National Council on Privatisation
Bureau for Public Enterprises
Call Down Facility
For Non-Transaction Initiatives
Performance Assessment of
Privatised Enterprises
Final Report
Submitted to:
Bureau of Public Enterprises - BPE
and
Department for International Development - DFID
Abuja - Nigeria
Submitted by:
IBTCI Consortium
International Business and Technical Consultants, Inc.
8614 Westwood Center Drive, Suite 400 • Vienna • VA
Telephone :1 (703) 749-0100 • Facsimile: 1 (703) 740-0110
www.ibtci.com
20th December, 2008
Performance Assessment of Privatised Enterprises
Performance Assessment of
Privatised Enterprises
Final Report
December 2008
ACKNOWLEDGEMENTS
This document was prepared by a team comprised of IBTCI consultants, BPE
employees and local consultants assigned to implement the Performance Assessment
of Privatised Enterprises task. The team consisted of:
Patricio Crespo, IBTCI’s CDF Project Director;
Nigel Forrest, Team Leader and Senior Privatisation Specialist;
Ronald Ashkin, Corporate Finance Specialist;
Azeez Remi and Iliya Haruna Vongjen, seconded from BPE to the team; and
Mohammed S. Liadi and Temitayo Siyanbola, BPE’s external consultants.
Sanusi Sule, Deputy Director PPM and Abraham Ityokyaa, Deputy Director Strategic
Planning, were designated as BPE advisers to the team.
DISCLAIMER
The views expressed in this publication do not in any way reflect the views of the UK
Department for International Development or those of the Bureau for Public Enterprises
of the Federal Government of the Republic of Nigeria. All the contents in this document
represent the views and conclusions solely of the PAPE team members.
This publication may not be reproduced, in whole or in part, in any form without
written permission from IBTCI.
COPYRIGHT © December
Consultants, Inc.
2008,
International
Business
and
Technical
Performance Assessment of Privatised Enterprises
National Council on Privatisation
PAPE - Final Report
TABLE OF CONTENTS
Page
I.
Executive Summary ................................................................................................................... 1
II.
Introduction
A.
B.
C.
D.
III.
........................................................................................................................................ 2
The Task ................................................................................................................................................ 2
The Enterprises ................................................................................................................................ 2
Methodology ....................................................................................................................................... 2
Key Factors ......................................................................................................................................... 3
Case Studies ....................................................................................................................................... 5
A. Overview ................................................................................................................................................ 5
B. Summary Key Points .................................................................................................................... 5
C. Limitations ........................................................................................................................................... 5
IV.
Aggregate Report.......................................................................................................................... 6
V.
Fiscal Impact Report ............................................................................................................ 17
VI.
Conclusions ...................................................................................................................................... 26
Appendices .............................................................................................................................................31
End Notes .................................................................................................................................................31
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LIST OF ACRONYMS AND ABBREVIATIONS
APCM
Associated Portland Cement Manufacturers
BCI
Blue Circle Industries
BPE
Bureau of Public Enterprises
CCNN
Cement Company of Northern Nigeria
FGN
Federal Government of Nigeria
FSFC
Federal Superphosphate Fertiliser Company
IPO
Initial Public Offering
NAHCo
National Aviation Handling Company
NITEL
Nigerian Telecommunications Limited
NNPC
Nigerian National Petroleum Corporation
NPA
Nigerian Port Authority
NSE
Nigerian Stock Exchange
NTM
National Truck Manufacturers
PAPE
Performance Assessment of Privatised Enterprises
PAYE
Pay As You Earn (tax deduction at source for employees)
PHCN
Power Holding Company of Nigeria
PPMD
Post-Privatisation Monitoring Department
PSP
Privatisation Support Project
SOE
State Owned Enterprise
VAT
Value Added Tax
WAPCO
West African Portland Cement Company
N
Naira
$
U.S. Dollar
Note on spelling Drafting of this report and of the case studies has been done by native speakers of American as well as
European English. We have aimed to conform to European spellings throughout; but some inconsistencies might be present.
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I.
PAPE - Final Report
Executive Summary
This study examines in detail eleven Nigerian privatisations. It looks at the performance of the
companies before privatisation, at how they have performed since, and it draws conclusions.
There is a selection of companies in different business sectors, of different sizes, with various
shareholder profiles and in various geographical locations. We have added aggregate analyses
and a fiscal impact study.
All the privatisations in our sample have brought benefits. The Nigerian people have reason to be
pleased, at least by this small sample; and the prospects for further economic, financial and other
benefits in the future are also strong.
Section VI contains five pages of conclusions and recommendations. In several ways the Bureau
of Public Enterprises can improve its performance in monitoring privatised companies.
The story of success is worth telling. We emphasise, however, the importance of understanding
each enterprise fully, in the round, and of keeping up to date.
Our project will, we hope, serve as a basis for improved monitoring; as a kind of benchmark for
further work; and as a source of material for other work in the privatisation field.
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II.
PAPE - Final Report
Introduction
A. The Task
The key phrase from our Terms of Reference (Project ID No. 2008-02-063) is:
“Documented evidence of the benefits of privatisation”.
More specifically, the objectives have included:
ƒ
ƒ
ƒ
Providing the Federal Government of Nigeria, the BPE and the Nigerian population as a
whole with documented evidence on the benefits of privatisation;
Enhancing dialogue, understanding and support between the BPE and its stakeholders;
and
Highlighting areas which require the attention of the BPE and its stakeholders, as well as
areas which may need improvement.
B. The Enterprises
Fourteen enterprises (more accurately, thirteen enterprises plus the concession-granting to a
number of port terminal operators) were listed in the terms of reference. They were chosen in
order to give as wide a spread as possible in terms of industry sector, geography, method of
privatisation, size of enterprise and perceived success of the business at or around the time of
the transaction. After discussions and re-assessments through the early and middle stages of our
work, eleven cases (ten enterprises and the port terminals transactions) were confirmed as the
final “menu”. More detailed information is given in Section III below. The eleven are shown in
Appendix A, with some key data for each. Throughout this report we refer to “enterprises” and
“companies” interchangeably; but mainly “companies”, as that name is more appropriate to their
private sector status. A map showing the geographical locations of the companies is in Appendix
B.
C. Methodology
Our work has been based on the case studies. It has been largely a “bottom-up” approach,
whereby we have built the case studies, according to a formula; and conclusions have been
based on the findings in those case studies.
The “formula” for the case studies was taken from the Terms of Reference (Appendix C).
Section and chapter headings in the studies are echoes of those in the Terms of Reference.
The study of the Ports is a partial exception, as that transaction differed in several essential ways
from all the others.
We set out to write the case studies, initially using resources of the Bureau of Public Enterprises
(“BPE”), specifically of its Post-Privatisation Monitoring Department (“PPMD”). Using that as a
base, we added material from public sources.
We then made contact, in conjunction with the BPE, with the companies.
From there it became an iterative process, adding information from the companies and outside
sources, conforming, verifying, cross-checking and up-dating, with each case study passing
through many draft stages.
We adhered to the “hybrid” approach described and advocated in paragraph 8 on page 5 of our
inception report (Appendix D), i.e. a mixture of sequential and parallel preparations of the case
studies.
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We made one visit, between July and October 2008, to the head office of each of the ten
companies (except Union Bank with whom a scheduled meeting, already postponed from an
earlier date, was cancelled by them in mid-October), supplemented by several opportunistic
meetings in Abuja and some drop-in calls to collect extra data from their sources.
At the end of October 2008 we sent pre-final draft case studies to all ten companies, asking for
their final input by early November. At the same time we repeated our request for information
from the NPA and port terminal operators.
At this final stage the present final report was drafted. A folder containing (a) the draft of this final
report (b) the eleven full draft case studies and (c) hard copies of the PowerPoint presentation
made to the 18th November PSP workshop was delivered to the Director General of the BPE on
that day under a cover-letter dated 17th November. We proposed, in that letter, that we present
our conclusions to the BPE in early December. A presentation by us was duly made, on the
afternoon of 1st December, to the Management Committee of the BPE.
D. Key Factors in Our Work on This Project
1. Faltering Start in May
The local team had not been selected by the time the team leader arrived on 7th May. The BPE
notified us on 13th May that some of the companies in the sample might be changed. By 21st May,
however, the team had been determined and a pragmatic view taken on the selection of
companies.
2. Poor Quality of Data
Much of the data in the files of the Post Privatisation Monitoring Department (“PPMD”) is of poor
quality. Visit reports, for example, are often superficial; and only draft versions of key documents
kept on file.
3. Poor Quantity of Data
A full set of recent (especially the latest) annual reports & accounts should be a basic minimum
component of the PPMD files. The latest reports were missing, however, in more cases than not.
There appeared to be little or no regard for what a complete file should contain.
4. Heterogeneity of Filing and Arrangement of Data
It was impossible to predict how much information would be available for any given company, nor
how it would be held. Documents were often undated; and the sequence in files jumbled in a
random way. We have no clear idea of how data are held electronically.
5. Changes to the “Menu” of Companies
As a result, some effort was wasted, and there were some late starts. Appendix G shows the path
of changes to the selection of companies in our sample.
6. Responsiveness of Companies
There have been wide variations. Several companies co-operated with us in a constructive,
professional way. These were (predictably) mostly the ones where the enterprise story was
strongest. At the other end of the spectrum, several did not respond even after reminders had
been sent. The responses in the final stages (when we were waiting for corrections, comments or
suggestions to pre-final drafts sent in October) were also disappointing. More than half of the
companies made no response at that important stage.
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7. Logistics of Travel and Scheduling
The arrangements worked, overall, as well as could have been expected. The biggest single
problem was that of short-notice decisions by companies to postpone, or even cancel, our visits
to them. We did not have time to visit any company more than once.
8. Analytical and Processing Skills of Team Members
In several cases they did not match the requirements of the terms of reference.
9. Availability of Team Members
Not all the team members were available to work on this project full-time.
10. Total Lack of Information from State Sector Stakeholders
Although we paid visits to three stakeholders (and even those took some unusual effort to
arrange), no information flowed through to us as a result.
11. Positive Co-operation of BPE
The BPE Director General and staff were open and helpful throughout our project.
12. Administrative and Technical Support Shortcomings at BPE
Too much time was lost in administrative wrangles over employment contracts and providing
working laptops (the two most obvious problems).
13. Lack of Fiscal Impact Data
This was caused mainly by the non-response from state sector stakeholders.
14. Scoping of Work and Allocation of Time Resource
We needed to arrange this carefully, particularly in view of the working schedule of the senior
consultants.
15. Identifying Causes and Effects in Privatisation
This is linked strongly to shortcomings in the quality and quantity of information. We have tried
wherever possible to base conclusions only on demonstrable evidence.
16. Lack of Time to Consult Customers and Other Outside Stakeholders
With more time and / or resources we would have conducted such research. It is an area where
further work could build on the base we have created. It would be particularly interesting, for
example, to have a controlled survey of port users.
17. Lack of Clarity and Data about Continuing Disclosure and Obligations
We recommend that the BPE review its policy on drafting and negotiating “continuing obligations”
clauses (principally for sale and purchase agreements), because some were, in our view, very
weak (few or no financial tests; un-quantified targets; vague or un-ambitious timescales). Such
continuing obligations, if any, will be key determinants of the post-privatisation monitoring job.
Post-Acquisition Plans (“PAPs”), often incorporated into sale and purchase agreements, have
varied in content and standard. Pro forma financial and other quantifiable forecasts in a PAP
would allow variances to be calculated, after the event, and to be shown in subsequent reporting.
At the very least, successful bidders should be obliged to provide formal, audited financial
information, in a timely way, to the BPE for at least several years after privatisation.
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PAPE - Final Report
III. Case Studies
A. Overview
ƒ Privatisation has brought positive results in all the cases we were able to carry through
to completion. The sample was altered in July, and the only cases likely to have been judged
failures (e.g. Savannah Sugar and Continental, ex-FSFC) fell away at that time. The number and
degree of benefits from privatisation vary greatly, case by case.
ƒ In fiscal impact terms, a few (e.g. First Bank, Eleme Petrochemical, Oando, Union Bank)
have brought far bigger benefits than all the minnows combined (NTM, NAHCo, Dana Steel,
CCNN). The middle ground, in fiscal impact terms, in our sample, is small. We have not been
able to get access to enough data to achieve a proper overall fiscal impact study.
ƒ Ports are a special case, in several ways. The cash proceeds have been important. The
income stream, to the national exchequer, should extend for more than 20 years. However, we
cannot see that costs for port users have been reduced, or that benefits to the Nigerian public as
a whole have been realised. Much of the available information is unreliable. We believe our report
will aid understanding and hope it will point the way to more analysis.
ƒ The contribution of our work will mainly be in appreciating, with documented detail, this
sample of diverse companies as economic, commercial and social organisations, with historical
and current data, as well as some pointers to the future.
ƒ Caution needs to be exercised by the BPE and any other recipients of this report and the
case studies about disclosure of any contents. Some case studies contain commercially sensitive
and / or confidential information. In two cases companies insisted on non-disclosure agreements
being signed. In at least four cases, however, the companies were highly supportive and cooperative about our work. These stances are by no means incompatible.
B. Summary Key Points about Each Enterprise and Its Privatisation
We enclose, as Appendix F, copies of a set of approximately thirty PowerPoint slides used for our
18th November presentation to the PSP Stakeholders’ Workshop and then to the BPE
management committee on 1st December 2008. The points shown in the 22 slides on the
enterprises are deliberately selective and not uniform. Many of these summary points (as we
emphasised at the time of the presentations) need setting against the full context of the
respective case studies to be properly appreciated.
C. Limitations
The eleven cases on which we have worked represent a small sample (by number, at least) of all
the privatisations in Nigeria in the period. The only companies on the original list likely to have
been deemed failures (Savannah and Continental) were subsequently dropped. Our contact with
most of the companies was not nearly as intensive as we would have wished (in some cases it
was non-existent); and we were consequently more reliant than anticipated on annual reports and
accounts. The lack of response from state sector stakeholders was unfortunate and has left a
major gap in our coverage.
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IV. Aggregate Report
In order to show comparative performance of the group of firms, we have aggregated seven
quantitative indicators for all firms except the group of port concessionaires, before and after
privatisation:
1. Turnover
2. Number of Employees
3. Productivity
4. Fixed Assets
5. Income Taxes Paid
6. Dividends Paid
7. Market Capitalisation (NSE listed firms only)
At the end of this report we have added a table showing numbers of shareholders. The data there
have not been treated in the same way as the seven indicators because, in our view, aggregation
in that field has little meaning.
