The reform of Nigeria’s public sector enterprises has been progressing steadily over the years and has recorded some gains and setbacks in the process, drawing applause in some cases and anxiety in some others.
In this special interview with Vanguard’s editorial team of Soni Daniel, Emma Ujah and Gabriel Ewepu, the Director-General of the Bureau of Public Enterprises, Mr. Alex Okoh, lays out the efforts of the agency to give effect to the privatisaton programme and what is being done to revive privatised but ailing firms, among them: Ajaokuta Steel, ALSCON, NNMC, Iwopin Paper Mills and others.
Excerpts:
AS the Director-General of the Bureau of Enterprises, a very strategic agency for economic reforms, especially commercialisation and privatisation, what has worked and what has not worked?
I think that is a very important and pertinent question because not just the government, but the generality of Nigerians, should be interested in how the efforts to reform various sectors and the privatisation of assets that are considered to be of national patrimony. How has this made the lives of ordinary citizens of the country better?
The entire effort to reform both institutions and sectors of the economy dates back to the days of the Technical Committee on Privatisation and Commercialisation of the government of General Ibrahim Babangida. This whole effort of enterprise and sector reform has been going on for more than 33 years, with the enactment of the Public Enterprises Act; it was then transmitted from TCPC to the Bureau of Public Enterprises.
In that period, the Bureau reformed various public institutions, enterprises, and assets, to the tune of about 232 enterprises and these cut across various sectors of the economy: banks, ports, insurance companies, hospitality businesses like Transcorp Hotel, and more recently, the power sector. In terms of the sectoral reforms, we have also seen very strong interventions by the Bureau in the pensions sector. Of course, Pension Commission of Nigeria is a creation of the BPE, moving from the non-contributory arrangement, which was seriously underfunded to the contributory scheme that we have now.
That process, of course, led to the creation of institutions like the PenCom, which also of course involved the creation of Pension Fund Administrators and Pension Fund Custodians. So there is a whole suite of institutional enterprises that were created as a result of sectoral reforms. It may also interest you to know that as part of the efforts to bring transparency into how public finances and debt are managed, we also created the Debt Management Office.
The better known aspect of our mandate has been the enterprise reform, but we have also been very active in sector reforms. It may also interest you to know that EFCC was actually created by the Bureau and started from the Bureau as part of the concern around the transparency of government finances or public sector finances.
How would you rate the level of success in carrying out your mandate?
Our view is that, mainly, the enterprise and sectoral reforms have gone fairly well. But integrity also demands that we acknowledge that some have not gone as planned, and some are still what I will call “work in progress”. The process is still long but from our assessment we have seen records around 75 -77per cent success.
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Sectoral reform may be about 98 per cent successful. The ones that have not been successful, I am sure we will talk about them later. They include the paper mills, the motor vehicle assembly plants, the Aluminum Smelting Company of Nigeria, ALSCON, Jebba and Iwopin (the paper mills), and you can group them along certain segments of the economy.
When we come to that we will talk about the macro economic issues and the fiscal issues that might have constrained the success of those interventions. So in general, we think that we have done fairly well.
What is holding back the BPE from recording maximum success?
Even if you go to the climes where we borrowed this concept of enterprise reform; reforming publicly-owned enterprises, they themselves have not experienced 100 per cent success. In our own clime, with very imperfect markets, some of the challenges have been fiscal policies and macroeconomic policies not responding appropriately in support of these reforms.
For example, while six motor vehicle assembly plants were privatised to improve local assembling of cars, there has also been a policy that lowers taxes on car imports, which is a contradiction of some sort. So, those kinds of issues will make local production more expensive than imports. Those kinds of policy mismatches have tended to affect the outcome of the privatisation exercise.
The Aluminum Smelter Company of Nigeria in Ikot-Abasi, Akwa-Ibom State is a multi-level, massive investment that could have generated employment and added value to the economy of Nigeria. What exactly went wrong with the privatisation of that company?
ALSCON is a peculiar and unfortunate situation. Of course you know that in 2005, there was an attempt to privatise ALSCON. That exercise led to the emergence of a company called BFI Group winning the bid at $410 million.
However, the BFI Group could not pay for the assets as required under the RFP, so the government cancelled that bid and resorted to the reserved bidder. When we do privatisation, we have the highest bidder as the preferred bidder and then a reserved bidder.
In the case of ALSCON, a company called RUSAL, a Russian company, was the reserve bidder. They were called upon to exercise the rights of the preferred bidder that could not be taken up and of course, they did.
