In
attempting a definition of Privatization and Commercialization, it is necessary
to distinguish between two basic concepts, that is, Public ownership and Public
management. Production facilities may be owned entirely by the public sector or
entirely by the private sector or jointly by both sectors. Where it is owned
entirely by the public, management can still be provided by the private sector.
It is unusual for the private sector to own an Enterprise while the public
sector holds the management. When the ownership is with the public sector, it
is often vital for efficient operations to separate it from the management even
if both are in the public domain[1].
Many
Public Sector Enterprises are operated without due regard to costs or returns.
While it is admittedly difficult to measure the returns on the outlays of
public safety, for the production of most goods and services, it is easy to
gauge whether the outlays are justified and to what extent they are justified
by the returns on the investment. Not all such investments is expected to yield
immediate returns as some of the benefits are social rather than private in
character, that is, they accrue to society as a whole rather than exclusively
to individuals[2].
Often, however, where the benefits can be appropriated exclusively by
individuals, it is usually recommended that the enterprise be operated on
commercial lines; that is, that the yardstick to measure success must include
the return on the investment. It means that the production methods must be more
efficient and that the prices charged should, at least cover the cost of the
production. Thus Commercialization is quite different from Privatization but it
represents an important part of the reform of Public Sector Enterprises. The
word Privatization is a concept as well as a process. This aspect will be
considered appropriately in the course of this work.
STRATEGIC
INVESTORS/CORE GROUPS
Core
investors or strategic investors can be described as formidable and experienced
groups with the capabilities for adding value to an Enterprise and making it
operate profitably in the face of international competition. They should
possess the capabilities of turning around the fortune of such an Enterprise,
if by the time of their investments, the Enterprise is unhealthy. The major
characteristics that distinguish strategic/core group investors are:
-
They must possess the technical know-how in
relation to the activities of the Enterprise they wish to invest in. For
example, a core investor in a cement company must have access to cement
production expertise with regard to optimal use of the machinery, maintenance
of such machinery and other technical aspects of cement production such as
procurement of raw materials, e.t.c.
-
The core investors must also possess the
financial muscle not only to pay competitive price for the Enterprises they
wish to buy into, but also to turn around its fortune using their own resources
without relying on the government for funds. Each core/strategic investor is
expected to prepare a short/medium/long-term plan for the development of the
Enterprise and indicate how it will be financed.
-
The core investor must have the management
know-how to run a business profitably in a competitive environment.
However, in consonance with s.4 of the
privatization act, Privatized Enterprise which requires participation by
strategic investors may be managed by the strategic investors as from the
effective date of privatization on such terms and conditions as may be agreed
upon. Although the law requires the National Council on Privatization to
encourage staff participation in the Privatization of any Enterprise, with 1%
of the shares to be offered to Nigerians being reserved for this purpose, and to
prohibit any individual shareholder from owning more than 0.1% of the
privatized Enterprise. When there is an over-subscription for the shares on
offer, it remains fair to suggest that the motive of wider shareholder is
secondary to that of attracting a suitable core investor. It is the core
investor, and not the mass of small shareholders that satisfy the reasons for
privatization, that is, reviving the financial base of the enterprise and
reorganizing the administration of the company.
A core investor is interested in individuals
and the enhanced value of his shareholding. He therefore takes a more proactive
role in realizing this. The core investor will typically buy a majority or a
significant percentage of the equity of the target company in order to secure
either control or significant voice in the company. His objective is to
influence the way in which the company is run. The choice of which company to
invest in is usually based on the belief that the target company has potentials
that can be unlocked by the application of particular qualities, typical funds
from new capital, particular management skill and access to market that the
core investor has access to. Thus, a core investor takes on a much more
interventionist role than a small investor does. In so doing he merges the role
of the shareholder with that of management; he wears two hats3.