The calculations for the seven indicators are as follows:
•
Before Privatisation is the arithmetic mean (average) of the indicator for each firm for the
five years immediately prior to privatisation;
•
After Privatisation is the arithmetic mean (average) of the indicator for each firm for all
years subsequent to privatisation, except in the cases of the banks where the most recent
five years’ figures were used.
The figures for each individual firm were then summed into totals for Before Privatisation and
After Privatisation scenarios.
All figures are expressed in Naira, in nominal values; neither discounting nor exchange rate
adjustment has been applied.
Before Privatisation and after Privatisation averages are calculated for comparative purposes
only. Caution must be used in interpreting these aggregate figures, particularly because:
1. Before-and-after time series are not uniform; the companies were privatised in various
years beginning as far back as 1992. The before-and-after scenario for each company
represents a unique set of years depending on when that particular company was
privatised; and
2. Exchange rate differences are significant in the cases of firms privatised long ago,
particularly the banks which were privatised in the early 1990’s when the Naira traded at
five to seven times higher against the US Dollar than at present. Exchange rates have
been relatively stable since 2000 and the performance indicators for companies privatised
recently, such as Dana Steel and Eleme Petrochemicals, are relatively unaffected by
exchange rates.
Graphs of average annual performance for each indicator before privatisation and after
privatisation follow, each accompanied by a data table showing the average annual figures for
each company. The port concessions have been omitted from this aggregate analysis due to
absence of data.
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Summary
All indicators have increased significantly after privatisation, except for the number of employees.
Chart 1
Summary, Percent Change Before Privatisation to After Privatisation
%Change
Before Privatisation to After Privatisation
2662%
3000%
2083%
2500%
2000%
1500%
1124%
884%
932%
1000%
500%
-36%
197%
0%
-500%
Income taxes are an indicator of profitability, which is the most important test for the sustainability
of the companies in the private sector. The increase of more than 900% in income taxes paid can
be viewed as strongly positive for three reasons:
1. A healthy income to the State since privatisation;
2. A sign of the benefits of privatisation brought by well-managed companies; and
3. The prospect of a continuing stream of tax revenues into the indefinite future.
Whilst the massive increase in dividends paid may appear disheartening because State sector
shareholding interests since privatisation are, in aggregate, very low, there are several other
factors to take into account. One of the factors is the huge increase in the number of individual
shareholders who benefit, resulting directly and indirectly from privatisation. Another is that
dividends may have been a low priority before privatisation.
There is a clear relationship between number of employees and productivity. In our view,
productivity is a more important indicator of the success or failure of privatisation than number of
employees alone.
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Performance Assessment of Privatised Enterprises
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PAPE - Final Report
1. Turnover
Average annual turnover (sales revenue) for the group of firms has climbed by 884% in
aggregate after privatisation. In the case of the banks we have taken gross earnings as the
closest equivalent to turnover in that sector. There was a healthy increase in overall commercial
activity after privatisation for every firm in the sample.
Chart 2
Total Turnover, Annual Averages Before Privatisation and After Privatisation
TOTAL TURNOVER
353,134
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
35,902
Annual Average
Before Privatisation
Million N
Annual Average
After Privatisation
Million N
Table 1
Turnover, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
CCNN
Dana Steel
Eleme Petrochem
First Bank
Lafarge WAPCO
NAHCO
NTM
Oando
Union Bank
TOTAL
Annual
Annual
Average
Average
Before
After
Privatisation Privatisation
Million N
Million N
5,025
13,428
707
4,522
73
4,578
4,820
23,100
1,163
84,325
9,385
23,805
1,912
3,453
0
1,601
11,261
133,172
1,556
61,150
35,902
353,134
% Change
167%
540%
6171%
379%
7151%
154%
81%
*
1083%
3830%
884%
* Cannot calculate
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Comments
Liquidation
Dormant prior to privatisation
Performance Assessment of Privatised Enterprises
National Council on Privatisation
PAPE - Final Report
2. Number of Employees
The total number of employees is the only indicator that declined in our survey group. This is not
necessarily negative as many of the companies we studied were grossly overstaffed while under
State control. Strong post-privatisation growth in productivity (next page) reinforces this.
Chart 3
Total Number of Employees, Annual Averages Before Privatisation and After Privatisation
TOTALEMPLOYEES
31,587
35,000
20,240
30,000
25,000
20,000
15,000
10,000
5,000
0
Annual Average
Before Privatisation
Annual Average
After Privatisation
In aggregate, the number of employees declined by 36% after privatisation. Only NTM, which was
idle for many years prior to privatisation, showed an increase. This decline is offset somewhat by
the outsourcing of some non-core services that were provided in-house prior to privatisation,
particularly security and transportation. Note: There might be some distortion of the comparability of figures in some
cases because of casual workers being counted in with mainstream staff. There are variations, also, in the definition of casual
workers. They may be seasonal, on fixed-term contracts, or sub-contractors. Wherever possible, explanations are in the case studies.
Table 2
Number of Employees, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
CCNN
Dana Steel
Eleme Petrochem
First Bank
Lafarge WAPCO
NAHCO
NTM
Oando
Union Bank
TOTAL
Annual
Annual
Average
Average
Before
After
Privatisation Privatisation
1,698
704
934
297
439
267
1,169
600
11,174
7,373
2,754
1,010
1,003
1,135
% Change
Comments
-59%
-68%
-39%
-49%
-34%
-63%
13%
51
304
496%
552
11,813
31,587
468
8,082
20,240
-15%
-32%
-36%
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Dormant prior to privatisation but some
employees remained on payroll
Performance Assessment of Privatised Enterprises
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PAPE - Final Report
3. Productivity
In all cases, average annual productivity, defined as turnover per employee, has increased
significantly after privatisation. Productivity is a better indicator of competitiveness than number of
employees, and the productivity trend has been highly positive after privatisation, increasing more
than tenfold (1124%) in aggregate Naira terms.
Chart 4
Total Productivity, Annual Averages Before Privatisation and After Privatisation
TOTAL PRODUCTIVITY
425
500
400
300
35
200
100
0
Annual Average
Before Privatisation
Million N
Annual Average
After Privatisation
Million N
Table 3
Productivity, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
CCNN
Dana
Eleme
First Bank
Lafarge
NAHCO
Annual
Annual
Average
Average
Before
After
Privatisation Privatisation
Million N
Million N
3.0
19.1
0.8
15.2
0.2
17.1
4.1
38.5
0.1
11.4
3.4
23.6
1.9
3.0
% Change
545%
1911%
10211%
834%
10889%
592%
60%
NTM
0.0
5.3
*
Oando
Union Bank
TOTAL
20.4
0.9
35
284.6
7.6
425
1295%
726%
1124%
* Cannot calculate
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Comments
Liquidation
Company was dormant prior to privatisation
Performance Assessment of Privatised Enterprises
National Council on Privatisation
PAPE - Final Report
4. Fixed Assets
Aggregate Fixed Assets climbed 197% after privatisation, reflecting private sector owners’
willingness to invest in plant and equipment, often to replace equipment that was run down or
obsolete after years of neglect under State control. Privatisation has helped investment in every
case in this group of firms.
Chart 5
Total Fixed Assets, Annual Averages Before Privatisation and After Privatisation
TOTAL FIXED ASSETS
149,965
150,000
50,459
100,000
50,000
0
Annual Average
Before Privatisation
Million N
Annual Average
After Privatisation
Million N
Table 4
Fixed Assets, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
CCNN
Dana Steel
Annual
Annual
Average
Average
After
Before
Privatisation Privatisation
Million N
Million N
908
5,120
244
2,368
133
4,500
% Change
Comments
464%
870%
3283%
Eleme Petrochem
41,900
50,463
20%
First Bank
Lafarge WAPCO
NAHCO
NTM
Oando
Union Bank
TOTAL
321
3,556
1,233
372
1,253
539
50,459
16,866
28,747
2,200
3,862
16,701
19,138
149,965
5154%
708%
78%
938%
1233%
3451%
197%
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Pre-privatisation figure reflects assets of
Eleme carried on the books of NNPC. These
were transferred to Eleme after privatisation
Long review period
See case study for comments
Long review period
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PAPE - Final Report
5. Income Taxes Paid
Income taxes paid by the group of firms rose by 932% in aggregate. This figure is skewed by the
effect of the banks which recorded increases (over an exceptionally long period) of more than one
hundredfold. However, the banks’ contribution in absolute terms is also dominant in our sample.
Chart 6
Total Income Taxes Paid, Annual Averages Before Privatisation and After Privatisation
TOTAL INCOME TAXES
10,391
12,000
10,000
8,000
6,000
4,000
1,007
2,000
0
Annual Average
Before Privatisation
Million N
Annual Average
After Privatisation
Million N
Table 5:
Income Taxes Paid, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
CCNN
Annual
Annual
Average
Average
Before
After
Privatisation Privatisation
Million N
Million N
355
1,230
12
37
% Change
246%
208%
Dana Steel
0
0
0%
Eleme Petrochem
0
65
*
First Bank
37
4,350
11657%
Lafarge WAPCO
NAHCO
407
38
527
159
29%
318%
NTM
0
0
0%
Oando
124
207
67%
Union Bank
34
3,816
11124%
1,007
10,391
932%
TOTAL
Comments
(*) Cannot calculate
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Liquidation; not operating at time of
privatisation
Earning losses prior to privatisation
Before: 5 years prior to 1992
After: Most recent 5 years
Not operating prior to privatisation; losses
were incurred prior to privatisation except for
extraordinary profit in 2000 due to debt
waiver
Before: 5 years prior to 1993
After: Most recent 5 years
Performance Assessment of Privatised Enterprises
National Council on Privatisation
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6. Dividends Paid
Dividends paid reflect all dividend payments, not just dividends to government entities. The vast
majority of dividends paid prior to privatisation went to State entities, whereas the vast majority of
dividends paid after privatisation went to private shareholders. Total dividends paid rose by
2662% in aggregate.
Chart 7
Total Dividends Paid, Annual Averages Before Privatisation and After Privatisation
TOTAL DIVIDENDS
22,800
25,000
20,000
15,000
10,000
826
5,000
0
Annual Average
Before Privatisation
Million N
Annual Average
After Privatisation
Million N
Table 6
Dividends Paid, Annual Averages for Each Company Before Privatisation and After Privatisation
Company
Ashaka Cement
Annual
Annual
Average
Average
After
Before
Privatisation Privatisation
Million N
Million N
174
1,810
% Change
940%
CCNN
8
47
506%
Dana Steel
0
0
0%
Eleme Petrochem
0
9,500
cannot
calculate
First Bank
14
4,161
29621%
Lafarge WAPCO
NAHCO
346
68
1,601
176
363%
159%
0
0
0%
203
13
826
1,379
4,126
22,800
579%
32134%
2662%
NTM
Oando
Union Bank
TOTAL
Comments
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Before: 5 years prior to privatisation in 2000
Not operating before privatisation;
at breakeven after privatisation
Incurring losses prior to privatisation. Postprivatisation dividend is reported in 2007, the
only full year. 25% of dividends accrue to
Government entities.
Before: 5 years prior to privatisation in 1993;
After: Most recent 5 years
Not operating before privatisation;
incurring losses after privatisation
After: Most recent 5 years
Performance Assessment of Privatised Enterprises
National Council on Privatisation
PAPE - Final Report
7. Market Capitalisation
Market capitalisation can be calculated for the publicly-listed firms only; seven of the firms in our
sample are listed on the Nigerian Stock Exchange (NSE). Market capitalisation at time of
privatisation is compared to current market capitalisation: the value at time of privatisation is
calculated by dividing sale proceeds by percentage of FGN ownership, and the current value as
at November 2008 is calculated by multiplying the number of shares outstanding by share price. 1
Chart 8
Total Market Capitalisation of Listed Firms, at Time of Privatisation and at Present
TOTAL MARKET CAPITALISATION
896,212
1,000,000
800,000
600,000
400,000
41,050
200,000
0
At Time of Privatisation
Million N
Current
Million N
The long period of time since the two banks in our sample were privatised distorts the overall
market capitalisation picture, so the chart below removes the banks from this analysis:
Chart 9
Total Market Capitalisation of Listed Firms Excluding Banks, at Time of Privatisation and at Present
TOTAL MARKET CAPITALISATION
EXCLUDING BANKS
216,043
250,000
200,000
150,000
100,000
40,409
50,000
0
At Time of Privatisation
Million N
Current
Million N
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Aggregate market capitalisation has increased by 2083% for publicly listed firms if the banks are
included, but by a more modest 435% if the banks are excluded from the sample and the
remaining five industrial concerns are considered. In any event, privatisation has allowed this
group of firms to take advantage of Nigeria’s buoyant capital markets in recent years, although
share prices have softened considerably over the few months preceding this writing.
Table 7
Market Capitalisation Paid for Each Company at Time of Privatisation and at Present
Company
Ashaka Cement
CCNN
First Bank
Lafarge WAPCO
NAHCO
Oando
Union Bank
TOTAL
TOTAL EXCLUDING
BANKS
At Time of
Privatisation
Million N
11,104
2,076
Current
Million N
% Change
39,483
8,517
256%
310%
324
468,143
144540%
15,735
1,650
9,844
76,601
12,256
79,186
387%
643%
704%
317
212,026
66701%
41,050
896,212
2083%
40,409
216,043
435%
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Comments
Privatisation was in 1992 when 1 USD = 17 N
Privatisation was in 1993 when 1 USD = 22 N
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PAPE - Final Report
Numbers of Shareholders
The table below shows the numbers of shareholders for the ten companies. Numbers are usually
rounded off for convenience and are typically valid at a date earlier than that of publication.
Table 8:
Numbers of Shareholders, Most Recent Reporting Period
Company
Number of
Shareholders
AshakaCem
70,000
CCNN
37,000
Dana Steel
Eleme Petrochemicals
1
4
1,300,000
Lafarge-WAPCO
> 60,000
NTM
Oando
Union Bank
Port Terminals
Core investor Lafarge SA, France, owns 50% of
shares
Core investor Damnaz Cement owns 50.7% of
shares
Unlisted, closely held company
Core investor Indorama owns 75% of shares;
Likely to increase because of:
a) distribution of shares to local interests
b) intended NSE flotation
First Bank
NAHCo
Comments
85,000
Directors own approximately 5% of shares
Core investor Lafarge SA, France, owns 60% of
shares
There has been a significant increase since the
IPO only two years ago
Core investor Art Engineering owns 75% of
shares; ten local minority holders own balance
11
270,000
500,000
Not applicable
Core investor Ocean and Oil Investments owns
34.2% of shares
Directors own less than 1% of shares
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V. Fiscal Impact Report
Fiscal impact to the FGN Treasury is assembled from the following components:
I.
