A Critical Appraisal of Privatization in Nigeria

By the twilight of the last administration in Nigeria, a plethora of discontentments on the Privatization exercise had reached fever pitch. A panoply will include NITEL, MTEL, NEPA, oil sector reforms, power sector reforms, ports reforms, sale of Ajaokuta and Delta Steel, Daily Times, A.P, ALSCON, NAFCON, constant labour disputes, the concession of Unity Schools, concession of Trade Fair Complex, the draconian sale of Federal Government properties in Lagos and Abuja etc.....

Privatization has been defined by economic scholars and jurists “…to encompass a wide range of options for involvement of private capital and management in the running and operations of public enterprises...” It may involve the total transfer of public ownership and assets structures to private companies or conversion of public enterprises to private entities or incorporation of new private entities in place of public enterprises or public-private participation in the running of public enterprises, which can be by management transfers, leases, operational concessions, development leases, build and transfers (BOT) etc.

Privatization has several benefits such as reduce Government bureaucracy, reduce state monopolies and
ensure level playing fields, reduce bad management, correct defective capital and financial structures,
increase competitiveness, increase the quality of goods and services, reduce corruption and control by
Government, increase staff quality and supervision, improve market analysis, free up Government funds
for more pressing problems, create employment, re-invigorate the local economy, expand local businesses, attract direct foreign investments, expand capital markets, redistribute wealth, improve technological transfer, enhance trade control regulations etc.

Globally, privatization has been engulfed with complex problems with each country having its own peculiar solutions. These problems include private firms concentrate on profit making to the detriment of essential public service, private firms render more expensive services, private firms fail to invest in infrastructure, reduction of public workforce and experience, private companies are interested in short term benefits, privatization replaces state monopolies with private monopolies, private firms find it very difficult to render public services such as water, public health and transportation services, the exercise usually creates wealth for the rich while making the poor poorer, it reduces public accountability, it is subject to abuse by the regulators and private enterprises, private firms encounter problems of new government regulations, private companies replace state corruption with private corruption etc.

These problem range from country to country as specific privatization models attract specific types of problems. According to Professor Stephen Littlechild of the then British Electricity Supply Office, U. K. in a paper titled “Privatization, Competition and Regulation of the British Electricity Industry, what implications for India”, “All countries have tailored their methods of privatization reforms to the circumstances of their countries.” Every country operates a different political economy with its own diverse economic structure.

Nigeria’s political economy by independence from Britain in 1960 was an adopted form colonial capitalism alongside the British model of parliamentary system of Government. The private sector was at its infancy. By the first military coup in 1966, a new form of political economy emerged in the polity in the form of hybrid of state capitalism and socialism. All Government functions and responsibilities were delegated to Government Ministries, Departments, and Agencies. The Federal Government also became a major player in the economy by establishing statutory corporations and private investment companies. It also invested significantly in other private companies. By 1973 the Indigenization Decree of 1973 ensured the conversion of private controlled international corporations in Nigeria into state owned corporations. The consequence was the proliferation of over 1000 state owned corporations in virtually all sectors of the economy operating as monopolies without competition from the atrophied private sector. These corporations were funded by Nigeria’s new found oil wealth. Their scope of operation covered oil and gas, agriculture, steel plants, banks, defence, leisure, mass transit, housing, Medicare, power, security, education, manufacturing, local and international trade etc.

By the early eighties, the crash of international oil prices ensured that the usual billions of Naira pumped into these corporations annually could not longer be sustained by the Federal Government. At the same time, annual profits of these corporations plummeted due primarily to state corruption and inefficiency. There were also the operational problems of excessive bureaucracy, defective ownership structures, gross incompetence in management, complacency, defective capital structures, lack of effective control and supervision by the Government, outdated technology, nepotism, international competition etc. By the late eighties, these factors exacerbated the already stunted and stretched Nigeria private sector market. It became imperative to encourage private participation in the national economy and expand the Nigerian economy by direct deregulation. The alternative option was the collapsed of the entire Nigerian economy.
It became imperative to establish and build a private sector driven market, ensure provision of efficient and quality services to the citizenry, improve infrastructure, improve local manpower development while freeing up the already stretched Government revenue for core public services such as defence and security. Privatization of public corporations, firms, companies and services became the most viable economic solution.

