BADEJO ADEMUYIWA
The BPE lacked the capacity for conducting due diligence on prospective investors and this has been a major factor for its inability to ascertain claims. Sometimes, it padded fraudulent claims by investors
It was a Monday, June 14 2004 and the congress hall of the Transcorp Hilton hotel was filled to capacity. Journalists were running up and down trying to capture the event while presenters from both radio and television with their cameras and lighting equipments were in strategic places for live coverage of an event which built up over a year. It was the financial bid opening for a flagship transaction under the privatization programme midwifed by the BPE, the Aluminum Smelter Company, ALSCON, Ikot Abasi, Akwa Ibom State .
Its sale was considered important because it is key to the availability of aluminum materials to feed several industries including automobile and roofing sheets manufacturers. Its sale was also meant to end the huge losses incurred by the government in maintaining the equipments after the stoppage of work as well as vandalism. The company, if it is in operation will assist in the generation of power to complement the efforts of the PHCN in lighting up the country because of the output of its power plant which the enterprise could not exhaust.
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Guests and bidders were seated and the event started under the chairmanship of Akin Kekere-Ekun, Chairman Technical Committee of the National Council on Privatization NCP. At the end of the bid exercise conducted under television and radio live coverage, the Rusal Group of Russia was disqualified by the NCP for presenting a conditional bid of $205 million while BFIG was declared winner offering $410 million for the 77.5 percent equity at stake. Then the intrigues started.
Under the privatization programme, the NCP has the final say on the outcomes of bids opening. It could ratify if the offer is acceptable and over the reserved price and disapproved if below the benchmark by the government. But the declaration of a winner at a bid opening is preparatory to ratification because it must have been above the government benchmark. The bidders are thereafter informed and asked to come for negotiation if the offer is ratified or asked to jack up the offer if otherwise.
BFIG, having been declared the winner under the full glare of television camera expected an invitation for negotiation having been ratified by Atiku Abubakar, the Vice President and Chairman, NCP. Rather, ALSCON that was disqualified publicly at the bid exercise was called for negotiation which held in a queer manner at the Liyel Imoke’s house and other locations in Abuja, where the Russians further lowered the initial bid offer from $205 million to $160 million. The company staggered its bid offer proposing to pay $5 million within five working days and $10 million annually.
Though the government buckled under criticism and later invited the BFIG for negotiation, the winner was later eased out under controversial circumstances with the BPE citing incompetence as reason. The question that begs to be answered is how did an incompetent bidder pass through all the stages of the transaction including due diligence, technical verification to ultimately emerge as a winner?
The reason is that Rusal enjoyed the backing of some influential Nigerians who called the shot at the nation’s seat of power. BFIG protested the treatment and headed to court but the group had their way and landed ALSCON. The result today is that that company, ALSCON, is non-operation. No one can actually say whether the offer had been fully paid because the dredge of the Imo river was a condition for full payment and that is yet to be done.
House of Representatives’ committee on privatization was in a confused state during its oversight visit to ALSCON in April 2008 when BPE officials could not ascertain the amount paid for the enterprise as well as whether full payment was made.
It took the complaints by Irene Chigbue, the former Director-General of BPE to a visiting Russian diplomat for Rusal to begin consideration of the dredge of Imo river.
This is just one of the many ways of how political associates have been rewarded under the privatization programme which has pushed many workers who feel the impact of failing enterprises into trauma.
Most times, BPE lays the foundation for failure of privatized firms. Some investors in the flagship transactions lack administrative competence, technical expertise and adequate financial strength to steer the enterprise. A clear example of this is Transcorp’s handling of Nitel/Mtel even though some managers in the core investor’s group had their agenda, the Pentascope management contract with Nitel and Nicon and Nigeria Re. Investors in these enterprises are alien to the technicalities of the sector where they invest and such were dwarfed by the vagaries of the market.
Interference in the process of privatization is also key factor of failure. Political influence and consideration not merit in the determination of who buys what, were seen in the failure of Global Infrastructures Holdings of India in turning around both Ajaokuta Steel Company and the Iron Ore mining company, Itakpe. It also plays a role in the process of the emergence of the eventual buyer of ALSCON. Insiders at the BPE alleged that phone calls ensure that Transcorp got Nitel.
Investors in some privatized firms also burnt their fingers due to their inability to see beyond the present state of the enterprises as well as lack of a thorough independent due diligence to determine the viability and status of the enterprises. For instance, prior to privatization, both Nicon and Nigeria Re were losing market share due to the wind of reforms that removed the incentives and immunity they enjoyed in the market.