Receivables (payments to the State, i.e. financial benefits to the FGN) at and after
privatisation
A. Privatisation proceeds
B. Additional tax receipts (Income taxes and other tax, duty, and royalty payments)
C. Saved subsidies (pre-privatisation subsides that will no longer be paid)
D. Dividends and interest paid to government entities
II. Payables (payments by the State, i.e. losses by the FGN) at and after privatisation
A. Subsidies after privatisation
B. Retrenchment (severance and pension payments to former State workers)
C. Liabilities retained by the State
D. Tax waivers granted
The sum of all receivables minus the sum of all payables equals the aggregate Net Fiscal Impact
to the State from this group of privatisations.
All figures in this section are expressed in US Dollar equivalents. The data are taken from the
individual company case studies.
This is by no means a comprehensive assessment of the fiscal impact of overall privatisation to
the FGN. It is a small sample out of all the privatisations since 1992 when the first company in our
group was privatised, comprising only 10 companies plus the port concessions. To put this in
perspective, there were 147 privatisations between the years 2000 and 2007, whereas our
sample includes only 9 transactions (8 companies plus the set of port concessions) during that
time span, just over 6% of the total number. In addition, the group of firms studied is neither a
statistically representative nor a random sample of the total group of privatised firms.
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I.
PAPE - Final Report
Receivables (payments to the State, i.e. benefits to the
FGN) after privatisation
A.
Privatisation proceeds
Privatisation proceeds for the group of firms totalled $627 million. The largest single firm
privatisation in the group was Eleme Petrochemicals, which grossed $225 million; the smallest
was CCNN which grossed $6 million. The individual amounts are shown in Chart 10 below. The
scale of the Eleme and Oando Petroleum privatisations dwarfs that of the rest of the industrial
firms. This is clearly shown in Chart 11.
The figure included for the ports concessions is the actual amount received to date, $115 million.
A gross net present value of $1.675 billion is expected from the ports concessions over the
lifetime of the exercise, which extends out 25 years from 2006. However future cash flows made
up of lease payments and cargo throughput fees are uncertain and the 10% discount factor used
to arrive at this figure can be debated, as it is significantly less than the cost of commercial
borrowing in Nigeria.
Chart 10
Privatisation Proceeds, Million $, in Descending Order
Privatisation Proceeds
Million $
700
627
600
500
400
300
200
100
225
195
115
26
18
9
9
0
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8
8
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PAPE - Final Report
Chart 11
Privatisation Proceeds, Percent of Group Total
Privatisation Proceeds%
First Bank Dana Steel Union Bank
1%
2%
NAHCo 1% CCNN
NTM
1%
1%
2%
AshakaCem
Lafarge-WAPCO 3%
4%
Eleme Petrochemicals
36%
Port Concessions (to
date)
18%
Oando
31%
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B.
PAPE - Final Report
Tax receipts
Tax receipts after privatisation are comprised of corporate income taxes plus other taxes and
payments where we have been able to gather the data (VAT, PAYE, withholding tax, education
tax, IT tax, customs duties, mining royalties, and miscellaneous fees received). Taxes from
private firms are a significant component of total fiscal impact, raising nearly as much revenue as
the proceeds from privatisation. Aggregate tax receipts from the group of firms after privatisation
total $579 million to date. Tax receipts will continue into the future; this indicator will become
even more positive as time goes on, likely surpassing proceeds as the number one fiscal impact
of privatisation by next year (2009).
This is a significant lesson learned from this study. The State benefits more from the taxes
received from the companies it privatises than it does from selling its ownership interest. This
fiscal benefit continues for as long as the privatised companies continue to operate. This
contradicts one of the widely-held beliefs about privatisation.
Chart 12:
Tax Receipts After Privatisation, Million $, in Descending Order
Additional Taxes Received
Million $
579
600
500
400
300
200
100
248
145
66
31
29
25
18
8
0
Note: Tax receipts from port concessionaires are not included due to lack of data.
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C.
PAPE - Final Report
Saved subsidies
Only one instance of direct subsidy was discovered in the group of firms studied. A preprivatisation subsidy of $15.5 million to the Katsina Steel Rolling Mill was saved via privatisation.
The issue of indirect subsidies warrants discussion, although it is much more difficult to quantify.
Indirect subsidies at State Owned Enterprises take at least five distinct forms:
1. Over-employment
2. Dormant companies kept on the books as a “social service” to the community
3. Non-core services provided to employees and communities by the companies
4. Operating losses
5. Non-payment of liabilities to other SOEs
Over-employment at SOEs is obvious in the 36% decline in average aggregate employment after
privatisation, in the face of huge gains in both revenues and productivity. This decline would be
even more pronounced if the ports were included in the figures. Over-employment is a form of
subsidy by the State when underproductive employees are kept on the payroll rather than
retrenched, the company thus operating at less than optimal competitiveness. Over-employment
has the double effect of depressing profitability, and hence tax revenues, in addition to the direct
cost of paying the excess employees.
There are cases, such as National Truck Manufacturers in this group, where dormant companies
are kept on the books for years. NTM last assembled its own vehicles well over a decade prior to
its privatisation, yet the company was kept open with 51 employees on the payroll at the time the
company was sold.
Most SOEs provided non-core services to employees either free or below market cost, from
housing estates to clinics to schools. Some companies provided goods as well, such as the
cement companies giving free bags of cement to truck drivers.
Several of the SOEs in the study were incurring losses prior to privatisation, cannibalising capital
which was initially provided by the State.
Finally, it is common for SOEs not to pay their liabilities to other SOEs in a timely manner, for
example electricity bills to PHCN, telecommunications bills to NITEL, and oil bills to NNPC. This
is an indirect subsidy and a luxury not typically afforded to private sector consumers and
businesses.
Indirect subsidies are much more significant in companies with majority (and particularly 100%)
State ownership.
D.
Dividends
In only one instance did the State retain any ownership in a company within the study group, that
being a 35% interest in Eleme Petrochemicals (NNPC 10%, BPE 15%, and Rivers State 10%).
Post-privatisation dividends of $27.8 million have been received from Eleme to date.
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II.
PAPE - Final Report
Payables (payments by the State, i.e. losses by the FGN)
after privatisation
A.
Subsidies (post-privatisation)
There were no instances of subsidies being paid to any firm in the group subsequent to
privatisation.
B.
Retrenchment payments
Retrenchment payments totalling $167 million accrued as a result of the privatisation of this
group of firms. However, the ports concessioning exercise accounts for virtually all of this ($165
million, of which $151 million went in severance payments to 5,000 NPA employees and $15
million in severance payments to 13,000 dockworkers). The balance of $2 million is in terminal
benefits and salary arrears at Katsina Steel Rolling Mill (now Dana Steel). No instances of
retrenchment payments were found among the other firms.
C.
Liabilities retained
Liabilities of $824 million were retained by the State subsequent to privatisation of this group of
firms. The bulk of these liabilities, $589 million, are due to the retention of pension liabilities for
retrenched NPA workers as a result of port concessioning. $235 million in liabilities were retained
from Eleme Petrochemicals; the liabilities of Eleme were apparently renegotiated downward
some $25 million afterward in order for the liabilities to be covered out of privatisation proceeds.
There was a small amount of trade liabilities retained in the sale of Katsina Steel Rolling Mill (now
Dana Steel), approximately $0.2 million.
D.
Tax waivers granted
There were no instances of tax waivers being granted to any firm in the group subsequent to
privatisation.
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Net Fiscal Impact
The net fiscal impact of privatisation of the group of firms studied by PAPE is $258 million (as net
contribution to the State) to date. The largest positive contributors to fiscal impact were
privatisation proceeds and tax receipts, while the largest negative contributors were liabilities
retained and retrenchment payments. Virtually all of the negative fiscal impact can be attributed to
two privatisations: ports concessioning and Eleme Petrochemicals.
Chart 13:
Net Fiscal Impact to Date, Aggregate Showing Components, Million $
Fiscal Impact
Million $
800
627
579
600
258
400
200
28
16
0
(200)
(400)
(600)
(800)
(1,000)
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(167)
(824)
Performance Assessment of Privatised Enterprises
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PAPE - Final Report
The projected fiscal impact picture is improved by including the Net Present Value of the port
concessions in the calculation, rather than the actual proceeds received to date (although this is
problematic, as discussed above). Fiscal impact will indeed improve as time goes on, since tax
receipts will also increase.
Chart 14
Projected Fiscal Impact, Including Value of Ports Concessions at NPV, Million $
Fiscal Impact Including Portsat Estimated NPV
Million $
2,500
2,187
1,818
2,000
1,500
1,000
500
579
28
16
0
(500)
(1,000)
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(167)
(824)
Performance Assessment of Privatised Enterprises
National Council on Privatisation
PAPE - Final Report
Analysis of fiscal impact to date by company shows that Oando is the most successful
privatisation since 2000, with net positive impact of $226 million. The bank privatisations are also
appreciably positive in fiscal impact, but their significance is blunted by the distance of the
privatisation events. To date, the port concessioning exercise is notably under water.
Chart 15:
Fiscal Impact to Date by Company, Million $
FISCALIMPACT TO DATE BY COMPANY
MILLION $
300
200
100
257
258
226
153
84
51
46
29
0
-100
-200
-300
-400
-500
-600
-700
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VI.
PAPE - Final Report
Conclusions
A. Observations
Several features and trends in Nigeria’s present-day economy and corporate life have emerged
from our work:
1. Power Supply Problem
It is well known; but that does not make the situation any less painful. Corporate Nigeria as well
as individual households is suffering acutely. Every company to whom we spoke quoted the
absence of reliable access to power (particularly electric power) as a major handicap; and for
most it was their biggest single headache. This is a devastating, unnecessary and immensely
frustrating problem.
Some have found alternative sources, e.g. Lafarge-WAPCO with gas; and AshakaCem with
lignite: but there are often concomitant drawbacks, such as Lafarge -WAPCO finding that gas
supplies in recent years have been suddenly but protractedly interrupted (with damaging, costly
knock-on effects), and AshakaCem having to take special precautions with the storage of, and
emissions from, lignite.
2. Other Infrastructural Deficiencies
Lack of rail freight services was often quoted as a handicap. Road links are poor. The ports, for
example are affected by deficient road access, both for imports and exports. Dredging and other
maintenance and up-grading work are badly needed.
3. Importance of the State Sector as Customer and as Determinant of the
Market
In some cases this is obvious, such as the role of the state in commissioning construction work
which dominates the cement market (and where the state has an interest in keeping supply up
and prices down). In other cases, such as the vehicle assembly market, the import tariff regime
and (lack of) regulation of vehicle imports are a crucial factor for a company as small and
economically marginal as NTM.
4. Dearth of Authoritative Information: Surfeit of Biased Opinion and MisInformation
It would be unfair to generalise, as we have found many examples of people and organisations
which respect and practise assembling and disseminating quality data. Part of the problem is that
websites of even the biggest and strongest companies are often thin, patchy or even nonexistent. Private agendas are pursued by interested players, and the newsprint media are rarely
an effective counter-weight. In this environment it is important for the BPE to have high standards
of record-keeping, information-seeking, critical examinations of companies, commercial topics
and markets. The BPE’s PPMD sets about environmental watchdog work and the protection of
employee / stakeholder interests with laudable dedication and energy: but it appears to have less
appetite for monitoring the commercial, financial and economic aspects of the enterprises it
covers.
5. Lack of Information
The problem is much worse with closely-held, unlisted companies, where financial disclosure is
often late, thin and opaque. We found little help from published media (as explained in the
previous point); and we were disappointed by the Corporate Affairs Commission who required us
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to engage a local lawyer (in addition to a reasonable, nominal fee) to answer a simple question
(the names of the few, original, founding shareholders of a very large public company).
Another hindrance to us has been language. Admittedly, vacuous, over-elaborate corporate
verbiage is a world-wide irritant. We have had to wade through volumes of it, often offered as the
cake itself, not just the icing.
6. Moves Towards Nigerian Ownership of Privatised Companies
Some enterprises, such as Oando, were acquired, at the moment of privatisation, by local
interests. At NAHCo, a founding foreign shareholder (the airline Sabena), was replaced by a
Nigerian corporate investor. In the case of CCNN, a Nigerian company (led by CCNN’s chairman)
bought out the interest of Heidelberg Cement this summer and thus has become the majority
holder. “The Guardian” of Nigeria quoted the director general of the Nigerian Automotive Council
on 4th November 2008 as saying that ASD Motors Ltd. of Nigeria (not one of the companies in our
project) had emerged as the new major shareholder of Peugeot Automobile Nigeria after its
privatisation. We have seen no examples, on the other hand, of Nigerian corporate investors
selling to foreign interests following privatisation. Taken together with investments such as that by
Dangote, a strong local group, first in Benue Cement (via its privatisation) and then in Obajana (a
recent start-up cement plant on a very large scale), this move towards Nigerian ownership seems
to be a trend. It may be viewed alongside the possible arrival of oligopolies and the consequent
importance of regulation – a current high priority for the BPE (a priority which we applaud).
Dangote, especially, has made bids for privatisation subjects in widely differing sectors. This may
be natural, as it is a diversified and powerful group: but the Federal Government may wish to
weigh up the industrial competence of local suitors against their skill at playing the game, so to
speak, in the bidding stakes.
7. Absence of Major World Economy Investors in Nigerian Privatisation
There have been no new investors from any major developed world economy since 2000 in any
of the companies in our study, except in the case of Nigeria’s largest port terminal (Apapa) where
AP Moeller was awarded the concession. Lafarge inherited from BCI (formerly APCM) its
investments in the cement sector, and it is fair to say that it has played its part in developing
those businesses. However, the purchasers of other companies privatised since 2000 in our
sample have been either Nigerian or from Indonesia, Pakistan or India.
The banking sector, obviously an important pillar of the economy, has virtually no foreign
shareholders. On balance, we regard this as a negative sign. Nigeria should be competing,
alongside other strong developing world economies, for foreign direct investment in strategic
industries. There is very little sign of it happening. Union Bank is inviting a subscription of capital
from “strategic investors”, and JP Morgan reports that the bank’s “main strategic intent” is to
attract a major international investor. It will be interesting to see who steps forward.
