It’s better to sell redundant assets than borrow to fund fiscal plan – DG, BPE
With increasing fiscal deficits, the government needs to tap the nation’s huge redundant assets to fund its budget, according to Alex Okoh, director general, Bureau for Public Enterprises. He spoke to a BusinessDay team, comprising John Osadolor, Obinna Nwachukwu and Onyinye Nwachukwu in this exclusive interview.
The federal government hopes to generate about N493.4 billion from sale of some of its assets to partly fund the 2021 budget. What is the update on that?
For many of us who are involved in economic management, and those who are observers of the economy as a whole, we realise that the fiscal position of the federal government is quite challenging. With the level of deficits that we are seeing in terms of our fiscal plan, it’s very clear that there’s a challenge with sustainability; especially when you look at the fact that, consistently, the level of debt servicing is growing at ratios that are encumbering the available revenues to fund other fiscal plans. And, when you find yourself in a situation like that, it’s important that you begin to look at other sources of revenues.
We have always maintained a view that, rather than borrow to fund your fiscal plan, it’s better to look at your redundant assets – not your entire assets, because, there are some assets that should continue to yield various values for government. And there are loads of such redundant assets owned by the sovereign to fund whatever gaps or shortfalls in the fiscal plan. We believe that this gap should not be something that exists in perpetuity, maybe because of shortfalls in our regular sources of revenue which we’ll have to correct at some point in time. It’s either you beef up your revenues, or you try and manage your costs so that you can have a more manageable gap in your fiscal plan. But, until that is achieved, you have to look at other sources to beef up your revenue.
That’s why we in the Bureau consistently try and look at various assets of the federal government, with a view to realising value from them. And that’s where the promise, or the plan of the N490 billion essentially from those assets now come into play with the 2021 fiscal plan. So, a great proportion of that will be coming from some of the power assets or interest in the assets owned or held by the federal government that we intend to privatize.
Which government assets have been marked for privatisation?
Yola and Afam have already been concluded. Yola was concluded this year in July, while Afam was concluded effectively in November last year. However, the revenues from those transactions will be coming in this year, that’s why we have included them in the fiscal plan. But in terms of the transaction execution itself, they were concluded in 2020 fiscal year, or at least Afam was concluded then. For the current year, the new power transactions we have, on the hydro side, include Zungeru hydropower plant; which is up for concessioning. We are hoping to be able to conclude that, it is a 700-megawatt hydro power generation plant, so the concessioning is part of the power assets that we intend to reform this year. That also contribute significantly to the N490 billion.
But the biggest chunk of the power assets comes from the National Integrated Power Plants currently under the management of the Niger Delta Power Holding Company, NDPHC. We are looking at privatising 100 percent, five of those plants; Benin (Ihovbor), Geregu, Omotosho, Olorunsogbo and Calabar. The combined capacity of these power plants will be in the region of about 2300 megawatts. Those are the major assets under the power transactions that we are doing this year, and they contribute close to 80 percent of our expectation of the N490 billion. Let me also clarify that these assets are federation assets, not federal assets. So the portion of the sale that will accrue to the federal purse is 47 percent of the five NIPP plants. You will recall that these plants were built from the resources in the Excess Crude Account, which belongs to the entire federation; therefore, the proceeds will have to be shared along the same lines as the contribution to the ECA, which is 47 percent for the federal government and 53 percent for the sub nationals.
Apart from the power assets, are there other government assets being considered?
Yes, but majorly those are on the concessioning side. We are looking at the Tafawa Balewa Square. We have gone pretty far in terms of concessioning that facility. The Lagos International Trade Fair also comes under that programme of concessioning. We are partially commercialising four of the River Basin Development Authorities – Ogun-Osun, Niger Delta, Sokoto– Rima. We are piloting with four of those out of the 12 River Basin Development Authorities. We are looking at the recapitalisation of Bank of Agriculture. Although these kinds of transactions do not really yield proceeds for the Bureau, it is part of our reform and reorganisation mandates to ensure that the federally-owned enterprises are performing optimally.
There have been issues around the Lagos International Trade Fair. Lagos Chamber of Commerce pleaded that it should be given to them for their annual trade fair. We also do know that the traders there were also kicking at some point. Are those issues resolved?
