• Thursday, May 30, 2024
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Derailed purpose (1)



PRIVATISATION The sale of some state enterprises to private sector initiatives was envisaged to turn them around for efficiency, but the recurring controversies surrounding most of the sold companies have raised serious questions on the integrity and sincerity of the agency responsible for their disposal as well as the federal government. BusinessDay will publish a three part findings on the derailed purpose beginning today. Economies, the world over established state enterprises to provide key services including water, electricity, and telecommunications within the reach of mass of the people to make life worth living for the citizens. Countries also in the efforts to curb capital flight and keep revenues generated within its shores set up some entities to provide some services. These service providers, governments ensure, are adequately funded to deliver on their mandates.
It is similar in Nigeria where the likes of Power Holding Company of Nigeria PHCN, Nitel, Mtel, Nicon Insurance, Nigeria Ports Authority NPA, Federal Radio Corporation of Nigeria , FRCN, Nigerian airways, the refineries, steel and aluminum plants and several others dotted the economic landscape.
PHCN, Nitel, Mtel, FRCN and their likes came into being to render utility services to the citizens while Nicon Insurance and other government entities in the financial services sector were established to keep capital generated within the Nigerian economy within the system.

Read Also: NELMCO saves FG N92 bn on PHCN liabilities- MD

For years they executed their mandates but defaulted on dividends to the owner, the government. Nitel had to be compelled by the House of Representatives’ Committee on Privatization in 2001 to pay up N2 billion dividends since its existence as Posts and Telecommunications P&T.
The oil boom era made it possible for the government to pump in huge funds more than were needed to keep them in operation but left them un-monitored. Expenditures and performances were not supervised and this gave room to corruption and inefficiencies that turned them to a drain-pipe.

The results of porous supervision are epileptic electricity supply and dried up water taps. Nitel and PHCN staff became lords who must be influenced to repair faults that were sometimes engineered by them. Refineries, steel and aluminum plants dwindled to low capacity utilization and finally went comatose. With the utilities in comatose state, Nigerians were forced to seek alternatives for electricity via imported power generating sets, while industries either closed down or cut down on operation while they operated at high overhead costs. The impact, still being felt today, is enormous on the economy. Bloated labour market forced people to take to criminalities to survive the odds.
State enterprises’ operations began to beg the questions with the debut of the economic crunch of the 1980s which ushered in Structural Adjustments Programme (SAP) and its effects on the masses prompting the questions on their efficiency and desirability. This put pressure on the government to rethink its policy on state enterprises.
The agitation for better service delivery from state enterprises coincided with the wind of reforms blowing across the globe with the demand that government should stick to regulating the environment and leave the business terrain for private initiatives.
The inefficiencies of the state enterprises despite huge investments in them which they could not justify prompted this cry.
The Bretton woods institution was in the fore front of the campaign that governments leave the business terrain for private initiatives that are adjudged a better manager. Nigeria keyed to the campaign and that was how the current move, largely informed by gross failure of government run entities, towards economic liberalization, competition and privatisation commenced.
In the case of Nigeria , it is clear that it cannot afford to spend or subsidize the state enterprises with resources equal to more than twice the nation’s capital expenditure budget.
The then Technical Committee for Privatization and Commercialization (TCPC) which later metamorphosed into the Bureau of Public Enterprises (BPE) then came into being to midwife the prograrmme which raised the hope of a better Nigeria .
List of state enterprises were drawn up and strategies for their privatization were devised depending on their peculiarities. The options that have been embraced by BPE include the Core Investor Sale (CIS), Initial Public Offer (IPO), concession, commercialization, and management contract among others.
A TCPC Survey shows public enterprises account for between 30 and 40 percent of fixed capital investments and nearly 50 percent of formal sector employment. But an audit of public enterprises in 1998 was disheartening and shocking.
Public enterprises consumed about N200 billion of national resources annually, by way of grants, subsidies, import duty waivers, tax exemptions, and the like. State enterprises consumed nearly half of the entire revenue made from the sale of crude oil since 1973.
Data from various government departments and estimates reveal that in 1998, Nigerian state enterprises enjoyed about N265 billion in transfers, subsidies and waivers, which could have been better invested in our education, health and other social sectors
Estimates of the then Vision 2010 Committee indicated that Federal government investments in state enterprises stood at over US $100 billion in 1996. The return on these investments averaged less than 0.5 percent per annum.
The Hamzat Zayyad led Cross Debt Restructuring Committee report also painted an ugly scenario of the debt overhang of the state enterprises despite the huge investments of the government. The committee that was set up to resolve the intra and inter debt entanglements of the various state enterprises discovered over three trillion of debts owed. Larger percentage formed the bulk of the country’s debt profile to both the London and Paris club creditors.
By 2005, the duo of Nitel and the Power Holding Company of Nigeria PHCN alone owed the Federal Inland Revenue Service (FIRS) N14 billion. Government had to pay N12 billion to banks and others creditors of NAFCON now NOTORE to make the enterprise attractive to investor in 2005.
As at 2002, the pension fund of Nitel had been mismanaged and was underfunded by about N4.2 billion. Similar trend was noticed in Nicon Insurance in 2005 when an actuarial report detected a gaping hole of N4 billion in the enterprise’s pension fund.
In the report of Ajibola Ogunshola & Company, an Actuaries and Employee Benefit Consultant, over 77 percent or N3.991 billion of the total pension fund of N5.240 billion representing 30.69 percent of the rate applicable to the employer of the joint contribution rate of 42.69 percent was not remitted to the pension account by the then management. The value of the fund as at March 2004 was N1.249 billion.
With these details that clearly showed the drain-pipe which state enterprises have become, the privatization agency went to work and 81 state enterprises from various sectors were privatized between 1999 and March 2007. Over N500 billion was realized from transactions consummated in 2005 and 2006 alone.
More importantly, this has greatly reduced the continuing hemorrhage of government funds through losses and unproductive investments and the resources realized channeled into provision of vital services to improve the lives of all Nigerians.
For instance, for concessioning the 25 port terminals in 2005, over N23 billion is being saved annually from elimination of surcharge and time wasting at the country seaports.
Federal government started port reforms in December 2003 to increase the overall efficiency at the nation’s seaports and make it attractive to shippers. The concession was in three stages with that of Apapa ports comprising of the container terminal, and terminal C and D all in Lagos coming first. It was followed by that of Port Harcourt terminals on June 3, 2005. The final phase was the Tin Can island ports terminals A, B, C as well as RoRo port and Lily Pond inland container.