8. Nigeria: a Difficult Business Environment
The absence of major economy investors stems directly, in our view, from the difficulty of doing
business in Nigeria. Not only have major economy investors walked away (or in earlier days,
been driven out, by nationalisation, as in the case of the banks and oil marketing), but they have
not even made bids, as in the case of Eleme. This may not merit being seen as a drawback.
Indorama, for example, has made strong progress in turning round Eleme.
9. What Is Privatisation? When Does It Happen?
Our project covers (according to its title) privatisations which took place between 2000 and 2006.
In most cases we have found that the story is not so simple. The case studies describe as much
detail as we could find to show the shift from state sector to private sector control.
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It must be admitted that clear distinctions cannot always be made. The state sector, with less
than 50% of the equity, can sometimes be the dominant player. A company can be stock
exchange-listed but still be within the state sector. Commercialisation often precedes, or even
replaces, privatisation.
In the case of the two banks in our group of enterprises, they were privatised, in our view, in 1992
and 1993. In some other cases, too, the state had already ceded control before the turn of the
century. In the case of Lafarge-WAPCO, the state sector may never have had a majority of the
equity. We have seen only two cases, in our sample, of transfers of 100% of the equity from state
sector to private sector hands, one of those via liquidation.
The ports pose an even denser conundrum which we explain in that case study.
We have tried not to make a major issue over these definitional points and have noted the
“deemed” year of privatisation in Appendix F Slide 3. Our main message here is not that one
definition or another is necessarily the right one, but that the issues (management control;
majority ownership; stock exchange listing; nature of assets or rights transferred) deserve to be
analysed, and the BPE as an institution should be clear about the interpretation of privatisation in
each case.
10. Inclination of Privatised Companies to Trade and Interact with Each Other
The evidence is anecdotal, but we have seen the names of companies within our orbit crop up as
suppliers, customers or partners of other privatised companies, sometimes in unexpected, even
unlikely, contexts.
In October 2008 Union Bank chose one of the founders of Ocean & Oil (controlling shareholders
of Oando) as a non-executive director. Although the law of averages says that some top
managers of privatised companies are bound to crop up as board members of others, it may be
that such selections are being made because they are regarded as helpful for corporate
governance.
11. Accounting Gymnastics
Re-valuations of fixed assets first attracted our attention to this development. Whilst the upward
re-valuation in question was very big and made very soon after the privatisation, we have to note
here that (a) it was, and is, allowed under Nigerian accounting standards; and (b) the revaluation helped the company in question, and others, to increase greatly their borrowing power
and thereby probably to survive (with the job retentions and economic benefits that accompanied
it). There is, we believe, a natural link between this point and the issues in 4 and 5 above, as well
as to 12 immediately below.
12. Ability and Willingness of Some Investors to Carry Losses (After
Privatisation)
The two northernmost companies in our sample may have made operating profits, at least in
some years since they were acquired (in each case, perhaps co-incidentally, acquired by South
Asian interests): but they are very unlikely to have shown a profit in capital terms. Theirs are
difficult industries (especially when power outages take their toll), outside the main industrial
heartlands of Nigeria and in competitive markets. From the Nigerian citizen’s viewpoint, therefore,
the arrival of assiduous private sector investors to revive moribund state-owned assets, while
earning little or no return for several years, may be puzzling but is a very welcome development.
13. Extravagant Use of the Capital Markets
At the other end of the country from the two companies in paragraph 12 above, the two banks in
our sample, are in a different league (far, far bigger, financially). Our case studies describe in
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detail how they have made use of a buoyant capital market, in 2007 and until the middle of 2008,
to raise capital. And what huge amounts of capital!
First Bank and Union Bank are by no means alone in taking advantage of the market.
In another, quite unrelated, sector, another of our sample, NAHCo, has done likewise.
In NAHCo’s case there is a major capital investment programme afoot. We have no strong
judgement on these operations, except for our scepticism, shared by some commentators, about
the use to which the proceeds will have been put. We may be influenced on this issue by our
inability to penetrate satisfactorily the banks’ statements about non-performing loans (on which
there is more detail in the case studies). We are not convinced, however, that a bank can more
than double its capital and apply that money effectively and soundly within a reasonable timeframe. It seems a classic case of opportunism rather than strategic intent. There have also been
worries about margin-lending by the banks in this boom period.
The era of such capital-raising appears, in any event, to be now over for the moment. The latest
public offers (notably Union Bank’s ambitious plan to raise over N 300 billion from a hybrid rights
and new issue) have, at the time of writing, been switched into private placements.
14. Ability and Appetite to Invest
Notwithstanding the previous paragraph, and perhaps to be viewed alongside the issues in
paragraph 8 and 12, certain companies in our sample have made impressive investments in fixed
assets. Lafarge-WAPCO, AshakaCem, Eleme and NAHCo are leading examples. It is very
doubtful that the state sector would have been so decisive and ambitious in the up-grading and
expansion of fixed assets.
15. Out-Sourcing – Particularly of Road Transport
Services such as cleaning, security and catering have often been out-sourced since privatisation.
The financial and economic effects are not dramatic. Road transport in the cement industry is big
business, albeit very fragmented. It seems also to have been largely out-sourced well before
privatisation. In the case of Oando, however, the choice to out-source all road transport is more
striking. Overall, we believe this issue is of little consequence in the privatisation context.
16. Lingering Resentment over Privatisation
We encountered this on some occasions. With other companies there was no sign of it.
In the case of Eleme it has become a continuing tussle, with the local community divided over the
issue.
At AshakaCem we encountered sustained, vociferous antipathy from staff representatives; but we
emerged sceptical about the validity of their complaints. BPE, as a kind of custodian for local and
or employee interests, sometimes finds itself in the firing line. There is a dispute between NAHCo
and BPE, for example, which we judged unsuitable for examination by us.
Overall, we have found that opposition to privatisation in Nigeria is similar, in its arguments,
intensity and consequences, as in other countries. We may have detected slowness by BPE to
reach solutions and mend fences in some cases.
17. Overall Reduction in Employment
Our aggregate report shows a net fall in employment of 36% in our sample since privatisation.
There is the usual, obvious, qualification to be made that this sample may not be representative.
There are also wide variations in decreases as well as increases within the sample. We have
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noted clearly, in the case studies, where we accept that there was over-staffing before
privatisation.
Overall, our conclusion is that the aggregate numbers are “de minimis” in the national context.
The benefits to the economy and the population at large outweigh the loss in direct employment.
18. Weakness of Intra-Governmental Co-operation
Despite elaborate written official introductions we received no data at all from federal ministries
and other state sector stakeholders. We were greeted very courteously, and our presentations
were followed by more detailed discussions. No data materialised.
In one case an agency’s chairman remarked that the BPE owed money to her organisation.
19. Market Value Gains
Most, if not all, of the companies in our sample, have seen increases in capital value since
privatisation. In itself, this is no guide to success. The state might have sold out cheaply and / or
the new owner / managers may have made one of the main principles of privatisation into a
reality. Chance, and timing, may also have played their part.
Our case studies now offer the BPE the opportunity to examine in detail the circumstances of ten
privatisations and a set of granted concessions, and to draw conclusions.
B. Recommendations
1. Files and data handling at BPE: BPE should adhere to the Manual of Privatisation Procedures
2006, Section D.3.4 on page 17
2. BPE should ensure there is a date on every document it produces or accepts
3. BPE should set a “pro-active” calendar for getting annual reports, analyst reports, attending
AGMs and so on
4. BPE should cover all economic and financial aspects of companies’ activities
5. BPE should develop financial and analytical skills
6. BPE should link regulatory / monopoly initiatives to contacts with companies
7. BPE should consider developing secondments between itself and privatised companies
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VII. Appendices: - Index of Appendices
A. The Enterprises (companies), with some basic data on each
B. Map of Nigeria showing the locations of the enterprises
C. Terms of Reference
D. Inception Report (4th June 2008)
E. Interim Report to the BPE (21st August 2008)
F. PowerPoint Presentation to BPE (1st December 2008)
G. Selection of Enterprises (showing changes from the Terms of Reference)
H. Contacts List (List of Parties involved in the project) – NOTE : Contents removed from this
version of the Final Report
I.
Exchange Rates (Naira / US Dollar exchange rates used in case studies)
J. Outline of Two Workshops initiated by Mr. Ron Ashkin for the BPE (11th and 18th June
2008).
End Notes
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Appendix A.
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THE ENTERPRISES: SUMMARY TABLE
Industry
Sector
Standing in
Sector
(see footnote)
N.T.A.
(Shareholders
Funds)
US $ million
Market
Capitalisation
US $ million
Year of
Deemed
Privatisation
Proceeds
of
Privatisation
US $ million
Annual
Contribution
U.S. $ million
Petrochemicals
No. 1
Unknown
Not
applicable
2005
215
13.9
First Bank
Banking
No. 1
2,992
667
1992
8.5
34.8
Union Bank
Banking
No. 6
873
412
1993
7.5
28.9
Lafarge
WAPCO
Cement
No. 2
255
1,100
1999 - 2001
26
5.1
AshakaCem
Cement
No. 3
90
365
2001
17.7
10.2
C.C.N.N.
Cement
No. 5
25
135
2000
6
0.3
Oando
Oil and Gas
No. 1
48
1,300
2000
195
4.7
NAHCo
Airport
Services
No. 1
14
124
2005
7.5
0.9
Steel
Middling
Unknown
Not
applicable
2006
7.7
Nil
Vehicle
Assembly
Middling
27
Not
applicable
2003
9.5
Nil
Stevedores
Sui Gen.
Not
applicable
Not
applicable
2006
115 so far
Too soon to
calculate
Eleme
Dana Steel
N.T.M.
Port
Terminals
Notes:
Standing in sector
Partly a subjective assessment on our part, taking account of market share, market cap. and qualitative
judgment. “Sui Generis” = in a category of its own – there is effectively no competition for the port
terminals, taken as a group.
Annual contribution Income Tax and Dividends received by the State over the past 5 years, aggregated and converted into
an average annual figure (a measure deliberately simplified to allow some meaningful comparability)
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Appendix B.
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Appendix C.
TERMS OF REFERENCE
1. Call Down/Project Name - Title
Performance Assessment of Privatized Enterprises 2000 - 2006
2. Background
The National Council on Privatisation (NCP) is the apex policy-making organ on the public
sector reform and privatisation program of the Federal Government of Nigeria (FGN). The
NCP is chaired by the Vice President of Nigeria and the Bureau of Public Enterprises (BPE),
is its Secretariat and implementation arm.
The BPE, as the implementer of Nigeria’s privatization programme, has carried out the
privatisation of many public enterprises (PEs) covering activities in all sectors of the Nigerian
economy including: banking, insurance, manufacturing, communications, and entertainment,
among others. BPE’s pre-privatization and privatization activities have also contributed to a
series of wide ranging reforms in key sectors of the economy including:
a) Telecoms Sector
A new investor-friendly policy was enacted in 2000 allowing for private sector participation
and established an independent regulator. With the licensing and entry of private telecom
operators for the provision of Digital Mobile Telephone Services there was astronomical
growth in telecommunications. In addition, the hitherto state-owned telecommunications
monopoly, Nigerian Telecommunications Limited (NITEL), has been recently privatised.
b) Transport Sector
While the state-owned ports authority has become the landlord providing common and
non-commercial services, commercial operations and port services of the Nigerian
seaports have been concessioned to private sector operators under the “landlord model.”.
Other transportation modes like rail, road and inland waterways are similarly being
reformed to open them up for private sector entry and competition under a newly
organized independent regulator charged with ensuring a level playing field for all
participants.
c) Electric Power Sector
Similarly, the reform of the strategic electric power sector is also well advanced with the
enactment of a new private, sector-friendly, legal and regulatory framework and the
unbundling of the integrated public electric power company, Power Holding Company of
Nigeria (PHCN), into eleven smaller business-focused successor companies. These
successor companies will be privatised in 2008.
d) Oil and Gas Sector
The reform of the oil and gas sector is also underway. A new downstream Oil and Gas Bill
is before the National Assembly for passage into law. The new law will provide for the
revitalization and growth of the sector through the participation of a competitive private
sector under the supervision of an independent regulator. The law will also provide for a
robust legal and regulatory framework for the downstream petroleum sector.
As of October 2007, about 146 PE’s had been privatised covering a wide array of Nigeria’s
economic sectors and activity. Different methods of privatisation (both divestiture and nondivestiture) depending on their individual circumstances such as their level of decay, strategic
nature or size, interest of prospective investors, scale of new investments required, potential
impact in the sector/industry and overall impact on the national economy, were used in
privatising these PE’s. However, up until now, no studies have been conducted to assess the
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difference and the impact that the privatization of these enterprises made on their
management and operations and on their profitability.
The Bureau of Public Enterprises, as part of its post-privatisation monitoring of privatised
enterprises, wishes to have undertaken a preliminary assessment of the impact of
privatisation on the Nigerian economy. For this purpose, BPE intends to have a team of
consultants engage on a performance assessment of a number of select and now privatized
enterprises to:
1) Assess the fiscal impact of privatisation on the Federal Government of Nigeria’s Treasury
in terms of reduced direct subventions, grants and subsidies, both direct and indirect, to
these former state-owned companies.
2) Carry out detailed individual case studies of each one of the same sample of selected
privatised enterprises to assess the impact of their privatisation on all aspects of their
organization, management and core business operations (annual revenues, profit/loss,
capacity utilization, renovation and expansion), financials (new capital investment, ratios,
etc.), and effects on labour (work conditions, remunerations and other incentives, etc.)
3) Use the results of the two types of analyses above described, to assess and estimate the
potential impact of privatization on the overall Nigerian economy and society.
Consequently, these terms of reference (TOR) describe the tasks to be performed by the
Consulting Team on behalf of the FGN’s Bureau of Public Enterprises and the UK
Department for International Development (DFID), with respect to Performance Assessment
of a sample of select former State-Owned Enterprises that were privatized (resulting in
majority private sector shareholding) between January 2000 to December 2006.
3. Objective
The objectives of this assignment is to enable the BPE to communicate more effectively with
various stakeholders on the preliminary and potential impact of privatisation on the Nigerian
economy using credible and defensible facts and statistics that will arise from the
implementation of this study. More specifically, the objectives of this assignment will include
and be expected to:
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Avail the FGN, BPE and the Nigerian population as a whole with documented evidence
obtained by the consulting team on the benefits of privatisation,
Enhance dialogue, understanding and support between the BPE and its stakeholders, and
Highlight some of the areas that require the attention of BPE and its stakeholders as well
as those other areas that need to be improved upon.
