Emma Ujah, Asst. Business Editor
The Bureau of Public Enterprises (BPE) has dropped competitive bidding process in the privatization of the Nigerian Telecommunications Limited (NITEL) in favour of a negotiated sale of the premier national carrier after several attempt to privatise it failed. The choice of negotiated sale is in a bid to arrest the ever declining fortunes of the parastatal.
According to BPE ‚ÄúOverall, the single compelling reason for its sale sooner rather than later, and that is: NITEL value declines as its financial condition continues to erode — as seen in a summary of its liabilities, revenue, and market share. NITEL loses value daily as liabilities increase and revenue declines. In 2003 for instance NITEL liabilities amounted to N73.8billion but this rose in 2005, as of October to approximately N130billion and growing. The BPE said that while in 2002, on an annual basis, NITEL generated N15billion in pre tax income as at September last year it managed to generate N1.5billion in pre tax income.
In the same vein NITEL generated N40.9 billion in revenue and N33.9billion in collections in 2002 but in 2005 it revenue generation ability dropped to N22.8 billion and N16.9billion in collections, as the collection rate slipped from 83 per cent to 73 per cent.
NITEL according to the BPE is failing technologically, as evidenced by an eroding market share. In 2002, NITELs mobile communications subsidiary, M-TEL, had 11 per cent market share. In 2005, as of December, M-TELs market share had fallen to 5 per cent. Since NITELs fixed link is used by other providers, NITEL technological constraints compromise their reliability and inhibit roll out of new capacity and services.
According to a statement issued the agency and signed by Mr Chigbo Anichebe, in Abuja, yesterday, the agency said it intend to conclude the negotiated sale to a preferred investor before the end of next month. It cited the past unsuccessful attempts to privatise NITEL, the long period that a round of competitive bidding would take, as well as, its fast dwindling fortunes as reasons for the decision to sell NITEL through negotiated sale.
The statement read in part, “Several factors influenced the governments choice of a negotiated sales strategy, including three well known, previous attempts which, respectively, concluded when:
Investors International Limited (IIL) failed to make payments following a bid of $1.317 billion; Pentascope failed to meet contract obligations, resulting in cancellation of same; Orascom Telecoms bid of $256.53 million was rejected as unacceptable. A fourth round of competitive bidding would likely take 12 months or longer during which time NITELs value would continue to decline as liabilities/debts increase, service/market share decrease, and investors grow cautious as Nigeria’s election approaches. Investor caution, in turn, will lead to less interest, less competition, and lower prices bid for many reasons.
Given that Nigerias bargaining position regarding NITELs sale can only decline over time, Nigeria is well served to close a transaction while it can still negotiate from a position of strength: qualified investors remain interested. The only question that remains: how quickly to close the deal and make that deal the best possible for Nigeria? Hence the negotiated sale, a commonly used process for many major transactions the world over, including telecommunications. The negotiated sale method meets all BPEs original transaction objectives based on the same criteria used to evaluate prospective investors during the competitive bidding phase: namely, 1) to attract a world class strategic investor with a proven capacity in both fixed and mobile communications; 2) to maximise the transaction value, and 3) to reverse those telecommunications constraints impeding Nigerias economic growth.
The BPE explained that even though the new process differed from the competitive bidding process, it said the negotiated sale is a process, and it is competitive: it simply works differently, and is definitely to Nigerias advantage now. Negotiated sale extends to the preferred investor the right of first offer, it also preserves for the government the right of first refusal, meaning that the government is not bound to accept the offer.
The negotiated sale to a preferred investor still preserves competition. A short list of qualified investors gives government an upper hand if the negotiation breaks down. The government would then invite investors from the short list to make counter offers. All on the short list have met the technical, management and financial criteria used to qualify bidders from the very beginning of the competitive bidding process: the criteria have been carried over with no changes, the bureau said.
Under the new process, the BPE would draw a short list of prospective investors, screened based on pre-qualification criteria: minimum of USD .5 million shareholder capital, fixed and mobile telephony experience in two countries with 2 million aggregate subscriber base, and a 20% equity investment by a technical partner/telecommunications operator.
It would then identify a Preferred investor from the list and then negotiates Share Purchase and Shareholder Agreements with the firm after which the, preferred investor submits a binding financial proposal.
Federal Government opens and reviews binding financial proposal, and if acceptable, concludes transaction by signing the agreements with the preferred investor. If the offer is not acceptable, then all the short listed prospective investors receive the same transaction documents and allowed to make their counter offers. Federal Government reviews all offers received, makes its decision, it said.
Firms pre-qualified to buy the 51 per cent majority stake of NITEL were: MTN Nigeria Communications Limited, Telkom Consortium from South Africa, Huaweii/Jacuz Consortium, Orascom of Egypt, Celtel International B.V. and Newtel International.
