4-Year Status Report on

Programme Implementation (1999-2003)

To TheNational Council On Privatisation

(NCP/33/05/2003)

May 2003

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OUTLINE OF REPORT

1.Table of Contents

2.Chapter One: Introduction•Statement of the Director General•Rationale for Privatisation & Commercialisation

1.Chapter Two: Institutional Framework For Implementation of Programme• Legal Framework/ Enabling Legislation• NCP Membership-functions and powers• Standing, Steering and Ad-hoc Committees (Terms of References &

Membership)• BPE/Secretariat- Organisational Structure and staffing

4. Chapter Three: Programme Implementation1. Chart of Public Enterprises slated for privatisation & commercialisation2. Status of Implementation since 1999 i.e. Phases I, II & III including

Concessioning3. Sector Reforms; Policy, Legal and Regulatory Framework (Ports,

Power, Telecom, Oil & Gas, Transport)4. Cross-Cutting Issues: Pensions Reform, Cross Debt, Competition and

Anti-Trust, and Environment.5. Consensus Building, Publicity & Enlightenment6. Focus Groups with Labour Unions

5. Chapter Four: Procurement Issues

7. Process Implementation-Adviser Selection, Core Investor Selection and IPO Process

8. Multilateral & Bilateral Credit and Donor Support9. Training, Workshops & Seminars

6. Chapter Five: Issues Related to Privatisation10. Privatisation Strategy11. Subsidies Reform12. Use of Privatisation Proceeds13. Share Purchase Loan Scheme14. Labour & Severance Issues

7. Chapter Six: Financial Matters15. Audited Accounts 1998-200116. Privatisation Proceeds 1999-200317. BPE Budget Proposals vs. Appropriation 2000-2003

8. Appendices:i.Commercialisationii. Frameworkiii.BPE current Staff Listiv.Staff Training Programmes 2000-2003

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1. Seminars and Workshops2. Local Training3. Overseas Training4. Study Tours5. In-House Training

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CHAPTER I

1.0 INTRODUCTION

1.1 STATEMENT OF THE DIRECTOR GENERAL

It gives me great pleasure to present to the National Council on Privatisation the four-year Report and Audited Accounts of the Bureau of Public Enterprises. In the last four years, we have had some successes and many challenges in the implementation of the structural reform, privatisation and commercialisation programme. The modest achievements recorded in the Privatisation of enterprises slated for Privatisation in phases One and Two, as well as the remarkable progress made in the area of restructuring and reform of sectors that were non-competitive and lacking the required legal and regulatory framework to induce private sector participation based on clear, fair, transparent and level playing field for all participants, are self evident.

Since the re-launching of the programme in 1999, when this administration assumed office, we have carried out a total of 33 privatisation transactions in the first and second phases of the programme, out of which 24 were successfully and financially closed. The new owners have since taken over these enterprises. Six transactions were not concluded for various reasons as enumerated in chapter 4 of this report. The rest will be concluded shortly after the necessary approvals are obtained.

The enterprises successfully privatised were divested mostly through core investor sales or a combination of core investor sales and public offers. A few were disposed of through sale of assets and one was liquidated.

Our sector reform activities, especially for power, telecoms and ports, have progressed very well. Our focus henceforth, will be to accelerate the concessioning of the seaports, privatisation of the new business units unbundled from NEPA, the sale of majority interest in our petroleum refineries and privatisation of NITEL beginning with the public offer. In addition, we will divest Government’s interest in the remaining enterprises slated for privatisation under Phase 2.

We have collected gross proceeds to the tune of about N57 billion from the sale of these public enterprises. We also expect additional N10 billion from (NAFCON: $75m, MV Abuja: $3.45 and Iwopin Pulp and Paper: $3.1m) very soon when negotiations with the preferred bidders are concluded and sales agreements signed.

In the course of implementation of the programme, we faced considerable challenges. By God’s grace, and with the support of the authorities, especially the vice president and chairman of NCP, members of the NCP and other well-meaning Nigerians, most of these challenges were overcome. In 2000, we focused much attention on our flagship, which was Nigeria Airways. The withdrawal of International Finance Corporation (IFC) as privatisation adviser due to continued frustration from the Airline and the Ministry was a setback. In 2001, the 51% core investor sale of NITEL was our flagship transaction. The process went very well and was adjudged open, transparent and conducted in a timely fashion, although it did not reach full

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financial closure. In spite of the unfortunate inability of the preferred bidder to raise the balance of purchase consideration for the acquisition of 51% of the Federal Government’s interest in NITEL, the Federal Government received more than US$130 million by way of the non-refundable deposit from the transaction. We also sent the clear signal nationally and internationally by the decision to stick resolutely to international best practices in the conduct of the transaction. This has proven to be of major benefit in the conduct of subsequent transactions. We have however concluded preparatory work for the Initial public offer of NITEL shares, which will be the largest such offer in the Nigerian capital market. The issue of core investor sale will be revisited when global market conditions permit. Similarly, the 51% core investor sale of Nicon Hilton Hotel did not reach financial closure due to the inability of the preferred bidder to meet the payment deadline.

We have also faced challenges from some of the workers’ unions. While most of the workers had genuine concerns about job security, job losses and payment of entitlements such as gratuities and pensions, many of the union leaders were simply ideologues who refused to make any efforts to appreciate what the programme is trying to accomplish. Building on dialogue unions and reaching down to the workers directly proved effective, as the workers were ready to support the programme once their basic concerns have been addressed. On a number of occasions we had disagreements with the House of Representatives. However, the greatest challenge to the programme was the Air Wing saga, the facts of which are well known to all of us and represents the largest single damage to the credibility of the programme and Nigeria as a nation. We continued to encounter resistance from some managements of public enterprises slated for privatisation. We were however, in all occasions, able to surmount this obstacle through our determination and the political will of the Vice President and the President.

We are confident that with the benefit of our past experience and the continued support of their Excellencies the President and Vice President, and the crucial support of members of the NCP and the Nigerian public, who stand to be the greatest beneficiaries of the success of this programme, the implementation of the privatisation programme will proceed in accordance with our work plans.

Finally, I wish to use this opportunity to, on behalf of myself, members of my management committee and the entire staff of BPE, profoundly thank members of the NCP, especially the vice president, for the tremendous support and encouragement given to us while undertaking this very important national assignment. You were always there for us and your unwavering support at all times was a source of tremendous strength and encouragement that kept us going.

Thank you.

Nasir A. el-Rufai, OFRDirector General

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CHAPTER II

2.1 RATIONALE FOR PRIVATISATION AND COMMERCIALISATION

2.1.1 PRIVATISATIONFrom an obscure and little known concept in the late 1970s, Privatisation has become a worldwide phenomenon in both developed and developing countries. This was as result of several developments that forced a rethink of earlier held views on the role of state in fostering economic development. In the 1980s, the role of state-owned enterprises (SOEs) underwent close scrutiny in many countries, especially developing countries. Many governments concluded that SOEs were not the ideal hybrids they had been made out to be: only rarely did they combine the strengths of the public and private sectors as originally expected, and occasionally they combined the worst of both. SOEs commonly failed to maximize the greater good, or did so at very high cost. Fine-tuning and marginal reforms had, in most cases, done little over the years to improve their performance.

By the late 1970s, the SOE sector had absorbed a large share of governments’ budgets in the form of direct allocations, subsidies and capital investments. As governments ran into severe fiscal problems in the 1980s and loans became increasingly difficult to mobilise at home and abroad, they were forced to consider relatively radical methods for turning the SOE sector around. Thus, a programme of SOE reform emerged in developing countries that in terms of scale and scope had no parallel in the post-war period. The search for solutions resulted in several reform measures. The two classes of reform commonly employed were Privatisation and strengthening the methods by which governments controlled SOEs.

The term Privatisation can be defined simply as the transfer of ownership of public enterprises to private hands. In reality, Privatisation takes many different forms and the term is sometimes used, broadly, to describe any policy changes that enlarge the scope for private enterprise to compete with state-owned enterprises (SOEs), or even ones that might cause SOEs to behave more like private firms1.

Essentially therefore, Privatisation is an economic strategy aimed at reducing the role of government in economic activities and in favour of widening the scope for the private sector to operate. Thus, in many African countries, particularly since the late 1980s, and against the background of shifting ideologies, donor pressure and dismal performance of PEs, with the resultant public dissatisfaction, privatisation of PEs, has been stepped up significantly as a major instrument of economic reform. Though, an economic measure, privatisation has social and political implications that must be considered if the desired results are to be fully realized.

Privatisation gained considerable momentum in the developing world in the 1980s, such that, by the end of December 1987, some 571 SOEs had been privatised in 57 developing countries. These countries are spread in all the regions of the world, in

1Ramamurti, R and R. Vernon et. al (1991), Privatisation and Control of State-Owned Enterprises, Economic Development Institute of the World Bank).

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Africa, Asia, Latin America, Middle East and the Caribbean. The countries in the forefront of these privatisation transactions include: Cote d’Ivoire, Guinea, Niger, and Togo in Sub-Saharan Africa; Singapore in Asia; Brazil, Chile, and Jamaica in Latin America and the Caribbean.2

Nor is Privatisation restricted to developing countries alone. It is being implemented even in the developed market economies in Europe and Canada and in the former communist countries in Eastern Europe. For example; in the UK, at the end of the 1970s the nationalized industries accounted for nearly 10 per cent of GDP and employed nearly 10 per cent of all workers. And Government-owned monopolies dominated transport (buses, rail and aviation), communications (postal services and telecoms) and the energy sector. The picture has changed drastically by the end of the 1980s where telecoms, gas, electricity, aviation, steel production, water supply and many more have all become largely- or wholly-private sector activities.

However, different goals motivated privatisation in different countries. Country studies reveal that these goals included improving a government’s cash flow, enhancing the efficiency of the SOE sector, promoting “popular capitalism”, curbing the power of labour unions in the public sector, redistributing incomes and rents within society, and satisfying foreign donors preference for in the role of government in the economy.

Lessons learned from the first phase of our privatisation programme (1989-1993) and elsewhere have revealed that privatisation of PEs alone may not result in optimal levels of efficiency gain for the consumers. Efficiency gain is one of the most important objectives and justification for Privatisation. Under the appropriate conditions and circumstances, privatisation, is capable of promoting efficiency and growth. But for it to yield the desired and satisfactory outcome, certain prerequisites or conditions are imperative, among which are: commitment and support at the highest political levels, appropriate policy environment, including a liberalized and competitive environment that induce the private sector to operate as well as adequate legal/regulatory framework to ensure that no private monopoly is created to replace a public one. Similarly, the privatisation programme must address the issues of equity and interests of the poor, fears of foreign domination, transparency and accountability, labour issue, capacity for programme implementation, broad ownership of privatised national assets, handling of proceeds generated, privatisation policy instruments, etc.3

The case for privatisation in Nigeria is not very different from the experience worldwide. Public Enterprises failed to live up to expectations. They consumed a large proportion of national resources without discharging the responsibilities thrust upon them. A reflection on the level of coverage of the National Electricity Power Authority (NEPA) and its inefficiency in providing electricity balanced against government’s monumental investments in NEPA speaks for itself. It is estimated that

3 Obadan, M.I. (2000) “Privatisation of Public Enterprises in Nigeria: Issues and Conditions for Success in the Second Round”, NCEMA Monograph Series, No.1

2 Ramanadham, V.V. et. al (1993), Privatisation: A Global Perspective, Routledge, London

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SOEs consume about N200 billion of national resources annually, by way of grants subsidies, import duty waivers, tax exemptions, and the like.

Data obtained from various government departments and estimates reveal that in 1998, Nigerian PEs enjoyed about N265 billion in transfers, subsidies and waivers, which could have been better invested in our education, health and other social sectors. Table 1 below shows the breakdown of these actual and shadow transfers:

TABLE 1 - TRANSFERS TO PARASTATALS AND AGENCIES (1998)

Foreign Exchange allocation at N22 instead of the market rate of N86 prevailing in 1998.Source: Federal Ministry of Finance, Various Government Records

Economic liberalisation and privatisation is therefore justified by gross failure of PEs to provide the goods and services and operate efficiently and profitably.

Moreover, it is more prudent to direct our scarce resources to attacking poverty through investment in health, education and rural development – social programme s that will benefit millions of Nigerians, not just a few thousand urban elite that are employed by, or capture the subsidies granted to the public enterprises. Policy-makers realise that no creditor will forgive our debt and no donor will offer aid, so that Nigeria will have resources to prop up the Nigerian Telecommunications Plc (NITEL), NEPA or Ajaokuta Steel. That is the stark reality that Nigeria faces.

There is virtually no public enterprise in Nigeria today that functions well. While they were created to alleviate the shortcomings of the private sector and spearhead the development of Nigeria, many of them have stifled entrepreneurial development and fostered economic stagnation. NITEL, NEPA and the Nigerian National petroleum Corporation (NNPC) are the best examples of these. Public enterprises have served as platforms for patronage and the promotion of political objectives as they suffer from operational interference by civil servants and political appointees.

Transfer/Waiver/Subsidy Amount (N bn) Percent of Total

Subsidised Foreign Exchange(1) 156.5 59%

Import Duty Exemptions 12.5 5%

Tax Exemptions/Arrears 15.0 6%

Unremitted Revenues 29.5 11%

Loans/Guarantees 16.5 6%

Grants/Subventions, etc 35.0 13%

TOTAL N265.0 100%

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Public enterprises have also contributed to income redistribution in favour of the rich over the poor, who generally lack the connections to obtain the jobs, contracts or the goods and services they are supposed to provide. The annual burden of over N200 billion that PEs imposes on the economy has become untenable, unbearable and unsustainable.

PEs consumed nearly half of all the revenue made from the sale of crude oil since 1973. Estimates of the Vision 2010 Committee indicate that Federal Government investments in PEs stood at over US $100 billion in 1996. The return on these investments averaged less than 0.5% per annum. According to a TCPC Survey, public enterprises account for between 30 and 40 per cent of fixed capital investments and nearly 50% of formal sector employment.

Public Commissions and Study Groups have undertaken various studies on the performance of PEs in Nigeria. Adebo (1969), Udoji (1973), Onosode (1981) and Al-Hakim (1984) chaired these commissions. The findings of the studies were consistent in finding that PEs were infested with problems such as:

• Abuse of monopoly powers,• Defective capital structures resulting in heavy dependence on the treasury for

funding,• Bureaucratic bottlenecks,• Mismanagement,• Corruption, and• Nepotism

Nigeria’s privatization program started 1989 following the inauguration of the 11-member Technical Committee on Privatisation and commercialization (TCPC) on August 27, 1988 in accordance with the provisions of Decree No. 25 on Privatisation and Commercialisation. The decree gave legal backing to and formally initiated Nigeria’s Privatisation and Commercialisation Program. Before then, between 1986 and 1987, FGN liquidated seven agricultural commodity boards, the Nigerian National Supply Company (NNSC) and divested various units of Nigerian Livestock Production Company.

From 1988 to 1993, the TCPC had privatized 55 firms. Offer for sale was the predominant mode of privatization. Out of the 55 privatised companies, 35 were through public offer, 1 through MBO, 8 through sales of assets by public tender, 7 by private placement and 4 through deferred public offer. The predominance of public offer was to ensure wider share ownership and the desire to extend the frontiers and depth of the Nigerian capital market. In all, the TCPC sold about 1.5 million shares, resulting in the creation of over 800,000 new shareholders. Market capitalisation of the NSE increased from N8bn to over N30bn by September 1992. It generated gross revenue of about N3.7bn from the 55 PEs privatized. The original investment in these enterprises according to MOFI records was N652 million, indicating a capital gain of N31 bn or nearly 600 per cent. The government also relinquished about 280 directorship positions in these companies, reducing the scope for wasteful political patronage.

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The program was truncated in 1993. There were no privatizations between 1993 and 1999. The then government promulgated Decree No. 78 of 1993, establishing the Bureau of Public Enterprises (BPE), which replaced the TCPC, and opted for a new scheme of contract management and /or leasing of PEs to private concerns in 1995.

On coming to power in 1998, the Gen Abdulsalam Abubakar, reaffirmed Nigeria’s commitment to the privatization program and launched the current (second round) privatization program, though the actual implementation was left to the incoming civilian administration. The legal framework of this second round was put in place with the promulgation of the Public Enterprises (Privatisation and Commercialisation) Decree No. 28 of 1999. The decree provides for a reorganized institutional framework that includes the establishment of the National Council on Privatisation (NCP) and the Bureau of Public Enterprises (BPE).

The scope of the Privatisation Programme , which commenced in 1999, includes the partial or total divestment of the shares owned by the Federal Government, its parastatals and other agencies in PEs active or dominant in at least 13 key sectors. The cumulative value of investment to be transferred from the public sector is in excess of $100 billion. Unfortunately, it is extremely unlikely that the Government will ever recoup these investments. A mere sample of some sectors and estimated values of FGN investment is summarised in Table 2 below:

Table 2 – FGN investments in selected PEsSector Enterprises FGN Investment

Infrastructure/Utilities 3 US $28 bn

Upstream Petroleum 1 N/A

Downstream Petroleum 6 US $17 bn

Steel/Aluminium/Mining 9 US $14 bn

Machine Tools/Minting 2 US $650 mn

Fertilizer 2 US $850 mn

Paper 3 US $1.4 bn

Sugar 4 US $1.8 bn

Vehicle Assembly 6 US $1.7 bn

Media 3 N/A

Insurance 2 N/A

Oil Marketing 3 N/A

Cement 5 N/A

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N/A – Not availableSource: Federal Ministry of Finance, Other Government Records

The cumulative value of FGN investment by way of equity, loans and other transfers to these 62 enterprises is estimated at nearly US $70 billion – nearly a third of Nigeria’s total oil revenue since 1973. As at December 2000, the total liabilities of 39 of these PEs were in excess of N1.1 trillion, with accumulated losses of N92.3 billion.

The experience in the last thirty years has been one in which the PEs have:

• Created economic inefficiency;• Incurred huge financial losses;• Absorbed disproportionate share of credit especially in the form of Paris and

London club loans, as well as domestic loans and advances; and• Contributed to consistent fiscal deficits.

Over time, political and personal considerations have proved to be significant influences on numerous PEs policy matters (including investment, tendering, siting, pricing, choice of machinery, employment levels, and management appointments). All have been unsustainable, and achieved at significant cost to the Treasury.

Transportation/Aviation 3 US $1.9 bn

Commercial/Merchant Banks 5 N/A

Agro-Allied 5 N/A

TOTAL 62 About US $70 bn

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The objectives and benefits of privatisation in Nigeria are many and include the following:

• Reduce corruption;• Modernise technology• Strengthen domestic capital markets;• Dismantle monopolies and open markets;• Promote efficiency and better management;• Reduce debt burden and fiscal deficits;• Resolve massive pension funding problems;• Broaden base of ownership• Generate funds for the Treasury• Promote corporate governance• Attract foreign investment• Attract back flight capital

A TCPC survey in 1991 reveals that by 1990, there were over 1500 commercial and non-commercial public sector enterprises in Nigeria. 600 of these were owned by FG and the rest by states and local governments. Estimates of the contribution of the public enterprise sector to GDP ranges from 35-50%. Public enterprises also provided employment for approximately 500,000 people, about a third of public sector employment and almost 22% of total employment in the formal sector of the economy.

The magnitude, scope and persistence of failure of Nigeria’s public enterprises have been extraordinary. They require continuous massive subsidies but deliver only intermittent and sub-standard services and yielding non-or very low rates of return relative to the large amount of resources invested in them. Between 1975 and 1995, the FGN spent about $100 billion to establish public enterprises. These PEs also consumed an average of $3bn annually in subsidies from 1992-99. From 1980 to 1987 alone, it was estimated that the total investment in the public sector exceeded $35 billion, comprising $12.5 billion in equity, $10.2 billion in government loans, and another $11.5 billion in unspecified and largely unrecorded subventions to various enterprises. These investments provided meagre returns, yielding $1.5 billion in dividends and loan repayments. Furthermore, about 40% of non-salary recurrent expenditure and 30% of capital expenditure was expended annually on PEs.

The case for privatisation in Nigeria therefore is not very different from those in other countries. But in Nigeria, the very poor performance of the public enterprises and the high level of corruption, even by developing country-standards, made it even more imperative.

2.1.2 COMMERCIALISATION

Commercialisation on the other hand does not involve government divesting its shareholding. It involves reforming the public enterprise to operate under purely market conditions. The hallmark is the execution of performance agreement with the Managers providing appropriate incentives for accomplishing the target or goal and possible sanctions for failure to deliver.

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Commercia l isat ion, under the Publ ic Enterpr ise (Pr ivat isat ion and Commercialisation) Act, is limited to a handful of companies currently engaged in ecology and social-related activities, such as the River Basins (Irrigation scheme and rural development), National Parks (Tourism and ecology), NTA, FRCN, VON, NAN, National Hospital Abuja, etc. Commercialisation invariably is a first step in preparing PE for privatisation, and not a permanent solution.

The National Council on Privatisation recently approved a new framework for commercialisation, which provides the broad principles to guide the operation of commercialised enterprises. The approved Commercialisation Framework is attached as an appendix to this report.

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CHAPTER III

3.0 INSTITUTIONAL FRAMEWORK FOR IMPLEMENTATION OF PROGRAM

1. Legal Framework (Enabling Legislation)

The Public Enterprises (Privatisation and Commercialisation) Act 1999 provides the enabling legislation for the implementation of the Privatisation and Commercialisation programme. In order to ensure effective coordination and proper implementation of the programme, the enabling act also provides for the establishment of the following institutions/bodies:

2. NCP – (Terms of Reference)

The NCP is the apex body charged with the overall responsibility of formulating and approving policies on Privatisation and Commercialisation.

The major functions and powers of the NCP include to:

• determine the political, economic and social objectives of Privatisation and Commercialisation of Public Enterprises.

• approve policies on Privatisation and Commercialisation.

• approve guidelines and criteria for valuation of public enterprises for Privatisation and choice of strategic investors.

• approve public enterprises to be privatised or commercialised.

• approve the legal and regulatory framework for the public enterprises to be privatised.

• determine the mode of sale of shares of a listed public enterprise and advise the Federal Government accordingly.

• approve the prices of shares or assets of the public enterprise to be offered for sale.

• approve the appointment of Privatisation advisers and consultants and their remuneration.

• appoint as and when necessary Committees comprising persons from both the public and private sectors with requisite technical competence to advise on the Privatisation or Commercialisation of specific public sector enterprises.

• approve the budget of the Council.

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• approve the budget of the Bureau.

• receive and consider for approval audited accounts of the Bureau.

• receive and review periodic reports from the Bureau on programme implementation and give appropriate directions.

Membership of the NCP

The NCP has two classes of members – statutory and co-opted members. The thirteen statutory members have voting rights and are listed in the enabling legislation. The co-opted members are Ministers overseeing relevant enterprises pipelined for Privatisation, and have no voting rights. The statutory members of the NCP are:

i. The Vice President, as Chairman;

ii. The Minister of Finance, as Vice Chairman;

iii. The Attorney-General of the Federation and Minister of Justice;

iv. The Minister of Industries;

v. The Minister of National Planning;

vi. The Secretary to the Government of the Federation;

vii. The Governor of the Central Bank of Nigeria;

viii. The Special Adviser to the Head of State on Economic Affairs;

ix. Mr. Akin Kekere-Ekun, Managing Director, Habib Bank Nigeria Ltd;

x. Dr. Ejike Ignatius Onyia, Chairman, MGF Petroleum Nig. Ltd.;

xi. Alhaji Shehu Umaru Ndanusa, President, NACCIMA;

xii. Comrade Adams Oshiomhole, President, Nigerian Labour Congress; and

xiii. The Director-General of the Bureau of Public Enterprises

3.3 Standing Committees

In order to ensure adequate coverage of its Terms of Reference and easier execution of its mandate, the NCP has formed five Standing Committees, each having its specific Terms of Reference derived from those of the NCP.

These Committees and their specific Terms of Reference are:

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Technical Committee: (Chairman: Mr. Akin Kekere-Ekun, Managing Director of Habib Nigeria Bank Ltd.)

Functions of the Technical Committee include to:•provide the necessary technical inputs to the NCP to enable it make decisions

on Privatisation transactions.

•review information memoranda of public enterprises to determine their state of readiness for Privatisation or Commercialisation.

•determine and recommend to council actions required to bring enterprises to the point of sale or otherwise. These actions may include re-capitalization, liquidation and sale of assets.

•determine criteria for qualification of core investors

•review proposals for shortlist core investors and supervise public opening of core investors bids.

•review shortlist of firms qualified for appointment as consultants

•submit periodic reports on its activities to the Chairman of Council.

Policy and Monitoring Committee: (Chairman: Obong Ufot Ekaette, Secretary to the Government of the Federation)

Functions of the Policy and Monitoring Committee are:• identify, initiate and review all policy issues dealing with the Privatisation

and Commercialisation of public enterprises.

• monitor policy implementation and issue guidelines where necessary to the Bureau and the Sector Steering Committees.

• review all policies initiated by the various Sector Steering Committees, the Secretariat and the public enterprises, harmonize and coordinate such policies and advise Council accordingly.

Finance Committee: (Chairman: Mallam Adamu Ciroma, Honourable Minister of Finance)

Functions of the Finance Committee include:• review the financial management systems of the Bureau to ensure their

adequacy for the purpose of achieving sound financial practices throughout the duration of the programme .

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• review, approve and monitor the budgets of the Council and Bureau on an annual basis.

• determine the approval limits of the Bureau.

• determine and approve banking and investment policies of the Bureau.

• approve assets acquisition and disposal by the Bureau.

• review and approve any bi-lateral or Multi-lateral grants or credits to the Privatisation programme.

Publicity and Mobilisation Committee: (Chairman: Professor Jerry Gana, Honourable Minister of Information and National Orientation)

Major functions of the Publicity and Mobilisation Committee include to:• review the programme, identify the various stakeholders, liaise with

various Committees of Council and the Bureau and assess the needs for publicity and communications.

• review strategies for implementing the programme and any surveys and studies on the effectiveness of current publicity and mobilization efforts.

• In collaboration with coordinating consultants devise new strategies to increase awareness and support for the programme for the areas identified.