4. Scope of Work
The consultancy engagement will include a detailed case study for each one of fourteen
selected privatised enterprises as well as a special case study based on the aggregate results
of the individual enterprises to reflect the collective effects of privatized enterprises on private
sector performance and impact on the overall economy. The selected enterprises represent
about 10% of total number of enterprises privatized to date. The selection procedure gave
consideration to size, sector/industry, location, year of sale, method of sale and their potential
impact on the National Economy. The list of selected enterprises includes:
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Nigerian Ports Authority (26 port terminals)
Afribank of Nigeria Plc
First Bank of Nigeria
Oando Oil Marketing Company
African Petroleum Marketing Company (AP)
National Trucks Manufacturers (NTM)
Cement Company of Northern Nigeria
Ashaka Cement Company
Savannah Sugar Company
National Fertiliser Company of Nigeria (NAFCON)
Nigerian Telecommunications (NITEL)
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Federal Superphosphate Fertiliser Company (FSFC)
Eleme Petrochemical Company
Katsina Steel Rolling Mill
Additional information pertinent to each one of the selected enterprises is included in Annex A
of this TOR.
As indicated above, and for project expediency and convenience, the consulting assignment
has been broken into three segments: Please note that the reports to be submitted under this
assignment are expected to be short, concise, precise and factual.
1) Case Studies
The consultant shall determine, for each of the selected enterprises, detailed
improvements or otherwise, that resulted in the operational and financial conditions of the
selected companies comparing their pre-and-post privatisation periods. In particular, the
consultant shall examine the following benchmarks:
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Strategy – change of focus on core business
Production capacity – increased capital goods investment and utilisation
Technology - new technology introduced and improved R&D capacity and resources
Suppliers – new supplier structure and improved logistics and inventory control
systems
Management – better educated management in place/modern management and
adherence to good corporate governance practices
Products/Services – quality improvements, new product/services introduced
Marketing and Sales – new market segment/customer groups, exports
Market Share – increased, import substitution, after sales service
Employment – improved occupational safety and health qualifications upgraded,
salaries increased
Environment – increased protection and improved corporate social responsibility
Investments - Increases
Finance – change in Commercial short and long term lending
Sales - growth
Profit - growth
Return on investment - increases
Taxes - compliance
2) Fiscal Impact of Privatisation – This Analysis will include but is not limited to:
a) Receivables
i. Privatisation proceeds
ii. Saved subsidies
iii. Additional tax receipts from privatised enterprises compared to taxes received preprivatisation
iv. Dividends and interest (enterprises that have commenced operations)
v. Employment (new and retained staff) in comparison to numbers before privatization
b) Payments/Losses
i. Subsidies paid by Government, a comparison between pre- and post-privatization
ii. Retrenchment
iii. Liabilities of PEs paid by the Government (payment to creditors, terminal benefits,
etc.)
iv. Tax waivers and custom waivers
3. Aggregate Results
Finally, the consultant should also carry out the following;
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An independent assessment of the overall performance of the privatisation program
based on the performance of the selected enterprises and an evaluation of impact on
the National economy.
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Assess the effect of privatisation on enterprises in terms of investment, productivity,
employment, social responsibility and environment.
Use various performance techniques/indices to determine whether or not there are
changes in operations of privatised enterprises.
Aggregate savings made and revenue accruing to government from privatisation of
each enterprise.
Suggest ways of improving operational performance in both performing and nonperforming privatised enterprises.
Establish and highlight specific areas where privatisation has impacted on a particular
sector/industry.
Suggest ways to tackle public negative perception by assisting the BPE to enhance its
communications processes and improve on enlightenment campaigns of privatisation
success stories to the general public.
Suggest ways that will improve effective monitoring of privatised enterprises.
Methodology
It is suggested that the consulting team would use a combination of structured and semistructured interview tools and techniques with the selected enterprises’ management and
employee representatives as well as with representatives from key external stakeholders
(customers, suppliers, lenders, local government, community leaders, representatives and/or
retrenched workers etc).
It is expected that BPE will facilitate access and the consulting team will conduct without
restriction, the collection of all the primary and secondary data that is determined is required
for this consultancy and believed to be in possession of but not limited to the following
organisations:
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Bureau of Public Enterprises (BPE)
Federal Ministry of Finance (including MOFI)
Office of the Accountant General of the Federation
Federal Inland Revenue Services
National Planning Commission
Central Bank of Nigeria (CBN)
Federal Office of Statistics
Supervising Ministries, etc, and
Secondary data from Library, multilateral organisation etc.
Obtain key financial, environmental labour and other information making comparison analysis
of before and after privatisation.
The following documents and reports will be provided to consulting team
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List of Privatised PE’s 2000 – 2006 with selected data if not included in the sample of
specific enterprises to be examined and comprehensive data from those enterprises
included in the sample
Adam Smith International (ASI), Report on impact of privatization, and
Other pertinent information that may be identified as the analysis proceeds.
6. Resources Required and Competence.
It is envisaged that this consultancy will require the participation of a multidisciplinary team
consisting of a minimum of seven professionals. Three expatriate professionals will be hired
by IBTCI through DFID’s Call Down Framework (CDF) facility, including the Team Leader and
another senior corporate finance or investment bank specialist. Two Nigerian independent
senior professionals will be hired directly by BPE and two junior professionals from BPE’s
Post Privatisation Monitoring Department will be assigned to assist on a full-time basis for the
duration of the consultancy.
The qualifications of the individual team members will include:
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Team Leader Privatization Specialist (Expatriate)
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−
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The Corporate Finance or Investment Banker will be expected to have ample
experience in privatisation transactions and would have had actual and significant
experience in conducting enterprise performance assessments of individual
companies of all sizes at the pre- and post-privatisation stages.
Knowledge and experience in privatisation in Africa is desirable and experience
with the Nigerian privatisation process will be a plus.
MBA or Masters Degree in Corporate Finance as a minimum, preferably PhD
Degree and a minimum of 15 to 20 years of working experience in developing
countries.
Commitment to take on the assignment and remain available for about 20 weeks
with some short breaks.
Good writing and communications skills
Economist, Privatization, Enterprise Restructuring and Sector Analysis Specialist
(Expatriate)
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The team leader will be expected to have ample experience in privatisation
transactions and would have had actual and significant experience in conducting
privatisation impact assessments at the macro level. Previous experience as a
Team Leader will be required.
Knowledge and experience in privatisation in Africa is mandatory and experience
with the Nigerian privatisation process will be a plus.
Masters Degree in Economics as a minimum, preferably PhD Degree and a
minimum of 20 years of working experience in developing countries.
Commitment to take on the assignment and remain available for about 20 weeks
with some short breaks.
Good writing and communications skills
Corporate Finance or Investment Banker Specialist (Expatriate)
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The Economist, Privatization, Enterprise Restructuring and Sector Analysis
Specialist will be expected to have significant experience in more than one of the
fields of specialization included in the position designation. He would have actual
experience in Privatization in Nigeria as well as Africa. Among other
responsibilities this professional will support the efforts of the other two expatriates
particularly when they are not in the Nigeria
Knowledge and experience in privatisation in Africa is mandatory and experience
with the Nigerian privatisation process will be a plus.
MBA or Masters Degree in Corporate Finance as a minimum, preferably PhD
Degree and a minimum of 15 to 20 years of working experience in developing
countries.
Commitment to take on the assignment and remain available for about 12 weeks
with short breaks.
Good writing and communications skills
Senior Local Specialist
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Intimate knowledge and familiarity with Nigeria’s privatisation program and
knowledge of stakeholder organizations.
Knowledge and experience dealing with BPE and the stakeholder companies to
facilitate the access to information
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University academician with intimate knowledge of Nigeria’s economy and its fiscal
policy. Knowledge and experience conducting macroeconomic analysis is a
requirement. Knowledge of Nigeria’s privatisation program will be a must and
knowledge of labor issues as related to privatisation will be a plus.
PhD Degree in economics and a minimum of 25 years teaching and conducting
academic work in economic subjects of related importance to the privatisation
program would be a must.
Commitment to take on the assignment and remain available for about 26 weeks.
Good writing and communications skills
Junior Local Financial Analyst 1
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Masters Degree in economics as a minimum, preferably PhD Degree and a
minimum of 20 years of working experience in privatisation and other development
initiatives in Nigeria.
Commitment to take on the assignment and remain available for about 26 weeks.
Good writing and communications skills
Senior Local Economist
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Junior Financial Analyst with a minimum of 5 years of professional experience in
financial analysis of private sector companies.
Ample knowledge of Nigeria’s privatisation program
Commitment to take on the assignment and remain available for about 26 weeks.
Good writing and communications skills
Junior Local Financial Analyst 2
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Junior Financial Analyst with a minimum of 5 years of professional experience in
financial analysis of private sector companies.
Ample knowledge of Nigeria’s privatization program
Commitment to take on the assignment and remain available for about 26 weeks.
Good writing and communications skills
7. Timeframe
The Consultancy has been estimated will take six calendar months. This will include twelve
person/months of effort for expatriate consultants, Senior Nigerian specialists and Junior BPE
specialists for a total effort that will include twenty-four person months.
Subject to changes requested at the inception report stage, the implementation of the
consultancy is shown in the work plan/timeframe included below
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SUGGESTED TIMEFRAME AND TASKS
TASK
WEEK
1
2
3
4
5
6
7
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10
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12
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14
15
16
17
18
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20
21
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25
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1. Project Start Up
2. Initial Assessment, and Implemenation Plannig
3. Preparation and Submission of the Inception Report
4. C ollection, Tabulation and Analysis of Data
6. Preparation and Delivery of Case Studies
7. Preparation of the Fiscal Impact Assessment
8. Preparation & Submission of the Aggregate Analysis
9. Final Project Report
8. Deliverables
The following list includes the minimum required report deliverables to come out of the
consultancy effort.
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Inception Report
Fiscal Impact Report
Case Study Reports on Specific Enterprises (14)
Aggregate Report
Draft Final Report
Final Report
9. Reporting Relationships
For the duration of its assignment, the consultants will:
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The Team Leader will consult and report at all times directly to the Director of BPE’s Post
Privatisation Monitoring Department or to his designee on technical issues and relations
with and access to the enterprises being analysed and other government and nongovernment institutions which may be in possession of needed information.
All the team members of the consulting team, irrespective of their institutional affiliation,
will report to the Team Leader in all aspects of the implementation of this consultancy.
However, the consulting team members will also follow decisions and consult with the
IBTCI Project Director on issues related to the overall management, implementation and
logistics of the consultancy.
The Team Leader and the Project Director will be responsible for alerting the Director of
BPE’s Post Privatisation Monitoring Department on all major issues pertinent to the
successful execution of the assignment.
The Consultants are expected to be available until the completion of this assignment.
IBTCI retains the ultimate responsibility for the implementation of this consultancy and for
the results.
10. Conduct of the Consultant
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The Consultants will, at all times, be expected to carry out their assignment with the highest degree of professionalism and integrity. The Consultants will be expected to conduct his/her duties in an open and transparent
manner.
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The Consultants will not, under any circumstance, take any actions or be seen to be
taking any actions, which may hinder or prevent the BPE from executing any transaction
included as part of the Privatisation Program.
The Consultants, individually or collectively will not, under any circumstances, discuss or
reveal any information that comes to his/their possession as a result of this consultancy
with respect to any transaction conducted as part of the BPE’s Privatisation Program,
without the express written permission of an authorised representative of the BPE.
Administrative Information
TOR Completion Date: mm/dd/yyyy
Main TOR Author:
Name: ______________
BPE Unit: _________________
Contact Information:
Room No.
Phone:
Fax:
E-mail:
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TERMS OF REFERENCE - ANNEX A
Selected Privatized Enterprises to be included in the Study
1, Nigerian Ports Authority (26 port terminals)
Date of Privatization: May 2005 to October 2005
Handover Date: May 2006 to October 2006
Method of Sale:
Concession
Concessionaire: Various Terminal Operators
The structure of the Nigerian Ports before privatization was characterized by an unusual degree
of centralization. NPA performs all port functions and controls virtually all of the public and private
tasks in the sector. The absence of an independent regulator gives NPA the ability to arbitrarily
set any tariff. The system; is detrimental to sound competitive conditions, prevents the
emergence of strong terminal operators and leads to excessive costs for shipping lines and
consignees. This necessitates the Federal Government of Nigeria to initiate a sustainable reform
of the Nigerian Ports.
Even though most of the port terminals were handed over to their new owners in May/June 2006,
the operators have recorded appreciable level of success especially in areas of sanitation,
security and cleanliness of the terminal environment. All, except one, have commenced the
implementation of their development plans and new perimeter fences have either been erected or
about to be completed to secure their areas of operation. In some cases the performances
indices have exceeded the initial projections of the terminal operators. The cargo throughput has
more than doubled for some operators while berth occupancy rate has also significantly
improved. The average waiting time at the anchorage has been reduced to zero in some cases
leading to the removal of the surcharge by the Shippers Association in Lloyd for all Nigeria-bound
vessels due to excessive delays in the past.
2. Afribank of Nigeria Plc
Date of Privatization: June, 2005
Handover Date:
Method of Sale:
Investors: Various Individual Nigerian Investors
Afribank Nigeria Plc (formerly known as International Bank for West Africa Limited - IBWA) was
granted its license to carry on banking business on 20th October 1959 and commenced
operations on 4th Jan. 1960. By 1964 First National City Bank Inc acquired 49% of Banque
Internationale Pour L’Afrique Occidentale (BIAO), by which name the bank changed to.
By 1976, the Federal Government of Nigeria acquired 60% ownership of the Bank, while BIAO
retained 40% shareholding as technical partner. Out of the Federal Government’s shares 10%
was transferred to staff bringing the FGN holding to 50%.
With the coming into effect of the Privatisation and Commercialisation Decree No.25 of 1988, the
FGN divested all its shares totalling 225,000,000 ordinary shares of 50k to the Nigerian Public.
The Central Bank of Nigeria also instructed that the 40% stake held by BIAO be sold to the
Nigerian public. By 7th Oct. 19992 the bank changed its status from a private company to a public
limited company and became listed on the Nigerian Stock Exchange. The sale of the BIAO
shares however never took effect.
BIAO had sold the shares, albeit illegally to Meriden International Bank Ltd, which in turn sold the
shares to other parties including the defunct Alpha Merchant Bank. In view of the illegality
involved in the transaction, the FGN instructed the BPE to reacquire the shares. On the 10th of
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July 2003, the shares were successfully crossed on the NSE to the BPE and the name of the
BPE was entered in the register. Following Council’s approval, the shares are now being sold to a
Strategic Investor.
