Home Finance Privatisation blues in Nigeria, Alscon another NITEL in the waiting

Privatisation blues in Nigeria, Alscon another NITEL in the waiting

by Business News Report

By Omoh Gabriel, Business Editor
WHEN the idea of privatisation was muted in the 80s, its purpose was to free government from running enterprises that the private sector can handle better. Its purpose was to further free resources and unleash the power of the private sector as the engine of growth of the economy. It was a global concept and every nation queued up to embrace the concept. The federal government bought into the concept and set up the then Technical Committee on Privatisation and Commercialisation (TCPC). The body had the responsibility of preparing enterprises which government has interest for privatisation. The TCPC later metamorphosed into the albatross called Bureau of Public Enterprises (BPE).
So far, most of the enterprises privatised seem not to meet the objective which the exercise was set up— national objective. The BPE was suppose to ensure that those who emerged as bidders after pre-qualification had the necessary prerequisite to run the enterprises they have acquired to further the over all interest of Nigeria. The criteria set by government itself include among others, technical competence of the institution, financial and managerial capability. There is overwhelming evidence that the privatisation process has been subverted by personal interest instead of national interest and these laid down creteria thrown overboard. The process of pre-qualifying and the entire privatisation has been described by foreign investors as the most expensive and one that is not transparent. The massive bad debt concealment in African Petroleum, the sale of Niger Dock almost immediately it was handed over to Global Energy, the inability of CIIL to pay for NITEL,etc are a few example of the after affect of ill conceived and under managed privatisation.
In recent times, the BPE had pre-qualified a supposedly qualified and competent company and it finally emerged as the winner of the NAFCON exercise but was unable to pay the bid price for the company and that has to be put on hold; meaning that either enough work was not done or the political process was allowed to interfer in the free market process the government claims to be pursuing. Secondly, it would appear that a lot of people are being used as fronts for principal actors in the National Council on Privatisation as companies without the financial well withal and the much needed managerial competence that would allow for the continued survival of these companies being privatised are being handed over such companies.
Painfully, government has not mustered up the courage to have a thorough review of the exercise. What is obvious in the Obasanjo current privatisation is the urgent need for cash injection into the economy which is a short term thing. It is in the political interest of the federal Government and the PDP to find money to build schools, roads and other social services so it can afford to sell to the highest bidder. The question is: of what use is the highest bidder who does not have the well withal to ensure the continued existence of an hitherto national asset? The over all survival of these companies, the employment that they will generate in the future if the business continued to thrive, the tax the government gets, and other streams of benefits should be the long run consideration of any government interested in the welfare of the people and the growth of the economy.