In 1988, the Federal Government of Nigeria duly responded to the challenge by establishing the Technical Committee on Privatization of Public Companies popularly called TCPC. It was headed by the renowned technocrat Hamzad Zayyad as its first Chairman. Its assignments and targets were the disposal of Government equities in the Nigerian capital market, the privatization of commercial and merchant banks, cement companies etc. The consequences were drastic as they were successful. The immediate impact was the expansion of the Nigerian economy buoyed by private sector involvement. Public services improved in the designated corporations as well as their financial bases by the injection of private sector capital. To build on these economic landmarks, the Bureau for Public Enterprises (BPE) was established in 1999 as a successor to the TCPC. The National Council on Privatization (NCP) was also established as the supervising body to BPE. These two regulatory agencies on Nigeria’s privatization were established through the promulgation of the Public Enterprises Privatization and Commercialization Act 1999.

The statutory mandate of the BPE and NCP was to formulate policies on privatization and commercialization, approve guidelines and criteria for valuation of public enterprises slated for the exercise, approve choice of strategic investors, approve share prices and assets of state owned enterprises, designate and approve privatization advisers and consultants, approve enterprises for commercialization etc. The BPE is the Secretariat of the NCP designated to execute all the above functions of the NCP.

The statutory mandate of the BPE and NCP are specifically spelt out in the Public Enterprises Privatization and Commercialization Act 1999. The specific mode, structures and timetable of privatization of Nigerian public enterprises were also spelt out in the 1999 Act. All designated Nigerian state enterprises were categorized into broad sector groups with the name of the enterprise, shareholding structure, expected level of ownership to be sold out, privatization policy outline, and time schedules.

Some of the cardinal groups are the financial enterprises group comprising NICON Insurance, Nigerian Reinsurance, Nigerian Bank for Commerce and Industry, Assurance Bank, FSB Bank, Afribank BIAO shares. State owned Industries group contained NAFCON, Federal Super Phosphate Fertilizer Company, Nigerian Machine Tools, Nigerian Paper Manufacturing Company Limited, Nigerian Sugar Company, Bachita, Ashaka Cement, Sunti Sugar Company, Benue Cement Company, Calaber Cement, Leyland, Peugeot Automobile Nigeria Limited, Volkswagen Nigeria Limited etc.

The power and steel group comprised Oshogbo Steel Rolling Mills, Jos Steel Rolling Mill, Delta Steel Rolling Mill, Ajaokuta Steel Rolling Mill, Aluminum Smelter Company Limited, National Iron Ire Mining Company Limited etc. Solid minerals comprised Nigerian Mining Corporation, Nigerian Coal Corporation, Nigeria Uranium Company Limited etc. The information sector group contained Daily Times of Nigeria, Federal Radio Corporation of Nigeria, New Nigerian Newspapers, News Agency of Nigeria and Nigeria Television Authority etc. In the transport sector, several state enterprises were slated for privatization. They are Nigeria Ports Authority, Nigeria Railways, Nigerdock, NAHCO etc. The petroleum sector group comprised Nigerian National Petroleum Corporation, Eleme Petrochemicals, Kaduna, Port Harcourt, Warri refineries, Nigerian Gas Company, Petroleum and Pipelines Marketing Company, African Petroleum, UniPetrol, National oil, Dresser Nigeria Limited, Baker Nigeria Limited etc. In the housing sector, we had Federal Mortgage Bank, Federal Mortgage Finance Limited, Federal Housing Authority etc. In natural resources, all 12 Water River Basin Development Authorities were slated for privatization. In agriculture, we had National Park Board, Ore Oil Palm, and Ihechiowa Oil Palm etc. Hotels were grouped to include Nigeria Hotels Limited and Festac 77 Hotels. Telecoms and postal services group comprised NITEL, MTEL and NIPOST. State power agencies group contained NEPA and its subsidiaries. Airlines and airports were grouped into Nigeria Airways, FAAN, NEMA etc.