• set targets for increasing public awareness and perception and mould public opinion to ensure wider support and participation in the programme.

Transaction Marketing Committee: (Chairman: President, Nigerian Association of Chambers of Commerce, Mines, Industry and Agriculture)

Main functions of the Transaction Marketing Committee include:• review key issues and dynamics of the programme and review the design

and timing of each transaction.

• review and discuss the situation analysis of each enterprise as prepared by the communications and marketing consultants.

• In conjunction with the communications and marketing consultants to assist in marketing the transaction through activities complimentary to the overall marketing plan.

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3.4 Steering Committees

The Privatisation programme involves certain sectors of the economy, which would require some reform and restructuring prior to or along side the divestiture transaction. Consequently, eleven (11) Sector Steering Committees were formed by the NCP to carry out this task. The Committees, which are chaired by the relevant Ministers or senior private sector managers, are:

i. Electric Power Sector Steering Committeeii. Oil and Gas Sector Steering Committeeiii. Telecommunications Sector Steering Committeeiv. Agriculture and Water Resources Sector Steering Committeev. Hospitality/Tourism Sector Steering Committeevi. Industry/Manufacturing Sector Steering Committeevii. Insurance Sector Steering Committeeviii. Transport Sector Steering Committeeix. Solid Minerals Sector Steering Committeex. Aviation Sector Steering Committeexi. Basic Metals Steering Committee

In order to ensure successful implementation of the Nation’s Privatisation Programme, the National Council on Privatisation (NCP) besides the specific Sector Steering Committees, inaugurated other specialized committees that cut across so many issues that impact upon the implementation of the programme and to suggest a lasting solution to some persistent problems such as pension issues. The committees include:

1. Steering Committee on Pension Reforms in Public Enterprises in Nigeria2. Steering Committee on Cross Debt Determination and Resolution3. Competition and Anti-Trust Reform Steering Committee

Steering Committee on Pension Reform: The Committee was charged with examining the problems associated with the present Pay-As-You-Go (PAYG) system of pensions in Public Enterprises and proffering solutions.

Terms of Reference• Review existing studies, reports and other background materials on pension

schemes, particularly in public enterprises of the public sector of the Nigerian economy;

• Review existing regimes, studies, reports and background materials on the implementation of pension systems in the countries that share common economic characteristics with Nigeria;

• Determine the actual amount of un-funded pension liabilities in all Public Enterprises, particularly those slated for privatisation and commercialisation as at December 2000;

• Advise the Federal Government as to the best way forward for handling the matter in a manner that would not jeopardize the expectations of the gains of the privatisation programme;

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• Examine the practicability of introducing an alternative pension scheme that is market-driven for the public enterprises, given the current structure of the Nigerian Economy;

• Propose some multifaceted investment instruments that will facilitate the implementation of a fully private insurance scheme if adopted by the Nigerian government;

• Arrange and hold intensive formal and informal interaction with the organized private and public sectors, pension consultants and managers and the general public to further articulate a position on the subject matter to enrich the work of the committee;

• Determine the cost implication and prepare a blueprint and timelines for the implementation of the transition from the current pay-as-you-go system to a fully funded private approach being envisaged for Nigeria’s public enterprises;

• Prepare draft legislation on the new pension system to be debated upon by all relevant stakeholders before presentation to the National Assembly for eventual enactment into law for implementation;

• Recommend in the light of its findings, the most efficient ways and means of ensuring optimal realization of the potential benefits of the new system to the Nigerian economy; and

• Recommend such other actions that may be taken by the government and other interest groups, as may be considered desirable at this stage (short term) having regard to the current privatisation of public enterprises.

Membership of the Committee• Mr. Fola Adeola MD/CEO, GTB Ltd Chairman• Dr Timi Austen-Peters, Legal Practitioner Member• Mr. Steve Oronsaye, Perm-Sec. Presidents Office “• Dr. M.O. Ojo, Perm-Sec. Econ Affairs SGF’s Office “• Dr. Aboki Zhawa, Perm-Sec.Office of HSF “• Dr. Magnus Kpakol, Chief Economic Adviser “• Dr. Shamsudeen Usman, Dep. Gov CBN “• Mr. J.K. Naiyeju, Accountant General of Federation “• Dr. Haruna Sanusi, Perm. Sec Budget FMOF “• Mr. Akin Arikawe DG Debt Mngt. Office “• Mallam Suleyman Ndanusa DG SEC “• Ms. P Soares MD NICON “• Prof. Anya O Anya DG NESG “• Mr. Adams Oshiomole President NLC “• Mr. Mark Tomlinson, Country Director World Bank “• Mr. Tom Hutcheson, Representative of USAID “• Mr. Theo Thomas Econ Adviser Africa-DFID “• Dr. Mohammed Abba-Aji MD NSITF “• Chief Ziggy Azike Legal Practitioner “• Dr. Musa Ibrahim Exec. Director NDIC “• Miss Lauretta Aniagolu “• Haj. Halima Aliyu Nig. Union of Pensioners “• Mr. O.A Oshinowo DG Nig Employers Consultative Assoc .”• Prof. Mike Kwanashie Director Ins. Dev. Research Zaria “

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• Dr. Musa Omar UNIMAID “• Mr. Lamis S Dikko Banker “• Mr. Emmanuel H Njokanma Pension Consultant “• Mr. Bashir M Bugaje Dep. Commissioner NAICOM “• Dr. Pat Utomi Director Lagos Business School “• Mr. Wole Oshin Insurance Practitioner “• Prince A Aderemi, Banker “• Dr. O.B Oyetunji, Actuary “• Mr. Chuka Eseka Investment Analyst “• Mr. Godwin Obaseki, Stockbroker “• Mr. S.O.Z Ejiorfoh, NLC “• Mr. Ivor Takor, NLC “• Mr. Joseph Akinlaja, NLC “• Mallam Nasir Ahmad el-Rufai DG BPE Coordinator• Mrs. Aisha Dahir-Umar Dep. Director BPE Secretary

Steering Committee on Cross Debt Determination and Resolution: the Committee was charged with the responsibility of determining and resolving cross debts of Public Enterprises which are candidates for privatisation.

MEMBERSHIP OF THE COMMITTEE1. Late Dr. Hamza R. Zayyad Chairman2. Mrs. T. A Iremiren, Perm. Sec. FMF Vice Chairman3. Dr. O. Soleye Member4. Prof. I. Ayagi, Chairman NEIC Member5. Mr. A. Arikawe, DG, DMO Member6. Mr. J. K Naiyeju, AGF Member7. Mr. J Oluseye Duggan, ED (F&A) NTA Member8. Mr. Akin Oyewole, ED (F&A) NPA Member9. Mal. M.S. Baba, ED (F&A) NITEL Member10.Mr. F. A Ayinde, Rep, ED (F&A) FRCN Member11. Mr. O. C. Harry, GED (F&A) NNPC Member12.Chief (Mrs) Rita Chris Garuba Member13.Mal. M.K Ahmed, Director NDIC Member14.Mr. E. Dafinone, Dafinone & Co. Member15.Mal S. Sharubutu, ED (F&A) NICON Member16.Mr. Obong M. E. Akpan, Rep. ED NEPA Member17.ED, F&A, NAL Member18.Dr. O. M. Ojo, PS SGF Office Member19.Mal. M. R. Rasheed, Dep. Gov, CBN Member20.Dr. Sanusi Haruna, PS, Budget FMF Member21.Dr. A. S. Mohammed, ABU, Zaria Member22.Mal. I. M. Inuwa, ED (Ops) NACRDB Member23.Mr. Nduka Obaigbena, Thisday Member24.Mr. S. Oronsaye, PS C-in-C Presidency Member25.Mallam Nasir Ahmad el-Rufai, DG BPE Coordinator26.Mr. D. A. Morakinyo, DD BPE Secretary

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TERMS OF REFERENCE

1. Determine the exact amount of indebtedness of selected PEs as of 31st December 2000 and assess the resultant impact on the operations of these enterprises.

2. Check the various reconciliation statements produced by each of the affected enterprises, identify the differences and define procedures for dealing with the variations.

3. Advise on the most effective ways of settling various existing indebtedness by all affected enterprises under the ongoing privatisation and commercialisation programme.

4. Recommend precautionary measures to be put in place and appropriate steps to ensure prompt settlement of financial obligations amongst PEs and between them and the government.

5. Ascertain the authenticity or otherwise of claims of indebtedness by each of the affected enterprises and develop a cross debt matrix among the affected enterprises and between them and government as of 31st December 2000.

6. Crosscheck balances for government indebtedness and compare government loan balances with records at the Federal Ministry of Finance Incorporated (MOFI).

Competition and Anti-Trust Reform Steering Committee: this Committee was charged with the responsibility of drafting a competition policy for Nigeria and a draft Competition Bill.

Terms of Reference• Review the existing studies, reports and background materials on monopoly,

competition and anti-trust regimes in Nigeria, including position papers, probe and panel reports and Government White Papers, where applicable;

• Identify all legislation, industry practices and customs that inhibit competition or in any way confer monopoly/restrictive powers on any firm- whether public or private, in all sectors of the economy;

• Actively interact with the Organized Private Sector, Consumer Interest Group, the general public, to further articulate areas of concern that inhibit economic efficiency;

• Recommend areas of legislative and administrative intervention, and flexible mechanisms for monitoring the consequences of legislation and regulation in the overall interest of the economy;

• Prepare draft legislation designed to eliminate monopolies, remove restrictive conduct, and foster competition in all sectors of the economy; and

• Prepare a blueprint and timeline for the implementation of the competition legislation and the establishment of correspondent independent regulatory agencies.

Membership of the Committee•Mr. Bunmi Oni MON MD Cadbury Nig. Plc Chairman•Mr. Akin Kekere Ekun OFR MD Habib Bank “

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•Alh. Aliko Dangote Chairman/CEO Dangote Group of Coys. “•Mr. Hakeem Bello-Osagie Chairman UBA Plc “•Mr. Adams Oshiomole, Preident NLC “•Mrs. Maryam Uwais, Legal Practitioner “•Prof. Olu Ajakaiye, DG NISER “•Prof. I.A Ayua SAN DG Nig.Inst.of Advanced Legal Studies “•Dr Ayotunde Soleye, Medical Practitioner “•Dr. F.L Osunsade, EPCC “•Mrs. Irene Chigbue, Director BPE “•Prof. Pat Utomi, Director Lagos Business School “•Ms. Funmi Ade-Ajayi, GM Citibank “•Mallam M.M Ibrahim, Oil & Gas Consultant “•Mrs. M.F Mmakwe Rep. Office of SGF “•Mrs. Oby Ezekwesili SA to President “•Dr. Auwalu Anwar SA to Hon. Speaker “•Mr. Asue Ighodalo, Legal Practitioner “•Mr. T.A Ogunfemi, Rep. Min. of Commerce “•Mr. Bola Odugbesan, Rep. Min. of Justice “•Prof. C Solodu, E.D African Inst. Of Applied Economics “•Mal Abdulrazaq Oniyangi DD BPE Secretary

3.5 BPE/Secretariat- organizational structure, staffing etc

BPE as the Secretariat of the NCP is charged with the overall responsibility of implementing the policies and decisions of the Council. The functions of the Bureau as provided for in the Act include:

• implementing the Council’s policy on Privatisation and Commercialisation• preparing public enterprises approved by the Council for Privatisation and

Commercialisation• advising Council on further public enterprises that may be privatised or

commercialised• advising Council on capital restructuring needs of the public enterprises to be

privatised• ensuring the update of accounts of all commercialised enterprises for financial

discipline• making recommendations to the Council on the appointment of Consultants,

advisers, investment bankers, issuing houses stockbrokers, Solicitors, trustees, accountants and other professionals required for the purpose of either Privatisation or Commercialisation

• ensuring the success of the Privatisation and Commercialisation exercise through effective post transactional performance monitoring and evaluation

• providing secretarial support to the Council, and • carrying out such other duties and responsibilities as may be assigned to it from

time to time by the Council and its respective committees.

ORGANISATIONAL STRUCTURE

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In May 1999, a democratically elected government was sworn in to govern Nigeria. The new government inherited a broad-based public enterprise reform and privatization program enacted as Decree No. 28 of 1999 by the previous military government. In July 1999, President Olusegun Obasanjo inaugurated the National Council on Privatization (NCP) under the chairmanship of Vice President Atiku Abubakar. The incumbent Director General (DG) of the Bureau of Public Enterprises (BPE), Mr. Bernard Verr was a member and secretary of the NCP.

Within the BPE, the then Director General proceeded to undertake a reorganization of the structure inherited from the Zayyad-led board. The organizational structure in place from September 1999 is reproduced in Annex I. It is essentially a functional structure and designed to accommodate the twenty-two Deputy Directors inherited from TCPC/BPE under the chairmanship of Mallam Hamza Zayyad.

In November 1999, Mallam Nasir Ahmad el-Rufai was appointed DG to replace Mr. Bernard Verr. The new DG inherited the staffing situation and structure above, as well as the plan for the implementation of the first phase of the privatization program. The situation inherited from TCPC/BPE at this point in time was characterized by:

• Top-heavy structure with too many Deputy Directors and little or no middle management. Some Deputy Directors had only a secretary and no professional support staff.

• Staff that had limited transaction skills and experience, further exacerbated by five years of idleness. Employees were hired haphazardly without relation to predetermined needs.

• Shared values of indolence and indiscipline where clearly undeserving staff are promoted, fraud and corruption treated lightly and immorality ignored.

• Absence of organizational procedures and systems to guide managerial decision-making and actions.

• The leadership style was laissez faire, with the organization still trying to recover from the vacuum created by the absence of Zayyad’s strong, centralized leadership.

• The overall strategy of the organization appeared flawed, as it treated the implementation of the reform and divestiture program as a series of Initial Public Offerings (IPO) e.g. there was no core investor selection strategy, or how to deal with moth-balled companies like Calabar Cement Co. Ltd., included in the first phase of the program.

With the approval of Vice President, a team of management consultants (New Paradigm Consultants/Ituah Ighodalo & Co) was hired to undertake an organizational review of BPE and make recommendations on its re-engineering. The Consultants submitted their report in June 2000, and a sub-committee of the Management Committee reviewed the report and made recommendations to the Director General. In August 2000, the BPE implemented the first re-engineering plan approved by the

25

Vice President and Chairman of NCP. The organization also moved to new offices along Ibrahim Babangida Way, Maitama. The building (now named “Hamza Zayyad House”) was formally commissioned by President Olusegun Obasanjo in October 2000. The organizational structure in place from August 2000 has been slightly modified from time to time to address certain identified lapses.

In addition to organizational restructuring, the BPE also undertook extensive re-staffing, shedding off nearly 40% of its November 1999 work force and hiring nearly 100 full-time and a select number of consulting (“Core Team”) staff. The Consultants are mostly Nigerians – and nominally designated “Deputy Directors” and are paid US Dollars salaries by USAID through the USAID contractor – International Business & Technical Consultants, Inc. (IBTCI).

Annexes I and II depicts the organisational structure existing as at September 1999 prior to the first restructuring and re-engineering of the BPE and as at August 2000 after the initial restructuring.

ANNEX IBPE ORGANIZATION STRUCTURE – SEPTEMBER 1999

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Deputy Director

Legal

Mrs I. Chigbue

Deputy Director

Special Assistant

I. S. Njiddah

Deputy Director

Special Duties

Ms H. Lazzari

Ag.Deputy Director

Audit

E. O. Azodo

MIS

Corporate Affairs

Research & Publications

Director

Corporate Services

M. A. Ahmadu

Advisory Services

Corporate Finance

Capital Markets

Director

Privatization

M. S. Liadi

Monitoring & Evaluation

Reform & Restructuring

Director

Commercialization

U. Okpa-Obaji

General Administration

Finance & Accounts

Human Resources

Ag. Director

Finance & Admin.

Mrs M. Abiodun-Wright

Director General

B.B.A. Verr

ANNEX IIBPE ORGANIZATION STRUCTURE – AUGUST 2000

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Special Assistant DD (IT)

DD(Audit) DD(HR)

DD(PA) AD(ACTU)

Priority Sector Teams

Restructuring & Divestiture

Commercialization & Concessioning

Director

Operations

Litigation & Arbitration

Agreements & Documentation

Research & Opinion

Director

Legal Services

Monitoring & Evaluation

Planning & Research

Procurement

MIS*

Director

Planning & Monitoring

Documentation & Publications

Stakeholder Relations

Govt. Relations

Council Secretariat

Director

Council Affairs

Finance & Accounts

Budget & Control

Admin & Support Services

Director

Finance & Admin.

Director General

* MIS was subsequently moved to the DG’s Office

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In July 2002, the operational structure of BPE was again transformed. This process of restructuring was considered necessary to ensure speedier and more efficient service delivery of privatisation transactions. The reorganization process has transformed BPE into a more focused, more motivated and more proficient organization, with a management team that is more accountable and performance-oriented and staff that are driven to succeed.

To achieve this, BPE has moved from a functional structure, with a single Operations Department and five service departments, to a divisional structure with six sector-focussed operations departments and a single central unit providing general support to the departments. This has effectively resulted in the creation of six self-contained, semi-autonomous units with clear sectoral transactions mandates.

Organisational Structure Pre-July 2002.

New Organisational Structure

Beginning from April 1, 2003, this structure was slightly amended with the merger of Transport and Aviation department into Infrastructure and Network department and the creation of a new department of Organisational Support Services.

STAFFING 1999-2003

Appendix II show the staffs that have been employed in the BPE since 1999.

The Human Resources Unit is mandated with the task of managing the people working in the Bureau, by providing them with essential services so that they can collectively and individually contribute to the attainment of the goals of the organization. This function was carried out diligently in 2001 as witnessed by the following activities.

Operations Planning Monitoring Council Affairs Finance & Administration Legal Services

Director General's Office

DIrector General's Office

Industry & Manufacturing Infrastructure & Networks Natural Resources Oil & Gas Services Transport & Aviation

Director General

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STAFF RECRUITMENT

In accordance with the approval by Management Committee, 39 staff were recruited in order to invigorate the organization. The statistical breakdown is portrayed in table 1 annexed to this report.

STAFF REDEPLOYMENT

Based on the decision of Management to improve the operational performance of Departments, 29 members of staff were redeployed as outlined in table 2 annexed to this report.

STAFF TRAINING

In order to develop a capable and highly skilled work force management had given priority attention to staff training and development in 2001. A considerable and large number of staff cutting across all categories in the Bureau benefited from numerous training programmes locally and internationally. In this regard, 5 members of staff are on study fellowship in Ahmadu Bello University, Zaria and University of Abuja as indicated in table 3 annexed to this report. On the other hand a total of 40 staff attended overseas courses, while 48 staff attended local courses as presented in tables four and five respectively.

STAFF PENSION SCHEME

A non-contributory pension scheme was established in December. First Trustees have been appointed as Pension Managers for the Fund. Furthermore, management has approved January 2002 as the take off date for the 5% Voluntary Additional Contribution. 99% of staff have accepted to participate in the scheme.

STAFF WELFARE SCHEME

In line with the welfare policy of the Bureau, 9 staff were given financial support to assist them in their wedding, while a total of 10 staff were supported in the burial of their parents.

SEMINAR ON HIV/AIDS

In line with the approval of management we have concluded arrangements for the successful hosting of a seminar on HIV/AIDS organized by health care organization of Africa. The event is to take place as follows;Venue: Hilton Hotel Abuja. Lagos-Osun Hall.Date: 12th January 2002Time: 9 am.

STAFF RESIGNATIONS

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In 2001 only three individuals resigned from the Bureau for family reasons. This low staff exit is an encouraging sign because it indicates that there is general contentment amongst the work force of the Bureau.

DISCIPLINARY MATTERS

In 2001 there were few disciplinary cases. Adebayo Ajagunna, an Enterprise Officer I in Planning and Monitoring Department was suspended for insubordination for one month without pay. The appointment of seven others was terminated for services no longer required, while five individuals were warned for unsatisfactory performance.

STAFF COMMENDATION AND PROMOTION

In accordance with the policy of the Bureau to recognize and acknowledge outstanding performance, 22 staff were given written commendation for exceptional performance. In addition, 4 staff were promoted last year as indicated in table 6.

ANNUAL INCREMENT

Annual increment will be done in January of every year for deserving staff. Therefore, staff due for increment in the year 2001, will be given this in January. Special Increment based on exceptional performance goes on throughout the year.

STAFF SELECTION PROCESS

The Management of the Bureau determines the staff selection process, which is currently as follows.

COLLATION OF APPLICATIONSThe human resources Unit receives applications from applicants and collates into a databank.

APTITUDE TESTUpon the directive of management Committee the human resource unit schedules a date for an aptitude test for short-listed candidates from its databank.

DATABANKA databank for successful candidates is created for possible reference by the departments whenever vacancies occur in them.

INTERVIEWSWhere the departments declare vacancies, the HR Unit schedules interviews for the candidates. Candidates who perform well at the interview are subsequently recommended to Management for appointment

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PLACEMENTCandidates whose appointments were approved by Management are placed on appropriate salary grade levels based on their qualifications and years of relevant experience.

The implementation of the Secretariat’s employment policy has been guided by the principle of Federal Character as required by law. All constituent states in the federation have indigenes employed in the Secretariat.

On gender issues, the Secretariat has been able to employ 45% of its workforce as women, a fact that has been acknowledged and commended by even our international friends and donors.

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CHAPTER IV

4.0 Program Implementation

4.1 List of scheduled enterprises for privatisation & commercialisation

Scheduled Enterprises

2. STATUS OF PROGRAM IMPLEMENTATION SINCE 1999

4.2.1 OVERVIEW OF THE PRIVATISATION TRANSACTIONS

The government approved the implementation of the relaunched privatisation programme in three phases. It was envisaged that there would be full or partial divestment of the government interest in 98 public enterprises spread in 14 key

NEPA

EMCON

Power

NITEL

NIPOST

Communications

NPA

Concessioned Ports

Seaports

Abuja Water Board

Abuja Environmental Protection Board

Other

Infrastructure & Networks

Tijjani Abdullahi

(Director)

NAL

NAL subsidiaries

FAAN

NAHCo

Aviation

NRC

Railways

NUL

Nigerdock

NIWA

Other

Transport & Aviation

Ibrahim Njiddah

(Director)

NCC

NMC

NUC

NIMC

Mining & Solid minerals

Oil Palm Co.s (3)

Agro-Allied

ALSCON

Ajaokuta

Delta

Rolling Mills (3)

Basic Metals

RBDAs

Niger Delta Basin Authority

Other

Natural Resources

Modupe Abiodun-Wright

(Director)

FSFC

NAFCON

Fertilizer

Vehicle Assembly (6)

Nigeria Machine Tools

Paper (3)

Sugar (4)

NR Wood Ind.

Chemical Co., Senegal

Onigbolo Cement

Premier Breweries

Central Packages Company

Industry & Manufacturing

Irene Chigbue

(Director)

Afribank

Assurance Bank

Bank of Industry

NACB

Federal Mortgage Finance

Federal Mortgage Bank

Banks

NICON

Nigeria Re

Niger

NSITF

Insurance Companies

NSPMC

Abuja Stock Exchange

Other

Finance

Daily Times

NNN

NTA

FRCN

NFC

NAN

Media

Hotels (4)

International Conference Centre

National Arts Theatre

LITFC

TBS

National Parks (2)

Stadia (3)

Culture & Tourism

National Hospital

Federal Medical Centre

Stallion Properties

Niger Delta Development Authority

Federal Housing Authority

Other

Services

Archibong Udofia

(Director)

NNPC

NPDC

Upstream

PPMC

Midstream

Portharcourt Refinery (I)

Portharcourt Refinery (II)

Warri Refinery

Kaduna Refinery

Eleme Petrochemicals

Carlson/ Bermuda Ltd

Hyson (Nig.) Ltd

Oil Services Companies (11)

Downstream

NGC

Gas

West African Refinery

Other

Oil & Gas

Bolanle Onagoruwa

(Director)

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sectors of the economy in which government owns minority or controlling interest. The cumulative book value of these transactions has been estimated at between $10 and $50. The three-phased implementation involves:

• Phase 1. Full divestiture of the government’s shares in oil marketing companies, banks and cement companies. This encompasses 14 companies, most of which are already quoted on the Nigerian Stock Exchange. The revenue target was to raise N20bn.

• Phase 2. Full divestiture of the government’s ownership in hotels, vehicle assembly plants, insurance companies and other enterprises operating in competitive markets; and

• Phase 3. Partial divestiture of the government holding in major public enterprises operating in non-competitive sectors, such as electric power, telecommunications, oil and gas and similar ventures.

It was envisaged that starting with those enterprises already corporatised and whose shares are already traded on the floor of the Nigerian Stock Exchange with their values established by the market will be much easier and result in speedy conclusion and would engender more confidence in the program. Unfortunately, the implementation of the first phase, which was to have ended in December 1999, was considerably delayed due to various problems encountered including poor subscription rates for the public offers undertaken and disappointment by issuing houses. Another cause of delay was our stringent requirements for conformity with the conditions for allotment approved by the NCP to ensure widespread and equitable distribution of the shares among all the geo-political zones of the country. Allotment was done on the basis of equality of all Federal Constituencies in the country. There were also restrictions with respect to allotment of not more than 1% per applicant where the offer is oversubscribed. Delays were experienced in processing and sending back excess and return monies to unsuccessful applicants.

However, despite the delays, the first phase has been completed including return monies and accrued interest paid to unsuccessful applicants. The remaining unsubscribed shares were first offered to the respective state governments to purchase and warehouse for their citizens and those not taken up by the state government were sold to institutional investors on competitive basis on the floor of the Nigerian Stock Exchange.

The enterprises privatised during the first phase, which were divested through public offer or a combination of public offer and core investor sale include: NAL Merchant Bank Plc, IMB Plc, FSB International Bank Plc, Unipetrol Plc, African Petroleum Plc, NOLCHEM Plc, WAPCO Plc, AshakaCem Plc, CCNN Plc and Nigercem Plc.