DEFINITION OF TERMS
Under this heading, we are going to be
considering the meaning of certain terms that are related to the subject
matter. The word Privatization can be considered as a concept as well as a
process. As a concept, it is not only emotive but controversial. As a process,
the methods adopted vary from sector to sector, country to country and in
Nigeria, from one place to another. It also has a narrow and broad meaning. Yet
at another level, it can mean the Privatization of a sector or the entire
economy. Sometimes the level of irreversibility of the Privatization
transaction is critical in determining its classification. As a concept, it is
the process of transferring ownership and sometimes control of a business, an
enterprise, an agency, a Sector or Public Enterprise from the public sector to
the private sector. Some transfers will involve the introduction of private
entry, often by the abolition of monopolies or barriers to entry and the
introduction of competition. In a narrow sense, Privatization implies permanent
transfer of control from the public sector to the private sector. Broadly,
Privatization involves all forms of Public Private Partnership [PPP] where
measures are adopted for the transfer from the public sector to the private
sector of activities exercised until then by a public authority. It is in this
broad category that we have sub-contracting, management contracts, lease and
concessions. As a process, Privatization describes the sequencing of
transactions and the methods of sale. For example, how do you determine the
Public Enterprise or Sector to be privatized? Secondly, how do you determine
the strategy to be adopted in privatizing a Public Enterprise? Thirdly, how do
you attract investors; local or international? Fourthly, how do you determine
whether it is full or partial Privatization? Fifthly, how do you carry out full
diligence on the Enterprise? Sixthly, who and how will the transaction
documents [advertisement for expression of interest, information memorandum,
non-disclosure agreement, Request for proposal, asset sale agreement,
concession agreement and management contract] be prepared? Seventhly, who is
the approving authority and what administrative structure will you create?
According to the provisions of S.14 of the Privatization and Commercialization
Act, Cap 369, Laws of the federation of Nigeria, 1990, now repealed,
Commercialization means the reorganization of Enterprises wholly or partly
owned by the Federal Government in which such Commercialized Enterprises shall
operate as profit-making commercial ventures and without subventions from the
Federal Government. Although the Act did not define Commercialization, S.8 of
the Act provides thus: Notwithstanding the provision of any other enactment and
without prejudice to the generality of S.6 of this Act, a Commercialized
Enterprise shall operate as a purely commercial Enterprise and may subject to
the Government of the federation
-
Fix the rates, prices and charges for goods
and services it provides;
-
Capitalize its assets;
-
Borrow money and issue debenture stocks; and
-
Sue and be sued in its cooperate name.
It is clear, therefore, that when a Public Enterprise is
fully commercialized, the expectation is that it should operate as a purely
commercial Enterprise without subventions from the Federal Government.
Privatization is simply defined as the
transfer of ownership of production and control of enterprises from the public
to the private sector. While in S.14 of the Act, Privatization is defined as
the relinquishment of part or all of the equity and other interests held by the
Federal Government or its agency in enterprises whether wholly or partly owned
by the Federal Government. Unfortunately, there is no definition of the word
privatization in the Public Enterprise (Privatization and Commercialization)
Act, Cap p38. LFN, 2004. See also Amina Tukar Othman. Privatization in Nigeria
[Kaduna: Tahalim limited, 2003] PI S.83 of the Public Enterprises Act[3]
defines Public Enterprise as:
-
Any commission, board, agency, committee,
organization or Authority established for any state or states under the
constitution or any decree, Edict or any other enactment.
-
Any
company or Enterprise in which Government of the Federation, State, Local
Government or its agency owns controlling interest including a bank or other
financial institutions, under decree No 18 of 1994 as Amended, the banks and
other financial institutions decree 1991 [BOFID] and the Nigeria Deposit
insurance corporation decree, 1986 [NDIC].
Also S.33 of the Act[4]
Defines a Public Enterprise as any corporation, board, company or parastatal
established by or under any enactment in which the Government of the
Federation, a ministry or extra ministerial department or agency has ownership
or equity interest and includes a partnership, joint venture or any other form
of business arrangement or organization for ease of exposition.
A glance at the opening words of this
section; that is, ‘’any Commission, Board, Agency, Committee, Organization or
Authority’’, one seems to gather that all conceivable business production units
capable of being owned by the government will be involved. But this is not so.
There are two questionable limitations in the definition above. The first is
that of the Act[5].