Strict compliance of both regulators and participants to the rules and time frames of the 1999 Privatization and Commercialization Act and customary international privatization practices would had ensured the evolution and development of a near perfect policy and the economic reformation and restructuring of Nigeria’s political economy. The expected trajectory of the entire privatization exercise immediately took a dangerous derailment after the first five years of implementation, especially under the Directorship of a former and now exiled Minister, renowned for drumming World Bank consultancy standards while always failing to keep these same standards. The final balkanization and contamination of the exercise was cemented by key players in the entire privatization process of the last civilian administration.

By the twilight of the last administration in Nigeria, a plethora of discontentment on the exercise had reached fever pitch. A panoply of privatization controversies in Nigeria includes the entangled privatization exercises of NITEL, Pentascope, NEPA or PHCN, the power sector reforms, the oil sector reforms particularly NNPC and Nigerian LNG, the ports reforms, the inability of 18 successor companies to Power Holding Company of Nigeria (PHCN) to function, the sale of national steel companies namely Ajaokuta Steel and Delta Steel to Global Infrastructure, Daily Times, African Petroleum, ALSCON, NAFCON, Eleme Petrochemicals, the constant labour disputes, the draconian sale of Federal Government properties in Lagos and Abuja considered by patriotic civil servants to be the greatest economic heist of the 21st century in Africa, the revocation of 18 private refineries licences, the proposed and ill advised privatization of Unity Schools, the sale of the Trade Fair Complex, the controversial auction sale of African Petroleum, the sale of Stallion House, the hastened and obscurantic sale of national refineries at the twilight of the last administration etc.

By a recent admission of the BPE in a national newspapers, only 10% out of 400 privatized firms in Nigeria are properly functioning as at today. The specifics of this discontentment can be attributed to several technical complications inherent in the gamut of the exercise. It all begins with inchoate or lopsided asset acquisition and share purchase agreements, non enforceable clauses and breach of share purchase agreements, due diligence of large corporation conducted at the data room of the BPE instead of a full financial and physical audit, under valuation of state assets, asset stripping by the private sector firm acquiring the state firm, trade and competition interest between the acquired Government enterprise and the acquiring firm operating and competing in the same market, lack of capacity of the acquiring private firm, lack of technical knowledge or experience of the particular industry by the acquiring firm, inability of bidding firms to meet financial benchmarks, creation of a industry monopoly, unnecessary retrenchments of public officers by the acquiring firm, inexplainable or unfair assignment of the properties of state agencies to subsidiaries or vice versa, favoritism in the selection of core investors, disproportionate size of sector regulatory agencies as compared to the size of agencies under its supervision, etc.

These technical complications are direct consequences of several structural defects in the legal, policy and implementation frameworks of the exercise. These defects are better understood by applying performance benchmarks for the exercise. Some of the prerequisite benchmarks to access Nigeria’s privatization are: Macro and micro economic indices of economic improvement, improvement of the quality of private services, employment creation opportunities, capital investments, social infrastructure investments, technical capacity building of acquired firms, capacity building for Nigerian consultants, liquidity and strengthening of financial markets, enhanced regulation and compliance of private enterprises, control of core public utility services that becomes monopolized at higher prices isolating millions of public service consumers, control of self serving practices, balancing the rich poor ratio, anti trust and competition rules, issues of national security, corporate governance, checks and balances on excesses of regulators, judicial and juristic participation, political control and accountability of the exercise, consumer service standards, unfair retrenchment of civil servants, proactive civil society involvement advocacy, national security, etc.

As the accumulation of these complications continues to scupper the lofty objectives of the exercise, the axiomatic solution is for regulators to re-evaluate, re-engineer and enforce improved policies and implementation models, enhance legislative advocacy, regulation and compliance etc. The consensus among several stakeholders is that Nigerian privatization program requires several fundamental restructuring and improvements to augment and maximize its impact on Nigerians.

1. A Workable Privatization Model.
There are several models for privatization of public enterprises. However, the core investor (auction) model is synonymous with transition from state to market economies, and not developing economies. Hence, it is the most susceptible to abuses. It was the model used in the Russian privatization exercise involving the sale of Yukos Oil, Sibneft and Transworld Metal which ensured a wider gap between rich billionaire oligarchs and the poorer masses. On the contrary, share issue privatization involves the conversion of all forms of public enterprises into a public limited liability company and the subsequent offer of the shares of the public company to the public for sale through the capital market. Hence, it is usually more transparent and encourages minority share holding protection rights and better corporate governance. It also involves the inclusion of other institutional supervision agencies such as the Securities and Exchange Commission and Stock Exchange. The latter model is better suited for Nigeria.