3. First Bank of Nigeria Plc
Date of Privatization: 1992
Handover Date:
Percentage share sold: 44.8%
Method of Sale: Share Flotation
Core Investor: NA
4. National Truck Manufacturers (NTM)
Date of Privatization: December 12, 2002.
Handover Date: March 2003.
Percentage share sold: 75%
Method of Sale:
Core investor Sale
Core Investor:
Art Engineering & Construction Ltd
The NTM was established following a Cooperative Agreement negotiated between the Federal
Republic of Nigeria (“FGN”) and Messrs Fiat S.P.A. of Turin, Italy (“Fiat S.P.A.”) on 12th of
December, 1975. The principal objective of the agreement is for the establishment of a plant in
Nigeria for the assembly/ manufacturing of Commercial Vehicles and Agricultural Tractors of the
Fiat Group.
The annual installed capacity of the plant was for 7,000 trucks and 3,000 tractors on a single shift.
The plant operated from 1980 to 1986, before it finally stopped production. During this period the
plant assembled and sold about 10,337 vehicles (7,677 trucks and 2,660 tractors) in its six years
operation compared to an original forecast of 80,000 units of vehicles.
The introduction of the Structural Adjustment Programme (SAP) in 1986 scrapped the restrictive
import-licensing regime operated before then, based on the provision of the Cooperative
Agreement signed between the Federal Government and the Technical Partners.
The ensuing pre-funding of imports through Letters of Credit translated to higher working capital
requirements. The defective implementation of SAP also resulted in the heavy devaluation of the
Naira. This led to the weakening of the purchasing power of Nigerians on the one hand and
increased the cost of locally assembled vehicles that are largely dependent on imported inputs,
on the other hand.
The Company is presently into the assembly of Agricultural tractors, light and heavy trucks, Lories
and tippers, 14-seater buses, Pick up Vans cars (SUV) and Motor Cycles.
5. Oando Oil marketing Company
Date of Privatization: May, 2000
Handover Date:
Percentage share sold:
Method of Sale:
Core Investor:
Ocean and Oil Nigeria Limited
Ocean and Oil was established 1994. There are currently three divisions in the Group and these
are:
i.
ii.
iii.
Ocean and Oil Limited, the offshore trading arm of the group Ocean
Oil Services Limited, the Local trading arm,
And Ocean Energy Resources Limited, the utilities department.
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This group commenced business covering both regional trading companies in Sub – Saharan
Africa as well as major international players. In 1995, in collaboration with other major marketers
in the Nigerian Petroleum Industry, the group played a significant role in preventing Kaduna
Refinery from being shut down. This was achieved by establishing the first large-scale evacuation
of fuel via a rail and truck over a 1, 000 kilometre journey at a rate of 50 trucks per day. In three
months over 120, 000 metric tones of fuel was lifted.
Ocean and Oil services provide tanker freight services to major international and regional Oil
trading companies. Aside from this it provides assistance to the Federal Government of Nigeria in
the shipment of cargoes to neighbouring countries. The group possesses one of the most
impressive shipping fleets in West Africa with a fleet of 6 vessels ranging from 5,000dwt coastal
tankers to 65,000dwt vessels.
The group has also imported into Nigeria the largest Bitumen Barge in the world, (10,000dwt) as
additional lightening and storage facilities. Only National Oil and Chemical Marketing Company
Plc has storage capacity in excess of this in Nigeria.
6. African Petroleum marketing Company (AP)
Date of Privatization: October, 2000
Handover Date:
Percentage share sold:
Method of Sale:
Core Investor: Sadiq Petroleum Nigeria Limited
7. Cement Company of Northern Nigeria (CCNN)
Date of Privatization: July 21 2000
Handover Date:
Percentage share sold: 50.36%
Method of Sale: Core investor Sale
Core Investor: Scancem International ANS of Norway (while the remaining balance was sold to
some Northern State Governments, Institutional Investors and Workers of the company. There is
also about 15.94% that was sold to the Nigerian Public).
The enterprise was incorporated in 1962 and commenced production in 1967. Before
privatization, production was peaked at 271,459 tonnes but in 2005 it recorded 323,824 tonnes of
cement with turnover of N5,916,167.42
CCNN is listed in the NSE.
8. Ashaka Cement Company
Date of Privatization: March, 2001
Handover Date:
Percentage share sold:
Method of Sale:
Core Investor: Blue circle Industries Limited
9. Savannah Sugar Company
Date of Privatization: 2002
Handover Date: March 2003
Percentage share sold: 95%
Method of Sale:
Core investor Sale
Core Investor: Dangote Group of Industries
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Savannah Sugar Company Limited, Numan, was incorporated in 1971 with an installed
capacity of 50,000 metric tonnes of sugar per annum. Over the more than twenty years of its
operation it averaged only 15,000 metric tonnes of sugar annually. This has been due to
managerial, funding, strategic, technical and other problems.
Dangote Group of Industries Technical Partners are the Kenana Sugar Company from Sudan
(The biggest Sugar production group in the world). The technical partners came on board in 2004
and since then tremendous efforts have been made to resuscitate the Company.
10. National Fertiliser Company of Nigeria (NAFCON)
Liquidator: Otunba Olusola Adekanola
Core Investor – O-Secul Nigeria Limited
Method of sale - Liquidation
Profitability – None yet
NAFCON was established in 1981 at Onne in Portharcourt, Rivers State and commenced
production in 1987. Noting that to a large extent the company has failed to reach its set
objectives, hence the imperative of privatisation.
11. Nigerian Telecommunications (NITEL)
Date of Privatization: July 2006
Handover Date: November 14, 2006
Percentage share sold: 51%
Method of Sale: Core Investor Sale
Core Investor: Transcorp Consortium
NITEL was incorporated in …….. , before its privatisation, the company was characterised by a
fledging private sector, slow pace of network roll-out, weak infrastructure development, long
waiting lines for service, very low teledensity and poor service delivery and consumers limited to
only one service provider (monopoly).
Faced with these realities the FGN through NCP undertook the following measures:
•
•
•
•
Setting up the telecom sector steering committee headed by the then Min of
Communications, Mohammed Arzika.
Adoption of a new National Policy on Communication in August 2000 and the passage of
a new telecom bill in July 2003.
Strengthening of NCC for the regulation and licensing.
The successful award of GSM and other licenses to private operators.
Previous attempts at NITEL privatisation were as follows;
•
•
•
Investors International London Ltd (IILL) Core Investor Sale (2001 – 2002)
Pentascope International – Management Contract (2003 – 2004)
Orascom Telecom Holdings - Core Investor Sale (December 2005)
Following NCP’s decision to privatised NITEL through a ‘Willing Buyer’ ‘Willing Seller’ method,
Transcorp Consortium emerged as the preferred bidder for the following reasons:
•
•
•
•
IILL failed to make payments following a bid of $1.317 billion in 2001.
Pentascope failed to meet contract obligations, resulting in cancellation of the transaction
by GFN.
Orascom bid of $256.53 million in 2005 was rejected by FGN.
The NCP reasoned that a fourth round of competitive bidding would likely take 12 months
or longer during which time NITEL’s value would continue to decline.
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Investors waning interest may also lead to lower bid prices.
In addition to the above, other reasons for the emergence of Transcorp Consortium were that:
•
•
•
•
•
•
•
It is a Nigerian led group representing aspirations of all Nigerians
Transcorp Consortium’s leadership demonstrated proven track-record and corporate
successes across many areas of the Nigerian economy.
It has corporate Nigerian players capable of dealing with NITEL’s numerous financial,
operational and labour issues.
Credible Technical Partners – British Telecom
Competitive financial offer of $500 million for 51% equity.
Few remaining credible operators unable to proceed with transaction for various reasons.
NCC approval obtained.
12. Federal Superphosphate Fertiliser Company (FSFC)
Date of Privatization: December 2005
Handover Date:
Percentage share sold: 80%
Method of Sale: Core Investor Sale
Core Investor: Hekio Consortium Ltd
Federal Superphosphate Fertiliser Company Limited (FSFC), Kaduna, was incorporated in 1973
under the Companies and Allied Matters decree of 1968. The Company’s RC No is 11934.
The Company was established to produce primarily Single Superphosphate Fertiliser (SSP). It
had an installed capacity to produce 100,000 metric tonne of SSP/annum using its captive
Sulphuric Acid Plant of 42,125 metric tonne/annum capacity (125mt/day), which was
decommissioned in 1988 and scrapped in 1995. The SSP plant has a small-integrated Lime plant
of capacity of 6mt/day for the production of slake lime for effluent treatment.
In 1980, the company diversified through its Research and Development into the production of
Aluminium Sulphate (Alum), a water treatment chemical.
13. Eleme Petrochemical Company
Date of Privatization: December 2005
Handover Date:
Percentage share sold:
Method of Sale:
Core Investor: Indorama Group
14. Katsina Steel Rolling Mill
Date of Privatization: November, 2005
Handover Date:
Percentage share sold:
Method of Sale:
Core Investor: Nigeria-Spanish Engineering Limited
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Appendix D
Inception Report
Call Down Facility
For Non-Transaction Initiatives
National Council on Privatisation
Bureau of Public Enterprises
PERFORMANCE ASSESSMENT OF PRIVATISED
ENTERPRISES
INCEPTION REPORT
Submitted to:
Bureau of Public Enterprises - BPE
and
Department for International Development - DFID
Abuja, Nigeria
Submitted by:
IBTCI Consortium
8614 Westwood Center Drive Suite 400• Vienna, VA • 22182 U.S.A.
Telephone: (703) 749-0100• Facsimile: (703) 749-0110
International Business and Technical Consultants, Inc.
Wednesday 4th June 2008
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Index
Page
1. Introduction
2
2. Project Start-up
2
3. The Companies
2
4. The Team
3
5. Work carried out in May
3
6. Observations on findings thus far
3
7. Major Issues thus far
4
8. Work Plan
5
9. Anticipated Major Issues
5
10. Conclusion
7
Annexes
1.
Objectives and scope of the project
8
2.
Summary of work done in May
9
3.
Work Plan (in Excel)
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1. Introduction
The key objective of the project is to provide the Bureau of Public Enterprises (“BPE”)
with material showing the impact of privatisation on certain enterprises and on the
economy of the Federal Republic of Nigeria, thereby enhancing understanding and
dialogue on this and related subjects.
A fuller statement of the objectives and scope is set out in Annex 1.
The purpose of this inception report is to document the start-up of the project in
accordance with the terms of reference issued under the DfID Call-Down Facility.
The report also seeks to highlight the team’s initial findings on the availability and access
to information as well as to the companies to be analysed.
2. Project Start-up
The project began on 7th May 2008 with the arrival of the team leader to join the project
director who was already in Abuja.
The other members of the team were assembled over the course of the following two
weeks. By 21st May all the nominated members had come together and started to
function as a team.
Office space, furniture, continuous power and almost continuous internet connections
were already available at IBTCI’s offices in the Dunes Centre in central Abuja.
Work is conducted at the BPE and IBTCI offices.
3. The Companies
The companies originally selected for scrutiny under this study are : Afribank
Ashaka Cement
African Petroleum (AP)
Eleme Petrochemicals
National Truck Manufacturers
National Fertiliser Co. (NAFCON)
Nigerian Telecom (NITEL)
First Bank of Nigeria
Cement Company of Northern Nigeria
Oando Oil Marketing
Federal Superphosphate Fertiliser Company
Katsina Steel Rolling Mill
Savannah Sugar Company
Nigerian Ports Authority
Note : At the time of writing the confirmation or removal by the BPE of Nigerian Telecom
(NITEL) and Nigerian Ports (i.e. the transactions by which concessions were granted for
the 26 port terminals) on the above list is still an open question.
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4. The Team
The team consists of the following members : Patricio Crespo
Nigel Forrest
Ron Ashkin
Azeez Aderemi
Iliya Vongjen
Salisu Liadi
Temitayo Siyanbola
Sanusi Sule
Abraham Ityokyaa
Project Director and Economist
Team Leader
Corporate Finance Specialist
Senior Analyst (seconded from BPE)
Analyst (seconded from BPE)
Senior Local Analyst
Local Financial Analyst
BPE (Part-time)
BPE (Part-time)
We are grateful to the BPE Director General and her staff for their contributions to the
start-up and early stages of the project.
5. Work carried out in May 2008
Data collection was the priority in the first three weeks.
Preparations have also been made for the programme of meetings with state sector
stakeholders, the companies and with any other parties which might be useful to the
successful execution of the project.
Our policy is to move on as quickly as possible from the data-gathering and datachecking phase, because the “value-added” component will only really begin with that
shift.
A summary of work done during May is in Annex 2.
6. Observations on findings thus far
There are great disparities in the quantity, quality, pertinence and organisation of
information readily accessible at the BPE.
Moreover, it would be impossible for any outsider to predict (in the case of the enterprises
we are researching, at least) how the disparities are distributed. Adherence to the BPE’s
Manual of Privatisation Procedures 2006 (Section D 3.4, on page 17) would bring a
considerable improvement. The transaction processes for most of the selected
companies, however, preceded the publication of the Manual
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7. Major Issues identified thus far
We understand that the BPE has wished to have a wide range of companies represented
in the sample. The variety is strong in terms of : •
•
•
•
•
•
Geographical spread
Business sector
Size of transaction
Type of transaction
Date (within the review period : but see remarks on First Bank below)
Measure of perceived success (of the business ; and of the sale).
Two companies have been picked out, however, for closer scrutiny by the BPE before
they are retained or excluded : •
•
NITEL (Nigeria Telecom) – where (a) successive transactions have
been deemed unsatisfactory ; and (b) the privatisation is effectively
a current issue, rather than a historical one [and, of course, (a) and
(b) are linked]. These factors make it questionable whether NITEL
is suitable for inclusion :
Ports (the granting of concessions by the NPA) – where the
transactions are quite recent, complex and, arguably, different in
nature and ramifications from the others on the list.
Our team express no opinion as to the decision as to whether one or both of these
privatisations are included. Our concern is above all to have a decision as soon as
possible. We have not begun work on these two : but that stance cannot be maintained
responsibly for any longer without a serious impact on the conduct of our mission.
First Bank of Nigeria : We wish to query the advisability of retaining First Bank in our
project. This is for only one reason : it was privatised in 1992. If we adhere to our policy
of looking at the five years of the enterprise’s performance prior to privatisation (as well
as all the years since), it will be at least challenging to find data from before 1992 which
are detailed enough and reliable enough for a proper analysis.