There are few issues around the Lagos International Trade Fair; well of course is the previous unsuccessful concessioning. The Lagos International Trade fair was first concessioned in 2007 for a period of 10 years. But incidentally, the previous concessionaire mismanaged the facility and defaulted on his obligations under the concession agreement. So in 2017 we had to recover the assets from him. Although he has gone to court, and we are in court, the property belongs to the federal government; there is no doubt about that. So that concession was revoked and that’s why we then initiated another process.
In that course, we did receive a request from the Lagos Chamber of Commerce for us to give the asset to them. But, you see, this is a federally-owned asset, it doesn’t belong to Lagos state or the Lagos State Chamber. And when we do such concessions, we will normally do them from a position of open tender not special arrangements. So we then advised the LCCI to perhaps collaborate with the other entities, form an SPV and bid for the asset, if successful, they get it. If not, may the best bidder win, so that speaks to the second issue you raised.
The third is with regards to Aspamda and the traders association, it is important that we realise that a tenant cannot have more rights; the rights of a tenant are properly defined, while the rights of the landlord are also properly defined. The federal government is the landlord, owns the facility, and there is no doubt about that. The traders association are tenants and there are terms of the tenancy. They’ve come up with various requests asking the federal government not to concession and all. I said no, you can’t tell us that, as long as the terms of your own tenancy are not being violated, whatever we do with other areas of this facility is entirely up to us. And nothing in your terms of occupancy gives you a right of first refusal. But, I understand that recently, they withdrew the matter from the court. We are in active engagement with Aspamda, although, we are also very unhappy with the way that place has been mismanaged. If you go to Aspamda or the areas where these trade associations occupy, it’s like a slum; it doesn’t befit an international trade fair complex like you see in South Africa, US or Germany. So the whole idea of this process is to restore the entire facility so that it can take advantage of the key locations, the whole West Africa trade routes. That axis sits in a prime location to be able to do more than it has done so far, so that’s the plan.
Which aspects of the MoU were breached that warranted the revocation?
The two concessions were granted as development concessions, not like leases, so they were supposed to be developed in line with the winning plan that had been submitted by the concessionaires. Unfortunately, no such development took place in either of the facilities. For example, they were supposed to build hospitality centres like hotels, games arcade and all. All of those were included in the plan but nothing was done. For us, the more egregious violation was in the non-payment of the concession fees. For Lagos International Trade Fair, for the whole 10 years, not one naira was paid to the federal government as concession fees. By the time we revoked the concession, the concessionaire was indebted to the government to the tune of about N6.2 billion for non-payment of concession fees. Same thing applies for Tafawa Balewa Square, although the outstanding amount was much smaller than that. Those were the major things.
With the new concession plan, what happens to the present occupants?
There are two questions I see from here. One, we have actually initiated proceedings to recover the N6.2 billion from the previous concessioner. It’s important to understand that the non-payment was not as a result of the fact that the tenants didn’t pay the concessionaire, but the concessionaire just did not pay the federal government the concessions fees.
In fact, we have evidences to the fact that the tenants did pay their tenancy rates to the concessionaire, but, he just did not remit them. So they are not the ones that are in default, and by the way, we don’t have agreements with the tenants, it is the concessionaire that we have agreement with. We have initiated proceedings to recover the outstanding money, both from Lagos trade fair and the Tafawa Balewa Square. Now what do we do with the tenants? For those whose tenancy have not expired, we will transfer the terms of the tenancy to the new concessionaire. Those whose tenancy have expired will either renegotiate or review the entire transaction.
We also want to use this opportunity to gentrify, to renew the entire facility, especially the Aspamda area. Like I said, there has been, for lack of a better word, ‘misdevelopment’ of the area. You see people building without approval, building on public areas, building on drainages, it is just an unmitigated disaster, the way that place is; it is like a glorified slum. We will take that opportunity to restore it to its original plan. Those who have built without the proper approval, we will demolish the stuff, of course there’s no basis for claiming rights. But, those who have built in line with the approved plan and have their documentation in order, and have not expired; we will transfer the terms to the new concessionaire.
Which other key transaction has the BPE concluded since 2017?