2. Establishment of Additional Sector Regulatory Commissions
The ultimate target of privatization is to create and expand private markets. Sector regulation is one the fulcrums of privatization. Considering the manpower handicap of the Bureau for Public Enterprises, the solution lies in establishing more sector regulators. Sector regulatory commissions act as specific regulators of privatized firms in specific sectors. They enforce price control, free competition, service control, quality and quantity control etc. The Nigerian Communications Commission is a good example of an effective sector regulatory commission. We all admit that the telecoms privatization exercise has been the most effective and successful in Nigeria even improving other sectors. There is an additional need to establish more sector regulatory commissions such as a National Water Commission, Trade and Commerce Commission and the proposed National Transportation Commission. Where sector regulators exist already, they need to be empowered such as the ineffective power sector regulatory commission.

3. Improved Post Privatization Regulatory Framework
With the absence of sector regulators and an anti competition laws or commission, an effective post privatization regulatory and compliance framework should be put in place. In other jurisdictions, privatized firms are de-privatized and ownership and control reverted to the regulator once they fail to meet agreed benchmarks within specific time limits. Since the BPE is overwhelmed by several regulatory responsibilities, another sub commission must be established for this purpose. This assignment is bigger than a small two man office in the BPE. The Senate and House committees on Privatization can also be of immense value in compliance and regulation matters. Unfortunately, the last Senate Committee and House of Representatives Committees were severely compromised, doing nothing proactive on privatization for four years.

However, the Federal Government of Nigeria must be hailed for the recent revocation of the sale of NITEL to TRANSCORP. The Securities and Exchange Commission has recently constituted a corporate governance committee headed by A.B Mahmoud (SAN) that has produced a Corporate Governance Code for all public companies. The Code is to become law in 2010. Upon the conclusion of this corporate governance code for public enterprises, Nigerian public companies will be administered with higher transparency and accountability.

4. Enacting Nigeria’s Competition Laws.
The full concept of privatization involves deregulation of public sector monopolies, involvement of private enterprises, then encouraging free competition within a regulated framework to improve quality, quantity of services at reduced prices. Once companies are deregulated, there is a high tendency for it to operate as a private monopoly except it is controlled by specific competition or anti-trust laws. The lack of competition laws remains one of the major banes of privatization in Nigeria. For the last eight years, there has been a Competition Bill and Anti Trust Bill at the National Assembly of Nigeria which is yet to be passed. The absence of a Competition Regulatory Commission has inadvertently converted several privatized firms into private monopolies in Nigeria rendering expensive and spasmodic services.

5. Corruption.
Corruption has remained the omnipresent obstacle that has eroded the very essence of the exercise, that is provide efficient public service to the Nigerian public through the private sector at subsided and competitive rates. The fundamental component of corruption is that the very basics of privatization laws and rules are often partially relegated or entirely discarded for expediency or self interest in the conduct of the exercise. In addition, genuine privatization consultants are ostracized from the exercise for professional spin doctors and wheeler dealers.

The consensus among privatization consultants is that Nigerian privatization exercise is riddled with corruption. It is more shocking that from 1999 till date, the EFCC and ICPC has never audited, investigated or prosecuted any public officer of Government official for economic sabotage or crime arising out of privatization. The form of corruption is ever dynamic and all conquering. Superior technical bids most times do not decide the successful bid for a firm. Selected core investors are suddenly incapable of paying for firms after being certified as technically and financially sound. Companies with small asset turnover are concessioned to handle larger public agencies, bigger than their capacities. Financial records of privatized firms are often not audited or at best incoherent. Due diligence is conducted at the data room of the BPE instead of a full physical and financial audit of the Government firm creating room for manipulations and distortions. Landed Assets of subtantive or principal Government corporations are manipulated and converted as those of subsidiries. Asset acquisition agreements or share purchase agreements are often lopsided or inchoate leading to unnecessary court litigations.

