Professional Documents
Culture Documents
Agenda
Public Enterprises Intention vs. Outcomes The Nigerian Case for Privatization Privatization Strategies and Methods Critique of the Privatization Act Institutional Framework and Structure Programme Implementation Status Incidental and Related Matters Key Issues and Challenges Recommendations and Action Points
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QUOTABLE QUOTES
Nothing is easier than spending public money. It does not appear to belong to anybody. The temptation is overwhelming to bestow it on somebody Calvin Coolidge
Balance or replace weak private sector Control commanding heights or strategic sectors of the economy Produce higher investment ratios Transfer technology, management and know-how Generate employment Develop otherwise uneconomic areas or sectors Provide goods and services at lower costs
These returned 0.5% profit and employed about 420,000 people without NICON and CBN, returns are negative.
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NRC, NITEL, NEPA, Steel, NAFCON, NAL) Shareholders (zero dividends, unremitted revenues and levies NAL, NITEL, NPA, NNPC, LITFC) Nigerian Tax-Payers e.g. NITEL, NPA, LITFC, OSCs
short-term political objectives to nations long-term detriment Infrastructure of corruption, parasitism and rent-seeking for elites Consumed average of $3bn annually in subsidies from 1992-99 Major stumbling blocks to obtaining debt relief for Nigeria.
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Privatization: Definition
Privatization is the transfer of ownership and management control of a PE to private shareholders. This means transfer of:
Capital investment responsibility Going-concern/bankruptcy risks Incentives and profit benefits
At one extreme, privatization can consist of just transfer of management responsibility (without transfer of capital and profit risks) or outright sale of assets or shares at the other extreme.
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Privatization: Strategies - 1
Divesti ture
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Duration
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Government
100%
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Privatization: Strategies - 2
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Public Enterprises Arbitration Panel set up under the Act, and Application of the provisions of the Public Officers Protection Act requiring pre-action notice. This is a standard provision in every law setting up statutory bodies
These criticisms if considered valid by Government can be redressed by Mr. President as the appropriate authority under s. 315(2) of the Constitution by an order published in the Gazzette to bring the Act in line with the Constitution. The National Assembly is only interested in taking over the Privatization Council, replacing the VP and Ministers and making BPE a parastatal of the Legislature. That is unconstitutional.
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is essential to success. Experiences and mistakes are learned and the agency gets better with time. Stay Focused as opponents are a minority, but are vocal and articulate. Maggie Thatcher had the will to proceed with what she believed no matter what. Get regulatory system right and ensure competitive framework errors in electric power and telecoms privatization are important lessons. Avoid restructuring/rehabilitation and injection of new money before privatization experience showed that it was throwing good money after bad Favour core investor sales where there is need for new investment, technology or management skills.
BPE Presentation to President Olusegun Obasanjo
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Implementation Framework
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Privatization Process - 1
Appointment of professional advisers Financial, Legal, Technical, Valuation, PR, Accounting, etc. Technical, Financial and Legal Due Diligence Advertising of Company for partial sale of bloc of shares to qualified strategic/core investors Pre-qualification and preliminary due diligence of prospective core investors Issue of Information Memorandum and Bidding Documents to prospective, pre-qualified core investors Public opening of bids submitted by prospective core investors Negotiations with short-listed bidders (within 20% of highest) or open auction.
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Privatization Process - 2
Evaluation of Technical and Financial Proposals by BPE and Technical Committee of NCP Presentation of recommendations of TC-NCP to NCP or the VP in event of perceived delays Approval or otherwise of TC recommendations by NCP, and announcement by BPE Filing of application to offer balance of shares to the general public with SEC and the Stock Exchange Opening of public offer for 4-6 weeks, with no further extension 1,000,000 forms printed and distributed throughout Nigeria SGs, LGs, Post Office, SIAs, Traditional Rulers, Newspaper inserts, etc. Share allotment on basis of equality of Federal Constituencies Shares not taken up offered to SIAs/SGs for uptake within 30 days Subsequently, un-subscribed shares offered to Institutional Investors
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Phase I Enterprises
Enterprises involved in the cement production, petroleum marketing and banking sectors with already active participation from the private sector FGN pre-sale equity holding typically under 45% (with the exception of NOLCHEM: 80%) Shares of Phase I Enterprises already listed and actively traded on the floor of the Nigerian Stock Exchange (NSE) prior to sale Phase I Enterprises: NAL Merchant bank, IMB, Unipetrol, FSB, AshakaCem, AP, CCNN, NOLCHEM, WAPCO, BCC, NigerCem Most enterprises sold typically through a combination of core investor and public offer sale; banks sold only by public offer Typically between 30-60% of equity in enterprise offered to core investors; rest offered to the general public and staff of the enterprises
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217,000 applications received for all offers All offers concluded and SEC approval of allotments received in April 2001 160,000 new shareholders created Many offers were heavily over-subscribed e.g. IMB (432%), Unipetrol (133%) and CCNN (122%) Fair and equitable basis of allotment: allotment done on the basis of equality of federal constituencies with smaller individual applicants taking preference over larger applicants and companies. Allotments evenly distributed amongst the six geo-political zones Approximately N6.8 billion gross proceeds raised to date (N4.9 billion during offer period, N1.9 billion from post-offer sales to state governments and institutional investors). An additional N1 billion in proceeds is expected from sales of the remaining shares
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and Aviation, NITEL Diagnostic reviews of Steel, Oil Palm, Fertilizer, Sugar, Paper Companies, Airports and Seaports Core Investors sales only, (about 51%) to be followed by IPO at a later date.