Quite a lot, I’m sure you are aware of the Mint transaction. We have further divested the ownership of the federal government from the Nigerian security Printing and Minting Company to the Central Bank of Nigeria. So, the Central Bank of Nigeria now owns maybe close to 90 percent of the Mint. And that has helped in focusing the Mint in terms of not just currency printing, but also security printing.
As the economy goes cashless, it is important that they are able to acquire the requisite tools and equipment to play in the other security printing markets, things like debit cards, election materials, examination materials, things that were ignored for the sake of currency printing. As the demand for paper currency reduces, we see it grow in all those areas, that has helped to re-dimension the focus of the Mint. We have also done some transactions in scaling down government interest in Geregu power plant to the core investor. We have initiated the process of reforming NIPOST. We are planning to unbundle NIPOST into three different subsidiaries; Micro Finance Bank, Transport and Logistics Company, and Property Development Company. These are some of the transactions or reforms that we have carried out in that period.
Can you speak to the plans to concession the airports?
If you review the enabling Act, the statute of the Bureau of Public Enterprises, which is the Public Enterprises Act of 1999 as amended, 22 airports are listed in the Act to be concessioned by BPE. We attempted to prosecute that mandate by piloting or phasing them with Abuja, Lagos, Port Harcourt and Kano. Now, we understand that the Ministry of Aviation has embarked on a direct concessioning of those airports themselves. They claim that they have a presidential approval to do that, although this is actually the mandate of the BPE, so we are not involved in the current efforts to concession those airports. It’s being driven exclusively by the Ministry of Aviation.
Does it then mean that the BPE is playing no role in the entire airport concessioning?
In order to implement that, we have actually had three webinars to sensitise the general public, the MDAs and the financial institutions about the new role of the BPE and the clarity in the public private partnership and concession space. We have also designed an information tool, which we have circulated to all of the MDAs to supply information on their proposed PPP projects, especially with regards to the 2022 budget; and we have more than 100 projects from six key MDAs.
In terms of infrastructure, the MDAs that originate these transactions or projects are not more than six; transport, works and housing, aviation, power, maybe water resources. We have collated all of those projects and we are working with the UK Department for International Development, DFID to be able to evaluate the projects and the ones that are bankable, and can attract funding on their own, we put on the PPP track. The ones that are weaker in terms of bankability, we put on the normal appropriation track, which is the budgetary track. So we want to wean the budgetary process off the pressure of putting all infrastructure projects on the fiscal balance sheet because we don’t have that space anymore, we talked about constraints initially. So, we want to be able to place all of those bankable PPP projects on the PPP track.
We have worked with the MDAs to identify and evaluate the project, that’s the first stage. This project will then go to the Federal Ministry of Finance, Budget and National Planning especially the National Planning site. We will act as the clearing house. BPE and the Ministry of Budget and National Planning will then review those projects and align them with National priorities in terms of which ones will be in the forefront of driving the overall economic agenda. From there, it comes to BPE for implementation and the implementation means the process of selecting transaction advisors, the process of bidding and selecting the party or the partner on the PPP side. Once the transaction is concluded, we hand over to ICRC for regulation and monitoring.
So there are four clear steps in terms of origination, clearing, execution and regulation that have been identified in that. And all through that process, of course we will develop the outline business case, forward to ICRC, when they approve, it comes back to us. We proceed to the final business case, which we will also submit to the ICRC. So, it’s a collaborative approach to ensuring that we use the PPP model to address the infrastructure gap in the economy. If you look at our GDP to infrastructure ratio, it’s perhaps one of the lowest in Africa, given the fact that we are the biggest economy. And, there are implications to that. If your GDP to infrastructure ratio is low, it means that your cost of production is high, you are not as competitive in your production as you should be, and investments will migrate away from you.
What sort of relationship does the BPE have with ICRC and other government Institutions as regards concessioning and privatisation roles?
To answer your question directly, I will say that, that relationship has been nothing short of confusing up till a certain time last year. The two agencies maintained that there’s a conflict of roles, although we do not believe that the mandate of the Infrastructure Concession Regulatory Commission, ICRC is very clear. As a regulator, the BPE is a transaction implementer; it’s an operator of concessions. So, it’s been a difficult relationship to manage and just trying to draw the lines between operation and regulation has been a challenge.