The case of Ajaokuta Steel Rolling Mill is a shocking instance. According to Newspapers reports, this industrial complex built for over $1.5 Billion by the Federal Government of Nigeria, but was sold to an Indian company for $30Million. Delta Steel Company, Aladja was also sold for less than 20% of their actual market value. Oshogbo, Jos and Katsina steel rolling mills are not functional today after they were sold at scrape prices to organizations that do not have the capacity to manage and turn them around. There have been massive assets stripping in these steel rolling mills to pay for their reserved prices. After the disposal of stripped assets, these companies repatriate their "profits" back to India.

Another locus classicus is that of Daily Times of Nigeria. Hitherto, Daily Times was the largest Nigerian newspapers corporation in the seventies and early eighties. Owning landed properties worth billions of Naira all over Nigeria, it was sold by the BPE to Folio Communications at an undervalued price. The matter was finally resolved by a Federal High Court of Nigeria ruling in January 2010 voiding the sale of 140 Million shares of Daily Times of Nigeria (DTN) to Folio Communications by the BPE. The core investor of DTN (Folio Communications) according to the Court, never paid a single kobo for Daily Times. Instead, it used the shares of Daily Times and its expansive assets network to secure a loan of N750Million from Afribank. A loan DTN or Folio has not even repaid after selling off several Daily Times properties and assets. The Federal High Court held in voiding the sale of Daily Times to Folio Communications by the BPE stated that the action of the core investor is oppressive and a breach of fiduciary relationship. While outsiders will hail the judgement of the Federal High Court, alot of work still needs to be done. We have also read how NITEL suffered a N100 Billion deficit after the Pentascope management contract. We also read how over $40 Million was paid by BPE to a managment firm, Denham Management Limited to conduct the Privatization Shares Purchase Loan scheme, an exercise in limbo since it commenced in 2003.

We have read how billions and billions of Naira disappear from Government accounts all in the name of privatization. The EFCC and the ICPC should and must investigate and prosecute all those involved in the several privization scandals in the last decade. There is no record of any previous Director General or top official of the BPE or Government official ever being probed, investigated or prosecuted by the EFCC or ICPC for corruption or economic sabotage despite all the privatization scandals we have witnessed in the last ten years. Certainly enforcement of stricter corporate regulations and ethics will enhance the quality of the Nigerian privatization exercise.

6. Transparency of the Exercise
Various stakeholders have expressed their reservations about the level of transparency in the entire exercise. Besides all the euphemisms of transparency, there exists a conundrum of obscurantism. Advertised criteria for selection of bidders and consultants are different from those used for selection, there are non responses or acknowledgments to expression of interest sent in by bidders and consultants, surreptitious and unadvertised sales, lack of consultation with stakeholders, hidden fees or charges, undervaluation, extension and re-extension of payment deadlines, sudden changes of preferred bidders to alternative bidders, undue political interference, due diligence conducted by non professionals instead of external independent auditing and law firms, gazumping practices etc. Service delivery standards certainly need to be enhanced through strict internal control mechanisms to best global standards.

7. Public Accountability
Since all the faulty or controversial decisions are made by Government officials in the exercise, the question arises as to who owes the responsibility and accountability to whom in the several privatization scandals that have unfolded in recent years. Can a Regulator regulate itself and can one be a Judge in your own court? The National Assembly that ought to check the excesses of our Privatization Czars all seem compromised in their functions or don’t have enough information. The Judiciary is doing its best but it still lacks the basic information required to sweep the entire process clean of corruption. Government itself can ensure public accountability of the entire exercise by passing the Freedom of Information Bill and allowing the National Assembly more supervisory roles. There ought to be checks and balances in the functions and responsibilities of Government officials, stakeholders and affected enterprises.

8. Ostracization of affected communities
There are complaints about the over bearing influence of Government officials and the ostracization of affected communities whom will eventually bear the brunt of privatization. Once a State enterprise is advertised for privatization, there emerges a control or acquisition rush from Government officials without due consideration for the implications. Wholesome or over bearing political control and emasculation of civil society participation is harmful to the entire exercise. This is evident in the composition of privatization committees whom are all Government appointees and the obvious disconnect between policies and public opinion. The sale of Federal Government houses in Lagos and Abuja typified this overbearing control where civil servants were openly discarded in preference for richer private investors whose interest in the exercise were only commercial in nature. The exercise will need to be depoliticized and civil society enfranchised to ensure public accountability.