The case of BCC is yet to be resolved for the core investor to takeover. Affected parties are trying to resolve the issue out of court. The remaining shares reserved for the staff of BCC, which the staff failed to take up have been sold to institutional

34

investors. Similarly, the privatisation of Assurance Bank, initially scheduled in phase one but spilled-over to phase 2, has been successfully concluded. The core investor took over the bank on November 18, 2002. Afribank is another spillover enterprise from phase 1 whose privatisation is far advanced but is yet to be concluded due to legal and regulatory hurdles. While Calabar Cement Company (Calcemco), in which the Federal Government has a minority interest, was recently liquidated.

The second phase covers public enterprises engaged in sectors where the prices of their respective output/services are largely market-determined. It was originally planned that a total number of forty-two (42) public enterprises would be involved under this phase.

Due to several delays, including unforeseen legal and technical issues uncovered in the due diligence process and those occasioned by the decision to seek the assistance of the World Bank and other donors, the second phase has not proceeded quite as planned. However, the Secretariat has now re-engineered the roadmap for the effective implementation of this phase of the programme with a view to completing this phase by end of 2003. So far, some 20 privatisation transactions were undertaken with 16 successfully concluded: Festac 77, Nigerdock, Electric Meter Company of Nigeria, Savannah Sugar Company Limited, Niger Insurance Plc, National Trucks Manufacturers, Nigeria Reinsurance Corp., Capital Hotels Plc (owners of Sheraton Hotel and Towers), Ikoyi Hotel, MV Abuja (the only Vessel of the Nigerian Unity Line), National Fertiliser Company (NAFCON), Kano Central Hotel, Iwopin Pulp & Paper Mill, and Ikoyi Hotel Properties located in Lagos (Caterers’ Court and No. 8 & 10 Lees Road, Ikoyi). However, the 51% core investor sale of NITEL and Nicon Hilton Hotel did not reach financial closure due to the inability of the preferred bidders to come up with the balance of purchase consideration at the expiry of the deadline. Sale of Sofitel Hotel was stepped down having disqualified all the two prospective investors for their failure to submit their bid bonds as required. Similarly, the sale of 51% of Durbar Hotel to a core investor was not approved due to the very low price offered by the core investor, which was below the reserved price, while the sale of NSPMC to a suitable core investor group, which had reached advanced stages was aborted following FGN’s decision to change the strategy to carry out public offer instead. Recently, the public offer of Daily Times of Nigeria was aborted due to very poor subscription.

We now present brief summary of some of the key privatisation transactions enterprise by enterprise.

4.2.2 SUMMARY OF ENTERPRISE PRIVATISATION TRANSACTIONS FROM MAY 1999 TO APRIL 2003

PHASE I

Nal Merchant Bank PlcA total of 419,432,200 ordinary shares were offered in NAL, at N2.75 per share, by way of a public offer for sale. The public offer for sale opened on June 12th 2000

35

and was officially to close on July 10th 2000 but, due to weak subscription results and the need to enable wider participation, the close was extended to August 7th 2000.

At the close of the public offer, 208,363,811 shares were allotted representing a subscription rate of 49.7%. The un-allotted shares were initially offered to various state governments for purchase on behalf of their indigenes and then to various NCP-registered institutional investors. Subsequently, the shares on offer in NAL were fully subscribed with a subscription rate of 100%.

NAL

Allocation Allotted %

ABIA 9,210,271 2,301,050 24.98%

ADAMAWA 9,210,271 2,195,000 23.83%

AKWA IBOM 11,512,838 7,584,140 65.88%

ANAMBRA 12,664,122 8,377,400 66.15%

BAUCHI 13,815,406 5,245,400 37.97%

BAYELSA 5,756,419 5,756,419 100.00%

BENUE 12,664,122 4,032,550 31.84%

BORNO 11,512,838 7,674,600 66.66%

CROSS RIVER 9,210,271 675,250 7.33%

DELTA 11,512,838 5,603,800 48.67%

EBONYI 6,907,703 267,650 3.87%

EDO 10,361,555 3,678,250 35.50%

EKITI 6,907,703 2,793,450 40.44%

ENUGU 9,210,271 1,247,750 13.55%

FCT 2,302,568 2,067,500 89.79%

GOMBE 6,907,703 6,907,703 100.00%

IMO 11,512,838 4,724,150 41.03%

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IMB Plc19,195,686 ordinary shares were offered in IMB, at 75k each, by way of a joint public offer for sale with the shares of NAL Merchant Bank Plc. Like NAL, the offer opened on June 12th 2000 and was extended to close on August 7th 2000.

At the close of the public offer, 15,016,929 shares were allotted representing a subscription rate of 78.2%.

JIGAWA 12,664,122 2,221,700 17.54%

KADUNA 18,420,541 12,510,650 67.92%

KANO 27,630,812 12,234,650 44.28%

KATSINA 17,269,258 17,269,258 100.00%

KEBBI 9,210,271 7,447,900 80.87%

KOGI 10,361,555 5,216,850 50.35%

KWARA 6,907,703 2,142,550 31.02%

LAGOS 27,630,812 10,330,250 37.39%

NASSARAWA 5,756,419 4,303,400 74.76%

NIGER 11,512,838 6,445,900 55.99%

OGUN 10,361,555 9,266,150 89.43%

ONDO 10,361,555 2,349,675 22.68%

OSUN 10,361,555 5,925,600 57.19%

OYO 16,117,974 6,387,000 39.63%

PLATEAU 9,210,271 9,040,559 98.16%

RIVERS 14,966,690 752,500 5.03%

SOKOTO 12,664,122 3,011,800 23.78%

TARABA 6,907,703 2,204,700 31.92%

YOBE 6,907,703 5,141,650 74.43%

ZAMFARA 8,058,987 8,058,987 100.00%

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IMB

Allocation Allotted %

ABIA 426,571 426,571 100.00%

ADAMAWA 426,571 334,165 78.34%

AKWA IBOM 533,213 533,213 100.00%

ANAMBRA 586,535 586,535 100.00%

BAUCHI 639,856 245,565 38.38%

BAYELSA 266,607 266,607 100.00%

BENUE 586,535 450,855 76.87%

BORNO 533,213 252,755 47.40%

C R O S S RIVER

426,571 426,571 100.00%

DELTA 533,213 533,213 100.00%

EBONYI 319,928 319,335 99.81%

EDO 479,892 479,892 100.00%

EKITI 319,928 319,928 100.00%

ENUGU 426,571 426,571 100.00%

FCT 106,643 30,195 28.31%

GOMBE 319,928 319,928 100.00%

IMO 533,213 533,213 100.00%

JIGAWA 586,535 122,885 20.95%

KADUNA 853,142 565,895 66.33%

KANO 1,279,712 501,390 39.18%

KATSINA 799,820 278,850 34.86%

38

Unipetrol Plc62,500,000 ordinary shares were offered in Unipetrol PLC, a petroleum marketing company, by way of a combined sale of 46,875,000 shares at N34.00 each to a core investor and offer for sale to the general public at N29.00 per share. The core investor sale was concluded with Ocean and Oil, an indigenous petroleum-marketing firm, emerging as the successful core investor in Unipetrol having paid N1.59 billion for the Federal Government’s equity stake.

The public offer of 15,625,000 ordinary shares opened on June 12th 2000 and closed officially on July 10th 2000. Due to the un-availability of application forms in certain parts of the country, the offer closing date was initially extended to August 7th 2000 and then finally to October 31st 2000.

KEBBI 426,571 259,050 60.73%

KOGI 479,892 479,892 100.00%

KWARA 319,928 319,928 100.00%

LAGOS 1,279,712 1,279,712 100.00%

NASSARAWA 266,607 266,607 100.00%

NIGER 533,213 425,180 79.74%

OGUN 479,892 479,892 100.00%

ONDO 479,892 479,892 100.00%

OSUN 479,892 479,892 100.00%

OYO 746,499 746,499 100.00%

PLATEAU 426,571 426,571 100.00%

RIVERS 693,178 522,140 75.33%

SOKOTO 586,535 45,890 7.82%

TARABA 319,928 319,928 100.00%

YOBE 319,928 158,475 49.53%

ZAMFARA 373,249 373,249 100.00%

39

As at the close of the public offer, 15,027,623 ordinary shares were allotted, representing a subscription rate of 96.2%. Of this, 1.5 million ordinary shares were allotted to the staff of Unipetrol. The remaining shares were offered initially to State Governments and then to Institutional Investors and as a result of the successful take-up, the offer of shares in Unipetrol was fully subscribed with a subscription rate of 100%.

UNIPETROL

Allocation Allotted %

ABIA 312,500 312,500 100.00%

ADAMAWA 312,500 312,500 100.00%

AKWA IBOM 390,625 390,625 100.00%

ANAMBRA 429,688 429,688 100.00%

BAUCHI 468,750 468,750 100.00%

BAYELSA 195,313 195,312 100.00%

BENUE 429,688 429,688 100.00%

BORNO 390,625 390,625 100.00%

C R O S S RIVER

312,500 312,500 100.00%

DELTA 390,625 390,625 100.00%

EBONYI 234,375 230,575 98.38%

EDO 351,563 351,562 100.00%

EKITI 234,375 234,375 100.00%

ENUGU 312,500 312,500 100.00%

FCT 78,125 78,125 100.00%

GOMBE 234,375 234,375 100.00%

IMO 390,625 390,625 100.00%

JIGAWA 429,688 227,150 52.86%

KADUNA 625,000 625,000 100.00%

40

FSB International Bank Plc380,602,195 ordinary shares were offered in FSB by way of a public offer for sale at N4.20 per share. The public offer was opened on December 20th 1999 and was closed on February 11th 2000, following a two-week extension due to the initial weak response. A supplementary public offer for sale of 380,602,195 ordinary shares, initially reserved for a core investor, opened on October 30th 2000 and was closed on November 27th 2000.

At the close of the supplementary offer, the combined allotment for both offers was 299,647,707 shares representing a subscription rate of 78.7%. As in the

KANO 937,500 893,400 95.30%

KATSINA 585,938 541,875 92.48%

KEBBI 312,500 199,175 63.74%

KOGI 351,563 351,562 100.00%

KWARA 234,375 234,375 100.00%

LAGOS 937,500 937,500 100.00%

NASSARAWA 195,313 195,312 100.00%

NIGER 390,625 378,000 96.77%

OGUN 351,563 351,562 100.00%

ONDO 351,563 351,562 100.00%

OSUN 351,563 351,562 100.00%

OYO 546,875 546,875 100.00%

PLATEAU 312,500 312,500 100.00%

RIVERS 507,813 486,125 95.73%

SOKOTO 429,688 274,450 63.87%

TARABA 234,375 234,375 100.00%

YOBE 234,375 234,375 100.00%

ZAMFARA 273,438 273,438 100.00%

41

other offers, the shares remaining un-allotted were offered first to State Governments, for purchase on behalf of their indigenes, and then to NCP-registered Institutional Investors.

FSB

Allocation Allotted %

ABIA 8,457,827 8,457,827 100.00%

ADAMAWA 8,457,827 7,808,900 92.33%

AKWA IBOM 10,572,283 7,315,700 69.20%

ANAMBRA 11,629,512 6,944,400 59.71%

BAUCHI 12,686,740 6,132,200 48.34%

BAYELSA 5,286,142 5,286,142 100.00%

BENUE 11,629,512 7,236,500 62.23%

BORNO 10,572,283 10,572,283 100.00%

C R O S S RIVER

8,457,827 597,900 7.07%

DELTA 10,572,283 9,977,200 94.37%

EBONYI 6,343,370 3,186,300 50.23%

EDO 9,515,055 5,022,100 52.78%

EKITI 6,343,370 6,343,370 100.00%

ENUGU 8,457,827 8,457,827 100.00%

FCT 2,114,457 1,997,800 94.48%

GOMBE 6,343,370 3,791,400 59.77%

IMO 10,572,283 10,572,283 100.00%

JIGAWA 11,629,512 11,629,512 100.00%

42

Ashakacem Plc206,968,317 ordinary shares were offered in ASHAKACEM PLC, a cement manufacturing company, by way of a combined sale of 146,250,000 shares at N10.25 each to a core investor and offer for sale of 60,718,317 ordinary shares to the general public at N8.25 per share. The core investor sale was concluded with Blue Circle PLC, a UK-based international cement manufacturer, emerging as the successful core investor in Ashaka having paid N1.49 billion for the Federal Government’s stake.

KADUNA 16,915,653 15,974,450 94.44%

KANO 25,373,480 15,946,064 62.85%

KATSINA 15,858,425 8,156,000 51.43%

KEBBI 8,457,827 7,294,856 86.25%

KOGI 9,515,055 9,515,055 100.00%

KWARA 6,343,370 5,799,192 91.42%

LAGOS 25,373,480 25,373,480 100.00%

NASSARAWA

5,286,142 1,342,400 25.39%

NIGER 10,572,283 10,496,700 99.29%

OGUN 9,515,055 9,515,055 100.00%

ONDO 9,515,055 3,022,038 31.76%

OSUN 9,515,055 5,201,200 54.66%

OYO 14,801,196 14,500,800 97.97%

PLATEAU 8,457,827 8,457,827 100.00%

RIVERS 13,743,968 13,522,600 98.39%

SOKOTO 11,629,512 11,629,512 100.00%

TARABA 6,343,370 1,765,292 27.83%

YOBE 6,343,370 6,333,142 99.84%

ZAMFARA 7,400,598 4,472,400 60.43%

43

The public offer of 60,718,317 ordinary shares opened on March 27th 2000 and were due to close officially on April 24th 2000. In order to make up for the weak subscription results, the offer close was initially extended to May 9th 2000 and then finally to October 13th 2000.As of the close of the public offer, 44,744,566 ordinary shares were allotted, representing a subscription rate of 73.7%. Of this, 3.8 million ordinary shares were allotted to the staff of Ashaka. The remaining shares were offered initially to State Governments and then to Institutional Investors and, as a result of the successful take-up, the offer of shares in AshakaCem PLC was fully subscribed with a subscription rate of 100%.

ASHAKA

Allocation Allotted %

ABIA 1,264,307 993,650 78.59%

ADAMAWA 1,264,307 1,264,307 100.00%

AKWA IBOM 1,580,384 1,091,200 69.05%

ANAMBRA 1,738,422 598,150 34.41%

BAUCHI 1,896,461 1,714,871 90.42%

BAYELSA 790,192 790,192 100.00%

BENUE 1,738,422 138,650 7.98%

BORNO 1,580,384 1,580,384 100.00%

C R O S S RIVER

1,264,307 1,016,400 80.39%

DELTA 1,580,384 1,580,384 100.00%

EBONYI 948,230 29,000 3.06%

EDO 1,422,345 1,376,895 96.80%

EKITI 948,230 190,350 20.07%

ENUGU 1,264,307 165,200 13.07%

FCT 316,077 78,300 24.77%

GOMBE 948,230 948,230 100.00%

IMO 1,580,384 412,005 26.07%

44

West African Portland Cement Plc94,814,813 ordinary shares were offered in WAPCO, a cement manufacturing company, by way of a combined sale of 55,340,000 shares at N32.50 each to a core investor and offer for sale of 39,474,813 ordinary shares to the general public at N27.50 per share. The core investor sale was concluded in with Blue Circle PLC, a UK-based international cement manufacturer, emerging as the successful core investor in WAPCO having paid N1.8 billion for the Federal Government’s stake.

JIGAWA 1,738,422 1,267,851 72.93%

KADUNA 2,528,614 2,365,913 93.57%

KANO 3,792,921 3,792,921 100.00%

KATSINA 2,370,576 2,370,576 100.00%

KEBBI 1,264,307 781,700 61.83%

KOGI 1,422,345 987,700 69.44%

KWARA 948,230 914,224 96.41%

LAGOS 3,792,921 2,919,406 76.97%

NASSARAWA 790,192 790,192 100.00%

NIGER 1,580,384 1,117,950 70.74%

OGUN 1,422,345 525,650 36.96%

ONDO 1,422,345 959,800 67.48%

OSUN 1,422,345 1,422,345 100.00%

OYO 2,212,537 1,997,160 90.27%

PLATEAU 1,264,307 1,169,950 92.54%

RIVERS 2,054,499 92,100 4.48%

SOKOTO 1,738,422 640,500 36.84%

TARABA 948,230 948,230 100.00%

YOBE 948,230 948,230 100.00%

ZAMFARA 1,106,269 939,500 84.93%

45

The public offer of 39,474,813 ordinary shares opened on December 20th 1999 and were due to close officially on January 28th 2000. Due to litigation and in order to make up for the weak subscription results, the offer close was initially extended to July 12th 2000 and then finally to September 12th 2000.

As of the close of the public offer, 29,719,685 ordinary shares were allotted, representing a subscription rate of 75.3%. The remaining shares were offered initially to State Governments and then to Institutional Investors and, as a result of the successful take-up, the offer of shares in WAPCO was fully subscribed with a subscription rate of 100%.

WAPCO

Allocation Alloted %

ABIA 868,960 217,360 25.01%

ADAMAWA 868,960 868,960 100.00%

AKWA IBOM 1,086,200 144,666 13.32%

ANAMBRA 1,194,820 1,204,770 100.83%

BAUCHI 1,303,440 52,418 4.02%

BAYELSA 543,100 566,900 104.38%

BENUE 1,194,820 245,350 20.53%

BORNO 1,086,200 104,150 9.59%

C R O S S RIVER

868,960 67,800 7.80%

DELTA 1,086,200 1,086,350 100.01%

EBONYI 651,720 651,720 100.00%

EDO 977,580 425,149 43.49%

EKITI 651,720 1,197,840 183.80%

ENUGU 868,960 131,650 15.15%

FCT 217,240 120,750 55.58%

GOMBE 651,720 1,124,756 172.58%

IMO 1,086,200 449,521 41.38%

46

Cement Company Of Northern Nigeria Plc177,289,351 ordinary shares were offered in CCNN, a Sokoto-based cement manufacturing company, by way of a combined sale of 154,915,741 shares at N4.02 each to a core investor and an offer for sale of 22,373,610 ordinary shares to the general public at N2.50 per share. The core investor sale was concluded with Scancem AS, a Norway-based international cement manufacturer, emerging as the successful core investor in CCNN having paid N622.8 million for the Federal Government’s stake.

JIGAWA 1,194,820 1,194,820 100.00%

KADUNA 1,737,920 589,690 33.93%

KANO 2,606,880 2,606,880 100.00%

KATSINA 1,629,300 1,629,410 100.01%

KEBBI 868,960 868,960 100.00%

KOGI 977,580 763,353 78.09%

KWARA 651,720 990,416 151.97%

LAGOS 2,606,880 2,620,113 100.51%

NASSARAWA 543,100 80,494 14.82%

NIGER 1,086,200 172,600 15.89%

OGUN 977,580 1,655,593 169.36%

ONDO 977,580 99,117 10.14%

OSUN 977,580 1,292,338 132.20%

OYO 1,520,680 1,699,117 111.73%

PLATEAU 868,960 1,170,980 134.76%

RIVERS 1,412,060 1,367,560 96.85%

SOKOTO 1,194,820 21,350 1.79%

TARABA 651,720 651,720 100.00%

YOBE 651,720 651,720 100.00%

ZAMFARA 760,340 825,666 108.59%

47

The public offer of 22,373,610 ordinary shares opened on September 8th 2000 and was closed officially on September 29th 2000. At the close of the public offer, 17,976,538 ordinary shares were allotted, representing a subscription rate of 80.3%. The remaining shares were offered initially to State Governments and then to Institutional Investors and as a result of the successful take-up, the offer of shares in CCNN PLC was fully subscribed with a subscription rate of 100%.

CCNN

Allocation Allotted %

ABIA 497,191 240,773 48.43%

ADAMAWA 497,191 479,042 96.35%

AKWA IBOM 621,489 231,092 37.18%

ANAMBRA 683,638 683,638 100.00%

BAUCHI 745,787 370,438 49.67%

BAYELSA 310,745 96,396 31.02%

BENUE 683,638 336,919 49.28%

BORNO 621,489 568,538 91.48%

C R O S S RIVER

497,191 136,423 27.44%

DELTA 621,489 551,342 88.71%

EBONYI 372,894 192,692 51.67%

EDO 559,340 559,340 100.00%

EKITI 372,894 230,146 61.72%

ENUGU 497,191 271,119 54.53%

FCT 124,298 69,646 56.03%

GOMBE 372,894 372,893 100.00%

IMO 621,489 621,489 100.00%

JIGAWA 683,638 322,369 47.15%

KADUNA 994,383 994,383 100.00%

48

African Petroleum Plc86,400,000 ordinary shares were offered in AFRICAN PETROLEUM PLC, a petroleum marketing company, by way of a combined sale of 68,800,000 shares at N35.63 each to a core investor and offer for sale of 17,600,000 ordinary shares to the general public at N28.50 per share. The core investor sale was concluded in with Sadiq Petroleum, an indigenous oil and gas player, emerging as the successful core investor in AP having paid N2.3 billion for the Federal Government’s stake.

The public offer of 17,600,000 ordinary shares opened on April 17th 2000 and was due to close officially on May 19th 2000. In order to make up for the weak subscription results, the offer close was officially extended to June 2nd 2000. Citing weak subscription results and poor logistics due to the fuel-crisis of that

KANO 1,491,574 1,491,574 100.00%

KATSINA 932,234 932,234 100.00%

KEBBI 497,191 497,191 100.00%

KOGI 559,340 473,311 84.62%

KWARA 372,894 372,893 100.00%

LAGOS 1,491,574 1,349,571 90.48%

NASSARAWA 310,745 199,346 64.15%

NIGER 621,489 516,819 83.16%

OGUN 559,340 559,340 100.00%

ONDO 559,340 341,446 61.04%

OSUN 559,340 558,442 99.84%

OYO 870,085 803,503 92.35%

PLATEAU 497,191 497,191 100.00%

RIVERS 807,936 436,976 54.09%

SOKOTO 683,638 683,638 100.00%

TARABA 372,894 126,450 33.91%

YOBE 372,894 372,893 100.00%

ZAMFARA 435,042 435042 100.00%

49

period, the issuing houses kept the offer opened un-officially until August 18th 2000. The Bureau observed, following further investigations and analysis of the subscription lists, that many of the applications received after the officially closing appeared to be fraudulent and thus sought and obtained NCP approval to nullify, in accordance with SEC regulations, all applications received after the official cut-off date.

At the close of the public offer, 9,552,290 ordinary shares were allotted, representing a subscription rate of 54.3%. The remaining shares were offered initially to State Governments and then to Institutional Investors and, as a result of the successful take-up, the offer of shares in AP was fully subscribed with a subscription rate of 100%.

Meanwhile, N895 million has been received from IMB representing the unpaid return monies on the AP Public Offer Transaction. The new registrar, First Registrars, has created the schedule of warrants to be dispatched. Approval has been received to remit the amount of N895 million to First Registrars – this was paid 4th April 2002.

AP

Allocation Allotted %

ABIA 480,000 339,800 70.79%

ADAMAWA 480,000 277,100 57.73%

AKWA IBOM 600,000 157,300 26.22%

ANAMBRA 660,000 660,000 100.00%

BAUCHI 720,000 345,400 47.97%

BAYELSA 300,000 300,000 100.00%

BENUE 660,000 119,350 18.08%

BORNO 600,000 250,900 41.82%

C R O S S RIVER

480,000 145,000 30.21%

DELTA 600,000 430,750 71.79%

EBONYI 360,000 54,500 15.14%

EDO 540,000 382,750 70.88%

50

EKITI 360,000 256,500 71.25%

ENUGU 480,000 223,200 46.50%

FCT 120,000 5,000 4.17%

GOMBE 360,000 302,500 84.03%

IMO 600,000 563,330 93.89%

JIGAWA 660,000 99,500 15.08%

KADUNA 960,000 285,750 29.77%

KANO 1,440,000 200,150 13.90%

KATSINA 900,000 297,600 33.07%

KEBBI 480,000 68,500 14.27%

KOGI 540,000 261,300 48.39%

KWARA 360,000 360,000 100.00%

LAGOS 1,440,000 324,500 22.53%

NASSARAWA 300,000 111,900 37.30%

NIGER 600,000 127,500 21.25%

OGUN 540,000 533,000 98.70%

ONDO 540,000 342,800 63.48%

OSUN 540,000 540,000 100.00%

OYO 840,000 514,050 61.20%

PLATEAU 480,000 172,950 36.03%

RIVERS 780,000 78,700 10.09%

SOKOTO 660,000 80,800 12.24%

TARABA 360,000 188,300 52.31%

YOBE 360,000 64,000 17.78%

ZAMFARA 420,000 87,610 20.86%

51

National Oil And Chemical Marketing Co. Plc (now renamed CONOIL)

274,400,000 ordinary shares were offered in NOLCHEM, a petroleum marketing company, by way of a combined sale of 205,800,000 shares at N36.02 each to a core investor and an offer for sale of 68,600,000 ordinary shares to the general public at N25.00 per share. The core investor sale was concluded with Conpetro Ltd, an indigenous oil and gas company, emerging as the successful core investor in NOLCHEM having paid N7.4 billion for the Federal Government’s stake.

The public offer of 68,600,000 ordinary shares opened on September 4th 2000 and was due to close officially on September 29th 2000. In order to make up for the weak subscription results, the offer close was officially extended to November 27th 2000.

At the close of the public offer, 39,196,550 ordinary shares were allotted, representing a subscription rate of 57.1%. Of this amount, 6.9 million shares or 10% of the shares on offer to the public were allotted to the staff of Nolchem. The remaining shares were offered initially to State Governments and then to Institutional Investors.