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8. Work Plan
A copy of our work plan is enclosed as Annex 2 (it is an Excel spreadsheet).
Within this plan we are defining and assigning tasks in the short term (up to two weeks
ahead) and the medium term (up to two months ahead).
We can anticipate three likely ways of tackling the case studies which will form the
backbone of our work : 1. Sequential - Conducting and completing the case studies one after the other
2. In parallel - Conducting more than one, or even all, side by side, over the
course of the period
3. Hybrid
- Using a combination of 1 and 2.
We intend to use the Hybrid approach, in order to capture the best of the benefits, and to
avoid the worst of the disadvantages, of 1 and 2.
9. Anticipated Major Issues
We set out in the table below the major challenges we see, at this stage, as being critical
(any one or more of them) to the successful execution and conclusion of our work.
We would welcome any dialogue with the beneficiary or the sponsor of the project,
and / or indeed with any other competent authorities introduced by them, about
minimising the impediments to, and maximising the opportunities for, the progress of the
project.
We recognise, however, that there will be no feasible advance solution to at least some
of these problems. By identifying them we do not in any way imply that we will shirk the
challenge of addressing them.
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Availability of information
Heterogeneity of information
Reliability of information
Co-operation from the
Companies
Establishing cause and effect
in the analysis of privatisation
Logistics of travel and of
interviews
Availability of portable
computers
PAPE Final Report
This challenge is highlighted at the
beginning of the report (entitled “Rapid
Assessment ...”) on privatisation
published in July 2003 by the National
Centre for Economic Management and
Administration (“NCEMA”) for the BPE.
We have identified this already, from
our studying of the BPE files. Even the
same researcher, studying different
files, has great difficulty conforming the
data for further use and analysis. With
multiple researchers the problem is
compounded. This is also cited in the
NCEMA report (on page 6).
We will be using the triangulation
method of testing and verifying
information.
The value of personal relationships is
emphasised by the 2003 NCEMA
report. (It can also be witnessed by
empirical experience).
We are currently devoting some time
and care in drafting the follow-up
introductory letters to companies.
We want to appeal, wherever possible,
to the companies’ own self-interest
when contacting and interviewing them.
We should consider presenting our work
as part of an on-going mutually
beneficial process.
This is an inherent challenge which we
note here as one of which we are
acutely aware. A contributory factor is
the shortness of some timescales.
Planning and preparation will be done
as carefully as possible.
It is essential that each member of the
team has a portable computer.
A formal request for this has just been
made.
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10. Conclusion
We would welcome discussion with the BPE and DfID on any issues arising from this
inception report or indeed at any stage during the project.
Patricio Crespo
Project Director
Nigel Forrest
Team Leader
4th June 2008.
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ANNEX 1
Objectives of the project
The objective of the assignment is to enable the BPE to communicate more effectively with
various stakeholders on the preliminary and potential impact of privatization on the Nigerian
economy, using credible and defensible facts and statistics that will arise from the implementation
of this study. More specifically, the objectives will include and be expected to : •
avail the Federal government of Nigeria, the BPE and the Nigerian population as a
whole with documented evidence obtained by the consulting team on the benefits
of privatisation ;
•
enhance dialogue, understanding and support between the BPE and its
stakeholders ; and
•
highlight some of the areas that require the attention of the BPE and its
stakeholders, as well as those other areas that need to be improved upon.
Scope of Work
The assignment will include a detailed case study for each of the selected privatised enterprises,
as well as a special case study on the aggregate results of the individual enterprises to reflect the
collective effects of privatised enterprises on private sector performance and impact on the
overall economy.
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ANNEX 2
Work done in May: Summary
* Files for all twelve companies (i.e. excluding NITEL and the Ports) in the
Post-Privatisation Monitoring Department have been read through and the
contents summarised, in a common format.
* Templates (created partly in the light of findings from the PPMD files) have been
completed, to frame the results of research in the BPE archives and elsewhere in
the BPE.
* A template for the case studies has been prepared, circulated and finalised.
* Various relevant documents from external sources (World Bank ; A.S.I. ; NCEMA, etc.)
have been collected and reviewed.
* The introductory letter to state sector stakeholders has been drafted and accepted, in
slightly modified form, by the BPE Director General. The introductory letters to the
privatised companies have been signed by the Director of the PPMD.
* For smooth running of the project various databases & procedures have been set up :
* List of parties
* Document data-base
* Overall data-sheet matrix covering the14 companies
* Work Plan
* Shared electronic data-base on hard drive
* Back-up paper-based file of key documents
* Document Identification system.
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ANNEX 3
Work Plan
Performance Evaluation of Privatized Enterprises (PAPE)
Task
Week Starting On
Week No.
2-Jun
9-Jun
16-Jun
23-Jun
30-Jun
7-Jul
14-Jul
21-Jul
28-Jul
4-Aug
5
6
7
8
9
10
11
12
13
14
A. Data Gathering:
1. Collection of readily available documents
2. Collection of balance of documents
3. Visits to stakeholders (e.g., other FGN entities)
4. Site visits to 14 subject companies
B. Data Analysis:
1. Completion of Case Study/Fiscal Impact worksheets
C. Production of Deliverables:
1. Case Studies
2. Fiscal Impact Analyses
3. Aggregate Results
4. Draft/Final Report
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11-Aug 18-Aug 25-Aug
15
16
17
1-Sep
8-Sep
15-Sep
22-Sep
29-Sep
6-Oct
13-Oct
20-Oct
27-Oct
3-Nov
18
19
20
21
22
23
24
25
26
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Appendix E.
Interim Report to the BPE (20 August 2008)
Slide 1
P.A.P.E. Project
(Performance Assessment of Privatised Enterprises)
Progress Report to the Bureau of Public Enterprises
Presentation by : The P.A.P.E. Team
August 2008
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 2
P.A.P.E.
Introduction - 1
• Aim: To provide BPE with reliable pre- and post-privatisation data
• Timeframe: Privatisation transaction dates from 2000 to 2006
• Team: 3 expatriate consultants provided by IBTCI
2 Nigerian consultants recruited for this project by BPE
2 BPE staff seconded on a full-time basis
2 part-time BPE advisers.
• Sponsors: Dept. for International Development (U.K.)
(The World Bank has a strong interest)
• Project Duration: May to November 2008.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 3
Introduction - 2
P.A.P.E.
Enterprises on the menu : NTM
First Bank
Ashaka Cement
Dana Steel
Afribank
Cement Co. of N.N.
Eleme Petrochem
Oando
Ports (See next page)
Conoil (1)
NAHCO (1)
Benue Cement (1)
Union Bank (1)
WAPCO (1)
United Bank (1)
Savannah Sugar (2)
African Petroleum (3)
Notore (2)
Assurance Bank (4)
Continental Fertilizer (2)
NITEL (See next page)
Notes : (1) These six companies were added to the list in mid-July.
(2) The BPE struck these three off the list in mid-July
(3) AP has been dropped for lack of response from the company
(4) Assurance Bank was added in mid-July, but may be deleted as it has been taken over
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 4
Introduction - 3
P.A.P.E.
From the previous slide : NITEL
….Marked out almost from the start of the work as doubtful, it was
explicitly dropped in mid-July.
PORTS ….Identified from very early in the project as a special case : * Long-term lease concessions (footnote) - not a share sale
* 26 concessions – too many to cover in this project
* Recent transactions – maybe too recent to fit our mandate
The Ports were nevertheless re-introduced to our list in mid-July.
Footnote : The concessions yield an entry fee, rent and royalty payments.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 5
Work Process
P.A.P.E.
•
Data-gathering – from BPE files and public information
•
Case Study drafts
•
Contact with Company
•
Visit to Company ; incorporation of company-provided data
•
Input from state sector stakeholders (e.g. F.I.R.S., MoF)
•
Verification, Adaptation, Interpretation
•
Completion & Conclusions
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 6
P.A.P.E.
Target Outputs
* Inception Report (delivered)
* Case Study Reports
* Fiscal Impact Report
* Aggregate Report
* Draft Final Report
* Final Report
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 7
P.A.P.E.
Case Studies
Progress so far
– 2 have complete basic material (after visits)
(but with very little fiscal impact data)
6 more at various stages of drafting
Company Visits - 3 completed ; 3 postponements ; 2 scheduled
Lagos visits in September
Information-gathering – Difficulties at every stage, including
getting data from companies after our visits.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 8
P.A.P.E.
Problems - 1
• Basic Data –
readily available quantity & quality are poor
• Availability of local staff
• Analytical & processing ability of local staff
• Administrative and technical support
shortcomings
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 9
P.A.P.E.
Problems - 2
• Generally poor response from companies
• Lack of fiscal impact data
• Poor response from state sector
stakeholders
• “Moving goalposts” effect over the menu of
companies.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 10
P.A.P.E.
Key Issues ahead
• Scoping the job
• Resource allocation (time & staffing)
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 11
P.A.P.E.
Suggestions for B.P.E. (1)
• Files and Data-handling …Review status in PPMD,
Transaction Depts. and Archives.
* Put dates on all documents produced by B.P.E.
• Get companies’ data (especially Annual Reports & Accounts)
in a timely way. Attend A.G.M.s.
• Cover all economic and financial aspects of privatised
companies – broadening the excellent work on employment,
welfare and environmental issues done with stakeholders.
• Develop economic and financial analytical skills in B.P.E.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 12
P.A.P.E.
Suggestions for B.P.E. (2)
•
Extend coverage of companies to a set of sector views
(e.g. banks ; cement companies)
•
Study privatisation in other countries
(e.g. Mozambique, Vietnam, Japan, W. Europe)
•
Investigate regulatory & monopoly issues –
who will take responsibility?
•
Develop proposals for seconding staff between B.P.E.
and the enterprises.
•
Develop the rôle of BPE as enterprises’ ambassadors to the rest
of the state sector.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Slide 13
P.A.P.E.
Target minimum results
• Completion of a useful number of case studies to a
professional level of integrity
• Best possible analysis of available fiscal impact data
• Aggregate analyses of the above.
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
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Appendix F.
PowerPoint Presentation to BPE (1st December 2008)
Slide 1
Performance Assessment of
Privatised Enterprises
“Documented evidence of the benefits of privatisation”
Presentation to the BPE
Management Committee
in Abuja
Monday 1st December2008
Call Down Framework Contract
Bureau of Public Enterprise – Department for International Development/DFID – International Business and Technical Consultants, Inc.
Slide 2
P.A.P.E. – The Enterprises
(each with its sector and ranking in that sector)
•
•
•
•
•
•
•
•
•
•
•
CCNN
AshakaCem
Lafarge-WAPCO
First Bank
Union Bank
Dana Steel
NTM
NAHCo
Oando
Eleme Petrochem.
Port Concessions
Cement
Cement
Cement
Banking
Banking
Steel
Truck Assembly
Airport Handling
Oil & Energy
Petrochemicals
Stevedoring
No. 5
No. 3
No. 2
No. 1
No. 6
Middling
Middling
No. 1
No. 1
No. 1
Sui Generis
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Slide 3
The Companies – More Info.
(Last three columns are in $ millions)
Year
CCNN
2000
AshakaCem
2001
Lafarge-WAPCO ’99 – ’01
First Bank
1992
Union Bank
1993
Dana Steel
2006
NTM
2003
NAHCo
2005
Oando
2000
Eleme Petrochem. 2005
Port Concessions 2006
N.T.A.
25
90
255
2,992
873
Proceeds
6
18
26
9
8
Unknown
8
27
9
14
8
48
195
89
225
Not applicable
115 so far
Contrib’n
0.3
10.2
5.1
34.8
28.9
Nil
Nil
0.9
4.7
13.9
Unknown
(“Year” = Year of deemed privatisation : “N.T.A.” = Net Tangible Assets (Shareholders’ Funds)
“Proceeds” = Proceeds to FGN of deemed privatisation : “Contribution” = Average annual
income tax payments over the latest five years)
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Slide 4
Economic Benefits observed
•
•
•
•
•
•
•
•
Manufacturers revived
Banks sanitised
Capital investment beyond comfort level
Capital market exploited
Local investors attracted
Energy problems not simply tolerated
Ever-growing shareholding community
Healthy tax income to the State
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Slide 5
P.A.P.E.
Some selective key points on each of the eleven
privatisations …..
(Code in the headings of these next slides : 1 = Descriptive of the company
2 = “Before” & “After” observations).
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Slide 6
C.C.N.N. - 1
* Strong regional cement manufacturer
* Wholly state sector owned (mix of federal
& local) until 2000
* Fixed assets doubled, 2005 to 2007
* Power source : LPFO with some bio-mass
* Currently on a strong profitability trend,
after several roller-coaster years.
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Slide 7
C.C.N.N. - 2
• Capacity utilisation 19 % in 1999,
61 % in 2007 ; and still rising
• North European lead investor (51 %) from
2000 to 2008. Sale proceeds $ 5.9 m.
• Employment around 900 in late ’90’s : just
under 300 now (350 voluntary redundancies)
• Tax receipts since 2000 : $ 17.7 m.
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Slide 8
AshakaCem - 1
• Regional cement producer – ranked No. 3
• European lead shareholder (originally 25 %,
now 50.1 %)
• Heavy capital expenditure 2007 – 2008
• Energy – an unconventional idea just
about to be tested
• Transport – entirely outsourced.
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Slide 9
AshakaCem - 2
• Dividend payments, over 5 years preprivatisation $11.6 m. :
over 5 years post-privatisation $ 85.5 m.
• Employment : from 1,600 down to 700
• H.R. and employer responsibility issues –
stark difference of opinion
• Income tax proceeds since 2001: $ 66.3 m
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Slide 10
Lafarge-WAPCO - 1
• Its No. 1 position has now been taken by
Obajana
• European lead shareholder, originally with
25 %, now with 60 %
• Heavy capital expenditure, 2000 to 2004
• Recent profitability damaged by gas
supply outages.
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Slide 11
Lafarge-WAPCO - 2
• Dividend payments over the 5 years
before privatisation $24 m : in the 5 years
after : Nil [sic]
• Privatisation may never have happened :
did the state sector ever have more than 50 % ?
• Employment 2,700 in 2003 : 760 in 2007
• Income tax since privatisation $25 m.
• Lafarge - a credible competitor to Dangote
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Slide 12
First Bank - 1
• No. 1 by market cap. and in savings
deposits
• Made Nigeria’s largest-ever capital-raising
(in 2007)
• $ 3 billion in shareholders’ funds. 1st to
exceed 1 trillion Naira mk’t. capitalisation
• Some nervous eyes currently on Nigerian
banking : if First Bank sneezes ….