9. Exclusivity of certain Privatization Exercises.
As a consequence of the formulation of a national policy on privatization in 1999, any and all new actions or mechanisms involving the conversion of Government ownership and control of public enterprises to private control and ownership must come under the purview of the national privatization policy. But this is far from the case in practice. There are now several recorded instances of the Federal Government formulating and implementing public to private sector ownership in breach of the national privatization policy. The emerging trend is any Government agency that has been crippled by debt or corruption is packaged for the private sector under the supervision of the BPE while “lucrative projects” are handled by Presidential Committees outside privatization policies and structures. Since these Committees operate under the protection of the Presidency instead of due process, we all know the the expected results.

The power sector reform is the locus classicus. The Federal Government budgets over $15Billion (some say $10 or $16Billion depending on your source) for power sector reforms. The power reforms ought to have assumed a national project status involving the Bureau for Public Enterprises or the Infrastructure Concession and Regulatory Agency, foreign private equity funds and firms, foreign and local power experts, reputable professional consultants such as engineers and lawyers etc. Instead, a Presidential Committee hijacks the entire process by issuing power licences to local companies several of whom are not qualified. The foundation of the reforms was based principally on gas plants (instead of the more appropriate hydro or thermal plants) when Nigeria has no functional commercial gas generation and supply structure. We now hear of a Gas masterplan when what is reuired is gas today. Five (5) years after the commencement of the power reforms and the expending of over $15 Billion, power supply in Nigeria today hovers about 2, 000 Mega watts for a country where supply requirements is a minimum of 20, 000 Megawatts to keep the lights now.

Another locus classicus is the draconian sale of Federal Government houses whereby a Presidential committee was established to oversee the sale of Federal Government Houses all over the Federation. This Committee hijacks the functions of the BPE and relegates all well known privatization procedures and structures. The expected consequences is that millions of Nigerian civil servants are left homeless while lucrative Government housing estates are sold off to ad hoc profit driven companies with clandestine ownership structures. Till today, there has been no co-coordinated audit or investigation of this exercise. There are still several sale transactions that are yet to audited allowing private coversion of these funds.

10. Non-audit or evaluation of the exercise.
Since 1999 when the Privatization Act became law and with the BPE having privatized over 400 public enterprises, Nigerians has never been privileged to experience a full audit or probe of all privatization exercises to determine who sold what public enterprises, to whom was it sold, at what price, and what is the performance record of the privatized firm. We have had snippets of Congressional hearings of designated public enterprises as we saw of NITEL in 2005 after which a former Director General of the BPE was banned from holding public office for life. This non audit or evaluation of the exercise has only encouraged certain Government officials sabotaging the exercise to grow in confidence and statute while majority of the privatized public enterprises remain prostrate in unnecessary crises.

Fortunately the Federal House of Representatives is about to commence a public hearing on privatization, the first in ten years. We are all hopeful that the House of Representatives will muster the political will to finally conclude this probe and enforce necessary sanctions.

11. Judicial and Juristic Review
Research cornucopias and case law on Nigerian privatization matters are still pristine or scarce. The dearth of case law on Nigerian privatization matters has inadvertently stifled the overall growth of case law on this genre of law as ouster clauses and lack of capacity has hindered aggrieved parties from seeking refuge in Nigerian courts. This can be attributed basically to Section 23 of the Privatization Act 1999 which contains an ouster clause of court suits against the BPE. Judicial review or court supervision of the entire privatization exercise must be maximized to ensure transparency, checks and balances in the conduct of the entire exercise. It has been long been suggested that Section 23 should be expunged from the Privatization Act as it is anachronistic and a hangover of military authoritarianism.