The second problem in the definition above
lies in the exclusion from the meaning of Public Enterprises, Banks, and
Financial Institutions, under Act No.18 of 1994 as Amended, The BOFID and the
NDIC decree of 1998. It does not appear to me that there is any good reason,
both in law and in good conscience, to justify this exclusion. It creates the
impression that the government must have CONTROLLING INTEREST in a company or Enterprise
before it is called a Public Enterprise. Even in most popular Public
Enterprises, what Government owns is 40% equity interest in Nigeria. For
instance the Federal Government had only 10%
equity interest in Nigeria Cement Company Limited Nkalagu[6]
[NIGERCEM] and still the Company was a Public Enterprise. I rather think that
Government need not have up to 40% controlling interest in a company for it to
be a Public Enterprise.
It would appear that my observation above is
in order when we realize that S.34 of the Public Enterprise [Privatization and
commercialization] Act, Cap 38 LFN, 2004 has excluded these two questionable
ingredients from the definition of Public Enterprises. The section provides
that:- “Public Enterprises or parastatals established by or under any enactment
in which the Government of the Federation, a Ministry or Extra ministerial
Agency has ownership or EQUITY INTEREST and includes a partnership, joint
venture or any other form of business arrangement or organization”.
This definition seems to have identified the
short comings of the previous ones discussed and have taken care of them. For
instance, it simply highlights that what Government needs to do is to have an
equity share in an Enterprise for that Enterprise to be public. It carefully
avoided any measurement in the Enterprise. This gives Government an opportunity
to earn just how much or how many shares it wants in a Public Enterprise.
In the second Nigerian Economic summit of
1995, Privatization was defined as a term used to describe a variety of
policies, which are designed to transfer fully or partially, ownership and
control of Public Enterprises to the private sector to encourage competition
and emphasis the role of market forces in place of statutory restrictions and
monopoly of powers. On the other hand, the summit defined Commercialization as
the reorganization of enterprise whole or partially owned by Government to
ensure that such enterprises operate as profit making commercial ventures
without subventions from Government.
Privatization can also be defined as any of a
variety of measures adopted by government to expose a Public Enterprise to
competition or to be in private ownership or control or management into a
Public Enterprise and accordingly to reduce the usual weight of public
ownership or control or management. However, in a strict sense, Privatization
means the transfer of ownership (and all the incidence of ownership, including
management) of a Public Enterprise to private investors. The latter meaning has
the advantage of helping one to draw a line between Privatization and other
varieties of Public Enterprise reform.
Starr (1998) defines Privatization, as a
shift from the public to the private sector, not shift from within sectors. He
further stated that the conversion of a state agency into an autonomous public
authority or state owned enterprise is not Privatization, neither is the
conversion of a private non-profit organization into profit-making form.
Ogunde (2002) defines Privatization as the
state policy whereby state owned companies are sold out to private individuals.
Critically he added, “it is a process whereby collectively owned properties are
auctioned out to “money bags” who naturally are the ones that can afford
effectively the cost of such ventures”.
It is important to note that Privatization or
Commercialization of an enterprise might be partial or full. Where:
-
Full Privatization means divestment by the Federal
Government of all its ordinary shareholding in the designated enterprise.
-
Partial Privatization means divestment by the
Federal Government of part of its ordinary shareholding in the designated
Enterprise.
-
Full Commercialization means that Enterprises
so designated will be expected to operate profitably on a commercial basis and
be able to raise funds from the capital market without Government guarantee.
Such Enterprises are expected to use private sector procedures in the running
of their business.
-
Partial Commercialization means that such
Enterprises so designated will be expected to generate enough revenue to cover
their operating expenditure. The Government may consider giving them capital
grants to finance their capital projects.
In both full and partial Commercialization,
no divestment of the Federal Government shareholding will be involved.
TYPES OF PUBLIC
ENTERPRISES [PE]
The various types of Public Enterprises that
have emerged in the country since political independence may be classified into
four [4] categories viz:
-
PUBLIC UTILITIES: These are enterprises that
produce infrastructural goods and services like Electricity, water,
telecommunication etc. for which they are not expected to charge commercial
rates.