NOLCHEM

Allocation Allotted %

ABIA 1,372,000 1,127,400 82.17%

ADAMAWA 1,372,000 491,050 35.79%

AKWA IBOM 1,715,000 1,505,150 87.76%

ANAMBRA 1,886,500 1,886,500 100.00%

BAUCHI 2,058,000 465,050 22.60%

BAYELSA 857,500 857,500 100.00%

BENUE 1,886,500 512,500 27.17%

BORNO 1,715,000 374,600 21.84%

C R O S S RIVER

1,372,000 291,450 21.24%

52

DELTA 1,715,000 1,441,650 84.06%

EBONYI 1,029,000 172,800 16.79%

EDO 1,543,500 1,279,700 82.91%

EKITI 1,029,000 908,200 88.26%

ENUGU 1,372,000 610,600 44.50%

FCT 343,000 171,700 50.06%

GOMBE 1,029,000 963,750 93.66%

IMO 1,715,000 1,715,000 100.00%

JIGAWA 1,886,500 328,150 17.39%

KADUNA 2,744,000 1,296,600 47.25%

KANO 4,116,000 1,005,350 24.43%

KATSINA 2,572,500 722,650 28.09%

KEBBI 1,372,000 99,650 7.26%

KOGI 1,543,500 897,550 58.15%

KWARA 1,029,000 1,015,400 98.68%

LAGOS 4,116,000 2,342,700 56.92%

NASSARAWA 857,500 150,900 17.60%

NIGER 1,715,000 386,400 22.53%

OGUN 1,543,500 1,543,500 100.00%

ONDO 1,543,500 1,191,000 77.16%

OSUN 1,543,500 1,543,500 100.00%

OYO 2,401,000 1,963,550 81.78%

PLATEAU 1,372,000 1,004,550 73.22%

RIVERS 2,229,500 364,400 16.34%

SOKOTO 1,886,500 146,900 7.79%

TARABA 1,029,000 353,450 34.35%

53

Benue Cement Company PlcDangote Industries Ltd. emerged the successful core investor for BCC having paid N918.3 million for 173,267,194 shares. NCP had earlier approved the sale of the remaining shares of the company (approximately 10%) to BCC Staff. Following the failure of the staff to take up the offer the shares were offered to Institutional Investors and as a result of the successful take-up, the offer of shares in BCC has been fully subscribed with a subscription rate of 100%.

The core investor, Dangote Industries Ltd., however could not take over the enterprise following protest from the Benue State Government and the local communities. The case went to court but the parties involved are negotiating to settle out-of court.

Nigercem PlcThe decision of the NCP that the owner states should sign an MOU ceding 51% of the Company to the FGN failing which the FGN will sell its 10% holding on the floor of the Exchange has been communicated to the states concerned.

The shares were then offered initially to Institutional Investors and as a result of the successful take-up, the offer of shares in NIGERCEM Plc was fully subscribed with a subscription rate of 100%.PHASE 2

Assurance Bank Assurance Bank was a spill-over enterprise from phase 1. It has gone through two rounds of privatisation. The nearly-concluded core investor sale of 90% of Assurance Bank was aborted by the NCP and the regulatory authorities due to a lack of confidence in the suitability of the core investor groups that emerged during the first bidding process in July 2001. The NCP decided that ABN should be re-advertised for sale to a core investor.

Following the re-advertisement of the core investor sale of Assurance Bank in September 2001, eight prospective core investor groups submitted their expressions of interest at the end of the deadline on October 12, 2001. The eight prospective bidders were pre-qualified by the NCP to proceed to the due diligence stage provided that they replaced their N500 million Bank Guarantees with cash deposit. However, as at end of the deadline of December 14th 2001, only three out of the eight prospective bidders effected the replacement.

• Dantata Investment and Securities Limited• NSITF/Profund Securities Group • Parmex/General Securities Limited Consortium

YOBE 1,029,000 946,650 92.00%

ZAMFARA 1,200,500 259,100 21.58%

54

The opening of Financial Bids submitted by the three prospective core Investors in Assurance Bank was held on Wednesday, February 13th 2002. The bidding was conducted in Two Rounds as follows:

FIRST ROUND SECOND ROUND Dantata Investment and Securities Ltd.

N252, 000,000 N504, 000,000 NSITF/Profund Securities Limited N594, 000,000 N783, 000,000 Parmex/General Securities Limited. N550, 000,000 N853, 000,000

Thus Parmex/Gensec, which had the highest bid for 90% stake in the Bank, was declared the Preferred Bidder while NSITF/Profund, was declared the Reserved Bidder.

The consortium of Parmex/GenSec Limited paid the balance of N353.2 million to the Secretariat on 8th March 2002. This N353.2m together with the N500m already deposited with BPE at the Expression Of Interest stage made up the purchase consideration of N853.2m.

Following the deposit of N1.2 billion minimum new capital for the recapitalization of Assurance Bank with CBN, the “fit and proper test” on the preferred bidder was concluded and approval given by CBN for the consortium to take over the Bank. The new core investor took over the Bank on November 18, 2003.

Tourist Company of Nigeria (owners of Federal Palace Hotel)The Federal Palace Hotel was privatised in 1992. The company was sold “lock, stock and barrel” to the Tourist Company of Nigeria (TCN) at the price of $50.0 million. The Share Sale Agreement signed with the then TCPC provided that TCN would divest 40% of the shares of the company to the Nigerian public after a period of 5 years through Offer for Sale.

The TCN offer for subscription of 650 million ordinary shares of 50k each at N4.00 per share opened on January 14, 2002. The offer closed on February 25, 2002.

The TCN offer for subscription of 650 million ordinary shares of 50k each at N4.00 per share opened on January 14, 2002. The offer closed on February 25, 2002.

It was felt that the low subscription figures were due to a combination of the relatively high price of the offer (N4.00 per share) and ineffective marketing campaign.

Subscription level was 1.98%.

55

The issuing houses and TCN gave the following reasons for the low subscription levels.

They are of the view that the allotment by Federal Constituencies restricts the number of shares to be allotted to one person. As a result of this, individuals that want to buy in bulk are discouraged.

The public is wary of participating in phase II due to the way they felt that phase one was handled by the BPE, i.e. some people have still not received their return monies.

Given that the general public was apparently not keen on the offer has been sought to offer the shares for sale to state investment companies and/ or institutional investors.

Nigerdock Nigeria Limited The Initial advertisements for a 40% sale of Nigerdock to a core investor were placed in July, 2000. Due to policy change, it was re-advertised for 51% sale in May, 2001. The EOIs were harvested and evaluated. Bid documents were issued to the two pre-qualified bidders on 14 Aug. 2001. Technical and Financial Bids were submitted 15 Oct. 2001. The firm of GEC/JRM emerged winners after a second round of bidding with the highest purchase consideration of N3.4billion. Announcement of the winner was made on November 2001 after a meeting of the NCP. Signing of Share Sale/Purchase Agreement took place on December 20, 2001.

All arrangements for the public offering of the remaining FGN shares in Nigerdock have been completed and the offer will be opened before the end of May 2003.

Festac 77 HotelFESTAC 77 was privatised through Asset Sale. UACN Properties paid the sum of N1, 010,000,0000 to Government. Also a Payment of N19.8million interest penalty was paid by UACN properties on the 1st February 2002, which was followed by the signing of the sales and purchase agreement and handing over on 25th February 2002.

NITELConsistent with the new National Policy Telecommunications Policy which states that “consistent with the philosophy that the private sector will lead the future development of the Nigerian telecommunications sector to the greatest extent possible, controlling ownership interest in NITEL and M-TEL shall be transferred from Government to private investors. The privatised companies are to be restructured by the new owners to implement modern operational and management practices. Both companies will be issued new licenses by NCC, designating their role and responsibilities in the liberalized market”. In conformity with this, Mr. President directed that NCP ensure that NITEL and M-TEL be privatised by the end of 2001, making the NITEL/M-TEL privatisation the flagship transaction for the year.

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The Selection ProcessIn accordance with the timetable for the privatisation of NITEL, the Bureau received bid proposals for a 51% equity stake from three potential core investors. These core investor groups were:

• Investors International (London) Limited (with TDC, a subsidiary of Portugal Telecom, as operator)

• Newtel Limited consortium (with Detecon, a subsidiary of Deutsche Telecom, as operator)

• Telnet Nigeria Limited consortium (with Korea Telecom as operator)

All three proposals, which were submitted by the three bidders before the expiration of the deadline given by BPE, were submitted in two envelopes (for Technical and Financial proposals) under the bid process and evaluation criteria approved by the National Council on Privatisation. BPE opened the Technical Proposals in the presence of representatives of the three consortia and the technical evaluation was completed on 12th November 2001. The sealed financial proposals of the consortia were then opened in a live televised event on 13th November 2001, witnessed by all stakeholders and representatives of the international diplomatic community and Transparency International. After the opening of initial financial bids, bidders were given a chance to submit revised offers. These offers were as follows:

• Investors International (London) Limited US$1.317 billion

• Newtel Limited consortium US$1.072 billion

• Telnet Nigeria Limited consortium US$1.310 billion

The preferred bidder was declared to be Investors International (London) Limited (IILL) and the reserve bidder was declared to be the Telnet Nigeria Limited consortium (Telnet). IILL paid 10% of its bid price on 12th December 2001 but failed to pay the remaining 90% as required by the deadline of 12th February 2002. Following the laid down procedure, IILL was deemed to have lost its deposit and the Reserve Bidder was invited for negotiations. Negotiations with Telnet were inconclusive and the consortium finally declined to take up the offer. Accordingly, the stipulated sale process was suspended.

Following the official suspension, NCP proceeded to consider alternative options ranging from investigating the possibilities of NITEL entering into a management contract to a full re-tender of government’s interest in the enterprise. In the interim, IILL had requested that they be given an extension of time to arrange the necessary financing. An extension of six weeks was granted. However, they still failed to raise the funds and NCP is still in the process of considering available options.

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Following the advertisements in both national and international publications requesting for expressions of interests (EOIs) by Management contractors in the Nigerian Telecommunications Limited (NITEL), the Bureau of Public Enterprises (BPE) harvested a total 14 (fourteen) applications at the close of entry on 28 June 2002. After evaluations of the technical and financial proposals submitted by the prospective managers, the firm of Pentascope (Netherlands) emerged the preferred contractors. After series of meetings and negotiations, the management contract agreement was eventually signed between FGN/NITEL/Manager in March 2003.

It will be recalled that a two-pronged approach to the privatisation of NITEL has been adopted. The first step is to bring in a credible and well-qualified telecoms operating company to manage the operations of NITEL. Once this process has been completed, we intend to take approximately 20% of NITEL to the capital markets by way of an Initial Public Offer (IPO). Both activities have already started in earnest.

The planned initial public offer, which was accelerated, met with some delays largely due lack of up to date accounts of NITEL, will be opened in May/June 2003. The NITEL public offer being the single largest Capital Market transaction in Nigeria’s history is receiving all the attention that it deserves. Whilst the Management Contract transaction process was going on, the BPE was simultaneously making all the necessary preparations for the IPO. Implementation of an effective grass-roots and stakeholder mobilization campaign that will cover the 36 states and Federal Capital Territory of Nigeria has commenced. This campaign will be done on an on-going basis. The campaign will be multi-faceted and will cover TV shows, billboard, posters as well as interactive events such as targeted road-shows etc. BPE has also put in place incentives that will ensure the participation of millions of Nigerians in this very important transaction. The Share Purchase Loan Scheme is expected to be in place before the commencement of the NITEL IPO. In addition, we shall also be targeting institutional investors who will be allowed to purchase equity in the event of under-subscription. Nigerians in the diaspora are also being factored into the divestiture of NITEL shares and would also be able to benefit from the IPO when it is listed in the London and New York Stock Exchanges.

BPE has taken several steps and will introduce new procedures that will eliminate the occurrence of some of the problems experienced in Phase I exercise such as delayed allotments and return monies. As you can imagine, an offering of this size and magnitude will have severe logistical implications.

Nicon Hilton Hotel The opening of financial bids for prospective core investors for the hotel took place on August 14, 2002. African Properties emerged as the Preferred Bidder for 51% stake in NIRMSCO Properties Ltd (owners of NICON Hilton Hotel) offering a sum of $61,710,000 this was approved by NCP at its 30th meeting. The BPE and African Properties signed the Share Sale/Purchase Agreement on August 30th 2002. African Properties was expected to pay by September 27, 2002. Unfortunately, the preferred bidder could not meet the payment deadline

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alluding to concerns with respect to court injunctions on the privatisation of the enterprise. Negotiations with the second highest bidder, IBTC Consortium, to raise their offer to the level of the reserved price were not successful. Search for new prospective core investors is on-going.

Electricity Meter Company of NigeriaThe FGN owned 70.45% of EMCON. Advertisements for EOIs from prospective core investors for a 51% stake in the company were placed on June 10, 2002 and expired on July 10, 2002. The remaining 19.45% would be offered to the public through IPO. At the expiry of the deadline for submission of EOIs only two EOIs were received. The data room due diligence took place from 18/8/2002 to 10/10/2002. Only one financial bid from Dantata Investments and Securities Limited was opened on 9th December 2002. The first offer was for $2,615,159 for the 51%. During the second round, the bidder raised the offer to N0.40 billion to emerge the preferred bidder. The necessary approvals have been received and the core investor has taken over already.

Savannah Sugar Co. Ltd.After the advertisement for a 51% sale of the company, only two bids were received from prospective core investors: Dangote Industries Limited and BHI Holdings. However, at the financial bid opening, BHI Holdings was disqualified for failure to submit its bid bond as required. Thus Dangote Industries was the sole bidder with an offer of $6,292,406.33. During subsequent negotiations, the price was raised to N1.35 billion for 90% of Savannah Sugar. The purchase consideration was paid on 13/02/03 and the core investor took over the company on 6/03/03.

National Trucks ManufacturersFollowing the advertisement for a 51% sale of NTM to a core investor, six expressions of interests were received from prospective bidders. Eventually only two firms reached the financial bidding stage: Art Engineering and Dantata Investments & Securities Limited. After the second round of bidding, Art Engineering emerged the preferred bidder with an offer of $6,398,479.00 million compared to Dantata’s offer of 4,545,515.00 million.

Art Engineering has since taken over the company having paid the purchase consideration.

Nigeria Re-Insurance CorporationFollowing the advertisement for expressions of interest from prospective core investors in acquiring 51% shares in Nigeria Re and the completion of the scheme of arrangement in October 2002, the data room due diligence took place from 21/10/2002 to 16/11/02. Only two bidders reached the financial bidding stage held on 12/12/2002: Industrial & General Insurance and Reinsurance Acquisition Group Limited. Reinsurance Acquisition Group emerged the preferred bidder with an offer of N1,006,999,999.00. Payment of the purchase consideration was effected on 31/12/2002.

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Capital Hotels Plc (owners of Sheraton Hotel and Towers, Abuja)There were two bidders for the Hotel: Hans Gremlin Nigeria Limited and Vigeo Hotels Limited. The prospective bidders due diligence took place from 11/06/02-20/07/02. The bidders submitted their Techincal and Financial Bids on scheduled on 29/07/02. The financial bid opening took place on 14/08/02. In the first round the bids were as follows:

•Hans Gremlin Nigeria Limited-$25,000,000.00•Vigeo Hotels Limited-$12,500,000.00

In the second round the bidders revised the offers as follows:

• Hans Gremlin Nigeria Limited-$32,500,000.00•Vigeo Hotels Limited-$17,552,000.00

Thus, Hans Gremlin Nigeria Limited emerged the preferred bidder. Payment and handover were effected on 30/10/02 and 03/12/02, respectively.

Nigeria Hotels LimitedThe core assets of the company were separated, creating Ikoyi Hotel Limited; Central Hotel Kano; Caterer’s Court and and some landed properties. This was done to make the assets more attractive to investors and to maximise proceeds.

Ikoyi HotelFive prospective core investors bidded for 100% of the Hotel. At the financial bid opening held on 23rd October 2002, the final offers after the second round were as follows:SPDC Company $8,118,118.00Prudential Trust Company $13,500,000.00BETA Consortium $13,877,000.00IBTC Company $7,800,000.00Reliance Estate Limited $11,700,110.00

BETA Consortium was the preferred bidder and Prudential the reserve bidder. Payment was made on 08/01/2003 and handover took place on 10/01/2003.

Caterer’s CourtThere were six bidders for the asset sale of caterer’s court. Reliance Estate Limited emerged the preferred bidder with an offer of N656, 700,000.00 during the competitive financial bidding. Payment took place on 06/01/03.

Recently, the financial bid opening for the asset sale of Central Hotel, Kano and the remaining properties of Nigeria Hotels Limited at No. 8 &10 Lees Road, Ikoyi, Lagos, and the Audit section of the Hotel, took place. Dangote Investment Company emerged the preferred bidder for Central Hotel and Audit Section with an offer of N160 million and N100 million, respectively. Chyzob Enterprises Limited emerged the preferred bidder for No. 8 and 10 Lees Road with an offer of N131million and N70 million, respectively.

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Daily Times of Nigeria PlcThe remaining FGN shares in DTN were divested through public offer. The offer opened 04/11/02 and closed 13/12/02 as scheduled. However, offer was poorly subscribed with a subscription rate of just about 1.5% which was below the minimum required for SEC’s approval. It was felt that one of the main reasons for the poor public response was lack of confidence in the company due to the absence of a reliable and competent core investor. The option of privatising the company through core investor sale is being worked out.

MV Abuja (Nigeria Unity Line)MV Abuja is the main asset and the only remaining vessel of the Nigeria Unity Line. Eleven tenders were received for the sale of the asset from prospective foreign buyers. Following competitive bidding held on April 3, 2003, the firm of Howe Robinson Shipbrokers (UK)/Simatech emerged the preferred bidder with a final bid offer of $3,450,000.00.

National Fertiliser Company of Nigeria (NAFCON) NAFCON was established in 1981 at Onne in 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. NAFCON process of privatisation started in 2002 with the appointment of privatisation advisers who conducted diagnostic analyses of the company and submitted to the BPE. Based on their reports, the option adopted for the privatisation of NAFCON was by core investor sale for 100% divestiture.

Seven prospective core investors were pre-qualified by the NCP and conducted their due diligence on the enterprise. Eventually only two out of the seven submitted their technical and financial proposals. They were Sino Africa Petrochemicals Company Limited and HRGC Investment Company Limited. These two prospective core investors scaled through the technical evaluation stage and were recommended to NCP for their financial proposal to be opened. The NAFCON divestiture will be 100% to the prospective core investor with deferred public offer of 40% in Five years.

Upon NCP’s approval, the opening of financial bids was conducted on Thursday March 13, 2003. However, one of the bidders, HRGC Investment Company Ltd was disqualified for failure to submit its bid bond as crequired. Thus, Sino Africa’s Petrochemicals Company Ltd became the sole bidder for NAFCON.

In the first round of the bidding, Sino Africa Petrochemicals offered $100,000.00 for 100% of NAFCON including taking over NAFCON’s #15billion liability to be repaid after the company has been rehabilitated and is fully operational. Otherwise, it offered to pay $46.1 million without liabilities.

In the second round of the bidding, Sino Africa Petrochemicals reviewed their bid and dropped all the conditions and made a final offer of $66 million without liabilities.

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On further negotiation, Sino Africa raised their bid to $75 million. They are expected to pay the purchase consideration before the end of May 2003.

Iwopin Pulp and Paper Mill

Advertisement inviting expressions of interest (EOIs) from prospective core investors for 100% acquisition of FGN holding in Iwopin was placed on 23rd September 2002. Four EOIs were received. Only two firms paid the mandatory $15,000 fees for access to the data room. These were: Beulah Technical Services Co. Ltd and Hippogriff Nigeria Ltd. The two companies undertook due diligence from 30th January to 20th March 2003. They submitted their technical and financial bids on 21st March 2003. The financial bid opening took place on April 3, 2003 at which only Beulah was allowed to bid having disqualified Hippogriff for failure to submit a valid bid bond of $750,000.00 as stipulated.

Once the relevant authorities approve the transaction, the core investor will be expected to pay before the end of May, 2003.

After two rounds of bidding, Beulah Technical Services Ltd. emerged the preferred bidder with a final bid of N3,100,000,000.00 for 100% equity stake in IPPC at a price of N4.40 per share.

Remaining Phase Two EnterprisesOther second Phase enterprises to be privatised, most of which are now at advanced stages of divestiture, are as follows:

i) Financial Services: - Nicon Insurance Corporation- Abuja Stock Exchange- Bank of Industry- Nigerian Agricultural and Co-operative Bank

ii) Culture and Tourism:- Durbar Hotel- Ahmadu Bello Stadium, Kaduna- Liberty Stadium, Ibadan- Nnamdi Azikiwe Stadium, Enugu- National Arts Theatre- International Trade Fair Complex- Tafawa Balewa Square

iii) Media Companies:- New Nigerian Newspapers Ltd (Public Offer)

iv) Transport and Aviation:- Nigeria Airways Limited and subsidiaries- Nigerian Aviation Handling Company- Federal Airports Authority of Nigeria

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- Nigerdock Nigeria Plc (Public Offer)- National Inland Waterways Authority- Nigeria Unity Line

v) Vehicle Assembly Plants:- Annamco- Leyland- VWON- PAN- Steyr Nigeria limited

vi) Paper Mills:- NNMC, Oku Iboku- NPM, Jebba

vii) Sugar Companies:- Nigeria Sugar Co. Bacita- Lafiagi Sugar Co- Sunti Sugar Co.

viii) Agro-Allied: - Ihechiowa Oil Palm Co. Ltd.- Ore Irele Oil Palm Co. Ltd- Ayip Eku Oil Palm Co. Ltd- Nigerian Romanian Wood Industries

ix) Steel and Aluminium:- Ajaokuta Steel Co. Ltd.- Delta Steel Co. Ltd- Jos Steel Rolling Mill Co. Ltd.- Katsina Steel Rolling Mill Co. Ltd- Oshogbo Steel Rolling Mill Ltd.- Aluminium Smelter Co. Ltd.

x) Mining and Solid Minerals:- Nigerian Coal Corporation and subsidiaries- Nigerian Mining Corporation and Subsidiaries- Nigerian Uranium Company Limited- Nigerian Iron-Ore Mining Company Limited

xi) Others:- Nigerian Security Printing and Minting Co.- West African Refinery Sierra Leone- NIPOST- Central Packaging company, Ilupeju- Opobo Boat Yard- Abuja Environmental Protection Board- Chemical Company of Senegal- Premier Breweries Plc

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PHASE 3

Phase Three of the programme comprises the privatisation of major enterprises in the monopoly sectors of the economy, which require major pre-divestiture sector reform, including NEPA and the NNPC subsidiaries. The privatisation of NITEL, formally scheduled in Phase Three, was accelerated to take maximum advantage of the liberalisation of the telecom sector and to avoid depreciation of its realisable value due to competition as a result of the entry of private GSM providers into the sector.

Below is a list of enterprises by sectors where reform process is currently going on:

Oil & Gas

o Nigerian National Petroleum Corporationo Port Harcourt Refinery & Petrochemicals Ltd.o Warri Refinery and Petrochemical Limitedo Kaduna Refinery and Petrochemicals Limitedo Eleme Petrochemicals Limitedo Nigeria Petroleum Development Companyo Nigeria Gas Company Limitedo Pipelines Products Marketing Company Limitedo Dresser Nigeria Limited o Solus Scholl Nigeria Limited o A.C.M. Nigeria Limitedo Baker Nigeria Limitedo Sedco Forex Nigeria Limitedo Schlumberger Wire Line Coo Dowell Schlumberger Nigeria Limited o Key Drill Nigeria Limited o Baroid Nigeria Limitedo D.C.P. Limited

Power and Steel

o Jos Steel Rolling Mill Ltd.o Oshogbo Steel Rolling Mill Ltd.o Katsina Steel Rolling Mill Ltd.o Ajaokuta Steel Company Limited.o Aluminium Smelter Company Limitedo National Iron Ore Mining Company Limitedo National Electric Power Authority

Solid Mineral

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o Nigerian Mining Corporationo Nigerian Coal Corporationo Nigerian Uranium Corporation Co. Ltd.

Transport

o Nigerian Ports Authorityo Nigerian Railway Corporationo Nigerdock Limitedo NAHCO.

4.3 SECTOR REFORMS: POLICY, LEGAL & REGULATORY FRAMEWORK

The implementation of Phase three of the Privatisation programme requires sector reform and restructuring, prior to or side-by-side with the divestiture transaction. In the monopoly sectors l ike electric power and telecommunications, sector reforms are undertaken in a logical sequence as follows:

i) Policy Formulation or Reviewii) Legal/Regulatory Framework Designiii) Restructuring and Liberalizationiv) Privatisation Transaction

Some of the Sector Steering Committees earlier inaugurated have reached advanced stages of their assignments. The sectors to be covered include Ports, Power, Transport, Telecom, Oil& Gas)

Power Sector ReformsIn order to attract private sector investment and sustain the development of the power sector to ensure uninterrupted and efficient power supply in the country, the NCP defined the objectives for power sector reform as follows: • To promote competition to facilitate more rapid provision of service

throughout the country;• To create a new legal and regulatory environment for the sector that

establishes a level playing field, encourage private investment and expertise, and meet social goals;

• To restructure and privatise the National Electric Power Authority (NEPA); and

• To encourage the successors to NEPA to undertake an ambitious investment programme.

In order to carry out the twin processes of restructuring and privatisation of the power sector, the NCP Electric Power Sector Reform Implementation Committee (EPIC) was inaugurated in February 2000. The following steps were also taken:

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• EPIC with the advice of reputable power sector consultants (NERA) put together a Power Policy, which was approved by the Federal Executive Council on 28th March, 2001 (see below)

• Legal Regulatory Consultants were appointed in April 2001• Draft Electric Power Sector Reform Bill was approved by FEC and

submitted to National Assembly for enactment in September 2001.• Appointment of Restructuring Blueprint Advisers in November 2001.• Appointment of Due Diligence Advisers in August 2002

Power PolicyThe Policy envisages a 3 stage legal and regulatory reform of the power sector as follows: Transition Stage - characterized by private power generation through Independent Power Producers (IPPs) and Emergency Power Producers (EPPs); corporate restructuring, unbundling and privatisation of NEPA through sale or license of all thermal plants to private operators or concessionaires and transfer of management, ownership and control of selected distribution companies (Discoys).

Medium Term (after the unbundling and privatisation of NEPA is completed) - Characteristics that are contemplated will include competition among generating companies; energy trading between generation and distribution companies primarily on the basis of bilateral contracts through contact exchanges and sales; payment of full price by generators for natural gas and other fuels; and, sale of energy by companies generating power in excess of their needs to distribution companies

Long run Competition Structure - It is envisaged that during this phase, the various power generation, transmission and distribution companies will be operating optimally. Additionally, there would be economic pricing of electricity to cover the full costs of supply, including expectation of a reasonable, risk-adjusted rate of return on capital; opportunity for large industrial consumers to choose their suppliers; a well developed wholesale market with formal membership rules, procedures, etc.; and, full retail sales competition.

