSAL took over. The 2012 income statement showed a loss of $22.97 million.

RUSAL’s Director, Public/Government Relations, Tatyana Smirnova, blamed the huge losses to high production costs, which averaged $2,700 per ton and not as a result of alleged massive asset stripping by RUSAL.

While the company reported losses, its debt profile in 2012 escalated to over $664.5 million, despite not paying income tax to the government by virtue of its Free Trade Zone status.

Nigerian Gas Company, the state-owned gas supplier, said RUSAL had not paid for subsequent allocations after the initial supply of gas used in restarting ALSCON in 2006.  The 2008 financial statement showed accumulated debt for gas supplies in 2007 was about $83,000.

But part of the reasons ALSCON was shut down in 2014 was a $34.4 million bill for gas supplied, which the gas company said RUSAL refused to pay.

Curiously, most of the debts were loans from offshore affiliates of RUSAL located in Belize, Delaware (U.S.), Siberia and Moscow.

Between 2007 and 2012, the company’s balance sheet showed that Dayson Holding and its subsidiaries: RUAL Trading Limited, RTL, Sea Chaika Corporation, and RITI, granted loans of about $20 billion (excluding 2013 and 2014 figures) for plant modernization and towards production restart and operating expenses.

Dayson accounted for more than 70 percent of loans to ALSCON by RUSAL affiliates.

Legal Twists and Turns

On July 6, 2012, BFIG’s first lawsuit against RUSAL and the BPE got to Nigeria’s Supreme Court.  In a unanimous ruling, the five-man panel reversed BPE’s decision to nullify BFIG as the preferred bidder and ordered immediate sack of RUSAL as owner-manager of ALSCON.

But RUSAL rejected the ruling. Its Managing Director Anatoly Polovov opposed the decision, describing it as lacking any consequence on RUSAL’s interest in ALSCON.

Surprisingly, the BPE reacted in support of the Russians. Its spokesperson Chigbo Anichebe, described the ruling an error.

RUSAL proceeded to sue the Nigerian government at the London Court of International Arbitration (LCIA) to procure an award for alleged breach of contract, apparently to stop the execution of the judgment.

Seven months later on Jan. 29, 2013, the BPE, ostensibly obeying the order of the Supreme Court sent to BFIG an offer letter to “Purchase 77.5 percent shares of the Aluminium SHELTER Company of Nigeria, ALSCON”, a non-existent company, instead of Aluminium SMELTER Company of Nigeria, ALSCON.

The letter, accompanied by a 16-page SPA, was rejected by BFIG on the ground that it did not have any interest in acquiring the shares of the ‘Aluminium Shelter Company of Nigeria’.

The only legal and acceptable document, it insisted, was the 58-page SPA for ALSCON the BPE sent earlier on Oct. 8, 2012 for review and approval.

The document, which was similar to the one RUSAL signed after its negotiation in 2006, covered a list of 17 key items, including financial statements, post-acquisition plan, liabilities, assets, gas sales and purchase agreements.

BFIG’s refusal to sign the SPA was used by the BPE as reason to, again, disqualify it, forcing a return to the Supreme Court for an order to compel the BPE to fully comply with its 2012 order.

By the end of September last year, the Supreme Court again ordered the BPE  to sack RUSAL and reinstate BFIG as winner of the bid for ALSCON.

Curiously, by mid October, a month after ALSCON shutdown, the London Court of International Arbitration handed RUSAL an award based on legal representations by Nigeria’s Justice Minister, Mohammed Adoke, and his predecessor, Bayo Ojo, as well as the head of the BPE, Benjamin Dikki, that all issues concerning the ownership dispute in ALSCON, including compliance with the Supreme Court order, had been resolved.

But, Mr. Jaja, in a petition to the Nigerian Bar Association on April 24, 2015 demanded stiff sanctions against these officials and seven other senior lawyers, who were counsels to BPE. They were accused of making “false and misleading representations to a foreign tribunal” against BFIG’s interest.

Mr. Jaja also accused Mr. Adoke of accepting an invitation by the Russians to travel to London to hold a secret meeting with Dayson, RUSAL and BPE on how to stop the enforcement of the Supreme Court ruling.

The outgoing Minister refused to say why the Supreme Court orders have not been executed almost three years after the ruling.

“Implementation agencies have been advised to take appropriate action”, the Minister said through his spokesperson, Charles Nwodo, in response to an enquiry sent to him. He did not provide further details.

Other top government officials in the Presidency, including the outgoing Vice President, Namadi Sambo, who heads the NCP, did not respond to requests for comments.

Nigerian constitutional rights lawyer, Itsay Sagay, said the conspiracy of silence and inaction by government agencies against the country’s highest court’s order was the worst display of lawlessness, corruption and impunity.

“This could only be possible with the backing of authorities at the highest level of government in the country,” said Mr. Sagay, a Senior Advocate of Nigeria (SAN).

Early this year, a high level panel on Illicit Financial Flows from Africa, at the 24th African Union Heads of State and Governments summit in Addis Ababa, Ethiopia, blamed lack of transparency, secrecy and corruption among government officials for Africa annual loss of over $50 billion through illicit financial outflows.

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