Another lacuna is that national policies and laws are initiated without the knowledge or participation of Nigerian legal professionals such as the new Maritime policy and the National Independent Power Project (NIPP). Several sector reforms are done in house between the BPE staff and the Presidency shutting out genuine expert legal evaluation and objective recommendations from the very lawyers who will be responsible for their implementations. Privatization exercises must be subject to full and complete judicial and juristic review to enhance its juristic evolution and growth.

12. Corporate Democracy and Balance of Majority and Minority Ownership Rights
The common law rule of Foss vs. Harbottle protects corporate singularity. But corporate evolution has now conceptualized corporate democracy to involve recognition of majority, minority and participatory shareholding rights. Public offers for sale of public enterprises often involve the delineation of its ownership share structure into units. There is a need to support the balance in ownership structures by recognizing majority, minority, participatory shareholding rights. This principle is actually contained in CAMA but it will require stricter adoption in practice and enforcement. According to Berle and Means, ownership and managerial structures of enterprises ought to be separate and distinct to act as checks to one another. In modern corporate democracy, there is a need to maintain this checks and balances to prevent corporate autocracy. The auction sale confers on the buyers’ complete ownership and managerial rights which makes it difficult to checks the excesses of their owners. These oversights more than any other factor to the overall collapse of the Russian privatization exercise. There is a new global trend of shareholder minority activist movements suing the majority shareholders like the Italian Generali case.

13. Human Capacity Building
Human capacity development is one of the cardinal roots of all economic policies. Policies are better implemented by experienced and trained personnel. From practical experience, a considerable number of BPE staff do not understand the concept of privatization. While the upper echelon staffs are well versed having gathered considerable experience from training and work history, what happens if there is a sudden lacuna for experienced personnel on privatization matters? There is a definite need to build capacity among all privatization staff, stakeholders and consultants. This will involve regular training seminars, cross border training exercises etc. The annual massive returns (N550Billion as at last round of sales in 2008) generated from sale of State enterprises can be allotted to capacity building among privatization staff and consultants. In house or external courses can also be organized with financial experts such as Euromoney.

14. Administrative Limitations of the BPE.
The Bureau for Public Enterprises is the statutory Government agency charged with the implementation of the privatization process in Nigeria. However, it has been encountering severe administrative challenges that has restricted or dampened its effectiveness. It is centrally located in Abuja and has no regional offices even where almost all other Government agencies are evenly distributed among all regions. Due to distance constraints in a very large country, it cannot monitor several privatization transactions effectively neither will it delegate its functions to consultants. It also operates an overtly commercial oriented service that makes national or economic interest secondary. Several of the BPE staff are so enclosed in their offices that they hardly interact with their colleagues or evaluate developments in the industry or public opinion. There is a need to make strategic administrative re-engineering to enable BPE staff interact extensively with stakeholders in the exercise especially the staff and consultants of bidding firms.

15. Loss of Experienced Manpower
We have continued to witness frequent industrial squabbles in privatized public enterprises. The crux of retrenchment of employees of public firms undermines decades of manpower experience and waste of training funds used to train staff of privatized firms. The result is the saturation of the unemployment market and wanton waste of valuable experience and technical know how. None or late payment of retrenchment benefits has continued to generate frequent industrial squabbles as seen in Daily Times, NAFCON, NITEL, Nigerian Airways etc. The proper labor policy to resolve terminal benefit matters is collective bargaining involving the BPE, the management of the public enterprise, the management of the private firm, the employees union of the public enterprise, other professional consultants etc. Provisions in share transfers agreements should be made for absorption of old employees in the new private firm. If these fails, then Nigerian courts should be the final arbiter in the resolution of all industrial matters particularly the National Industrial Court and the Federal High Court.

16. Increasing Foreign Direct Investments.
Privatization is meant to attract foreign direct investments to expand local markets. The primary sources of capital for Nigerian core investors are loans from local banks and individual finance. It hardly involved foreign equity and finance. Until the recent recapitalization of Nigerian banks, the Nigerian capital market was incapable of absorbing huge global transaction sums. Even with the recapitalization, Nigerian money markets cannot absorb large financial transactions of more than $100 Million, the average price of a quoted company on Dow Jones markets. Nigerian capital markets require global diversification with access to global investment funds, institutional investment funds, hedge funds, private equity firms etc. Nigerian public firms will also have to inculcate cross border IPO’s, i.e. offers on foreign capital markets. The Nigerian economy will also require financial market expansion to include derivatives, futures and options, credit and debt swaps etc. Several of these foreign investments funds are willing to invest in Nigeria on the condition that the country puts its political, economic and financial house in order.