Legal and Regulatory ReformThe Electric Power Implementation Committee (EPIC), with the aid of its consultants, has made considerable headway in defining the legal and regulatory architecture for power sector reform. Key features of his architecture are as follows:

• The market design structure and regulatory framework are interrelated aspects of the power sector reform programme that are documented in the Electric Power Sector Reform Bill recently passed by the National Assembly and presently awaiting the assent of the president. The enactment of the Bill is paramount to the establishment of a transparent power sector in Nigeria, whilst the market rules are the key to operation of the market.

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• The Power Bill has the following objectives: to provide for the formation of companies to take over the functions, assets, liabilities and staff of the National Electric Power Authority, to develop competitive electricity markets, to establish the National Electricity Regulatory Commission; to provide for the licensing and regulation of the generation, transmission, distribution and supply of electricity; to enforce such matters as performance standards, consumer rights and obligations; to provide for the determination of tariffs; and to provide for matters connected with or incidental to the foregoing.

• The creation of a new Electricity Supply Industry (ESI) requires predictable and efficient rules, sometimes called the “rules of the game” for any company operating (connected) to the grid or operating in the Market. The Market Rules and Grid Code are in quite an advanced stage. Notwithstanding this, the Market Rules and Grid Code require further review to adapt them to Nigeria’s electricity system realities to reflect issues of compliance and enforcement. Detailed procedures, for instance, thermal variable cost nomination, hydro operation and dispatch are required to complete the rules and codes. Once the Market Rules and Grid Code are completed and drafted, the approval by NERC is required to formalize it as the regulatory framework for the Power sector, to complement the new Bill.

Corporate Restructuring of NEPA.

PriceWaterhouseCoopers (PWC) and other consultants commenced work in November 2001 on preparing a blueprint for the restructuring and unbundling of NEPA. Essentially, NEPA will be unbundled along functional lines namely, generation, distribution and transmission. A special purpose entity will also be established to assume NEPA legacy liabilities and some of the current energy-purchasing obligation.

On August 26th, 2002, the NCP approved the implementation blueprint for the restructuring. This restructuring will involve the creation of six Generation Companies (Gencos), in line with NEPA existing generating installations with the exception that Kainji and Jebba will be one Genco since they both drew from River Niger, an independent transmission company, that is also responsible for System and Market Operation; and eleven (11) Distribution/Marketing Companies (Discoys) matching existing zones (with the exception of Lagos, which will be split into two due to size of the load). The objective is that each one of these companies will be (or become) a commercially viable independent company. It is envisaged that this restructuring programme will conclude in late-2002 and be followed soon after by a shadow-trading period and before the divestiture of Government interest in 2003 and 2004 in the Discoys followed by the Gencos.

As the restructuring blueprint has been approved by NCP, activities in the early part of 2003 are focusing on implementation of the blueprint and the actual creation of the new business units as envisaged. The BPE is working

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hand in hand with both the Ministry of Power and Steel and NEPA along side the newly inaugurated NEPA Board to ensure effective implementation of the reform programme.

Rural Electrification Policy and Strategy Consultants

Part of the medium-term objectives of reform program for power sector prepared is rural electrification aimed at expanding access to electricity by the rural communities in a cost effective manner. This entails the drafting of a comprehensive Rural Electric Policy and establishing a Rural Energy Fund to implement this policy. BPE working in close collabouration with the Federal Ministry of Power & Steel is now in process of retaining advisers to undertake this work.

NEPA Due Diligence

As a precondition to the physical unbundling of NEPA, it is considered that a Due Diligence Audit of NEPA would be beneficial. The objective of the due diligence audit is to assist and advise the Federal Government in determining the precise operational status of NEPA and place a value on existing assets ahead of its restructuring and eventual privatisation.

KPMG Professional services (KPS) have been retained to undertake this assignment in August 2002. This assignment is in its final stages.

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Telecom Sector Reforms

Telecommunications PolicyThe Telecommunications Sector Reform Implementation Committee developed and produced a new National Telecoms Policy that provides for a dynamic private sector driven industry It was this Policy that created the enabling environment for the telecom revolution that is transforming Nigeria today. Prior to the approval of the Telecoms Policy by the NCP and then Federal Executive Council in September 2000, Nigeria had the third lowest tele-density in the whole world. NITEL had an installed capacity of about 750,000 lines, while only about 400,000 lines were actually in use. There were correspondingly, about 50,000 analogue phone users and an even lower number of subscribers for the Private Telecom Operators. Before the GSM operators entered the telecom market, the waiting period in Nigeria for a phone line was several weeks if not months, and the connection fee was amongst the most expensive in the world. Just over a year after the auctioning of Digital Mobile Licenses to three operators, close to a million people have been connected.

Legal and Regulatory FrameworkA consortium comprising Booz Allen & Hamilton/Clifford Chance/Afriprojects/Udo Udoma & Belo-Osagie was appointed as advisers to review the legal/regulatory framework of the sector and prepare a draft Telecommunications Bill for presentation to the National Assembly.

The Terms of Reference for the Consultants were to:

• Review the existing laws and regulations in the telecommunications sector

• Prepare an overview report on the legal and regulatory framework in the sector with comments on:

i. Nigeria Telecommunications policyii. The Nigerian Communications Commission Decree 1992iii. Public Enterprises (Privatisation and Commercialisation) Act 1999iv. Other relevant Acts, legislation and regulations with direct relevance to the

telecommunications sectorv. Regulatory instruments such as orders, operating licenses, tariff filings and

interconnection agreements.vi. Existing procedures for policy making, rule making, licensing, appeals,

consumer affairs, etc.

• Prepare a new legal framework for the Nigeria Telecommunications Sector

• Prepare a new law for the Telecommunications sector which addresses the rights and responsibilities of the Ministry, Nigeria Communications Commission and licensed operators;

• Provide support to the regulatory agency in drafting and finalizing the new licenses for NITEL, M-TEL and other licensed wireless operators.

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• Prepare appropriate subsidiary legislation and amendments to the existing legal and regulatory framework and other regulatory instruments regarding: -

i. Numbering planii. Spectrum management; andiii. Internet services

The consortium deployed cross-country experience in over 30 nations and, using the Telecoms Policy as the foundation, developed the Bill. The consortium held various consultations with NCC, NITEL, the Ministry of Communications and other stakeholders in the industry. By late 2000, the consultants submitted the first draft of the Bill to the Steering Committee and this draft was accepted and approved for public discussion by the President-in-Council on 27th December 2000.The approved draft was published in various national newspapers and copies were distributed far and wide for public debate. Following inputs from federal agencies, State Governments, the National Assembly, the Judiciary, trade unions and other interest groups, the Bill was revised and re-revised, culminating in the production of a fifth draft which was debated and finalized at a National workshop held on 3rd and 4th April 2001. Following the workshop, the approval of the Bill was obtained from NCP and the recently, the clearance of the Federal Executive Council before onward passage to the National Assembly. The Bill was forwarded to the National Assembly in the third quarter of 2001 and is still awaiting final passage.

Management Contract

As a result of the inconclusiveness of the Core Investor Sale transaction for NITEL, and in order to ensure that NITEL keeps pace with the rapid transformations in the telecoms market, the FGN decided that the management of the company should be placed in private sector hands through a competitively tendered management contract.

The appointment of a reputable telecom firm to come and manage NITEL, will help bolster the confidence of the Nigerian public in the telecom utility, thus increasing the public’s interest in its shares. The rationale was that under a new competent management that is focused and given specific mandates to deliver, NITEL would be able to embark on a new expansion programme, enabling it to generate new profits. The potential manager would be a reputable telecommunication company that will assume the management and operational control of NITEL for a period of two to three years. The potential manager is expected to compete effectively with the telecommunication markets introducing sales and marketing expertise, increase range of products, transfer technologies and skills and strengthen management.

In May 2002, advertisements were placed in foreign and local newspapers calling for the submission of expressions of interest (EOI’s) from reputable world-class telecommunication firms interested in operating NITEL under a

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management contract for the next two to three years. In order to afford additional time for reputable companies to apply, the Transaction Advisers, PriceWaterhouseCoopers (PWC) advised that the deadline for the submission of EOI’s be extended by 2 weeks. It was thus extended to June 28, 2002. The extension was advertised in the Financial Times.

Following the advertisements, 14 EOI’s were received by the June 14, 2002 deadline. After evaluation, the following bidders were short-listed based on the earlier published evaluation criteria and were subsequently invited to submit their bids for the NITEL Management Contract. The short-listed bidders included:1. Africa Access and Lucent Technologies2. BT Teleconsult3. Keppel T&T4. Netcom – ZTE Consortium5. Pentascope International6. SaskTel International7. TCIL Bhawan and BNSL8. Technologia das Communicacoes9. Telenor Management Partner AS and Swedtel ABFollowing the pre-qualification of the short listed prospective operators, Confidentiality Agreements were sent to the prospective operators in preparation for the data room due diligence. The Confidentiality Agreement was to ensure that prospective operators do not disclose any privileged information to a third party. Seven (7) companies out of nine signed the Confidentiality Agreement while 2, BT Teleconsult and Keppel T & T withdrew form the process.

The due diligence process was to enable the prospective operators assess NITEL’s facilities, network and resources before submitting their technical and financial bids. The prospective bidders were issued transaction Information Memorandum on September 4, 2002 and electronic copies of data room documents to enable them conduct due diligence on NITEL. Securities features were installed in the CD-ROMs to prevent the documents from being circulated to the unauthorised parties printed or saved on the bidders computer system. The due diligence commenced on 16th September 2002 and ended on 14th October 2002. The pre-qualified managers requested for an extension of time for submission of their bids. An extension was subsequently granted until November 14.

There were 5 consortia that took part in the process. These were;

- Africa Access / Lucent / BT- Pentascope - TCIL / BNSL- SaskTel / IBM

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- China Netcom

The pre-qualified firms concluded due diligence on 4th November 2002, and technical and financial proposals were submitted on 15th November.As part of the due diligence process, all the firms were in Nigeria for meetings and site visits at NITEL. The technical proposals were evaluated immediately and have since been concluded.

The process of appointing the Management Contractor was concluded with Pentascope International B.V Private Ltd. signing the Contract on March 18th 2003 and has since taken over the Management of NITEL on 21st April 2003.

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NITEL IPO

This connotes the Public Offer of a portion of the Federal Governments Shares in NITEL to Nigerians. The Secretariat was of the view that the sale of NITEL shares to the public should be done in multiple tranches due to the limited absorptive capacity of the domestic capital markets and the sheer volume and thus value of the NITEL Offer. It was also envisaged that sometime in the future there would be a tranche of NITEL shares for cross-border listing on one of the international stock exchanges. In order to facilitate the Public Offer of these shares, the Council had approved the appointment of a team of flotation advisors for the transaction

The IPO transaction was not a fall back measure following the collapse of the core investor transaction but had always constituted an integral part of the privatisation strategy for NITEL. Given the collapse of the core investor sale, Council felt it could achieve the same objective of fostering NITEL from the bureaucratic and inefficient management that had left it a shadow of its full potential by entering into a Management Contract agreement with a credible and well-experienced international telecom operator

The secretariat had anticipated opening the Public Offer by October 1st 2002 in order to realize the projected proceeds of N20 Billion, for remittance to the Treasury, before the end of 2002. However, several un-anticipated legal and accounting issues in the course of the preparation of the statutory documents have resulted in delays to this timetable.These issues had been further aggravated by the absence of a NITEL board to pass the necessary resolutions including those authorizing the IPO. A Board was inaugurated on the 5th of November 2002 and has now passed all necessary resolutions.NITEL’s accounts proved to be a contentious issue due to the repeated inability of NITEL and it’s auditors to prepare the company’s accounts within the stipulated period of time.

The board approved the accounts for the company on the 2nd of December 2002. All qualifications except that on Pension Liabilities had been removed.

The legal and accounting issues have delayed the preparation of the offer documents and regulatory filings. With these untimely delays it is envisaged that the offer would open towards the end of May 2003.

Oil And Gas Sector Reforms

OBJECTIVES

The FGN has assigned very high priority to petroleum sector renewal and reform. Specific objectives include:

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• Revitalization of the sector and an end to public sector losses through redesign of and adequate staffing and resourcing of policy and oversight agencies and restructuring and disposition of public sector assets to the private sector.

• Continued expansion of upstream activities, emphasizing private sector participation and additions to oil and gas reserves.

• Resolution of NNPC’s JV funding difficulties, including a re-examination of NNPC’s level of equity participation in the JVs.

• Enhanced upstream oversight capacity, particularly with respect to cost containment and the monitoring of revenue flows.

• Improved transfer of upstream managerial and technical know-how to the Nigerian community and increased Nigerian capacity and content in the sector both directly, and as suppliers of goods and services.

• Urgent amelioration of adverse social and environmental impacts of upstream operations. A sustainable clean physical environment, social equity, and an end to violence in the oil producing areas. Increased emphasis on the recognition of the interests of host communities in oil producing areas, and articulation of a framework for the sustainable development of said areas.

• Downstream self-sufficiency, ending product imports and restoring export capacity.

• An end to subsidies to the refining sector and significant efficiency gains through privatisation and expanded private sector participation in both existing and new refining capacity.

• Consolidation of product price liberalization initiatives.

• Enhanced competition in both refining and retailing.

• Effective regulation of transport and storage infrastructure in both the oil and natural gas industries, including reasonable tariffs and rules of access protecting against anti-competitive abuse and promoting competition. Enhanced security in the operation of oil products infrastructure.

• Greater attention to environmental and Health Safety & Environment priorities in the downstream sector.

• An early end to gas flaring and expanded private sector investment in the gas sector for both exports, regional and domestic markets.

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REFORM INITIATIVES

To set the pace for reform of the petroleum sector, the FGN, through the Vice President, in April 2000, established the Oil and Gas Sector Implementation Committee (OGIC) with 6 sub-committees. They have each submitted reports, which have been harmonized and will provide framework for new policy:

• The Structure of the Industry• Legal and Regulatory Matters• Upstream Operations• Downstream Issues• Non-Core Investments

Gas and Petrochemicals

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SECTOR REFORMThe sector reform will be implemented in the following sequence:

Transition to full deregulation REFORM AGENDA

• Market liberalization• Policy review and formulation• Review of legal and regulatory framework

Privatisation

PRIVATISATIONPre-conditions for Privatisation

Preconditions include the deregulation of petroleum products market by the removal of all barriers to internal trade, exports or imports of refined products through:

• Freeing of crude oil prices, so that refineries will pay the equivalent of world prices for crude.

• International market parity pricing and appropriate downstream tariffs • Establishment of an Independent Regulatory Commission for the Sector• A regulated open access pipeline and storage depot system• A legal and regulatory framework that will assure private investors of

competition on a level playing field.

The Federal Government of Nigeria’s interest in the downstream sub-sector is made up of the following fully owned subsidiaries of NNPC, which are all slated for privatisation:

• Four refineries, located in Port Harcourt (2 refineries, old and new), Warri and Kaduna.

• Petroleum and Pipelines Marketing Company Limited (PPMC) made up of over 5000 kilometers of products pipelines, 17 depots and 3 refinery-based product tank farms, two jetties and one export terminal

• Nigerian Gas Company • Eleme Petrochemicals Company Limited.

In the upstream sector, the eleven (11) oil service companies, in which the FGN holding is not more than 36% will be privatised. BPE has been invited to visit Petronas, Malaysia from the 27th to the 29th of January 2003. The visit is in compliance with the objective of the FGN to gain an understanding of the structure and workings of the Malaysian oil & gas industry to benchmark Nigerian oil service companies against their Malaysian counterparts. This would help put in place a framework that will encourage them to operate with efficiency, profitability to their shareholders, accountability to regulatory agencies, transparency in their operations, and enhancement of local capacity in the oil and gas sector.

Other assets scheduled for privatisation include HYSON (Nigeria) Limited, in affiliation with Calson Bermuda Limited.

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The Federal Government has also scheduled its investments in West Africa Refinery Company (WARCO), Sierra Leone, for privatisation.

Objectives Of The Privatisation Strategy For The Downstream Oil And Gas Sector

The objectives of the Privatisation strategy for the downstream oil and gas sector are as follows:

• To create a competitive industry framework through sector reform and privatisation, thus mobilizing private investment. Competition will improve customer service levels and prevent price abuses

• To improve the regulatory framework and liberalise prices and importsTo diversify supply sources and improve transparency

• To create adequate margins for all stakeholders and attract investments into the sector

• To eliminate petroleum products scarcity and set the stage for coordinated export to the West African sub-region.

The above initiatives will create the necessary environment for privatisation and provide the background for the objectives of the sub sectors of the downstream sector, which are given below:

Objectives Of The Privatisation Strategy For The Refineries

The refineries will be privatised partially with strategic interest going to a core investor with expertise in running a world-class refinery. Each core investor will submit an investment plan as well as a Social Plan. The sale would most probably be sequenced as the investor pool for refinery privatisation offers are unlikely to be able to absorb 3 refinery offers in one year

Objectives Of The Privatisation Strategy For Products Pipelines And Marketing Company (Ppmc)The strategic plan proposes that PPMC pipeline network system, marine and truck bulk transport assets and infrastructure be unbundled and privatised through the sale of several large share blocks, with the largest shareholder becoming the operator (Logistics Company). The logistics company will transport products by pipeline, marine vessels and trucks between depots nationwide on behalf of Oil Marketing Companies, on open access, non-discriminatory basis, but will not be allowed to own or sell products in its own right.

The plan also proposes that PPMC depots be privatised as Regional Storage Depot Companies (RSDCs), which will offer product reception, storage and distribution services to all licensed oil marketing companies on non-discriminatory basis. The RSDCs will not be allowed to own or sell products in their own right and products handled will remain the property of oil marketing companies. Also a Regulatory Commission will be established to deal with

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access and related issues and to set pipeline and depot tariffs, according to agreed formulae.

The Oil Marketers will be allowed to purchase products either from the international market or from the privatised domestic refineries at international market (import parity) prices. They will be able to instruct the logistics company and the regional storage depot companies at which terminal or depot, product is to be supplied and when. The Logistics Company and depot companies will have the right to reject cargo, which do not meet quality standards.

Privatisation Strategy For Eleme Petrochemical Co. Limited (Epcl)

The TOR and advert for EOIs in respect of Privatisation Advisory Services were drafted and submitted to the World Bank in December 2002. The Bank responded with a “No Objection” for the TOR and advert but objected to a fast track method of privatisation, as major restructuring will be required for the successful privatisation of the enterprise. The adverts will be placed in domestic and international dailies and publications.

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COMMERCIALISATION OF NNPC

NNPC itself is slated for full commercialisation. In view of the fact that the downstream assets are scheduled for privatisation, the commercialisation of NNPC will focus primarily on upstream operations, and other assets of NNPC. The commercialisation exercise will commence after the privatisation of the NNPC’s downstream assets.

Upstream

Federal Government of Nigeria upstream assets include:

• Exploration and production operations, which are dominated by NNPC joint ventures (JVs) and more recent production sharing contracts (PSCs) with major foreign oil companies such as Shell, ChevronTexaco, ExxonMobil and TotalFinaElf. Six JVs account for close to 95% of Nigeria’s current production. NNPC holds an average 58% equity interest in these JVs, but leaves the management of operations in each to the participating international oil company. NNPC does not hold an equity interest in the newer PSCs and the entire financing burden falls on NNPC’s partners.

• The Nigerian Petroleum Development Company, (NPDC), NNPC’s wholly owned exploration and production subsidiary, which holds and operates a number of licences, although its operations are small relative to overall upstream activity.

Other Assets include:• NAPIMS, the investment services arm of NNPC, established for the

purpose of monitoring and controlling the financial flows associated with the sale of NNPC’s share of the joint venture production, as well as NNPC’s share of joint venture operating costs and capital expenditure.

• Integrated Data Services Ltd (IDSL), an NNPC subsidiary incorporated in 1998 to offer geophysical, geochemical, seismic and other related services in the upstream sector of the oil industry.

• Nigeria Engineering & Technical Co. Ltd (NETCO), a subsidiary of NNPC, established in1989 to provide an effective and reliable engineering base for the NNPC group, and the entire oil and gas industry

• Information Systems Department, described as the information nervous system of NNPC.

• National Strategic Seismic Data Storage (NSSDS), a seismic data bank.

• Petroleum Research Centre (PRC), and the Research and Development Division (RDD) of the NNPC.

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• Duke Oil, a market monitoring company.

• Housing Estate Management

APPOINTMENT OF ADVISERS

The Bureau of Public Enterprises, has appointed the following advisers:

Downstream Strategic Adviser

Tom Houston & Associates was appointed in August 2002. The Adviser commenced work on the 26th of August 2002, and has since submitted his final report with recommendations, which articulates strategy for sector reform of the downstream. His TOR included

Review options for privatisation and recommend privatisation strategy

Provide recommendations with regard to regulatory requirements of sector:•Regulatory agency•Appropriate tariff structures and access rules for use of downstream infrastructure•Appropriate pricing system for crude oil delivered to domestic refineries and for products market•Protection against anti-competitive abuses etc

The services of Tom Houston & Associates have been extended to include the preparation of terms of reference for legal/regulatory advisers, provide support for selection, evaluation and negotiation for consultant – Start Date, Jan 2003.

Policy Adviser

The firm of Nexant Ltd was engaged with effect from October 2002 to provide policy advisory services with respect to the Oil and Gas Sector. Their inception report was submitted in November 2002, the first draft of the Policy is due in January 2003. The terms of reference for its 20-week assignment include the following:

• Critically review and comment on existing and proposed sector policies, including the various reports and recommendations of the OGIC Sub-committees.

• Comment on the wisdom or otherwise of adopting these policy recommendations for inclusion in a National Energy Policy.

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• Review the existing laws governing the Petroleum sector vis a vis the proposed sector policy and recommend appropriate amendments or necessary additions that will subsequently have to be made to the laws by consultants to be appointed separately for that purpose.

• Based on the above, and the sector objectives listed in the Terms of Reference, prepare a draft national policy and action plan for the petroleum sector, paying particular attention to the goals and requirements of a liberalized, competitive, private sector-led sector. In this context, highlight appropriate future post-privatisation structures and roles for the Government, regulatory agencies and NNPC.

• Make recommendations on any additional work or consultancies, which may be required.

• Throughout the assignment, consult as necessary with key stakeholders from Government, the legislature, national enterprises, the private sector and civil society. Participate in, and prepare presentational materials for planned Stakeholder Workshop.

• Coordinate closely with any ongoing parallel or complementary initiatives, e.g., planned downstream strategy advisory, power sector reform, and downstream natural gas strategy.

• Other Advisers that will be appointed include: Legal/Regulatory Framework Adviser – Start Date, 2nd Quarter 2003

A consortium will be selected as legal/regulatory advisers for the downstream oil & gas sector. Their Tors will include:

• Review of existing legal/regulatory framework• Designing regulatory framework for the downstream, including

transitional initiatives (IMPP model & tariff and open-access study).• Drafting a new petroleum (downstream) sector reform bill.• Developing an implementation plan for startup and Year 1&2 of operation

for new regulatory agency.

• Long Term Policy And Strategic Adviser- Start Date, 1st Quarter 2002

The services of a Long Term Strategic Adviser will be procured to provide continuous support throughout the privatisation programme.

• Implementation Advisers For The Establishment Of The Regulatory Commission For The Sector Are Due To Be Appointed In 2003.

• Long Term Communications And Marketing Adviser- Start Date, 1st Quarter 2002

The adviser will be appointed without any prejudice to the overall BPE Long Term Communications and Marketing Adviser.

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• Social Plan Consultant

The adviser will be selected subject to the effectiveness of the social plan of EPCL.

• Privatisation Advisers

The services of privatisation advisers for the following enterprises will be procured:

• ELEME PETROCHEMICALS COMPANY AND OIL SERVICING COMPANY- Start Date, 2nd Quarter 2003

• PORT HARCOURT REFINERY I AND II AND PRODUCT AND PIPELINES MARKETING COMPANY- Start Date, September/ October 2003

• PRIVATISATION ADVISORS FOR WEST AFRICAN REFINERY COMPANY LIMITED, SIERRA LEONE

SGS Inspection Nigeria Limited was appointed as technical advisers on 13th November 2002, to carry out a preliminary technical assessment. They submitted their interim report on the 21st of November 2003. Also, First Interstate Bank and Messrs Renner-Thomas and Co. were appointed in December 2002 as Financial/Lead Adviser and Legal Advisers respectively and will commence work on the 20th of January 2003.

STAKEHOLDER ISSUES

An all parties meeting consisting of the Oil and Gas Labour unions (NUPENG and PENGASSAN), Hon Minister of Labour, NNPC and BPE was held with the NCP Chairman sequel to the two-day warning strike by NUPENG and PENGASSAN to protest the privatisation of NNPC downstream sector. Subsequently, a standing technical committee on the privatisation of NNPC downstream assets comprising of the Ministry of Labour, Nupengassan, NNPC and BPE with the Hon Minister of Labour as Chairman, was established to resolve perceived differences; so far the committee has held one meeting.

TRANSPORT

Ports Reform And Privatisation

BPE and the Transport Sector Reform Implementation Committee (TSRC) have proposed a programme for the reform and privatisation of the Ports sector that comprises the following steps:

• Formulation and implementation of a new Transport Policy for Nigeria; 82

• The review of the existing Nigeria Ports Authority (NPA) Act 1999 and the establishment of an appropriate legal and regulatory framework;

• The creation of a regulator for the sector; • Restructuring NPA, including the corporatisation of port services and

terminals; and • The issuance of concessions for port services and operations to private

sector operators.

The primary objectives of the port reform programme are:

• To create a new legal and regulatory environment for the sector that establishes a fair and open business environment for all operators,

• Provide a framework for improved services provision, • Restructure NPA and facilitate the creation of a sector regulator,• Encourage competition wherever possible in the sector, • Facilitate infrastructure development; and • Provide the framework for private sector led growth through expanded

domestic and foreign investment.