For instance, the sale of Daily Times recently to Folio Communication Limited may not necessarily be that the promoters of Folio Communication have interest in the business of publishing. Nigerians are well aware that Daily Times has a lot of assets. These assets could be tripped and sold to make quick gains. After all, the section of the Privatisation Act prohibiting the sale of a privatised enterprise in the first five years has been jettisoned.
The Aluminum Smelter Company of Nigeria is the most current and one that is likely to go the way of CIIL. It is by all indication another NITEL in the waiting. Within the farmwork of the federal government’s privatisation plans, the Bureau of Public Enterprises (BPE) is seeking to sell the majority stake in the Aluminum Smelter Company of Nigeria (AlscoN). An efficient management team with extensive experience in the sector, a good environmental record and strong financial resources is required to refurbish the smelter and restart operations. It is believed that the winning bidder would need to spend an additional $180 million in order to secure the production of AlscoN’s optimal metal volume.
When the company was advertised for interested parties to send in their expression of interest, only one global aluminum company came bidding. The company, Rusal, is a Russian company, none from Europe or the United States of America. This should give Nigerians concern given that most aluminum companies are looking for opportunities to invest in emerging markets. According to Marcos Courage, the spokeman of Rusal who is based in London, the vagaries of Nigeria’s privatisation process and the high financial premium requested for the smelter have been sighted by analysts as reason for the lack of interest from Alcoa, BHP Billiton and Alcan. He said: “There can be no doubt that the unpredictability of Nigeria’s privatisation process has deterred many foreign investors. Last week, for instance, the World Bank published a report indicating its frustration at the slow progress of privatisation in Nigeria.”
Indications are that since the suspension of production in the company in the 1990s, Alscon has been consuming an estimated N60 million every month to finance the plant maintenance, pay staff salaries, provide security and meet overheads without producing any aluminum. In total, Alscon is said to have devoured in excess of $2.5 billion of Nigerian tax payers’ money since inception.
Two companies were pre-qualified for Alscon and during the bid process BFI emerged the highest bidder having double its bid to $410 million when they were asked to review their bids while Rusal, the second preferred bidder, reduced its bid from $205 million to $160 million. It is pertinent for Nigerians to have a proper perspective of the two companies. Most especially as the president has refused to give assent to the BFI. It was learnt that the president has asked the BPE to ensure that Rusal is back into the process of Alscon sale. Is there something the president knows that the rest of us do not know?
Rusal’s bid, according to Marcos Courage, was informed by its due diligence which put the value of the complex at $140 million. Mr. Courage disclosed that Standard Chartered Bank had valued the plant for $140 million. He said no company would want to pay beyond the actual value of a plant. Courage said that Rusal was founded in 2000 by merging several independent smelters, today Rusal is one of the largest aluminum producers, controlling 10 per cent of the global market. The company, he said, aims to increase its output and efficiency by modernizing existing plants, constructing and acquiring new ones.
With plants all over Russia and abroad, including the world’s two largest aluminum smelters, located in Bratsk and Krasnoyarsk, the company has embarked on a programme of modernization. This programme is led by the RUSAL Engineering and Technological Centre (ETC).
Rusal acquired the Friguia refinery in the Republic of Guinea in 2002. Since then, Rusal has embarked on a major modernization programme — modernizing the mines and the refinery in Guinea. The aim is to raise output from the alumina refinery and improve the quality of products.
Rusal intends also to modernize a local heat power station, which supplies both the alumina refinery and Friguia town with energy. The company is also planning to acquire and install new turbines and add another boiler, which will significantly increase the production capacity of the plant and improve its reliability.
Rusal will be introducing mining with cutter-loaders at its operations in Guinea, replacing traditional drilling and mining with explosives. This new method of mining is much less damaging for the environment. The company has also recently approved an extensive programme to reduce dust-blowing during alumina loading at the Conakry sea port.
On the other hand, the other bid for Alscon came from BFI Group, an alleged Nigerian-owned US-based consortium which bid $410 million for the smelter. Once Rusal’s bid was disqualified for its conditional bid, the BFI Group consortium was pronounced ‘Preferred Bidder.’
From available record, while BFI Group claims to be global in reach, in practice the company apparently is just a vehicle for one Dr Reuben Mietamuno Jaja, who lives in West Covina, California to acquire the company. There are no records of company incorporation for ‘BFI Group’ in the US, nor any evidence that Daewoo is involved in the bid. There are also no records that Daewoo has ever invested in the production of aluminum as available records both in the web and at the Nigeria Corporate Affairs Commission has shown. It is doubtful if the BPE actually undertook a due diligence on the company. Sad enough, it was the same thing that happened in NITEL when a group of Nigerian investors teamed up with the hope of acquiring the company but could not finance the project and hurriedly set up CIIL. Till today, the BPE and First Bank PLC are still leaking their wounds from that botched exercise.
However, another company, BFI Group Divino Corporation, was incorporated in California on February 23, 2004, by one Dr Jaja. The Secretary of State of California does not have on file a Statement by Domestic Stock Corporation Filing (which lists officers among other things). BFI Group Divino Corporation has twice been notified of this but has not yet filed a statement with the Secretary of State of California. This should have been done within 90 days of the company’s incorporation.
It is worthy of note that Solgas was the only company which bid for the Ajeokuta Steel plant. Apparently, the said Dr Jaja was mandated by Solgas to raise the money to finance this transaction. Dr Jaja is said to be still seeking these monies.
It is unclear what financial resources BFI Group Divino Corporation has at its disposal, but from all indications, Dr Jaja has insufficient personal wealth to pay $410 million. It is speculated also that he is incapable of raising these sums of money from the international capital markets which are not favourably disposed to financing projects in Nigeria. Since the CBN started to mop up liquidity in the Nigerian market earlier this year, forcing a ‘liquidity squeeze’, it is also unlikely that sufficient capital is available in the Nigerian money market to finance this deal even if the banks decide to lend long term.
Where does BFI hope to secure $410 million? The people of Nigeria have a right to know. The privatisation of Alscon is too important to risk another embarrassment like NITEL, which severely damaged the credibility of Nigeria’s privatisation programme and scarred First Bank which lost $l0 million in the deal. Nigeria simply cannot afford another failure on this grand scale. Alscon has the potential to provide well-paid jobs for 1,800 Nigerians.
A fully operational smelter will stimulate the development of local infrastructure, including harbour facilities, maintenance services, social and medical institutions. It is estimated that the project would indirectly provide about 20,000 jobs in lkot Abasi. What is the objective of Nigeria’s privatisation programme? What are the national interests being pursued?
For too long, the state’s assets (funded by Nigerian tax payers) have been used as a cash cow by successive governments. The Federal Government should move decisively to end this abuse and attract experts from the private sector to manage and develop Nigerian utilities for the benefit of the Nigerian economy. The private sector has proven itself to be more efficient than the public sector at managing many industries and utilities — creating wealth, employment and security for the people of Nigeria.
The sum of money which the FGN can raise from the sale of a public asset or state utility is only a portion of the real and long term return which Nigeria receives from successful divestitures. For example, a fully operational plant at Ikot Abasi will not only provide direct employment for thousands of Nigerians, but will also provide the government with taxation revenues for expenditure on basic public services for as many years as the plant is operational. Nigeria’s donors and development partners have invested time, money and resources into BPE and the FGN’s program of divestiture. The sale of Alscon has international implications. USAID has invested money and provided training to build up the capacity and competency of BPE. The World Bank has too. Last week the World Bank registered its dissatisfaction with Nigeria’s privatisation process. International investors are keenly observing the BPE’s short-term programme of divestiture. They will take no confidence from another flawed privatization. A failure would further and significantly damage Nigeria’s ability to attract private capital, foreign and local.

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