17. Protectionism and National Security
Amid the global wave of nationalism and protectionism over national assets, Chinese and Indian companies have continued to enjoy undeserved preferences in Nigeria. A former D.G. of the BPE now exiled abroad for corruption charges once suggested that the Nigerian Armed Forces should be privatized totally ignoring the implications of national security! Nigeria needs laws that protect national investments for security reasons. China has recently passed the National Economic Security Act. The U.S. recently passed Foreign Investments and National Security Act (FINSA). Thailand also recently passed the Foreign Business Act restricting foreign equity to a maximum of 50%. Every country must create a balance between foreign investments and protection of local companies from unfair international competition. However, as every country reduces Government control of enterprises with privatization, it is imperative for Governments to operate basic national corporations to protect state business and for security purposes. Russia has Gazprom, Brazil has Petrobras, China has the Chinese National Petroleum Corporation, Malaysia has Petronas, India has Lukoil, Germany has EON, Italy has Eni, Netherlands has Gasunie, Norway has Norsk-Hydro etc. Nigeria certainly needs to protect its national assets from the motley crowd of foreign investors for the purpose of international fair trade and for national security.

18. Diversifying into Private Public Partnerships (PPP).
Where private sector and Government participation are mandatory, PPPs are the ideal cusp for equity and risk sharing. PPP models involve private control and management of public enterprises through management transfers, operational concessions, build and transfers leases etc. PPP was used to build London Underground and establish National Health Services (NHS) in the U.K, Central Park New York and Washington Metroline in the U.S., toll roads in Mexico, etc. It’s such good news that the Federal Government of Nigeria has established an Infrastructure and Concession Regulatory Agency to regulate all public private partnerships in the country. The National Assembly has recently passed into law the Infrastructure and Regulatory Commission Act 2007 which is acting as the foundation of all other policies and directives for public private concessions.

19. Untimely Winding Up of State Enterprises.
Under Nigerian receivership and liquidation laws, public corporations whose risk assets ratio has exceeded its total assets ratio qualify for liquidation. Several public firms have been liquidated such as NAFCON, Nigerian Paper Mills and Bacita Sugar Company. However, the liquidation litmus test has been duly over politicized with certain public enterprises due for receivership are often privatized while public firms that require mere financial reengineering are liquidated. Public enterprises hovering on the financial death fringe should be rescued for the general safety of the economy to prevent sudden quakes on the already fragile Nigerian economy. Nigeria Airways is a perfect example of a public enterprise that the cost of liquidation has been more expensive than privatization. Then the trial and error liquidation methods of the BPE are often unprofessional and incoherent. There is the need in the near future to establish a national receivership or liquidation company to professionally cater for liquidation of public enterprises.

20. Reducing the local costs of business operations.
Improved social infrastructure such as power and roads, security, business environment, incentives will certainly attract more quality foreign investors than expensive foreign investment trips. Also supporting and promoting local firms can also assist attract foreign investors since charity begins at home. Instances abound in other jurisdiction that has seen Governments encouraging foreign investments by reducing the cost of operating a business. The U.K and Germany recently cut their corporate taxes to encourage local investments. Czech Republic also recently cut its corporate tax. Nigeria can enhance the privatization exercise by creating a conducive environment for private businesses to thrive at the minimum cost.

In conclusion, the infusion of the above suggested reforms will certainly galvanize and ensure optimal value of privatization to the Nigerian economy in the longer term. With a new government and economic team, the reforms in the energy sector, a new National Council on Privatization, it will be a brand new opportunity to inculcate best global practices into the Nigerian privatization exercise.

ABOUT THE AUTHOR: Barrister Onjefu Adoga
Mr. Adoga is the managing partner of Brooke Chambers Law Firm, Legal Consultants to the Bureau for Public Enterprises (BPE) and Securities and Exchange Commission (SEC). He is an international counsel with over 18 years experience in business, investment and financial services law.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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