In accordance with the above, BPE has appointed advisers to assist in managing and executing the Federal Government’s ports sector reform policy and the concession of some or all of NPA’s operations.

STAGE OF PROGRESS (PRIVATISATION ADVISERS)

• Terms of reference (TOR) and Advertisement for Expression of Interests (EOIs) for the privatisation advisory services on the ports were prepared and finalized in February 2002

• World Bank No Objection was obtained in March 2002• Advert for EOIs from prospective advisers was placed on 2nd April, 2002

in the international and local print media, and the World Bank Development Business

• 21 EOIs were received from the prospective advisers as at the submission date (May 2, 2002). 18 EOIs were evaluated and 3 disqualified for non-compliance with the requirements in the advertisement.

• The evaluation report was approved by the Management/Technical Committee and sent to the World Bank for No Objection in June 2002.

• The World Bank No Objection on the EOIs evaluation report and the draft Request for Proposals (RFP) were obtained on 24th July and August 2002 respectively.

• RFPs were issued on 12 August to the following Short listed Firms:

o Africa Merchant Bank Consortiumo PWC Londono Standard Bank Londono Ports Advisory Consortium

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o Capital Bancorp Consortium, ando CPCS Transcom Consortium

• Proposals from the short listed consortia were received on 25th September 2002, while the evaluation of the proposals commenced on 30th September 2002.

During the last quarter of 2002, the report of the evaluation of the technical proposals was sent to the World Bank Country Mission for No Objection in order to proceed to the next stage - the opening of Financial Proposals of the following pre-qualified firms, which obtained minimum qualifying scores of 75%:

• PriceWaterhouseCoopers• CPCS Transcom Consortium• Standard Bank Consortium.

The Evaluation Report has been referred to the World Bank Headquarters in Washington D.C for “No Objection” in accordance with the Bank’s guidelines.

A procurement plan for the 2003 has been prepared and reviewed with the World Bank. Approval of the procurement plan is expected this month.

MARKETING COMMUNICATION

For appropriate publicity of the restructuring and reform of the ports sector, Rosabel Advertising Limited was engaged as short term Marketing/Communications Adviser through a competitive bidding.Rosabel has commenced the assignment; the inception report (situation analysis) is expected by the end of February 2003.

CONSULTATIONS WITH LABOUR UNIONS IN THE PORTS SECTOR

BPE has emphasized the need to engage constructively the Labour Unions.

The Labour Unions involved in the privatisation of the ports are:

• Maritime Workers Union of Nigeria (MWUN)• NPA Senior Staff Association (NPASSA)

The building of consensus and partnership with the ports workers started by the inclusion and subsequent participation of the representatives of the Labour unions as active members of Transport Sector Reform Implementation Committee (TSRC), which was established in September 2000, with the Honourable Minister of Transport as Chairman. The TSRC at its first meeting of October 12th 2000 created five sub-committees, which include the sub-committee on Nigerian Ports Authority (NPA).

As regards continual dialogue with Labour unions, focus group discussions were held between the unions and BPE at Port Harcourt, Delta and Lagos.

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These crucial meetings have immensely assisted in facilitating open and frank discussions with the unions’ leaders.

In August 2002, one-on-one meetings were held with all the relevant stakeholders in the Nigerian ports sector. During the period, interactive sessions were held with Joint Dock Labour Industrial Council (JODLIC) and other dockworkers’ representatives.

Between March and August 2002, three zonal workshops were held in Port Harcourt, Calabar and Asaba while a National workshop was held in Lagos to enhance wide spread consultations with Labour unions, littoral communities and other stakeholders in the ports sector.Representatives of the workers attended, presented papers and participated in group discussions during the workshops.

4. CROSS-CUTTING ISSUES

In addition to the specific sector reform issues being address towards ensuring successful implementation of the nation’s privatisation programme, the NCP had explored other cross-cutting issues that impact upon the implementation of the programme. These issues include:

• Pension reform;• Cross Debt Determination and Resolution;• Competition and Anti-Trust and• Environmental Issues;

1. PENSION REFORM ISSUES:

The pay-as-you-go system of funding civil service pension schemes has led to difficulty in the ability of Government to meet its liabilities. Beyond the inherent challenges posed by the pay-as-you-go system of pensions, Government may to some degree have been the architect of the current pension problems. For instance, inadequate and late release of funds, increase in salaries for workers and increases in the rate of pension payments for pensioners were implemented without a full assessment of the short and long term financial implications of these increases. Government has also undertaken large-scale retrenchment of staff from time to time on full pension well before the end of their normal working life, as well as the discharge on full terminal benefits of people guilty of misfeasance who should have been discharged without benefits.

These difficulties have been brought to a head as a result of the privatisation of public enterprises where hard decisions as to how to meet the pension liabilities of existing beneficiaries over the long term must be made before the privatisation of the particular enterprise.

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On the other hand, the private sector pension schemes are not mandatory, and even where they exist, the lack of clear regulatory provisions and inadequate returns in some cases has led to complaints by beneficiaries.

These problems led to the decision by the NCP through its secretariat, BPE to undertake an ambitious pension reforms in public enterprises in Nigeria. A Steering Committee on Pension Reforms in Public Enterprises in Nigeria was inaugurated by his Excellency, the Vice President, Atiku Abubakar on 17th September 2001 (see Chapter 3 for Membership and Terms of Reference of the Committee).

PENSION REFORMS OBJECTIVES

The main objectives of the reforms are to provide a descent income for the retirees and to ensure adequate funding and administrative resources such that retirement benefits will be paid in full and on time.

Main Objectives

a. Adequacy of income for retireesb. Find short and long term funding solutions to past difficulties/outstanding

liabilities

Ancillary Objectives

a. Prudent and transparent management of pension scheme assets.b. Enhance privatisation process by resolution of outstanding pension

liabilities.c. Better administration for more effective delivery of pension benefits.d. Development of domestic capital markets.

STATUS

The Steering Committee has concluded its assignment and had submitted its report and recommendations on Draft Bill and Policy.

RECOMMENDATIONS BY THE COMMITTEE

• The Committee recommended the need for a new, single act to govern the establishment, investment and administration of pension schemes in Nigeria in order to avoid the present fragmented statutory framework where the relevant provisions governing the pensions industry are dispersed in various pieces of legislation. One all embracing Act will make for ease of understanding and compliance. Both pension industry operators and the general public have advocated this suggested reform.

• In order to ensure a smooth take off of the contributory pension scheme, there is need to put in place a sustainable source of funding that would adequately offset the estimated N1.03 Trillion pension liability of the Federal, State and Local Governments. A combination of funds sources

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was proposed by the Committee to be utilized to offset these pension liabilities. A number of options were considered by the Committee, which were narrowed to the following:

o Direct budgetary allocationso Sovereign bondso Privatisation proceedso Sale of non-core assets of entities to be privatised, in the case of

parastatalso Sale of rent of idle Government assetso Assignment of shares.

• Implementation issues; the following steps have to be instituted as a matter of urgency:o The need to generate political consensus on the proposed reform

amongst all stakeholders.o Early approval of the reform programme should be achieved as a result

of a broad-based consensus as is mentioned above.o Once the reform programme is approved, relevant legislation should be

enacted to facilitate the process of transiting from the PAYG to the contributory pension system.

o On the basis of the statutory provisions of the new pensions act, the necessary institutional framework for the implementation of the reforms should be established. In particular, the National Pension Commission (NPC) and its Board should be appointed as early as possible, and the necessary resources for them to carry out their functions should be made available.

o There should be a massive public enlightenment programme for the sensitization of all stakeholders. This should be undertaken by way of seminars, conferences, workshops, articled in the print media, radio jingles, television shows, etc.

2. CROSS DEBT DETERMINATION AND RESOLUTION

His Excellency, the Vice President and Chairman, National Council on Privatisation, Atiku Abubakar inaugurated a Steering Committee for Cross Debt Determination and Resolution to determine and resolve the cross debts of the public enterprises which are candidates for privatisation under the privatisation and commercialisation programme of the Federal Government of Nigeria.

In order to expedite the Committee’s work, NCP engaged the services of five consultants to assist the various subcommittees of the CCDDR to determine and resolve these debt issues under the leadership of Andersen Consulting. The consultants were mandated, but not limited, to:

a. Determine the exact amount of indebtedness of selected Public Enterprises (PEs) as of 31st December 2000 and assess the resultant impact on the operations of these enterprises.

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b. Check the various reconciliation statements produced by each of the affected enterprises identify the differences and define procedures for dealing with the variations.

c. Advise on the most effective ways of settling various existing indebtedness by all affected enterprises under the ongoing privatisation and commercialisation programme.

d. Recommend precautionary measures to be put in place and appropriate steps to ensure prompt settlement of financial obligations amongst PEs and between them and the government.

e. Ascertain the authenticity or otherwise of claims of indebtedness by each of the affected enterprises and develop a cross debt matrix among the affected enterprises and between them and government as of 31st December 2000.

f. Crosscheck balances for government indebtedness and compare government loan balances with records at the Federal Ministry of Finance Incorporated (MOFI).

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CROSS DEBT DETERMINATION AND RESOLUTION- OBJECTIVES

The core objective of the CCDDR is to determine the quantum, nature and structure of indebtedness among public enterprises on the one hand and between them and government on the other. The committee was also expected to consider and recommend debt resolution options and advise government on strategies for the effective operation of affected enterprises preparatory to their privatisation.

STATUS

It is pertinent to mention that the Committee had finalized its report and found as follows:

Aggregate Debt Portfolio:

Receivables: Aggregate receivables of the PEs reviewed totaled N341 billion, N188 billion (55%) of which is due from private sector organizations, N27 billion (8%) from the Federal Government and its agencies, N123 billion (36%) represents cross or inter-PE balances outstanding, while State governments owe about N2 billion. Sixty-three percent of total inter-PE receivables represent inter-group balances within the NNPC group. There is a concentration of receivables within the top ten enterprises (11% of all PEs reviewed) as they account for approximately 75% of aggregate receivables4.

N Million

  1 2 3 4 5 6 Total % o f Total

Other PEs 1,700

1,212

113,288

6,872

37

  123,109

36%

MOFI 3

          3

0.001%

DMO             -

0.0%

Fed. Govt & Agencies

4,799

10,495

10,999

742

582

  27,617

8.1%

State Govts 193

1,900

169

123

1

  2,386

0.7%

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Payables: Aggregate payables amounted to approximately N1.3 trillion. Of this amount, N994 billion (77%) is due to the Federal Government and its agencies in direct local loans (via MOFI) or guaranteed foreign loans (via DMO). Fifty-nine percent of total PE payables are in the form of long-term debt whilst the balance of N524 billion is short-term denominated. Similar to the case of receivables, there is a concentration of payables from the top ten enterprises, which account for over 85% of aggregate payables. Efforts should be focused on these enterprises in order to achieve maximum results.

N Million

P r i v a t e Sector Organizations

15,232

46,566

99,112

23 ,737

3,786

  188,433

5 5 . 2%

TOTAL 21,927

60,173

223,568

31 ,474

4,406

-

341,548

100.00%

  1 2 3 4 5 6 Total % o f Total

Other PEs   736 107,400

3,460 817 113,913 8.8%

MOFI 34,502 14,490 4,713 10,982

155,553

220,240 17.2%

DMO 87,435 296,550

157,276

66,004

20,643 61,065 688,973 54%

Fed. Govt & Agencies

2,878 8,116 64,266 4,836 4,004 84,100 6.6%

S t a t e Govts

22 211 77 183 45 538 0%

P r i v a t e Sector Organizations

5,131 4,808 141,753

13,621

10,501 175,814 13.7%

TOTAL 129,968

324,911

475,485

99,086

191,563

61,065 1,283,578

100%

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PROBLEMS OF CAPITAL ADEQUACY AND IMPACT OF DEBTS ON EFFICIENT RUNNING OF PUBLIC ENTERPRISES

Excessive Debt/Equity Ratios: Most PEs are excessively leveraged as a result of poor capitalization and huge debt financing. They have been largely dependent on the Federal Government through foreign and local loans for funding and sustenance. The average debt/equity ratio is 10.6x. Essentially, this means that for every Naira in equity in the public enterprise, there is N10.6 of a debt claim to it. Huge debt overhang and poor capitalization have resulted in capital inadequacy thereby paralyzing the operations of many enterprises.

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Net Inter-PE balances and Unresolved DisputesUnder normal circumstances, aggregate inter-PE payables should equal aggregate inter PE – receivables. However, aggregate inter-PE receivables (N123 billion) exceeded reported aggregate inter-PE payables (N114 billion) by approximately N9 billion due to disputes and unresolved reconciliation issues.

In the debt resolution meeting conducted by the Committee between 26th and 27th February 2002, inter-PE disputes involving NNPC, NPA and NICON debs totaling N6 billion were resolved, while a dispute of N4.6 billion between NGC and NEPA still requires resolution with intervention from the Presidency. Accordingly, the maximum possible collective set-off (either directly or by assignment) amongst the various public enterprises reviewed based on the reconciliation status of all claims outstanding is approximately N114 billion.

Treatment of Grants: It is estimated that the excessive debt overhang will continue to have a negative impact on the ability of the various PEs to exist as going concerns. Further exacerbating this problem is the reliance, by PEs, on government subventions as it has lead to an indifference to generating massive operating losses. Most PEs rely on these grants to stay operational. Total grants to all PEs, as of 31st December 2000, was approximately N521 billion. If all PEs were to capitalize federal grants on their balance sheets, the average debt/equity ratio would substantially be improved from 10.6x to 2.0x. It is unclear why PEs do not capitalize these grants. A possible explanation could be the lack of focus on financial performance and as a result PE managers have ignored key financial indicators.

Poor Working Capital Management: Many PEs are facing multiple issues that lead to their eventual demise. Their debt service requirements continue to increase dramatically due to foreign exchange exposure and they cannot support this “ballooning” effect as they operate below breakeven capacity levels. As a result, most

N Million

  1 2 3 4 5 6 Total

Equity 69,225

28,254

3,811

8,065

(7,256)

  102,099

D e p o s i t f o r Shares

6,239

1,006

908

1,972

8,800

  18,925

Total Capital 75,464

29,260

4,719* 10,037

1,544

-

116,305

Total Debt 131,469

324,911

475,484*

99,086

191,562

61,065

1,283,577

D e b t / E q u i t y Ratio

1.9 11.5 100.8 9.9 (124.1)   10.6

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PEs cannot meet the demands of their current liabilities. This systemic default not only affects the PEs but the various small-scale businesses that serve as their suppliers. This phenomenon has caused a vicious cycle in our economy. RECOMMENDATIONS

Public Enterprise Debt Clearing House (PEDCH) The opinion put forth in the final project report is for the FGN to consider setting up a Public Enterprise Debt Clearing House (PEDCH). This agency will be charged with the responsibility of eliminating the current debt overhang, arbitrating disputes between the PEs and monitoring settlements of future liabilities. This agency will also ensure that both parties to a debt obligation are aware of the terms of the liability. The net aggregate payable (measure of net indebtedness) amount of all PEs is N45 billion. Because a large portion of PE net payables is to other PEs, the role of the PEDCH is a focal one in alleviating this problem. PEDCH can clear outstanding indebtedness by offsetting all payables between specific PEs with receivables. This should significantly reduce the debt overhang borne by these enterprises and help to resolve disputes by introducing an unbiased third party.

Capital Restructuring and Recapitalisation The report suggests that one of the survival strategies for PEs should be to provide relief for losses incurred by viable enterprises with deficit shareholders fund. The Federal Government can accomplish this in one of several ways with or without fresh capital injection. This should be preceded by a careful assessment of the operating and absorptive capacity as well as capital requirements of all affected PEs. New enterprises to be created from liberalized industries like Power and Mining could be relieved of their excruciating debt obligation through the creation of Special Purpose Entities/Special Payment Vehicles which would take over current outstanding debt obligations and retire such debts over a long period through special taxes levied on industry players and/or customers.

Debt-Equity Conversion of Local Loans and Balance Sheet RestructuringMany PEs are not in the financial position to repay their huge debts either now or in the near future. Traditionally, MOFI accrues interest on long outstanding and unserviced loans but this will continue to be an exercise in futility if something is not done. It is recommended that some of the MOFI loans of approximately N220 billion be converted to equity prior to privatizing these enterprises. There will also be a need to write-off some loans where the net assets of the relevant enterprises are below their total debt value. This would not only substantially reduce the unconventionally high debt/equity ratio of the affected enterprises but also effectively restructure their capital base and enhance privatisation proceeds.

Asset Verification and ValuationMany enterprises have debt exposures that cannot be justified or supported by their net asset base mostly due to uneconomic use of funds from loans. Accordingly, the starting point for any capital restructuring effort would be the

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economic valuation of their assets to establish the requisite asset support for any recapitalisation effort.

Foreign Debt Forgiveness and Rescheduling The depreciation of the Naira over the years has compounded the huge exposure of PEs to foreign currency denominated loans. It is bad enough that many PEs operate at sub-optimal levels and have difficulty collecting payments for services rendered, but the additional burden of an exponential increase in debt service requirements is unbearable. The report suggests that a solution to this problem would be to seek forgiveness for and/or negotiate rescheduling of DMO – FGN guaranteed foreign loans totaling about N628 billion, based on affected PEs inability to pay. While it is realized that debt relief negotiation is currently going on at a national level, any relief obtained should be reflected in the books of the PEs concerned.

Rapid Turnaround StrategyFor some of the strategic enterprises to be successfully transferred at a good value to reputable core investors, the Committee recommends that some turnaround efforts are necessary. It is recommended in the report that BPE institute a rapid strategic overhauling process for effectively reviving these PEs after a study to ascertain their viability is conducted. The enterprises focus, orientation and objectives would need to be redrawn, business like targets adopted, technical management expertise sought and relationships with technical partners would need to be reviewed and redefined in the light of current realities.

The Secretariat suggests an alternative to this recommendation because it proposes that BPE perform the functions of traditional business managers and restructure the enterprises. We believe there is a valid need for pre-privatisation monitoring to place controls over the degree to which PE managers can make operational, financial, legal and technical decisions. However, we do not support the recommendation that BPE takeover management of any enterprise.

Legal, Regulatory and Market ReformsCurrent legislations should be reviewed and improved upon to remove all monopolistic tendencies and bring about competitiveness in the management and operations of the various PEs. There is an urgent need to conduct extensive sector reforms in order to create the appropriate mechanism to drive growth, dynamism and competitiveness.

Enhancement of Management Information SystemsMost of the PEs reviewed have poor accounting records. Most of the enterprises have no credit and payment policies and where such exists, it is only in the archives and never used. To smoothen the process of their divestiture, it would be necessary to repair their accounting/book-keeping records and set-up transparent processes and policies to record their transactions and manage working capital.

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Regular Reconciliation of Local and Foreign LoansThe assignment revealed a number of gaps in the control and management of loans between MOFI and DMO on one hand and the various PEs on the other. It is recommended that all loan disbursement to PEs be processed and executed through appropriate channels. Records of loan transactions including basis of interest computation should be agreed to and kept by all parties to the loan. DMO and MOFI should conduct periodic interest re-computations of local and foreign loans and periodic statement of loan account should be circulated to all PEs for validation. The Committee recommend that MOFI also conduct periodic surveillance on loan utilization and management by affected enterprises with a view to ensuring loans are utilized for the approved purposes.

Payment of Taxes and Other DeductionsMany PEs collect WHT, VAT and other direct deductions from their customers and employees but never remit these deductions to the appropriate Revenue Authorities. The report recommends that all outstanding government revenue yet to be remitted should be deducted directly from the statutory allocations or subventions of concerned PEs.

3. COMPETITION AND ANTI-TRUST REFORMNigeria is currently immersed in orchestrating reforms which would enable her compete globally. The current deregulation and privatisation policy of government will result in the transfer of state-owned monopolies to private ownership. The entire philosophy rests on the basis that the private sector thrives on competition and therefore greater efficiency in the allocation of resources. Following this, it is imperative that public interest is protected by disallowing restrictive practices detrimental to the interests of the consumer.

This is the first attempt in the history of the country to lay down a comprehensive framework that will provide a regulatory guidance for commercial activity in public interest.

The goal of the economic policy of the current administration that the economic growth of the nation be powered private instrument while government concentrates on providing the conducive environment and set out clear rules of play for those engaged in commercial activities. To this effect, we need to prepare a policy which is designed to promote competition, enhance competitiveness, remove restrictive conduct to the ultimate benefit of consumers and applicable to all sectors of the economy.

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The restructuring of the economy of the country is imperative in order to enable Nigeria benefit from the advantage of the opportunities the world offers. Therefore in playing in the global arena, it is important that the internal systems run on the appropriate wavelength to guarantee integrity and provide strategy net for those who will necessarily be adversely affected in the transition.

One of the most important instruments against the negative impact of the drive in the global market place is the competition and anti-trust mechanism.

Inline with the above, His Excellency, the Vice President and Chairman, NCP on the 18th June 2001 inaugurated the Competition and Anti-trust Reform Steering Committee.

OBJECTIVES OF THE COMPETITION POLICY AND LEGISLATION

• Prevention of the concentration of economic and political power in the hands of a few large organizations.

• Promotion of maximization of consumer welfare using market principles and efficiency criteria.

• Preservation of management control of business and protection against the effects of labour dislocation.

• Nurturing small businesses, and creation of an economy characterized by many sellers competing with each other.

• Ensuring access to many more people previously denied an equal opportunity to participate in the economy.

• Prevention of restrictive practices and abuse of dominance, as well as ownership concentration.

Any competition policy is best seen as supporting both the macro-economic strategy (national economic management) and the micro-economic restructuring (promoting more efficient firms and industries). This support requires a consistency across the various fields associated with competition policy, particularly trade and industrial policies, state asset restructuring, and approaches to empowering emerging entrepreneurs. It also demands political courage and consistency in driving the reform process.

STATUS

• The Committee called for memoranda from various stakeholders in all the sectors of the economy and the different zones of the country.

• The committee in collaboration with the Senate and House of Representatives Committees on Privatisation organized and held five (5) stakeholders’ workshops in five geo-political zones, namely, South-West, North-West, South-South, South-East and North-East of the country. The aim of the workshop was to sensitize the stakeholders on the need for a competition policy and legislation and discuss issues arising from their memoranda.

• A two-day Retreat was held at the Confluence Beach Hotel, Lokoja to review the activities of the steering committee and discuss the draft competition bill prepared by the consultant. Apart from the members of the steering committee,

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expert stakeholders, representatives of the National Assembly and consumer groups participated at the Retreat.

• A one-day Nation Workshop was held at which the draft competition bill was presented to the general public for their contributions and comments. At the conclusion of the National Workshop, the steering committee met to harmonize the various contributions and agreed on the Final Draft Competition Bill.

• Draft Competition Policy, Economist Incorporated was incorporated was appointed as policy adviser by the BPE to assist the steering committee to formalize the draft competition policy for the country.

• Draft Competition Bill, the law firm of ECU Associates, P.C. based in Washington DC, USA was appointed as consultant by the BPE to assist the steering committee to draft appropriate legislation on competition and anti-trust.

FEDERAL COMPETITION COMMISSIONA key element in implementing a competition policy in Nigeria should be the creation of a Federal competition Commission. The Commission should be competent, autonomous and professionally run authority, with effective public participation. It needs to have competent leadership and staff and sufficient resources to investigate possible violations of the competition law, hold hearings and enforce the provisions of the law through its own proceedings or through the courts. The commission should be the chief institutional advocate for competition within the Nigerian government and be involved in competition advocacy in the areas of trade policies and import regulations; foreign direct investment; securities law and privatisation.

RECOMMENDATIONSThe following recommendations were made by the steering committee:

a. The Federal Competition Bill will replace the Hon. Chidi Duru’s Bill on Competition that is before the National assembly.

b. The Federal Competition Commission (FCC) should be established within six months of the commencement of the Bill.

c. The NCP will facilitate the take-off of the Commission including the provision of the take-off grant.

d. The BPE should prepare a blueprint for the establishment of the commission bearing in mind international best practices as contained in the Report of the sub-committee on International Beast Practices and structure of the commission as contained in the draft bill.

4. ENVIRONMENTAL ISSUESIt is pertinent to mention here that the World Bank-financed Privatisation Support Project supports transparent and effective implementation of Nigeria’s privatisation program, in addition, the Bank creates an enabling environment for private sector participation and competition in infrastructure services, notably telecommunications and electric power. The privatisation support project is classified into Environmental Assessment Category B. An environmental report prepared by independent consultants identified activities necessary to ensure environmental and social sustainability of this operation and of national

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privatisation program in general, including the creation of a position of an environmental adviser at the BPE.

MAIN ENVIRONMENTAL ISSUESThe main environmental issues with respect to the project relate to the need to adequately identify and mitigate past environmental hazard and risk factors in the plants and operations of the Public Enterprises (PEs) concerned. The PE divestiture program includes major PEs in sectors where significant environmental issues can be expected to arise. These will at least need review and analysis, and where warranted, mitigation and clean up. It is important to note, therefore, that the BPE will adopt standards and guidelines for preparation of environmental audits and assessments and implementation of actions required. Since the project focuses principally upon providing technical support for implementation of the FGN's overall privatisation program, and not investment in PEs, the environmental audit and assessment and mitigation work is best done during project implementation as part of the process leading up to privatisation and divestiture. The principal actions in preparation for the IDA credit have been to: (1) undertake a pre-audit survey of the main PEs in the telecoms, power, air transport and Lagos Water sectors to be privatised to identify the extent and principal types of environmental clean-up and mitigation activity that will need to be carried out before PE divestiture; and (2) prepare, for adoption by FGN and BPE, standards and guidelines for preparation of environmental assessments and implementation of mitigation work prior to divestiture, which would cover remaining PEs.

ENVIRONMENTAL LEGAL ISSUESThe Nigerian environmental law is derived from: 1) The Constitution, 2) Acts, Decrees and Statutes passed by the Legislature, including those enacted by the military governments (an indicative List of Legislation is attached for information purposes only,) 3) cases decided by courts, 4) international treaties (an indicative List of International Treaties is attached for information purposes only,) and 5) received English law, i.e. English Statutory and common law as it existed in England on January 1, 1900.