Following that, the preferred bidder, BFIG, went to court and that has been the unfortunate situation of ALSCON since that time. There are various litigations as far as ALSCON is concerned, and I am a bit careful myself so that some of my comments do not become subjudice; but just to give you the background as to why the asset seems to be castrated.
At this point, the government is facilitating discussions with all of the parties to ensure that there is some amicable understanding that is reached so that the plant can be freed-up to fulfill the mandate of its establishment. For me, it just breaks my heart because it is a very important company- what you call one of the base industries, like Ajaokuta, because it enables other industries to thrive.
If you are looking at direct job creation capacity, anything between 7,500 and 8,000 jobs can be created directly from the successful operation of ALSCON and then 30,000 indirect jobs, looking at the ancillary services that usually come up around such a major production facility.
I have been to about two or three aluminium smelting companies in Europe, and they do not have the kind of the latest technology that we have in ALSCON.
Really?
Yes! So I’m just so pained when we see such a facility lying fallow. But like I said, we are doing all that we can to ensure that all the legal issues around the ownership are resolved and then the technical issues around the production itself, which include gas supply, power supply, the operation of the ports and the Imo River dredging to allow for both the import of bauxite and export of aluminium. We hope that very soon we can resolve the ALSCON issue.
Another company that is almost dead is the Nigerian Newsprint Manufacturing Company in Oku Iboku, Itu in Akwa Ibom State, which would have conserved foreign exchange for Nigeria as the only newsprint plant in the country. What is happening to that vital firm?
Well, I can say that NNMC, Oku Iboku, Jebba and Iwopin paper mills all fall into the same category. They are paper mills and one of the sectors that I said has experienced less success than we intended from the privatisation. Let me talk about Oku Iboku in particular because you mentioned it. NNMC Oku Iboku was set up before the creation of Akwa Ibom out of Cross River State. When Akwa Ibom was created, Oku Iboku plant happened to be in Akwa Ibom, while the plantation itself is situated in Cross River State. Without the plantation where pulp is produced, the factory is useless. Now, because they have now come under separate jurisdictions, trying to obtain the necessary concession arrangements over the pulp trees in Cross River became a problem.
And because it took time for the core investor, Negris Limited, to be able to get that concession arrangement for pulp to run the mill, nothing has been going on in the factory. As a result of that, the factory itself was vandalised; there was asset stripping and all of that. So that became a vicious cycle and the company was accumulating a lot of debt. As a result of that, it could not go into operation because it did not have the pulp to feed the factory.
The plant and running costs were mounting up to the point that AMCON had to step in and take over the loans from the banks to which Negris was indebted and under receivership management and AMCON had taken over the plant. We are in discussions with AMCON to see whether we can invite or attract a credible investor with both the technical competence and the financial capacity to make the necessary investment in refurbishing the plant.
I have also personally discussed with the Cross River State governor with regards to being more understanding. He was reasonable and cooperative with regards to the concession.
They were asking for about N400 million initially per annum on the concession for the plantation. But right now we are reaching some agreement with regards to a reasonable fee to be paid for the pulp plantation. But just as it is with things that are not put to use they will be abused. So, even the pulp plantation itself has seen a lot of encroachment, illegal logging and all of that.
And if you are not replacing the trees it becomes depleted, after a while deforestation sets in. Incidentally, the same issue is what we have with Iwopin- between Ogun and Ondo states with regards to the plantation and where the factory is situated. We have set up a multi-agency committee to look at not just the paper mills, but all of the non-performing enterprises.
What is the role of PBE in Ajaokuta Steel Mill that has remained on the drawing board with rising and fading hopes over the years?
Ajaokuta was not privatised, Ajaokuta was concessioned, and incidentally, unlike the ports, the concession was not handled by the BPE. It was handled by the Ministry. You see, the government is one.
When a problem crystalises, the government must come together to resolve it. The matter itself also is subjudice at least when you are talking about the ownership, all the settlement arrangements around Ajaokuta, Delta Steel, and of course the Itakpe and they are all connected. All of those infrastructure and facilities are connected.
There is an on-going effort to untangle and unbundle them because Delta Steel itself has gone to pursue a different track of resolution; but to just sort of combine with all of them and resolve the issues with Global Infrastructure Nigeria Limited.
That effort is on-going to have a sort of out-of-court settlement. His Excellency, the President, has also set up an inter- agency committee basically to advise on the best way to resuscitate Ajaokuta itself following the out-of-court settlement with GINL.
Thankfully, we are part of this committee at this point, and I think that we will be able to advise given our expertise as the government agency that actually has the mandate and the skills to handle such complex transactions, on how best to address Ajaokuta.
