The new boss of Nigeria’s privatisation agency wants to speed up privatisation, and not a moment too soon. Irene Chigbue, who was appointed director general of the Bureau of Public Enterprises (BPE) in March, has made a commitment to privatise 21 state-owned enterprises by the end of the year. Among the enterprises are the biggest state companies and Ms Chigbue has personally taken on responsibility for the most complex transactions.
Given that decrepit state-managed infrastructure is one of the biggest hindrances to economic development, if Ms Chigbue can deliver on her promise, Nigeria’s economy could be unleashed. And if she can restore faith in the process, privatisation presents investors with a number of compelling opportunities to make quick inroads into the economy.
Focus on bottlenecks
Ms Chigbue says that the BPE will focus on reforming the power sector, railways, oil and gas sector, refineries and seaports – precisely the bottlenecks in the economy that are inhibiting investors and pushing up the cost of doing business in Nigeria. Her appointment was an acknowledgement by government that the privatisation process had lost its way. Tendering and bidding processes were seldom transparent and preferred bidders were often tailed by controversy. In some cases, having won the bid, they proved unable to meet the agreed sale price.
In less than six months, Ms Chigbue has re-energised the process, or at least shaken up the BPE and committed to an ambitious programme of sell-offs.
Privatisation was moved up the agenda in 1999, when President Olusegun Obasanjo first entered office. Although reliable financial data is non-existent, it is estimated that well over $100bn has been invested in the state sector, yielding a dismal 0.5% annual return. The drain on national finances of propping up these companies is estimated to be equivalent to nearly half of all oil revenue since 1973. In addition, the loans with which these enterprises were financed constituted more than 55% of the country’s non-performing debts to both the Paris and London Clubs.
To put it into perspective, public enterprises have accounted for 30%-40% of fixed capital investment and nearly 50% of formal sector employment, yet have yielded a paltry return. This represents massive waste and inefficiency. Various studies have confirmed the glaringly apparent: Nigeria’s state-owned enterprises are riddled with mismanagement, corruption and nepotism, and abuse of monopoly power.
Ms Chigbue has rattled cages at the BPE. “There is the need to strengthen the bureau’s integrity, and staff who would constitute obstacles on our way or drag us back would be asked to leave,” she told journalists shortly after assuming the post. She made a commitment to strengthen the process and seek greater transparency and rigour, and promised to match the most qualified bidder – in technical and financial terms – to any deal rather than selecting unknown and unproven investors.
She has also been proactive in teaming up with the Nigerian Investment Promotion Commission to find ways in which to attract investors to the country, with the aim of improving the calibre of privatisation bidders.
Up for sale
Ms Chigbue has slated 21 companies for disposal this year, including the national telephone carrier NITEL, the national power utility NEPA, the Nigerian Ports Authority, the railway, refineries and NICON Insurance. Others include Afribank Nigeria plc, Nigeria Aviation Cargo Handling Company, NICON Hilton Hotel, Capital Hotels (Sheraton), the Federal Airports Authority of Nigeria, the oil palm companies, Steyr and the oil service companies.
The director general has taken direct control of key transactions, including the sale of NEPA, NITEL, the ports and refineries. These benchmark transactions – which are important not just because of their strategic impact on economic development – will be keenly watched to see whether the government can deliver on its promise of greater rigour in the process.
Most recently, Ms Chigbue was able to announce a winning bidder for the National Fertilizer Company of Nigeria (NAFCON). Local engineering and oil services company O-Secul bid $152m for NAFCON, claiming a technical partnership with ENGRO Chemicals Ltd of Pakistan,
The passing of the Electric Power Sector Reform Act has paved the way for liberalisation and privatisation of the power sector, which is arguably the weakest link in the Nigerian economy and the greatest headache to investors. NEPA generates electricity from a mix of hydro and thermal power stations, with an installed capacity of nearly 6000 megawatts (mw), although recent data pegs output at just 2600mw. With national demand of 6000mw, blackouts are common.
The new power sector law puts in motion the restructuring of NEPA and the subsequent privatisation of the unbundled companies. In July, NEPA’s name was changed to the Power Holding Company of Nigeria, a cosmetic but significant step towards the unbundling of the generation, transmission and distribution divisions of NEPA into 18 separate business units.
Ms Chigbue is also holding her line that the privatisation of NITEL and its mobile arm, MTEL, will be concluded by the end of the year. NITEL, which is 100% owed by the Nigerian government, has an installed network of just 720,000 fixed lines, and only about 500,000 of those have been activated.
More than any other deal, this is the litmus test of the government’s intent. The BPE botched the first attempt to sell NITEL in 2002 after the preferred bidder, Investors International London Ltd, failed to pay the bid price of $1.3bn. The government resorted to signing a three-year management contract with Dutch firm Pentascope in March 2003 to operate NITEL.
The company is still unable to compete effectively and earlier this year Pentascope was fired amid allegations of irregularity in the awarding of the management contract.
Encouragingly, the BPE announced in July the pre-qualification of six prospective investors in NITEL. They include South African mobile network operator MTN (the market-leading mobile network operator in Nigeria), a consortium comprising Chinese equipment vendor Huawei and Kuwaiti-owned Celtel, Orascom Telecom of Egypt, Newtel of Ireland and South African fixed line operator Telkom together with its cellular division Vodacom. All are credible, technically competent investors.
The BPE has retained BNP Paribas and MBC International to advise it, adding another layer of rigour.
Other areas of progress include a new work plan for the sale of the Port Harcourt Refinery, and further concessions awarded for the operation and management of Nigeria’s various ports. Ms Chigbue has said that awarding concessions was the best option for the Nigerian Railway Corporation and that this, too, would be concluded before the end of the year.
Despite early successes, Ms Chigbue will have her work cut for her. Only recently, the BPE announced it had pre-qualified three bidders for a 51% stake in Eleme Petrochemical Limited, which produces olefins for plastics – only for one of the named companies, LG Chem Limited of South Korea, to deny ever having shown interest in the privatisation.
Investigations are under way to assess the authenticity of bid documents. Doubts were also being expressed about the ability of O-Secul, the winning bidder for NAFCON, to meet the deadline for 50% payment of the bid price, $76m.
The sale of the Aluminium Smelter Company of Nigeria has been dogged by controversy, amid allegations of bias, non-disclosure of debts in the company and assertions by the losing bidder, US group BFI, that winning bidder Rusal of Russia was under investigation for money laundering.
Ms Chigbue has promised an end to the opaque process of privatisation of the past, and she is adamant that privatisation presents investors with an opportunity to enter the market on more cost-effective terms than if they started from scratch.