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Deregulation and Privatization in Nigeria: Oil and Gas Investment Opportunities

The Privatization Programme. 2. Agenda. Nigeria

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Deregulation and Privatization in Nigeria: Oil and Gas Investment Opportunities

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    1. Deregulation and Privatization in Nigeria: Oil and Gas Investment Opportunities IBC Nigeria Oil and Gas Summit 2001 Nasir Ahmad el-Rufai Director General Bureau of Public Enterprises Houston, Texas 4 December, 2001

    2. The Privatization Programme 2 Agenda Nigeria – Politics and Economy Economic Reform Philosophy Public Enterprises in Nigeria Privatization - Legal Framework Privatization - Status of Implementation Key Economic Sectors Reform Programme Challenges and Future Prospects

    3. The Privatization Programme 3 Background Nigeria Largest population in Africa (over 120 million) One-fifth of African and global Black population Committed to democracy and development Pillar of stability in Sub-Saharan Africa Poised to act as the engine of growth in Africa

    4. The Privatization Programme 4 Elections Chronology February, 1999: President with Vice President (Four-year term) 1999-2003 February, 1999: National Assembly consisting of 109 member Senate, and 360 House of Representatives - Four-year terms January, 1999: 36 Governors and State Houses of Assembly - Four-year terms December, 1998: 774 Local Government Chairmen and various councilors – Three year terms

    5. The Privatization Programme 5 Elections Process Voter Turnout

    6. The Privatization Programme 6 1999 Presidential Elections Olusegun Obasanjo - PDP Samuel Oluyemi Falae - APP

    7. The Privatization Programme 7 Nigeria: Executive Branch Head of State: President, inaugurated on May 29, 1999 National Government: The Federal Executive Council is chaired by the President, appointed June 30, 1999 State Government: State Governors (36) and State Houses of Assembly Main Political Parties: People’s Democratic Party (PDP) All People’s Party (APP) Alliance for Democracy (AD)

    8. The Privatization Programme 8 Nigeria: Legislative Branch

    9. The Privatization Programme 9 Nigeria: Economic Overview Second largest economy in Africa – GDP of about $40 billion – most entrepreneurial economy in Africa. GDP per capita about $300 down from about $1,200 in 1981. Fairly stable exchange and interest rates between 1994 and 2000. Very active capital market: established in 1961. Market Capitalization about $4bn – most profitable Stock Market in the world with annual ROI of 105% Developed banking system – 90 banks, over 3,000 branches

    10. The Privatization Programme 10 Economic Reform Agenda Manage external debt burden of about US$30 bn Reduce government involvement in business Reduce the size of PE sector – 40% of GDP Upgrade the physical and judicial infrastructure Implement and enforce anti-corruption practices Increase our peoples’ access to education, health care, sanitation and potable water Eradicate poverty through increased social investment. Balance social justice with law enforcement in Niger Delta region

    11. The Privatization Programme 11 Economic Reform Philosophy Government should legislate, regulate and tax businesses, not be an operator, competing with its citizens. Government should forge partnerships with the private sector and other stakeholders in policy formulation and implementation Key economic sectors requiring focused reform, foreign investment and market-based competition are: Electric Power – the lowest per capita consumption on earth Telecommunications – the third lowest tele-density on earth Oil and Gas – 9th largest producer that faces queues often Transportation – rail, ports and aviation – virtually liabilities Agriculture – employs 70% of our poor, but declining fast Minerals – huge reserves but virtually non-existent as a sector

    12. The Privatization Programme 12 Post-Election Developments Increased independence and funding of Judiciary Improved funding of States and Local Governments IMF Standby Arrangement in place from August 2000 Multi-sector and aggressive privatization programme Niger Delta Development Commission operational Protection of fundamental freedoms and property rights Recovery of illegally transferred wealth (US $1 bn) Over $2 bn in stolen funds frozen in offshore accounts Anti-corruption Commission prosecuting 75 offenders

    13. The Privatization Programme 13 Public Enterprises 590 public enterprises at end 2000 (160 in economic activities) Over 5,000 board appointments – enormous patronage power Control funds of over N1 trillion – more than Federal Budget Transfers of US $3bn (1998), $0.8bn (1999), and about $1.4bn (2000) – about $4bn in 2001. Accounted for budget deficit of 5% of GDP (1998) and growing Over 55% of non-performing debts (London and Paris Clubs) are PE debts (Hilton $300m, Sheraton $250m, Paper $1bn, etc.)

    14. The Privatization Programme 14 Public Enterprises Reform Focus on monopoly sectors – leave competitive markets alone. Policies are formulated afresh, or if existing, reviewed and updated. Draft Bills for sector reform approved by NCP and FEC, prepared in consultation with committees of the NASS. Establishment of independent regulatory commission for each sector, and focus Ministry on policy formulation. Undertake sector restructuring for competition (NEPA) Publish clear, transparent licensing and competition rules for each sector. Implement phased and transparent privatization of all public enterprises in each sector.

    15. The Privatization Programme 15 Second Privatization Programme (130 Public Enterprises) Sector Enterprises Infrastructure/Utilities 3 Oil and Gas 12 Steel/Aluminium/Mining 10 Machine Tools 1 Insurance 2 Fertilizer, Paper and Sugar 9 Cement 6 Transport and Aviation 5 Vehicle Assembly 6 Banks 5 Media 2 Agro-Allied 6 Hotels and Tourism 8

    16. The Privatization Programme 16 Legal & Institutional Framework Public Enterprises (Privatization & Commercialization) Act 1999, enacted new arrangement in May 1999. Vice-President of Nigeria is political champion and chairs the National Council on Privatization (NCP). NCP is the lead policymaking agency. BPE is secretariat of NCP, its implementation agency and works with appointed advisers. Ministers are co-opted members of NCP and chair NCP Sector Reform Implementation Committees. World Bank offers technical assistance on utilities sector reform and about $115m. Others are USAID ($8m), UK ($10m) and Spanish Governments ($5m).