The MDAs of course, seeing that lacuna, will try and take advantage of it. Some of them have taken advantage of that to concession themselves. Incidentally, many of those concessions have failed, because, the requisite expertise is not resident in the MDAs, it is in the Bureau. But thankfully, finally, this administration last year, on the 14th of September precisely, through a circular issued by the Secretary to the Government of the Federation clarified the roles. It says that all the concessions entrenched in the statute of BPE will continue to be managed by the BPE. New transactions being prosecuted on a PPP basis or on a concession basis will have the BPE acting as the counterparty representing government on all of those contracts; while the ICRC will regulate and monitor the concession agreement. That’s what should have been from the very first day that ICRC was set up. And if you look at the name itself, it’s Infrastructure Concession Regulatory Commission. It’s like NERC, an Electricity Regulatory Commission, they don’t come into our process of either concessioning power plants or privatising power plants, but once the transaction is completed, it comes under their regulatory purview, that’s how it is done. That circular clarified the roles, and we have since gone about the implementation of the circular.
Can you give us some insight on Ajaokuta Steel Company, why is it not operational yet?
You have to talk to the Ministry of Mines and Steel. I think it’s an issue of concern to almost every Nigerian. That’s a huge investment that is lying dormant. It’s just a waste there, but I think that you need to speak with the Ministry of Mines and Steel.
It seems that BPE’s hands are tied in this regard?
Our hands are not tied.
Most of the privatised entities seem not to be performing as expected. Why is that?
That is a scathing rebuke of the privatisation programme itself. In terms of your business, the bad news sells faster and more, so, it’s the bad examples that people see and say privatisation hasn’t really delivered on its intention. Now 234 enterprises, you’ve mentioned barely five and they are the ones that people see and they say it’s not done well. How about UBA, First Bank, Union Bank? How about the oil servicing companies, how about the ports, the pension reforms, how about the telecoms liberalisation? I know that the jury is still out when you look at power, but, I will not consider the power privatisation as failed.
For me, we need to look at the figures, what was the capacity of available power in 2005 when the whole electricity sector reform programme was initiated? Where are we now? It’s not uhuru, yes, not where we should be, but, we have moved significantly. And, when things don’t work, my attitude is, ‘where did this go wrong? How can we reset it? Has it challenged the fundamental principles of the reform itself? My answer will be no.
From our own assessment, in 32 years we’ve done 234 enterprises; from the days of TCPC to BPE. From our own assessment, about 14/16 percent of them are not performing. Even in exams when you score 84 percent, you have done well. The ones that have not performed, there are fundamental macro-economic reasons why they have not performed. Some transaction structure failed and we have been very honest about it. And we can group the ones that have not performed into four areas: the paper mills – that will be Oku-Ibokun, Iwopin and Jebba; they have not performed. The second would be motor vehicles/ assembly plants, Volkswagen, Pan, Anammco and so on. The third will be the mines company – the steel rolling mills -Katsina, Jos and Osogbo. The fourth is Bricks and Clay. When you look at the sectors that have failed, like I said, there are fundamental macro-economic reasons why they failed. Let me take the motor vehicle assembly plants for example, you can’t be encouraging local assembly of motor vehicles, and at the same time be taking fiscal measures on dropping import duties on vehicles, its contra-indicative, it doesn’t work. So, a lot of that has to do with policy misalignment.
On the steel rolling mills, we know very clearly that if you don’t have your feed stock, then there’s nothing that can happen. What are they rolling, what steel are they rolling when Ajaokuta is not producing steel. You then have a situation where all they are doing is gathering scrap and that is totally inefficient, that’s not what they were set out for. Until you fix Ajaokuta, the rolling mills will have a problem.
We have set up four key inter-agency committees that for the past 90 days have been working on producing a policy that will resuscitate the enterprises in those key sectors. They have presented their report and I’m hoping that from that we will be able to at least take certain measures that will bring those non performing enterprises back to life.
QUOTE: We want to wean the budgetary process off the pressure of putting all infrastructure projects on the fiscal balance sheet because we don’t have that space anymore