Sites, Stadia Remaining diagnostic review enterprises Core Investors sales only, (about 51%) to be followed by IPO at a later date
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enterprises Core Investors sales only, (about 51%) to be followed by IPO at a later date. Billions of US Dollars expected to be raised. Advisers yet to be appointed to estimate proceeds after due diligence. IPO for other Hotels, Vehicle Assembly, Sugar, Paper, Steel, Media, Insurance companies for which strategic sales were made in Phase II. First tranche of cross-border IPOs will cover some of the suitable Phase II and Phase III enterprises.
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Commercialization is:
sources, and appropriated as such by the National Assembly. Some Governors are arguing that some of the proceeds ought to shared with them (e.g. NEPA, Refineries, etc.) The disappearance of proceeds into the common pool is potentially a problem for government now and in the near future.
It is strongly recommended that PP be used for targeted, clearlyidentifiable projects, as recommended in 1991 by TCPC:
Proceeds should not to be used to finance budget deficits To finance social safety nets like social insurance, pensions and micro-
credit schemes. To finance the expansion of NTA, FRCN, RBDAs and Railways To create special loan scheme for educational loans and scholarships
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requires the funding of existing pay-as-you-go system of the Pensions Act. The magnitude of the public sector pensions problem in Nigeria is estimated at between N450-N900 billion. The magnitude of crisis is most evident in the Military and Railways. Even the best PE schemes like in NITEL have unfunded liabilities of N43 billion. NEPA alone has about N50 billion.
NCP is midwifing pension reforms in public enterprises which if successful can serve as a model for the Nigerian public sector. This will result in solutions with minimal recourse to the annual budget.
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Cross-Debts Crisis
Public Enterprises owe:
Other PE an estimated N300 billion. The FGN (DMO/FMF) over US $15 billion (foreign loans), and The FGN (MOFI) about N300 billion (local loans).
This system-wide problem has crippled many PE, and has led to excusable defaults by all no responsibility, no blame. (NEPA-NGC) NCP is midwifing the reconciliation of all PE debts for final resolution before transfer to private sector with minimal recourse to the annual budget. By the time true tax liabilities, interest and levies due to FGN are established, the reconciliation may be a major source of FGN revenue in 2002.
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Corporate Governance
NCP initiated Governance audit after sale of African Petroleum, NOLCHEM and UNIPETROL in December 2000; Auditors Reports exposed bank and non-bank liabilities in AP (N26.0 Billion) hidden from auditors and investors since 1996; Findings suggest collusion between banks, the Companies and the NNPC in the case of AP and other Oil Marketing Companies; Corporate Governance Audit will be conducted for all PE before privatization; PE Managers responsible should be tried under the Companies and Allied Matters Act, Investment and Securities Act and the the Anti-Corruption Law.
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Early retirement incentive programmes Training and re-training for re-employment Self Employment programmes and micro-credit, and Micro, small and medium enterprises as downstream consequences of outsourcing and privatization
The NCP will be presented a Social Safety Net proposal in its meeting of September or October, with a pilot scheme for about 500 NITEL workers Foreign donors like USAID and DFID, along with the World Bank and the Japanese Government have indicated interest to support and fund the pilot scheme. Proceeds can be used for a national scheme.
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Spectrum Development) and Power Sector Reform (Corporate Restructuring, Unbundling and Privatization of NEPA) Lagos State Water Corporation Project
Credit cannot be drawn in Cash but for payment of advisers (Foreign and Nigerian) Up to USD200,000 per assignment can be used under the credit to engage only Nigerian consultants. Foreign consultants are required to use Nigerian counterpart in all cases Use of the IDA Credit to engage consultants boosts the credibility and transparency of the program in the eyes of international investors; It is a sign of confidence in Nigeria and endorsement of the Privatization Program. It is also a cheaper form of funding than CBN Treasury Bills.
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Bilateral Grants
The Program has attracted Bilateral Donors Support from:
United States - USAID ($8.0m), United Kingdom - DFID ($10 m ) Spanish Government ($3.0 m) German Government
Grants are not given to BPE in cash, but applied by Donors for further:
Institutional Support - to engage Nigerian professionals to work in BPE;
training of BPE staff, Public Awareness and Education and International Marketing; Consensus Building Workshops, Seminars and Study Tours for PE Managers, National Assembly, Labor Unions and other stakeholders; Support for Reforms in Key Priority Sectors Power, Telecoms and Transport and Special Studies - Labor Issues, Pension Reforms, Competition Policy, Cross Debt Resolution, and Environmental issues;
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