The Insurance act 2003 removed the monopoly of government businesses hitherto enjoyed by Nicon Insurance and which was the reason for its lofty heights in the industry while the legal cession that mandates insurance businesses to go to Nigeria Re also cease to be. The 2003 act exposed them to competition in the market which both was hitherto not familiar with.
Orientation of the public sector staff also plays a role in the seeming failure of some privatized enterprises. The fact that there is no benchmark has made many to be lethargic and unlike the private sector where a staff is continually under the yoke of performance target for earnings.
Accusations of compromise had also been severally directed at the staff of the privatization agency. While some bidders were alleged to have been aided with insider information on the package of their bids, BPE staff have also been speculated to leak important and key decisions of NCP to some core investors thereby giving them undue advantage.
Though BPE sets up a post privatization monitoring unit in 2006 to ensure that core investor implements the Sale Share Purchase Agreement, SSPA to the letter. The unit under Kashim Ibrahim in the pre-Chris Anyanwu era, the new BPE boss went to sleep. Throughout the three years that Transcorp held sway at Nitel/Mtel, an insider said no single report was generated on the wrongdoing of the core investor. The unit also looked the other way in the cases of both Nicon Insurance and Nigeria Reinsurance until the insurance regulatory body, National Insurance Commission NAICOM intervened in November 2007 to save the two enterprises from imminent collapse.
If the federal legislatures had not heeded the cries of the workers Nitel/Mtel and that of both Ajaokuta Steel company and Iron Ore mining company and intervened, the post monitoring unit of the BPE would not have seen any wrongdoing in the asset stripping embarked upon by Pentascope and Global Infrastructures Holding respectively. The inability of the unit to act has clearly exposed its inefficiencies and failure.
The BPE lacked the capacity for conducting due diligence on prospective investors and this has been a major factor for its inability to ascertain claims. Sometimes, it padded fraudulent claims by investors. For instance, what stops the BPE from trying to unveil those behind the purported management-buy-out MBO in Nigeria Re in 2002 when it was sold?. There were speculations then that the MBO was remotely controlled by the then Broad bank which violated its obligor limit to finance the deal and would not have any money again to inject for turnaround of the enterprise after purchase.
Investors failing enterprises sold through the Core Investor Option would not have become lords if the government had sold its remaining equities via the share floatation to widen the shareholders’ base of the enterprises. BPE’s failure at getting the Initial Public Offers of enterprises through has not given room for concrete criticisms of core investors’ policies.
Government still has 49 percent equity in Nitel/Mtel, 30 percent in Nicon Insurance, 49 percent in Nigeria Re, 41.19 percent in Abuja Sheraton Hotel and Towers, and in Nigerdock amongst others, but the jettisoning of the Privatization Shares Purchase Loan Scheme (PSPLS) on which over $700 million had been spent has ensured the share floatation never get off the drawing board.
PSPL is a scheme designed to encourage Nigerian mass to subscribe to the shares of privatized enterprises to widen their shareholding base as well as provide funds for their operations.
An instance of this was the failure of the share floatation of Abuja Sheraton Hotel and Towers in the capital market last year.
In May 2007, the NCP approved the divestment of the remaining Federal Government’s 637,919,840 shares in the hotel at N6.50 per share at the then prevailing market price.
The shares were sold on the floors of seven stock exchanges across the nation to satisfy the requirement of the privatization law that such sale be done on the basis of equality of federal constituencies. Specifically, the shares were traded on the Nigerian Stock Exchange (NSE) in Lagos August 14, 2008, Abuja on August 21, Port Harcourt and Kano on August 28, and September 4, 2008 in Onitsha , Ilorin and Yola .
Fifteen stockbrokers participated in the marketing and disposal including Fidelity Union Securities Limited; Union Capital Limited; Amyn Investment Limited; Greenwich Securities Limited; Heritage Capital Market Limited; Icon Stockbrokers Limited; Vetiva Capital Market Limited; and Mutual Alliance Limited. Others are Springboard Investment Limited; Forte Asset Management Limited; Emerging Capital Limited; Camry Securities Limited; North Bridge Securities Limited; Equity Capital Solutions Limited, and Hedge Securities & Investment Limited. Fidelity Union Securities is the Lead Stockbroker and Fidelity Bank Plc is the Financial Lead Adviser to the transaction.
Less than 10 percent subscription was recorded at the end of the exercise which gulped millions of Naira. Since then, the BPE has reverted to its shell.
These failures have resulted in loss of confidence in the privatization agency as captured by Kayode Falowo, president of Association of Issuing Houses of Nigeria AIHL when the association visited Chris Anyanwu, the new BPE boss.
But how Anyanwu and the team he inherited intends to turn the situation around for the privatization agency will be determined by how he is able to handle the emerging issues in the recent revocation of Nitel and other enterprises on the verge of collapse.