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Slide 13
First Bank – 2
• Privatised in 1992, so « before » and
« after » is a difficult question
• Tax payments in the past 5 years $ 250 m.
• Employees now 8,810 (in 1991 : 11, 077)
• Bad debts immediately before privatisation
were in a terrible condition (now
apparently under control).
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Slide 14
Union Bank - 1
• Also a substantial bank, with a recent
market value drop
• A mediocre performer when set alongside
First Bank
• Rumoured now to be seeking a strategic
investor
• Union Bank and Ports were the only ones
we were not able to visit.
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Slide 15
Union Bank - 2
• Privatised in 1993
• Tax payments in the last 5 years $145 m.
• Employment in 1992 was 12,066 ; in 2007
it was 8,027
• Non-performing loans in 1991 were at
56 %, almost as bad as First Bank’s.
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Slide 16
Dana Steel -1 (formerly Katsina SRC)
• Founded in 1982 as part of a new,
integrated State-owned steel industry
• By the late 1990’s – no production
• 2004 : failed attempt at privatisation
• 2006 : purchase by Dana from liquidators
• 2008 : approaching profitability
• It is one part of a diverse industrial group.
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Slide 17
Dana Steel -2
• Owners have invested $15 m. to $22 m.
since purchase in 2006
• No recent financial statements available
• Peak capacity utilisation, pre-privatisation
was 35 %
• Employment at its peak was 451.
Now 267.
• Tax payments since privatisation $8.2 m.
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Slide 18
N.T.M. - 1
• A vehicle assembly plant in Kano
• Originally a joint venture with Fiat / IVECO
it is now a Pakistani-owned assembler of
Chinese commercial vehicle kits
• Turnover $ 20m. approx. (20,000 units p.a.)
• Import tariffs are at 5 % for CKD, 10 % for
FBU
• Power comes from NTM’s own generator.
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Slide 19
N.T.M. - 2
• Capacity utilisation, now at 18 % to 20 %,
is at an all-time high
• Employment now at 317 ( 51 in 2003 )
• Upward re-valuation of fixed assets may
have enabled viability
• From grand ambition to a silent social
service in its first 28 years. From basket
case to brink of profitability in past 5 years.
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Slide 20
NAHCo -1
• It has a 75 % market share in air
passenger and baggage handling
• Founded in 1979 as a 60 / 40 joint venture
between State and four European airlines
• It has always been commercial & profitable
• A local investor has replaced Sabena
• Expansion abroad is an aim ; competition
from SAHCOL and airlines is a threat.
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Slide 21
NAHCo - 2
• Strong share price growth since listing in
2006
• Employment level is steady, around 1,000
• (Relatively) very heavy capital investment
since privatisation
• 85,000 shareholders now (there were
19,000 immediately before privatisation)
• Should FAAN now be a privatisation
candidate ?
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Slide 22
Oando - 1
• Started by Esso (Exxon) in 1956
• By 2000 it was a not-very-distinguished
gasoline retailer
• Now a much more broadly-based group
• An unsuccessful bidder for Port Harcourt
refinery
• It was transformed by its acquisition of
AGIP’s Nigerian assets in 2002.
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Slide 23
Oando - 2
• Ocean & Oil bought 40 % from FGN in
2000
• No. 6 in the petrol retailing market in 2000.
Now No. 1.
• Privatisation proceeds $ 195 m.
• High turnover of staff following acquisition
of AGIP.
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Slide 24
Eleme Petrochemical - 1
* A major, strategic green-field state
investment, open for production from 1996
* $1.5 billion is estimated to have been lost
by FGN up to the time of privatisation
* Two bidders in the 2006 privatisation
* It has benefitted from a strong rise in
product prices from 2006 till very recently
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Slide 25
Eleme Petrochemical – 2
• Indorama bought 75 % of the equity for
$225 m. in 2006
• Dividends of $ 26 m. to state sector (2007)
• Number of workers similar to before
privatisation, but now employed by Eleme
• Maintenance has been crucial
• Ambitions for fertilisers and a flotation.
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Slide 26
Port Terminals - 1
• The « Landlord » model was chosen for
privatisation
• 8 sea-ports ; 24 terminals (26 in all) – half
operated by sub-contractors even before
privatisation ; Apapa Container Terminal
bigger than all the others combined
• Costs in 2001 were between 1.8 times and
6.9 times higher than Abidjan’s (Source : IM).
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Slide 27
Port Terminals - 2
• Proceeds for FGN $ 115 m so far
• Forecast of $ 1.6 billion aggregate wholelife proceeds (but NPV based on 10 % d.f.)
• Operational efficiency has improved
• Overall costs to users have not fallen (may
have increased)
• Ports Reform Bill not yet passed into law
• Latent problem of future capital investment
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Slide 28
P.A.P.E. : Key Factors arising
* Privatisation : do we know it when we see it ?
* Selection of companies in our sample
* Reliance on the case study approach
* Availability of data
* Quality & quantity of information
* Applying FGN’s talent to the issues
* Absence of fiscal impact data
* Shortcomings in intra-governmental co-operation.
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Slide 29
P.A.P.E. : Some Conclusions
• Privatisation (judging by our sample) has been
good for Nigeria
• Each story is worth telling, carefully
• Reading these slides does not provide enough
understanding of the cases
• Energy supply is critical for manufacturers
• Local ownership is a growing trend
• Foreign direct investment is worth chasing
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Appendix G.
Selection of Companies
1. Named in the Terms of Reference and retained
Ashakacem; CCNN; First Bank
Dana Steel (formerly KSRC); NTM
Eleme Petrochemical; Oando.
2. Named in the Terms of Reference but withdrawn by BPE
NITEL …It was identified as a doubtful choice in late May and
formally dropped by the BPE in late July
Savannah Sugar …We had prepared an early draft case study
(but not visited); the BPE withdrew it in late July.
Continental Fertiliser (formerly FSFC) ….
As for Savannah Sugar.
Notore (formerly NAFCON) ….Withdrawn by the BPE in late July;
but we had not started work on this company.
3. Named in the terms of reference but dropped, as they did not reply
African Petroleum
Afribank.
4. Added by the BPE in mid-July 2008 and included
Lafarge-WAPCO
NAHCo
Union Bank
5. Added by the BPE in mid-July but subsequently dropped
Conoil …………... They did not reply to the introductory letters.
Benue Cement ….. As for Conoil.
United Bank (UBA) They did not reply until it was too late to include them.
Assurance Bank … They were absorbed by Afribank after
privatisation.
6. Identified as doubtful in late May (although in the ToR) ; and confirmed in
late July by the BPE
Ports (Port terminal concession-holders). We selected 6 concessionholders out of the 24 operational concessions; and introductory
letters were sent to them and the NPA in late July.
The NPA and two of the concession-holders did not reply.
None of the four with whom we made contact responded to our
request for information.
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Appendix H.
DfID / BPE / IBTCI Call-Down Facility: Project 2008-02-062
Performance Assessment of Privatised Enterprises in Nigeria 2000 –
2006
NOTE : Names and contact details of individuals have been removed from
this version (to retain confidentiality of personal data)
LIST OF PARTIES (CONTACT LIST)
INDEX [Note: Companies L to N have been dropped]
1.
2.
3.
4.
5.
Bureau of Public Enterprises (“B.P.E.”) ……………………
Department for International Development (“DfID”)……….
I. B. T. C. I. …………………………………………………
Ministry of Finance (Federal Republic) …………………….
Other Federal Government Ministries ………………………
Page
2
4
5
7
8
6. The Enterprises: A. First Bank of Nigeria………………………………………9
B. AshakaCem ………..…………………………………….. 9
C. Dana Steel (Katsina). …………………………………….10
D. National Truck Manufacturers. …………………………..10
E. Lafarge WAPCO……………. .………………………… 11
F. Cement Co. of Northern Nigeria……………………… …11
G. Oando………………………………… ………………….11
H. Eleme Petrochemical…………………. …………………12
I. Nigerian Airport Handling (NAHCo)………………… …12
J. Union Bank of Nigeria………..…………………… …… 12
K. Ports …………………..……… …………………………13
L. Benue Cement ………………………..……. …………… 14
M. Conoil ………………………. ………………………….. 14
N. Afribank …………………….………………………… 14
O. United Bank for Africa (UBA) ……………...…………… 14
7. Other Parties : a. World Bank…… ……………………………………. 15
b. Others
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1. Bureau of Public Enterprises (“B.P.E.”)
Address:
Hamza Zayyad House
11 Osun Crescent
Off Ibrahim Babangida Way
Maitama District
P.M.B. 442, Garki, Abuja
Website :
www.bpeng.org
Tel. :
+ 234 9 41 34 636 to 46
Fax :
+ 234 9 41 34 671 and 72
Post-Privatisation Monitoring Department
Bureau of Public Enterprises (“B.P.E.”) -- Other Staff
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2. Department for International Development (U.K.)
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3. I.B.T.C.I. and the Project Team
(International Business & Technical Consultants, Inc.)
Address (Nigeria)
Suite 201, 2nd Floor
Dunes Centre, Aguiyi Ironsi Way
Maitama, Abuja, Nigeria
Tel.
+ 234 9 413 0685
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4. Ministry of Finance, Federal Republic of Nigeria
Address :
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5. Other Federal Government Ministries and Agencies
A. Central Bank of Nigeria
CBN Head Office, Central Business Area, Abuja
B. Federal Inland Revenue Service (“F.I.R.S.”)
15, Sokode Crescent, Wuse, Zone 5, P.M.B. 33, Garki, Abuja
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6. The Enterprises (over several pages)
A. First Bank of Nigeria plc
Address : Samuel Asabia House
35 Marina
Lagos
B. AshakaCem plc
Address : Ashaka Works
Near Gombe
Gombe State
Abuja Office : Plot 418, Lome Street, Wuse Zone 7, Abuja
C. Dana Steel Ltd.
(Formerly Katsina Steel Rolling Mill Ltd. [KSR])
Address : Shehu Yar’ Adua Way
Katsina
D. National Trucks Manufacturers Limited (“NTM”)
Address : Km 11, Zaria Road, P.O. Box 6418, Kano
Website : www.ntm-automobiles.com
E. Lafarge WAPCO (West Africa Portland Cement)
Address: Elephant Cement House
Ikeja Central Business District, Alausa, Ikeja Lagos
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F. Cement Company of Northern Nigeria
Kalambaina Road
P.M.B. 2166
Sokoto, Sokoto State
Abuja Office : 1st Floor, Katsina House, Ralph Sodeinde Street,
CBD Abuja
G. Oando plc
Address: 8th-10th Floors, Station House
2, Ajose Adeogun Street, Victoria Island, Lagos
H. Eleme Petrochemical Company
Address:
East-West Express Way
P.M.B 5151, Port Harcourt,
River State
I. Nigerian Aviation Handling Co (NAHCO)
Address: Murtala Mohammed International Airport
P.M.B 013, Ikeja Lagos
J. Union Bank of Nigeria (U.B.N.)
Address: 36 Marina, VI Lagos
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K. Ports (See K.1 to K.7 below)
K. 1 National Ports Authority
Address: 26/28, Marina Lagos
K.2 APM Terminals
Address: Plot 121, Louis Solomon Close,
Victoria Island, Lagos
K.3 BUA Ports Services
Address: 7th Floor, AIB Plaza
Adeyemo Alakija Street, Victoria Island, Lagos
K.4 Ecomarine Consortium
Address: 6th Floor, Kariko Towers
9, Wharf Road, Apapa Lagos
K.5 Five Star Logistics
Address: 18, Mongomery Road, Yaba Lagos
K.6 Intels Nigeria Ltd. (Calabar)
Address: Aba Expressway, KM 16 Port Harcourt, Rivers State
K.7 Ports and Cargo Handling Services / SIFAX Group
Address : 54 Warehouse Road, Apapa, Lagos
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COMPANIES “L” to “O” WERE DROPPED FROM OUR LIST
L.
Benue Cement Company
Address: Kilometre 72, Makurdi-Gboko Road
Tse-Kucha-Mbayon, Gboko
Benue State
M.
Conoil
Address: Bull House, 38/39 Marina
Lagos
N.
Afribank
O.
United Bank for Africa (U.B.A.)
Address: 57 Marina Lagos
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7. Other Parties
A. World Bank (I.B.R.D.)
Abuja Address
Plot 102 Yakubu Gowon Crescent
Asokoro, P.O. Box 2826, Garki, Abuja.
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Appendix I.
Naira / U.S. Dollar Exchange Rates
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Rate
Source / Basis (See Notes)
2
4
5
7
8
10
17
22
22
31.59
81.86
82.19
86.46
96.00
105.14
116.95
126.40
133.07
133.56
132.10
132.44
128.61
118.85
IFS via World Bank
“
“
“
“
“
“
“
IFS via W.B. : and Oanda
Oanda Website
“
“
“
“
“
“
“
“
“
“
“
“
Note 4.
www.oanda.com
NOTES
1. All the rates for 1994 to 2008 are the same as those we
have used thus far (using daily average interbank rates)
2. Rates for years up to 1994 are the official exchange rates
3. Rates from 1995 onwards are market-based rates
4. The 2008 rate is for the period up to 23rd June (as in previous
table).
N.F. 25th Sept 2008.
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Appendix J.
Outline of Two Workshops initiated by Mr. Ron Ashkin for the BPE
1. Using MS Excel for Financial Analysis (11 June 2008)
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
TOPIC
Creating a new document
Formatting - numbers, cells (width/height, wrap text, alignment, merge
cells, borders)
Printing - set print area, print preview, page setup
Print titles (title rows on every page)
Data validation - table lookup, drop down boxes
Absolute references
References to data on other sheets
Naming sheets (tabs)
Headers and footers
Formulas
Charts (graphs)
Copying cells by dragging
Format painter
Fill series
Sorting data
Using the mouse buttons shortcuts rather than menus
Deleting unused sheets
Cloning (moving/copying) worksheets
Using Excel worksheets in Word documents
Making changes on multiple worksheets
2. Fundamentals of Accounting and Financial Analysis (18 June 2008)
A. Purpose of Accounting
B. Uses of Financial Management
C. Financial Accounting Concepts
D. Managerial Accounting Concepts
E. Ratios as Analytical Tools
F. Applications to the Decision Making Process
G. International Financial Reporting Standards
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End Notes
1
Source of share prices: Guardian newspaper, 27 November 2008
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