The existing Nigerian environmental and related legislation is usually divided into two distinct groups: a) the pre-1988 laws and b) the laws enacted after 1988. What these laws share in common is that each of them in various provisions regulates and prohibits certain activities or conduct, which may be detrimental to the quality of the environment and health and safety of the workers and general population as well as all that many of them impose various administrative, civil and criminal sanctions and penalties for violation and non-compliance with the pertinent provisions of the respective laws.

It has been observed that many pieces of existing legislation are outdated and inconsistent, while in other cases legal requirements overlap and/or there are numerous gaps in stipulations, and significant legal-institutional linkages should be established in order for the law to be implemented and to become an effective tool for an improved environmental management in national economic transformation and privatisation.

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The Nigeria’s National Agenda 21 proclaimed national and sectoral goals and policies in achieving sustainable development. It has established “pollution prevention” and “polluters pays” principles. Current Nigerian environment-related laws stipulate corporations’, owners’ and operators’ as well as directors’, officers’ and managers’ (administrative, civil and criminal) liability for environmental pollution and damage, and mandate their responsibility for environmental mitigation, clean-up, rehabilitation, etc. Existing legislation established environmental impact assessment and audits as mandatory instruments to support design, planning and decision-making, evaluate environmental performance and develop necessary environmental management plans. Various environmental regulations and standards, applicable to different sectors of economy, have been in place since 1991. Though Nigerian privatisation legislation and regulations are completely silent on environmental aspects, some provisions, particularly those stipulating legal, technical, accounting and valuation due diligence as well as disclosure regarding various activities and assets of public enterprises may be interpreted as inclusive of environmental, health, safety and social dimensions.

ENVIRONMENTAL ISSUES- STATUSConsequent upon the above developments ( main environmental issues and environmental legal issues), the NCP, through its secretariat, BPE decided to appoint Full Environmental Adviser and Environmental Legal Adviser.

Presently, the Bureau is at the final stage of appointing the consultants; Full Environmental Adviser (at RFP stage), Environmental Legal Adviser (at negotiation stage).

CONSENSUS BUILDING, PUBLICITY & ENLIGHTENMENTThe Communication and Marketing Unit of the Bureau of Public Enterprises has greatly expanded its mandate since the restructuring that took place in mid-2002. Following the overall restructuring, the Unit itself was reorganized and is now composed of three divisions, namely Campaign Monitoring and Events Management, External and Government Relations, and Media and Publications, each of which has a specific purview based on the needs of the BPE, its stakeholders and various publics.

With that, ongoing activities currently being implemented by the C&M Unit can be broken down as follows:

• Revision of the Communication Master Plan

• Benchmark Qualitative and Quantitative Survey

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• Selection of a Long-Term Communication and Marketing Manager

• Interim Awareness Strategy

• Campaign Monitoring

• External and Government Relations

Details on each of these broad areas of activity are provided in the narrative below.

REVISION OF THE COMMUNICATION MASTER PLANIn August 1999, Council approved the adoption of a Marketing Communications Master plan for the Privatisation Program.

Against the background of a number of key issues, which were identified as likely to impact upon the implementation of the Privatisation Programme , the Master Plan established the following:

• Broad Goals• Communication Objectives• Key Communication action programmes• Implementation arrangements.

This Master Plan was developed before the commencement of the actual awareness activities. After one year of implementation and the deployment of additional human resources in the management of the communication activities, it was felt that there was a need to review the master plan. This review was designed to draw from the experiences of the first year of programme implementation and to properly define the roles of the various functionaries involved in the management of the Communication activities. As a result of this review, a Revised Masterplan was prepared and subsequently approved by Council.

The last phase of the Master Plan concluded in March 2002 and since then the Communication and Marketing Unit of the BPE has been engaged in formulating a fundamentally new strategy aimed at enhancing public awareness and consensus building efforts.

The new communication program, which will be funded under the IDA credit and is now in the early stages of procurement, is being developed to achieve the following broad objectives:

• Generate and sustain, at all levels of society, greater awareness and support for the FGN’s privatisation program, with emphasis on the Power, Oil, Port and Railways sectors;

• Design and put in place mechanisms to foster transparency and increase public trust in the privatisation process;

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• Attract potential investors, domestic and international, to participate in specific business opportunities available through the privatisation program;

• Build capacity, in form of a fully trained team, to further develop and implement the communications program of BPE beyond the Consultant’s assignment; and

• Achieve measurable success in shaping public attitudes in favour of privatisation and minimizing opposition to the exercise.

It is expected that the next phase of the communication program will launch in the middle of June 2003.

BENCHMARK QUALITATIVE AND QUANTITATIVE SURVEYThe overriding objectives of the research project are to:

• Test public attitudes, awareness, support and concerns vis-à-vis the FGN’s privatisation exercise;

• Determine benchmarks against which to evaluate the progress of subsequent communication, consensus building and awareness activities;

• Identify sources through which the Nigerian public most regularly receives information on privatisation and determine its attitudes towards these sources;

• Provide the NCP and BPE with recommendations on how to incorporate the outcomes of the research in the next phase of the FGN’s public communication programme;

• Suggest possible messages that correspond to the views and opinions collected as part of the research project;

• Track progress of the communication programme and conduct a further benchmark study (upon request by the FGN).

The survey is intended to update data obtained through a previous survey conducted in 2000, while providing baselines conducive to tracking subsequent implementation of the awareness program.

At the time of writing, both the qualitative (focus group discussions, in-depth interviews) have been completed and an interim report submitted. It is expected that the research contractor, Adam Smith Institute, will present its final report, including findings and recommendations for future communication work, in early February 2003.

SELECTION OF A LONG-TERM COMMUNICATION AND MARKETING MANAGERIn an effort to ensure proper management of the enlarged communication and marketing function, the BPE has requested for, and received, IDA permission to retain the services of a long-term public relations professional. At the time of writing, a short-list of candidates had been forwarded to and approved by the World Bank Country Office in Nigeria. At present, the Request for Proposal,

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which will be issued to short-listed candidates, is with the World Bank awaiting its No Objection.

INTERIM AWARENESS CAMPAIGNThis portion of the awareness campaign is intended to bridge the gap between conclusion of the last segment of the Master Plan and launch of the next phase of the communication program, which is anticipated in mid-June 2003. Key components of the Interim Strategy are a greater focus on grassroots mobilization, improved and intensified use of radio as a means of communication, well-timed appearances on strategic television programs, and systematized newspaper advertising. Additionally, the interim is being used to strengthen Unit capacity and prepare it for the greater responsibility it will shoulder once the next phase of the communication program is launched.

CAMPAIGN MONITORINGAs part of the Unit reorganization, significant attention was given to the need to properly and efficiently manage the various awareness campaigns and activities commissioned from time to time by the BPE. To date, the C&M Unit has monitored implementation of the Daily Times of Nigeria IPO marketing strategy and is developing systems to fine-tune and supervise marketing efforts for the Nigerdock IPO.

EXTERNAL AND GOVERNMENT RELATIONSA significant and very important component of a successful public awareness and consensus building program is the ability to properly communicate with various stakeholders and publics. Such interaction is meant to enlighten audiences and, hopefully, engage them while generating support and understanding for the privatisation program.

As part of this function the C&M Unit has identified a range of population groups with which it has either initiated or entrenched a relationship. Among these are:

• State governors;• Traditional and religious leaders;• Local governments;• High school students;• Students of tertiary institutions; and,• Labour unions.

Additionally, the Unit has successfully arranged a bi-lateral visit from a Senior Economist with the Gambian Divestiture Agency, and is currently organizing a summit of the African Privatisation Network, of which the BPE’s Director General is Chairman.

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Focus Groups with Labour Unions

Focus Group and its PurposesA Focus Group is a forum of knowledgeable persons to discuss specific issues and concerns under semi-structured format and seek feedback and suggestions on the subject areas.

The general objectives of the labor focus group represented by the union leadership were to:

1. Explore and examine the areas of real concerns of the rank and file of the workers, arising from the on-going privatization program;

2. Gather suggestions and views from the participants and incorporate them into the privatization process, including the evaluation of core/strategic investors; and

3. Incorporate relevant ideas and suggestions into the design of severance benefit package and social safety net for the workers to be likely retrenched as a result of privatization. The key areas dealt with, included:

* Severance pay and pension benefits * Retraining and redeployment opportunities

* Workforce development issues, including skill acquisitions * Conditions of service * Employee share ownership scheme * Post-privatization concerns and issues

The conduct of the Focus Group Sessions: Deliberate efforts were made to ensure confidentiality and to encourage an atmosphere of frank and sincere discussions with everyone’s participation. In this case, no attributions were to be made to anyone who asked questions, gave information or sought clarifications. Moreover, worker representative was elected as the chair of each session and certain ground rules were adopted to guide the deliberations.

Findings

1. General – Common to all Enterprises

Workers’ fears for job cuts – There was recurrence of expression of fears for job security by workers. The transitional provision on staff rationalization for a six-month period following the privatization could not adequately convince workers from losing their jobs before or at the expiry date of the grace period.

Sale agreement – In some cases, the sale agreement would not address the employment and unemployment conditions; benefit provisions; infusion of new capital and technology as well as modern business principles; investment plans, product/service diversification and expansion of business operations in the near and long-term. These issues attracted the attention of most workers.

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Unpaid salaries and benefits – Some of the enterprises to be privatized such as the Daily Times of Nigeria, Festac 77 Hotel, etc., have large liabilities, arising from unpaid staff salaries and benefits, including salary and pension benefits to those who left or retired from the enterprise during the past several years.

Inadequate labor representation in the Privatization Process – Some of the labor leaders complained of inadequate representation on the National Council on Privatization and the lack of representation on the sector steering committees. The argument was that, as crucial stakeholders in the program, workers would want to ensure that the best core investor with vision, commitment, technical and managerial expertise, and adequate resources were given opportunity to buy.

2. Asset Stripping – Cases of asset stripping and vandalism were reported at some enterprises.

Specific Allegations– Pertinent to some enterprises

The Benue Cement Company (BCC) – The Company was privatised below market value. (Enterprise was sold for N950 million, along with two kilns).

Unpaid Salaries – The core investors of BCC have not paid salaries of workers and have refused to meet with them.

Private monopoly by BCC – The same BCC core investors also bought Salt Company of Nigeria (SALCON). As a dominant importer of salt, it has shut down SALCON to enhance private monopoly of the salt business.

Asset Stripping – There were serious allegations of asset stripping at the Daily Times and the New Nigerian.

Recommendations

Business Plan as part of the Sale Agreement - To avoid possible abuse of sale terms regarding workers job security, it should be required that core investors include in the business plans, immediate and near-term (one to three years) strategic investment, covering replacement and/or expansion, and any major changes in the workforce, including plans for skill development. This business plan must be an addendum to the sale agreement.

Workforce development plan to protect the interests of workers - While the core investors must have some degree of flexibility to make managerial changes for the sake of efficiency and productivity, there may be need to place some safeguards to protect the workers’ interests. This may include a total business plan with specific provisions for workforce development, including training, internal promotions, workforce expansion, and the strategies to deal with redundancy. It is on this basis that the BPE would be able to monitor the effects of post-privatisation on workers and also to hold the core investor liable to breach of any conditions of the sale agreement.

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Post-Privatisation Monitoring Unit – A unit headed by a Deputy Director be established within the Planning and Monitoring Branch of the BPE with tasks including, but not limited to:

a. Evaluating the progress of the enterprises in following business plans;b. Keeping track of industrial relations and disputes as well as providing

education and training on best practices of industrial harmony; c. Collecting and analysing statistics on the employment changes, salaries,

labour turnover, changes in investment and technology, and other financial data as well as conducting customer satisfaction surveys.

Substantial violation of sale contract/agreement – Under the “termination” clause of the share/purchase agreement, if certain conditions such as the Security and Exchange Commission approval or purchaser’s satisfaction with respect to financial and other affairs of the enterprise are not completed with in six weeks, either party may rescind the agreement, giving a month’s notice. The purchase price in this case will be refunded with interest.

For instance, for lack of compliance with the main elements in the business plan or if the non-compliance is detrimental to the interests of shareholders or workers, BPE must have the option to take back the privatized enterprise. In this case, the core investor’s share price may be refunded with penalty, ranging from 10 to 25 percent (without interest) and without considering any capital investment that may have been injected by the core investor. Even though it is not the intention of the BPE to regain the privatized enterprise, the above provision will act as a deterrent against the abuse of the intended purpose of privatization.

Enterprises with excessive liabilities – Regarding those enterprises with large liabilities arising from salary and benefit arrears to the current and past workers, it would be a good idea for the BPE to require the consultants appointed to each enterprise to dialogue with union leaders at the enterprise level, while assessing liabilities. This may provide additional source of information to consultants in assessing liabilities rather than depending primarily on management records and documents.

The collective agreements, which are in force, must provide the basis for estimating the liability of workers’ benefits and salary arrears.

Increased worker representation in privatization exercises – Since workers are the key stakeholders and also soon to be share holders, it might be necessary to consider the possibility of allowing them representation, at least on some of the sector steering committees.

Asset stripping – The cases of asset stripping of enterprises to be privatized should be thoroughly investigated by the BPE and whoever is found guilty should be punished in accordance with the law of the land. In the mean time, BPE should send a

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letter, cautioning the managing directors concerned to be personally responsible for all the assets of enterprises in their care, until privatization exercise is completed.

Problem of salary arrears – For those companies with acute problem of cash-flow and the backlog of salary and benefit arrears, we would recommend that the government should help to pay arrears of workers’ salaries, for this in itself will reduce the size of liability and eventually add value to the sale price of the enterprise to be privatized.

Danger of collusion and monopoly behavior – There may be a likely chance of creating monopolies through through collusion, market power or even the diversion of product between companies to the detriment of the shareholders, workers and the public. We recommend the prohibition of core investor from conducting business dealings with his exclusively owned companies. If the core investors have an ongoing business relationship prior to its privatization, then they should cease from doing business, soon after taking over the privatized enterprise.

Other Suggestions received at the Focus Group Sessions

NPA workers recommended that the Ports be fully commercialized instead of being privatisation Nigerian airways – add value before privatizing – want to meet with DG in Lagos – BAASA Fund for use Northern Nigeria Cement Co (NNCC) – not following the business plans and not paying salaries of workers NAFCON (National Fertilizer Co of Nigeria) – Alleged that the community (NGOs) is mobilizing the support of youth and using them to gang up against privatization.

According to NITEL Junior Staff Union, many would like to go back to rural area for farming if housing, electricity, roads, schools, water, and infrastructure are made available.Backlog of arrears – to be paid before privatization, to ease implementation process.Pension funds used by management for operations rather than vesting. Pilots want turn - around for Nigerian Airways before privatization and add value – BPE is ignorant of aviation and it should have an aviation desk.Use of severance pay to purchase shares – self employment There is a potential for hijacking of stocks allowed for public– BPE to put some safeguards (NUJ)Tightening – checks and balances – when credit for self-employment is provided.Severance payment must be paid promptly, whether it is by core investor or by the government.NPA was critical of legal framework – legal framework must be in place before privatisation.

Core investors are required to follow the current agreements.When the workers have 10 percent share of the public offer, at least on seat on the board may be reserved to worker representative.

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Workers and management at the enterprise would like to receive a periodic status report on their enterprise between the time periods of the enterprise being advertised for advisors and the completion of the privation.How do we handle the long-term contract such as labor contract or vendor (supplier contract) which expires after the end of the transitional period? Can the core investor rescind the contract unilaterally?

S/N NAME OF UNION DATE OF MEETING VENUE

1. Staff of Daily Times of Nigeria 14th December 2000 DTN Conference Room

2. Hotel and Personal Services SSA 25th January 2001 BPE Conference Room

3. Nigeria Union of Journalists 25th January 2001 BPE Conference Room

4. Food, Beverages and Tobacco SSA

2nd February 2001 Ikeja Airport Hotel

5. PENGASSAN 5th February 2001

6. National Union of Electrical Employees

6th February 2001 Ikeja Airport Hotel

7. National Union of Printing, Publishing and Paper Products Employees

7th February 2001 Ikeja Airport Hotel

8. NPA SSA 8th February 2001 Ikeja Airport Hotel

9. National Association of Aircraft Pilots and Engineers

9th February 2001 Ikeja Airport Hotel

10. Maritime Workers Union 9th February 2001 Ikeja Airport Hotel

11. Senior Staff Association of Banks, Insurance and Financial Institutions Employees

13th February 2001 Ikeja Airport Hotel

12. National Union of Air Transport Employees

14th February 2001 Ikeja Airport Hotel

13 Postal and Telecommunications Employees

14th February 2001 Ikeja Airport Hotel

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CHAPTER V

5. PROCUREMENT ISSUES

5.1 Donor Support

5.1.1 Securing the World Bank Credit facility for BPE: The World Bank Group was invited by the Federal Government in September 1999 to provide advisory transactional and financial assistance to the successful implementation of the Privatisation and commercialisation programme. After the meeting, the group agreed to provide a Credit assistance to the Nigerian Government to enable it develop and implement it’s home grown Privatisation programme. The Credit is in the region of US$114 million over a period of about 5 years with interest of 0.75% per annum and a grace period of 10 years and repayment period of 35 years. Some of the areas of technical support include:

• Carrying out of the Privatisation Programme through the preparation and execution of divestiture transactions for about one hundred Public Enterprises.

• Carrying out of studies to prepare evaluations, design compensation and severance policies, analyse business environments, and establish coherent policies to ensure effective implementation of the Privatisation Program.

• Strengthening NCP’s capacity to carry out the Privatisation programme through provision of technical advisory services, training and study tours for NCP, BPE and other involved in the programme.

• Carrying out of a review of the options for the establishment of a legal and institutional framework for competition policy.

2. Multilateral and Bilateral Loans and Credit:As a result of the World Bank Credit, other Governments became interested in the programme and engaged the Federal Government in Discussions on assistance in areas crucial to the success of the programme. Some of these governments are:

14. Staff of National Oil 15th February 2001 National Oil Head Office, Marina, Lagos

15. National Union of Chemical, Footwear, Rubber and Non-Metallic Products Employees

16th February 2001 Sango, Otta

16. Iron and Steel Engineering Workers Union

April 2003 IPM Lagos

17. Iron and Steel SSA April 2003 Sheraton Hotel Lgos

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1. German Government – This government has made an offer of assistance to the bureau but the offer has not been utilized as of now.

2. Canadian Government - This government has made an offer of assistance to the bureau but the offer has not been utilized as of now.

3. USAID – USA - In October 2001, USAID approved a technical assistance grant of $8.2 million to BPE. This grant was an extension of the earlier grant of $1million approved in July 2000, through which consultants were provided to the Bureau.

4. DFID – UK - The British Government agreed to provide a grant of approximately US$10 million to BPE to cover such areas as:

• Institutional support for BPE staff; Technical assistance in the implementation of the transport, power and oil and gas sector reform programmes;

• Technical assistance in the establishment of the Nigerian Electricity Regulatory Commission; and

• Assistance in National Council on Privatisation’s consensus building activities

1. Spanish Government - The Spanish Government through its Embassy in Nigeria are providing limited financial assistance to the successful implementation of the Privatisation programme through the sponsoring of investment feasibility studies to be conducted by Spanish consultants

1. Recruitment of in-House Advisers to Build Capacity:The Credit received from the World Bank and other donor governments was used to build capacity in the Bureau by engaging the services of advisers that were specialized in areas that needed expertise support. The advisers hired were of two types, namely:

1. IBTCI foreign Advisers: These advisers were to work on institutional and Selected Policy Support by strengthening the capacity of BPE to manage the Privatisation programme through the provision of technical assistance by short and long term expatriate advisers.

2. Nigerian Core Team Advisers: These advisers were hired to help in reversing the Nigerian brain drain by engaging the services of a group of young and dedicated Nigerian professionals, trained in the best Universities locally and abroad, and with extensive international private sector experience in such areas as investment banking, law and economics to bolster the efforts of BPE to implement transactions.

110

5.3 Bidding Procedure for the selection of Advisers and Use of World Bank Guidelines for Selection and Employment of Consultants by World Bank Group Borrowers:

1. Adviser Selection Process:

To provide assistance in the preparation and conduct of divestiture transactions, BPE routinely engages firms and individuals as advisers to help in various activities which include: policy advice; institutional and public enterprise reforms; sale preparation, transaction and implementation; management/engineering services; procurement services; and social and environmental studies. The Bureau’s objective in this regard is to ensure that selected advisers provide professional, objective, impartial advice at all times and hold the interests of the Federal Government of Nigeria vital. Further, the NCP is keen to ensure that fraud and corruption is eliminated in the process, requiring that the BPE as well as the consultants involved in the implementation of the privatisation programme should observe the highest standard of ethics during the selection and execution of all contracts.

In July 2000, the NCP approved new guidelines for the selection and employment of Consultants by BPE for the implementation of the Privatisation programme. In most cases, the process to be applied is the Quality and Cost Based Selection (QCBS) scheme, which follows closely the methodology applied by the World Bank and recognised as international best practice. QCBS is a competitive process, which takes into account the quality of proposal submitted by the shortlisted firms and the cost of services to be provided, in the selection of the successful consultant.

A typical QCBS process consists of the following steps:• Preparation of Terms of Reference (TOR);• Preparation of the cost estimates and the budget; • Advertisement inviting Expressions of Interest (EOI); • Preparation of the shortlist of consultants; • Preparation and issuance of Request for Proposal (RFP), which includes a

Letter of Invitation (ITC), Information to Consultants (ITC), and the proposed Contract.

• Receipt of proposals;• Evaluation of technical proposals; • Evaluation of financial proposals; • Negotiations/award of the contract to the selected firm. The process

typically applied by the bureau is shown below:

111

Diagram of the Selection Process for Advisers:

112

Advertisement for Expressions of Interest (EOI’s) published in local and international

Expressions of Interest submitted to BPE

EOI’s evaluated by BPE Evaluation Team

Applicants pre-qualified and shortlisted

Requests for Technical and Financial Proposals (RFPs) issued to approved shortlist of applicants

Public opening of Financial Proposals

Shortlist submitted to NCP Technical Committee for consideration and approval

Technical Proposals evaluated by BPE Evaluation Team

Proposals submitted by shortlisted applicants

NCP Technical Committee and BPE conduct negotiations with shortlisted applicants

Approval and ratification of selected adviser by NCP Technical Committee and full NCP meeting

Adviser appointed

113

<USD100, 000 <USD 200, 000 <USD

QCBS QBS SFB SSS LCS SBCQ

`

QBS SFB

114

Finalise TOR

Finalise cost

Call for EOI

Prepare

Define evaluation criteria and

Prepare RFP

Send RFP

Prepare and submit Tech.

Evaluate Tech. proposals

Public opening of fin. Proposals if tech.

Negotiate with

Contract Award

Start the assignment

Call for EOI

Prepare RFP

Prepare

Negotiate with highest-ranking

Define eva. Criteria and

Public opening of fin. Proposals: calculate evaluated price;reject

Evaluate tech.

Prepare and submit tech.

Send RFP

Prepare and submit tech.

Submit financial

Send RFP

Prepare

Define eva. Criteria and

Prepare RFP

Send RFP

Prepare and submit tech.

Evaluate tech.

Public opening of fin. Proposals if score of

Negotiate with lowest eva.

QCBS- Quality and Cost Based SelectionQBS- Quality Based SelectionSFB- Selection under Fixed BudgetSSS- Single Source SelectionLCS- Least Cost SelectionSBCQ- Selection Based on Consultant’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

Bank’s

The Steps of the Selection Process

2. Core Investor Selection Process Since its commencement in 1999 the second privatisation programme has been executed with all sense of transparency, accountability and professionalism consistent with the stance of the present administration. This posture has engendered credibility with which the implementation of the programme has been pursued so far. The Privatisation transaction involves two major processes: The actual transfer of substantial equity stake plus Management control of the public enterprise to a strategic investor; and an initial public offer of another block of shares on Nigerian and International capital markets.

The selection of Core investors is done in an open international competitive bidding process designed to ensure that only the most qualified bidder is chosen. The selection process starts with the invitation (through advertisement in the local and international journals and magazines) of interested core investors to submit Expressions of Interest (EOI’s). This is sequentially followed by other stages in the process including Evaluation of EOI’s received, issuance of bidding documents and information memoranda to qualified bidders, due diligence for all bidders, return of bids, public opening of bids, negotiation with bidders, review of final submissions of the bidders recommendations, final approval, announcement of winning bid and payment by the winner. A flowchart depicting the detailed core investor selection process is shown below.

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Diagram of the Selection Process for Core Investor

116

Advertise invitations to all prospective core investors to submit expressions of interest (EOI’s)

Receive EOI’s at the deadline time and date

Evaluate EOI

Inform applicant of non-qualification

Qualified

Issue Bidding Documents, Guidelines on Post-Acquisition Plans (PAPs) and Bidding Process, Information Memorandum to qualified Bidders

Allow at least 4 weeks due diligence period for all bidders

Verification of Bidders’ Credentials

Review of Initial PAPs

Bidders submit Final PAPs

Bidders submit Initial Post

Return Initial PAPs (with comments) to Bidders

(Continuation of the Core Investor Selection process)

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Evaluate Final PAPs

Bidders with NCP-Approved PAPs invited to “Auction”

Auction

Technical Committee reviews Final PAPs and Prices offered by each Bidder and submits its Recommendations to the NCP

NCP announces Winner

Communication by BPE to Winner

Winner Pays

NCP Approval of Final PAPs

NCP Approval

Commence Transitional Procedures

3. Initial Public Offer Process

1. Appointment of professionals2. All Parties Meeting3. Commence drafting of offer documents4. Due Diligence5. Share Valuation 6. File documents with SEC and NSE7. Obtain necessary approvals from SEC and NSE8. Pre marketing of offer9. Completion Board Meeting10.Printing and Distribution of offer documents11. Marketing of offer/ Road Shows12.Application list opens and closes13.Collection of returns14.Prepare basis of allotment15.Obtain SEC approval of allotment16.Allotment announcement17. Issue proceeds to vendor18.Dispatch “return monies” and share certificates19.Execute declaration of compliance and general undertaking20.Listing of shares21.Transaction review22.Ensure on -going compliance with regulatory past listing requirements.