Some of the ideas that we are looking at involve the numerous business opportunities that abound in Ajaokua-about 42 to 43 of them which are all steel-related. But the issue is: do you want to run the plant as one integrated unit? Or do you want to run them as different businesses? So, we will look at the different options and we will advise government appropriately.
But again, just like ALSCON, I am very hopeful that once we are able to resolve the legal ownership issues we should be able to bring up Ajaokuta operationally in a very short period of time.
We wonder if your latest decision to reconstitute the boards of some electricity distribution companies can significantly impact power supply in the country.
Of course, power will always be a topical issue because it affects national life directly, either from a commercial or a social user perspective. So, the recent intervention and I think it is important that I clarify the issue, is not really a government intervention.
It is clearly a commercial dispute between the DisCos and the core investors who own 60 per cent of the shares. Recall that government still owns 40 per cent of the DisCos.
What happened was that at the point at which the core investors of these private businesses acquired the DisCos from the government through BPE, they were allowed in some equity debt ratio to have a combination of their own cash and borrowings from the banks to purchase the 60 per cent of the DisCos. Many of them approached banks and obtained loans for the debt component of the acquisition cost.
And at the point at which those loans were provided by the banks, they pledged the shares of the DisCos to the banks such that once there is a default in paying the loan, the banks would be able to take over the shares, to sell and recover their investment. This is strictly a commercial arrangement between the banks and the core investors in the DisCos.
The banks filed for receivership of those core investor companies and also to recover the shares, and the courts of course granted the application or the relief of the banks to do that. Once that crystallised, we as a 40 per cent shareholder and also government were then put in a very difficult situation.
The banks are not managers of electricity utilities although they now have claimed the rights over those shares.
They do not have the expertise to run the DisCos but in order not to have a complete collapse of the provision of the power utility, we then had to trigger what we call the business continuity arrangement.
This arrangement provides that in the event of the core investor who is also the manager or the management of the DisCos is not able to operate in that capacity anymore government should come in, appoint an interim management until they resolve the issues of the shares, and also appoint an interim board.
That is what has happened. It is not that government is renationalising the DisCos as they are trying to claim. It is purely a commercial agreement between a borrower and a lender. But let me also mention that if you look at those five DisCos that were affected by this particular action from the banks, they constitute 80 per cent of the liquidity challenges in the power sector.
That tells us that there must be some line running through: lack of proper management and their indebtedness to the bank as we are seeing in terms of the sector performance. We do not think that it is a coincidence and as such, those five tend to give the entire DisCos operation a very bad colouration.
There has been a significant improvement in power in the short period that this intervention has taken place in those five DisCos; not just in the supply of power, but also in the remittances in the payment to the market because it is the money that the DisCos collect that is used to make the entire sector operate: you have to pay TCN, GenCos and the GenCos have to pay the gas suppliers.
But let me just mention that as far as the power sector reform is concerned it is not all gloomy to be honest.
What is the good news?
The good news is that we have seen generation capacity ramp up from about 3,000 megawatts on the average in 2013 to an installed capacity of about 15,000 megawatts. In fact that success in the GenCos is what has now created the problem along the value chain; but TCN is also struggling to be able to wheel the power. Also on the operational side, we also have to understand some of the challenges that TCN has, which is also coming from the attitude of some Nigerian citizens.
I need to build a transmission line from here to Katampe, for example. Once I start, you see people building all kinds of structures because of right of way, or way-leave compensation. I think that we also need to be helpful as the provision of this infrastructure is for our common good. Let us not frustrate the effort of the government.
I think the stranded power that you have in generation will flow all the way down and there has been a lot of intervention from government, the Siemens project, which is the PPI, the Presidential Power Initiative, that is a 2.3 billion Euro intervention specifically for transmission and distribution so that you can free up the stranded power up to the end of the consumers.
There is a loan of $500 million support from the World Bank, specifically for the DisCos to help in terms of improving provision of transformers, distribution lines, feeders, and all of that to also help with the distribution.
With the disagreement between DisCos and their banks, who will administer that fund?
Right now the fund is being administered by the Interim Managements that has been put in place. It is also for the improvement of the DisCos so that the banks are now selling the DisCos to credible operators. It would have enhanced the value of the DisCos and they can also recover their money.
It is important that I make the point here that the banks are not expected to hold those shares in perpetuity. In fact, in conjunction with the CBN, we have given them a deadline of six months in which to sell those shares to credible operators approved by both BPE and NERC. If they are not be able to meet that, then they can be given a maximum extension of another six months. So in one year maximum they should be out of that DisCo.