    17. The Privatization Programme 17 The Enabling Law Excellent, Pro-active Legislation I – Privatization and Commercialization II – National Council on Privatization III – Bureau of Public Enterprises IV – Legal Proceedings V – Arbitration Panel VI – Repeal, Savings, Interpretation VII – Schedules of Public Enterprises - 1.1 Partial Privatization - 1.2 Full Privatization - 2.1 Partial Commercialization - 2.2 Full Commercialization

    18. The Privatization Programme 18 Subsidiary Legislation 2001 Allotment to PE staff – up to 10% of shares. Allotment basis – equality of Federal Constituencies. Creation of 12 steering committees of Council. Addition of 42 public enterprises to original list of 61. Creation of N10bn share purchase fund annually. Modification of the 40-40-20 formula to give strategic investors at least 51% equity+management control Buying out willing partners – Shell, Iveco, etc. Deviation from core investor need – NAL, FSB

    19. The Privatization Programme 19 Privatization Process Appointment of advisers by competitive bidding Technical, Financial and Legal Due Diligence Advertising of PE for sale to strategic investors Pre-qualification of prospective core investors Issue Information Memo and Bidding Documents Public opening of bids on live national TV Clarification sessions with short-listed bidders Submission of final financial bids/auction Public offer of balance of shares to Nigerians

    20. The Privatization Programme 20 Phasing and Implementation - 1 Phase I: Dec 99 – Dec 00 Banks, Oil Marketing, Cement - Target $200m All advisers local, core investors mostly foreign Virtually completed, $250m to be raised, $190 million already transferred to Treasury by Dec 00 Phase II: Jul 00 – Jun 02 42 companies including Hotels, Vehicle Assembly, Sugar, Paper, Media, Insurance, Transport, Oil Services, 12 in 2001. Target of $700m to be raised – Over $1 billion expected in 2001. Core Investor Sales only and some IPOs to be made. Sector reform for aviation, telecoms, power and downstream oil and gas being implemented.

    21. The Privatization Programme 21 Phasing and Implementation - 2 Phase IIIa: Jan 01 – Dec 02 Telecom, Airline, Airports, aluminum, machine tool, steel, fertilizer (included in 39 for 2001) Core Investors sales only, (about 51%) to be followed by IPO at a later date. Billions of US Dollars expected to be raised. Advisers yet to be appointed to estimate proceeds after due diligence. Phase IIIb: Jan 02 - Dec 03 IPO for other Hotels, Vehicle Assembly,Sugar, Paper, Steel, Media, Insurance companies for which strategic sales were made in Phase II. First tranche of cross-border IPOs will cover some of the suitable Phase II and Phase III enterprises.

    22. The Privatization Programme 22 Electric Power Reform 2001-2002 The current timetable for electric sector reform is: Electric Power Policy Statement June 2000 Legal/Regulatory Adviser Oct 2000 Draft Electricity Bill Dec 2000 Restructuring Adviser Apr 2000 Electricity Regulatory Commission Dec 2001 Unbundling of NEPA Jun 2002 Privatization Adviser Jul 2002 Privatization of Entities Aug 2002

    23. The Privatization Programme 23 Oil and Gas Sector Reforms The current timetable for downstream oil and gas sector reform is: Downstream Oil & Gas Sector Diagnostic Review Dec 2001 Downstream Deregulation Policy Mar 2002 Oil & Gas Legal/Regulatory Adviser May 2002 Downstream Deregulation Reform Bill Jun 2002 Petroleum Regulatory Commission Oct 2002 Refineries/Petrochemicals Privatization Adviser Jul 2002 Pipelines/Gas Company/Other Downstream Sep 2002 Privatization of Downstream Subsidiaries Oct 2002

    24. The Privatization Programme 24 Policy/Implementation Challenges Political will at the highest level must be sustained Attracting genuine foreign investors: Country marketing must precede enterprise marketing Clearing negative image – 419, political instability Role of local partners, reluctance of foreign investors Conflicting Signals, National Assembly, Micro-Nationalists Rehabilitation before privatization or not ? Un-funded pension liabilities - US $6 billion Public Enterprise cross-debts – US $3 billion Surplus labor, salary arrears and severance pay. Legacy of corruption, suspicion, and cynicism.

    25. The Privatization Programme 25 Conclusion There is broad consensus that public enterprises in Nigeria have failed woefully to live up to our expectations. Our leaders have recognized that privatization is inevitable – state capitalism has failed, is outdated and unsustainable. The Privatization Programme offers the cheapest route of entry for any genuine foreign investor. The openness and transparency of the process enables anyone to participate and win – the Scancem of Norway story. BPE is committed to living up to the expectations of our nation and our friend abroad, in the honest, timely and transparent implementation of the public enterprise reform programme. We need genuine investors – Nigerian and foreign, and we are on hand to help anyone with information and contacts, etc.

    26. Check our website: www.bpeng.org Or send email to: Nelrufai@bpeng.org Elrufai@aol.com Elrufai@hotmail.com For details and updates Thank You!

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