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1. Evaluations BPE’s Central Procurement Unit developed international acceptable Requests For Proposals (RFP’s) and circulated World Bank standard evaluation criteria format and reporting system to all departments of the Bureau to help bolster confidence in the system. Evaluations of proposals are undertaken by a 5-man team and are carried out in accordance with the criteria set in the RFP’s or deduced from the Advertisement in the case of EOI evaluations. The World Bank format for evaluations and evaluation reporting was adopted by the Bureau through the help of central procurement and ever since has been in use as a standard.

2. Procurement Training and Workshops:Several training programmes were arranged to build up capacity in the area of procurement within the Bureau. Departmental Procurement Officers were assigned in all departments to facilitate the flow of procurement activities.Local in-House training and World Bank training were organized for designated procurement officers in all departments.International training was organized for departmental procurement officers and other members of the bureau in distinguished institutions around the world.

3. Preparation of Global Procurement Strategic PlanThis plan is a comprehensive plan, which includes all training programmes, study tours, consultants hired and to be hired for the year within the bureau and all procurement activities sponsored by the Bank. It was prepared by the central procurement unit with inputs from other key units and departments and forwarded to the Bank for consideration.

CHAPTER VI

5. OTHER ISSUES119

The Third Management Retreat of the BPE took place in January 2003. The forum afforded opportunity for frank and objective review of the performance of the entire programme by senior staff of the Secretariat. Among the issues discussed were the need for thorough review of our privatisation strategy, to allow for more flexibility and the accommodation of new ideas; the need for reform of subsidies; forms of assistance and incentives for investors and more targeted use of privatisation proceeds. At the end of the Retreat, study groups were set up to articulate position papers on these issues.

1. Privatisation Strategy

The main thrust of the Committee assignment was to look at the privatisation process and develop a framework that should assist Enterprise Officers in developing appropriate strategies for specific enterprises.

2. Subsidies Reform

The Subsidies Reform Committee was tasked with the review of the current subsidies regime in the country and determine which sectors require subsidies and other sectors where subsidies can be removed.

3. Use of Privatisation Proceeds

The Committee was mandated to identify ways that privatisation proceeds could be better utilised targeting specific socio-economic projects.

4. Core Investor Payment, Fund Raising and Investment Promotion

This Committee was to examine the issue of fund raising by Core Investors and the complexities besetting fund raising, look into ways of attracting quality investors to participate in the privatisation process and assisting the core investors in raising the required funds, look into the ways of effectively attracting and promoting investment in Nigeria and make appropriate recommendations.

The reports of these ad-hoc committees have been submitted to BPE Management. Management is considering these reports and a separate write up will be presented to Council in due course.

5. Share Purchase Loan Scheme The Privatisation Share Purchase Loan Scheme (PSPLS) was initiated by the National Council on Privatisation (NCP) to enable low-income earning Nigerian citizens to purchase shares in public enterprises, being privatised under the Federal Government's on-going Privatisation exercise, by offering credit, under extremely favourable terms and conditions, to be used for the purchase of shares.

120

From our experience during Phase I of the Privatisation program (1999-2001), it was clear that many Nigerians had enjoyed the benefits of purchasing shares offered for sale by way of public offer. Subscription of shares during the Phase I exercise was largely successful with many public offers recording extremely high rates of over-subscription. However, there were a large number of Nigerian citizens who, due to the difficult economic realities of our time, were unable to put aside the few thousand Naira required to purchase a small shareholding in the enterprises that we had offered for sale in the course of the privatisation program. We are acutely aware that the success of any privatisation program, being largely political in nature, would be determined essentially by the extent to which the masses have been able to participate and benefit directly from the program - the ability to purchase shares in the program by the general public is therefore an extremely important and noble objective.

Given the need to encourage wider participation and support for the program as well as to encourage the savings and investment culture in Nigeria, the BPE has spent the past few months preparing the implementation of the PSPLS in order that it serves the eligible beneficiaries in a transparent and efficient manner.Following extensive research, the Bureau of Public Enterprises, in achieving the Federal Government's aim of ensuring that the Privatization programme is not only well received but experienced and enjoyed by the masses, is implementing this innovative project that will touch the furthest reaches of the country, most especially people in the 'low-income bracket'. The PSPLS is designed to make available to as many Nigerians as possible the opportunity, which they may never have had, to be a part owner of some of the key business entities of the state. At this initial stage of the PSPLS, the shares in public enterprises being sold under the Privatization programme will be made available through this scheme to two million (2,000,000) Nigerian citizens.

6. Labour and Severance IssuesAs the privatisation programme continues to unfold, ushering positive changes in our economic landscape, there is the need to anchor the all round success of the implementation process on the efficient handling of the human resource elements. The legal framework and the implementation strategies of the NCP, have placed important premium on the quality of reward and social safety net to be provided to former employees of state-owned enterprises. The envisaged downsizing of workers for instance, must be accompanied by properly negotiated compensation measures. The Council is intensely aware of the redundancy problems in most of the state-owned enterprises and the fact that, in the short-run, retrenchment of excess labour is inevitable when the ownership is transferred to core or strategic investors. This is because, efficiency in production and management demands optimum level of factor utilization including labour. The main issue therefore, is how well we address the concerns of labour redundancy rather than continuing with

121

bloated workforce to the detriment of the economy and the workers themselves. In this wise, the development of social safety net in the forms of retraining, reorientation, self-employment opportunities, and other job creation activities coupled with the implementation of a negotiated equitable and fair severance payment will greatly offset the anxiety of workers. Also, privatised enterprises are required by the Transitional Provisions, to maintain the level of staff compliment that existed at the time of privatisation for at least six months, in order to offer some of the workers ample opportunity to explore reemployment or self-employment options.

Conversely, severance payments are usually paid to redundant workers or workers who are involuntarily laid off. In the absence of universal unemployment insurance programme in Nigeria, it is desirable for privatised enterprises to provide for severance payment if they plan to retrench the workforce at the expiration of the six months Transitional Period.

The main Labour Issues in the privatisation programme are:• Redundancy issues• Salary arrears/ Terminal benefits/ including pension.• Employee share ownership plan• Social safety nets

Data Collection: Employment data by broad occupational category, years of service, average wages and benefits were collected at each enterprise level. A series of focus groups of union representatives both at the national and local levels were held to discuss labour issues and concerns as they relate to privatisation and also to seek their feedback and suggestions for the design of a standard severance package and social safety net. Published demographic and labour market statistics were collected from the Federal Office of Statistics, Nigeria Employers’ Consultative Association (NECA), and Manufacturing Association of Nigeria (MAN) to assess Nigeria’s population growth, employment and unemployment conditions, wages and salaries, and relative growth trends of industry sectors to gauge the employment potential for the workers likely to be retrenched. Also gathered were the labour market experiences of sample-retrenched workers to assess their income loss and standard of living.

Estimation of RedundancyRedundancy Rates: As in the case of state-owned enterprises in other countries, overstaffing is also common in Nigeria. In order to estimate the level of overstaffing, three sources of information were used: feedback from general managers and human resource professional at the sample enterprises; empirical results of retrenchment in African and other developing countries; and the judgment of labour experts. The general pattern of response from the general managers with respect to redundancy reflected the low-end of the redundancy rates. Thus, a base-

122

level, a mid-level and the an upper-level rates of 20%, 25%, and 30% respectively were determined for most sectors. In the case of Nigerian Airways and Nigerian Railways, 40%, 50%, and 60% redundancy rates were used.

Use of Staffing pattern: It was prudent and useful to estimate the redundancy by broad occupational category for two reasons: a privatised enterprise is expected to run as an efficient business organization with correct staffing within each occupational category to maximize the staff utilization and worker productivity; and, the design of social safety net calls for setting up of retraining and redeployment programs for retrenched workers based on the likely redundancy at the occupation/skill level. The retrenchment rates are likely to differ among occupational categories and sectors. In the absence of industry (sector) – occupational staffing matrix (mix of occupations by sector) for Nigeria or other developing country, the staffing pattern established for the United States is applied to the current employment pattern at each enterprise level.

The staffing pattern is, although, significantly influenced by technology and relative prices of labour. A privatised enterprise is expected to a follow the best practice in staffing and the suggested redundancy rates in the log-run. However, realizing the time lag needed for a privatised enterprise in Nigeria to attain the optimum level of efficiency in its business operation, an upward adjustment is made to U.S. staffing pattern while determining the expected employment level and the redundancy rates. Thus, the application of the staffing pattern of an industrialized country to Nigeria will provide us some guide in estimating redundancies by occupational category and thus developing retraining and redeployment programs for workers to be likely retrenched.

Redundancy by Occupational Category: In order to derive the redundancy at the broad occupational category, we follow a few simple steps: first, we calculate the percent distribution of staffing based on the data collected at each enterprise. This is the current staffing pattern at the enterprise. Second, apply the U.S. staffing pattern to the employment distribution by occupational category calculated in step 1. Third, reduce the employment derived in step 2 by the redundancy rates suggested above. The differences between employment in step 1 and step 3 provide redundancy rates by occupational category.

There are seven broad occupational categories such as Managerial and administrative; professional and technical; sales and related; clerical and administrative support; service occupations; agriculture, forestry, fishing and related; construction, operation, maintenance and material handling. Within each category there are scores of detailed occupations. To simply the calculation, only the broad seven occupational categories are used. To further simply and aggregate the categories, seven occupational categories are further reduced to three groups: managerial, senior, and junior staff, which is consistent with the staffing pattern generally, followed

123

in Nigeria. It is also assumed that if there is a shortage of positions in one of the seven occupational categories, surplus staff in closely related occupations could be filled with some additional training.

Examples of labour issues treated by the secretariat.

JEBBA PAPER MILLS• All outstanding salary arrears and terminal benefits have been paid to

workers.• Total sum of N213.757million was paid to the 2,100 former workers• For the continued provision of services, 120 staff were retained.• Salary arrears and final entitlements payment was based on the 1996

salary levels• Letters of disengagement have since been served on the 1,942

workers to facilitate privatisation.

FESTAC 77 HOTEL• Total sum of =N=110million has been paid to 199 workers as salary

arrears and gratuity.• A break down showed that =N=21million was paid as salary arrears

while =N=89million was paid as terminal benefits.• Final entitlement payment was based on 1996 January base salary

and paid at a discounted rate of 40%.

DAILY TIMES • Payment of salary arrears is on going. About 70% payment is

completed. • Final payment of the 30% will be completed this week.• A total sum of =N=253.168 million was approved to pay 2,111 workers.• Current staff strength is 432 while 1679 workers have been

retrenched.

NNMC Oku Iboku• The sum of =N=313.7 million budgetary allocation has been secured

by the ministry of industry to settle staff liabilities.• A total of 1519 were verified out of which 764 were lay-off in May

1996.• 189 staff are currently engaged in services.• The sum of =N=203.69 million,=N=50 million, and =N=60million have

set aside for salary arrears, pension scheme and maintenance of current staff respectively.

N a m e o f enterprise

Amount expended Number of workers

J e b b a P a p e r Mills

=N=213.757million 2,100

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In furtherance of the overall objective of the Council to have a sound and workable strategy in addressing labour issues, a labour policy framework to guide privatisation implementation in a consistent manner, across all sectors of the economy, was approved and adopted. The underlining principle of this approach is that, labour issues should be tackled explicitly through mechanisms that promote efficiency and increase the potential gains from privatisation. Also, inherent in this basic assumption, is that, regardless of how much care is devoted to labour issues in privatisation, there will always be some unforeseen events. For instance, the Council took due cognizance of the fact, that in certain enterprises, a large number of workers may volunteer to leave under the terms stipulated by the labour policy, while in others most workers may prefer to stay. Some of those who chose to leave may fare relatively well after separation, while others may face a very hard time. As regards the enterprises, some may become lean enough to attract expressions of interest, and others will not. Moreover, after privatisation some of them may thrive, offering good employment and earnings opportunities to their employees, while some may just fail. Admittedly, these are normal cycles in market economies. Nonetheless, the problem of labour redundancy in public enterprises as illustrated by the preliminary estimate conducted based on data collected from about 27 enterprises, is clearly indicative of the necessity to downsize the labour force.

However, the main thrust of any retrenchment exercise is the issue of compensation paid to the affected workers. In the case of Nigeria, workers compensation in both public and private sectors is laid down through the instrument of collective bargaining whose specific terms are dovetailed in Conditions of Service (signed agreements). Looking into the adequacy or otherwise of these compensation packages is important because of their bearings on the losses workers suffer in welfare. From experience, workers who consider the package as inadequate are unlikely to accept it. If this rejection is on a mass scale, it might constitute a formidable obstacle to achieving efficiency targets. It has been further observed that even when retrenchment is involuntary, it is likely to be politically more agreeable if the severance payments are adequate, or at least reasonable viz- a- viz, the problem of welfare loss. There is variation in terms of these agreements but on the whole they are similar in structure in that most of them specify payments that increase with years of service. A typical collective bargaining agreement is one that specifies payment of 3 weeks of (ending) pay for each year of service for those with 1 to 5 years of service, 5 weeks of pay for those with 6 to 10 years of service, and 6 weeks pay for those with more than 10 years of service. These

Festac 77 Hotel =N=110million 199

Daily Times =N=253.168 million 2,111

Nnmc Oku Iboku =N=313.7 million 1519

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compensation packages are in addition to settlement of outstanding pension and gratuity entitlements, which are also set out clearly in these agreements. The existence of collective bargaining agreements as benchmarks for measuring workers compensation in Nigeria, should not blind us from the pervasive abuse of this process by the parties involved.

•Thus, due to misapprehensions arising from the impending privatisation of PE’s, there exist a convergence of interest between workers and management on the need to optimize end-of-service benefits. This collusion is given tangible expression through unrealistic and unaffordable generous offers that are hurriedly negotiated and finalized to pave way for draining the resources that government seek to conserve and apply in re-invigorating the economy.

•In other cases, the absence of collective agreements in certain enterprises has left them with a deplorable and poor compensation package that falls far below the sector average, in terms of its adequacy and justifiability.

•Also, in judging the adequacy or otherwise of any severance package, workers and their representatives, are likely to refer to agreements of other enterprises.

•The commitment of government to the principles of fairness and affordability compels us to ask the pertinent question: Are these payments adequate with respect to addressing the workers’ welfare losses?

•What changes, if any, would make the packages fairer to workers, but also financially feasible for the government?

SEVERANCE PACKAGE:It was in an effort to provide urgent solution to the above dilemma, that the Bureau deemed it appropriate to solicit the assistance of the World Bank for the services of a short-term Consultant, who was specifically commissioned to examine different collective bargaining agreements and estimate the percentage of workers who are likely to accept the package voluntarily, and the extent to which the severance payments cover workers’ welfare losses. Relying on data on General Household Surveys collected from the Federal Office of Statistics as the most readily available source, the Consultant examined the labour market conditions and estimated the earnings of workers. Although, the data gathered were somewhat dated, the main concerns were that they seemed to underestimate earnings. It was further observed that the extent of under-reporting of earnings by workers is somewhere around 54%. Taking this inbuilt shortcoming into account, the Consultant reasonably proceeded to work on the assumption that workers would under-report earnings while employers tend to exaggerate their wage payments.

The under-reporting of earnings is critical to the estimation of income loss and the design of a severance package. The findings of the Consultant confirmed that under-reporting of earnings in the public and private

126

sectors leads to under-estimation of earnings loss (over the remainder of working years) because both the loss in public sector earnings and the gain in alternative earnings (upon retrenchment) are under-estimated. For this reason the Consultant opted against inflating the earnings data. Instead, he focused on presenting all results- on income loss, severance payments, and shortfall in loss coverage- in terms of multiples of current monthly earnings.

Accordingly, in order to derive current values of workers’ income losses and the severance payments offered by different packages, the results presented should be multiplied by current monthly earnings- from public sector enterprises. The important point to note is that lost public sector earnings are observable and even though we normally assume a discount rate and a profile for future earnings, the losses are tangible and real. The summary of findings in this connection is that in addition to the tangible loss in earnings, retrenched public sector workers might also suffer intangible losses. These are losses that are not easily observable in monetary terms but derive from the nature of public sector employment. For instance, public sector workers typically enjoy a greater degree of job security, lower level of effort, scope for moonlighting (earning private sector income while on the public sector job), and higher level of prestige and power. Loss of public sector jobs implies losing these benefits and hence the sustained interest shown by workers in the monetary value of these benefits.By determining what public sector workers could earn in the private sector, the report has reflected on the difference between these earnings and the (current) size and value of intangible benefits in the public sector. The reasoning underlying this approach is that workers who can earn more in the private sector, but choose to stay on in the public sector, must do so because they enjoy certain intangible benefits and that these are roughly equal to the difference between private and public sector earnings. Appropriate adjustment of these differentials in earnings between the sectors was effected in a systematic manner, thereby determining even the value of potential losses due to unemployment and drop out from the labour force. The baseline calculation of intangibles, with the available survey data and assuming that measurement error influences 10% of observations, are 99% of current public sector earnings for all workers. In other words this means that intangible benefits are estimated to be 99% of current public sector earnings, so that adjusting for these benefits, in effect, means doubling of public sector earnings for each worker. Once the adjustment for intangibles is made, the resulting stream of earnings has to be discounted to get its present value.

SCENARIO OF OPTIONSThe Consultant made use of simulation model to calculate earnings loss and assess the adequacy of alternative severance packages. This became necessary because while a worker who is laid off clearly loses his/her earnings in the public sector (tangible and intangible) there is the possibility of generating new earnings in an alternative occupation. There

127

could be job opening in the private wage sector or the startup of micro-enterprise, or contribution of labour time to an existing household enterprise; the assumption is that for most part workers are not likely to be re-employed in other public sector enterprises or the government. Earnings from this “alternative” employment reduce the earnings loss suffered by retrenched workers and need to be taken into account. Even though, alternative earnings are not known to the worker at the time of layoff it is reasonable to assume that those who are employed have some idea of their earnings possibilities in the private sector, and that this is based on what workers with similar characteristics earn in the private sector.

Due to high rate of unemployment in Nigeria, the alternative to public sector employment is remote and tortuous. Older workers, particularly those close to the official retirement age and with fewer technical skills might have difficulty obtaining employment in the private sector. Similarly, a significant percentage of female workers might choose not to seek employment and thus drop out of the labour force. If there are no alternative earnings, a situation that would be relevant for those who drop out of the labour force, median earnings loss is 86% higher than the baseline value and makes up almost 18 years of current earnings. This is one extreme in the spectrum and while it might be relevant for some classes of workers (women, and older workers), based on current labour market information this does not seem reasonable for the majority of workers. It is self-evident that employment in the informal sector is larger with the attendant prospect of under-statement of their earnings in household surveys. Be that as it may, this indicates that using current labour market data to project post-layoff patterns might not be that unreasonable. The Consultant also examined the scenario of small group of workers who managed to generate some earnings in the private sector (after layoff) but these are either a fraction of their public sector earnings, or begin after a prolonged period of unemployment. These are realistic possibilities. However, the pattern of income loss and collective bargaining agreements-type severance payments has important lessons for the design of a “default” severance package. The first is that CBA-type severance payments will (almost) always be hopelessly inadequate for those with relatively few years of service in the public enterprise. The extent of the shortfall will, depend on the payments offered to those with fewer years, but it is difficult to even imagine these being high enough to make up for the high loss these workers suffer. It is counter-productive to attempt to fully compensate younger workers, as they are those with relatively few years of service. The focus, therefore, should be on designing a severance package that pays an amount sufficient enough to act as a buffer while the transition is made to the private sector, either as a wage employee or in self-employed capacity.The other side of the story deals with workers who have several years of service and are likely to be over-compensated. Understandably, the re-employment prospects of these categories of workers are worse than

128

those of younger workers. Nevertheless, the justification for over-compensation remains weak because;

•Current labour market data do not show significantly higher levels of unemployment in this age group,

•These workers are likely to have better money-management skills, which are critical for success in the informal sector, and

• Resources for severance payments are necessarily limited.

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CHAPTER VII

5. FINANCIAL MATTERS

2. Audited Accounts 1998-2001 (Attached As Appendix D)

130

2. Privatisation Proceeds

PRIVATISATION PROCEEDS – PHASE ONE

131

  Core Investor Proceeds

  Public Offer Proceeds

  Post-Offer Proceeds (States)

(a)

  Post-Offer Proceeds (IIs)

  Sale on NSE Floor

Total Proceeds

 

 

NAL NIL N 573,000,480.25

N 255,775,729.00 N594,295,165.

00

NIL N1,423,071,374.25  

 

IMB NIL N 11,262,696.75

N 1,116,635.25 N2,205,379.80

N778,369.60 N15,363,081.40  

 

UNIPETROL

N 1,593,750,000.00

N 435,801,067.00

N 10,157,105.00 N 12,785,215.00

NIL N 2,052,493,387.00  

 

FSB NIL N 1,258,520,369.4

0

N 132,441,208.20 N256,445,978.

87

N39,447,024.

00

N1,686,854,580.47  

 

ASHAKA N 1,572,187,500.00

N 369,142,669.50

N 72,028,910.25 N 94,170,688.00

NIL N 2,107,529,767.75  

 

CCNN N 622,761,278.82

N 44,941,345.00

N 3,165,857.50 N10,531,507.0

7

NIL N681,399,988.39  

 

NOLCHEM

N 7,412,916,000.00

N 979,913,750.00

N 305,455,000.00 N117,337,775.

00

N200,626,884

.53

N9,016,249,409.53  

 

AP N 2,308,824,000.00

N 272,240,265.00

N 195,777,900.00 N102,011,379.

58

NIL N2,878,853,544.58  

 

WAPCO N 1,798,550,000.00

N808,307,115.0

0

N 31,660,035.00 N213,185,819.

16

N167,184,623

.06

N3,018,887,592.22  

-  

BCC N 918,316,128.20

NIL NIL N32,960,867.00

NIL N951,276,995.00  

 

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GROSS PROCEEDS (PHASE TWO)

TOTAL   N 16,227,304,907.0

2

  N 3,944,822,642.9

0

  N 1,007,578,380.20

  N1,435,929,774.48

  N408,036,901.19

N23,831,979,720.59  

S /NO

ENTERPRISE

BIDDIN G DATE

GROSS PROCEED

CORE INVESTOR

1 N i g e r d o c k Limited

Januar y 2002

N3.50 Billion

Global Energy/McDermott

2 F E S T A C ’ 7 7 Hotel

Januar y 2002

N1.01 Billion

UAC Properties Plc – conversion to shopping mall and hotels in progress

3 N I T E L . ( U n c o n c l u d e d Non-Refundable deposit)

Februa r y 2002

N15.40 Billion

IILL (failed to conclude)

4 Assurance Bank Nigeria Ltd

Februa r y 2002

N0.85 Billion

Parmex/Gensec Consortium

5 N i c o n H i l t o n H o t e l – u n c o n c l u d e d ( B i d B o n d proceeds)

Octobe r 2002

N0.32 Billion African Properties

6 Capital Hotels P l c ( A b u j a Sheraton)

Octobe r 2002

N 4 . 5 Billion

Hans Gremlin Nigeria Limited

7 N i g e r i a R e i n s u r a n c e Corporation

D e c em b e r 2002

N1.01 Billion

Management Buy-out

8 Niger Insurance Plc

D e c em b e r 2003

N 0.62 Billion

Management Alliance Company Limited

9 Savannah Sugar C o m p a n y Limited

D e c em b e r 2002

N1.35

BillionDangote Industries Limited.

10 National Trucks Manufacturing, Kano

D e c em b e r 2002

N0.80 Billion

Art Engineering Limited

11 Nigeria Hotels Limited

A p r i l 2003

N2.82 Billion

Various

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12 Electricity Metre Company, Zaria

D e c em b e r 2002

N0.40 Billion

Dantata Industries

TOTAL N 3 2 . 5 8 Billion

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2. BPE Budget Proposals Vs Appropriation 2000-2003

The BPE has been going through a period of serious budget crisis since the year 2001 when we got into the budget. This stems from the fact that the amount appropriated falls far below our proposal making it impossible to walk within budget approvals.

Since 2001, when we first went into the Federal Government Budget, the percentage of funds approved vis- a- vis our budget proposal has been on the decline, the 2003 budget has not been appropriated but the draft recommendation sent to us by the Budget office in the federal Ministry of Finance does not portray better times for the BPE in the area of budgetary allocations, as provided below:

In view of the above, there is the need to call the attention of management to the implication of the above, most especially in the areas of personnel cost and staff training.

The BPE personnel expenditure is over N300m per annum, this is exclusive of the pension fund that we have not been funding regularly, with a backlog of about N40m.

The breakdown of the amount recommended for the BPE for 2003 is:

S/N Year Budget Proposal (N)

Budget Approved (N)

% of proposed budget approved

1 2001 1.87b 520m 28%

2 2002 1.6b 406m 25%

3 2003 2.01b 310m 15%

S/N SUB-HEAD Proposed Amount Naira Recommended Amount Naira

1 Personnel Cost 898,397,359.00 166,056,000.00

2 Overhead Cost 1,111,878,650.00 144,000,000.00

TOTAL 2,010,276,009.00 310,056,000.00

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7.4 IDA ACCOUNTS

Special AccountThe Initial deposit of US$700,000.00 (Seven hundred thousand Dollars only) was paid into the Special Account at the First Interstate Bank Plc on August 23, 2002, A replenishment application has been forwarded to the bank.

Counterpart Fund AccountThis account that is sited in the United Bank for Africa Plc (UBA) was opened in May, 2001 with the sum of N443,235,000.00 being the Naira equivalent of $3.9million stipulated in the DCA.

Project Operations AccountThis account is also sited at the First Interstate Bank Plc. It is used to effect payments in naira, by converting the dollar equivalent from the special account.

TOTAL CREDIT AMOUNT The total Credit Amount is $114.29million

TOTAL AMOUNT DISBURSEED

The sum of $5.2million has so far been drawn from the credit. These include the PPF amount of $2million,initial deposit of $700,000.00 into the special account and the retroactive claims.

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