-
STATUTORY CORPORATIONS: These are Enterprises
which produces collective goods and services such as railways, ports, harbors,
housing, transport, river basin development etc.
-
LIMITED LIABILITY COMPANIES: These are Public
Enterprises that operate under the companies enactments in a competitive market
and are expected to be financially viable and profit generating, Example,
commercial, merchant and development banks, insurance companies, oil
refineries, textiles etc.
-
SERVICE: These are Enterprises in which the
degree of Government ownership and control tends to be total and whose
activities are justifiable not business or market oriented and therefore cannot
be self sustaining or profit generating. For example, Educational institutions,
hospitals etc.
ORIGIN AND EVOLUTION OF PUBLIC CORPORATIONS
The history of Privatization is traceable to
the ancient Greece, when Government contracted out almost everything to the
private sector and in the Roman Republic when private individuals and companies
performed the majority of services including tax collection [Tax farming], army
supplies [military contractors], religious sacrifice and construction. As an
ideology, perhaps Privatization is traceable to the golden age of the Han
dynasty in china. Taoism came into prominence for the first time at a state level
and it advocated the laissez faire principles of wu wei. Even during the
renaissance when most of the Europeans practiced feudalism, the ming dynasty of
China began once more to practice Privatization especially with regard to their
manufacturing industries. In more recent times, Winston Churchill’s Government
privatized the British steel industry in the 1950s, Western Germany’s Government embarked on
large-scale Privatization, including selling its majority stake in Volkswagen
to small investors in a public share offering in 1961 and in 1970s. General
Pinochet implemented a significant Privatization program in Chile. However it
was in the 1980s under the leadership of Margaret Thatcher in the UK and Ronald
Reagan in the USA that Privatization gained worldwide momentum[7]
similar exercises were carried out in Eastern Europe and the former Soviet
Union with the assistance from the World Bank and the UK agency for
international development; while Japan privatized Japan post. There were
Privatization in France, Belgium, Denmark, Italy, Spain, Peru, etc. in other
words, Privatization transactions took place in developing and transition
countries as well as in industrialized countries. The history of Public
Corporations in Nigeria dates back to the colonial era. The colonial Government
established some Public Enterprises to provide essential services like
railways, roads, bridges, electricity, ports and harbors, waterworks and
telecommunication. Social services like education and health were still
substantially left in the related hands of the Christian mission. However the
report of the presidential commission on parastatals [onosode commission] which
was set up in 1981 under the sheshu shagari administration recommended that
there should be an increased role for the private sector especially in the
parastatals, where security and other sensitive aspects of public policy are
not as paramount as the satisfactory delivery of service to the people.
Similarly the International Monetary Fund [IMF], in considering the request by
the Federal government for a loan under shagari’s administration imposed
certain conditionalities. One of them was the divestiture of ownership,
management and control of some Public Enterprises. The debate of whether
Nigeria should embark on Privatization resonated throughout the regime of
Buhari/Idiagbon until General Babangida in his 1986 budget speech announced
Government’s intention to divest its holdings in certain key sectors of the
economy and subsequently promulgated the Privatization and Commercialization
Act No. 25 of 1988[8].
Four reasons have been offered for the growth
of Public Enterprises in the immediate post colonial period[9]. The first
reason has to do with the desire of the national petit-bourgeoisie which
inherited political power from the colonial masters to create an economic base
for its political power. Being essentially capitalists without capital, the
petit-bourgeoisie used the instrumentality of the state to empower themselves
economically. Public Corporation serves as a conduit through which public funds
were channeled to private pockets. The second reason has to do with the
struggle by Nigerians for the control of the economy as well as the struggle
for economic independence. Nigerian politicians felt that they have to build up
Enterprises that can compete with the foreign ones. Thirdly, some Public
Enterprises were established as a means of promoting exports and to realize
import substitution. Finally, some of the state Enterprises came into being as
a result of nationalization of foreign owned Private Enterprises.
BASIS OF PUBLIC/STATE ENTERPRISES
A
question may arise “What right or reason has Government in going into business
or production Enterprising”? I shall treat this question in its two limbs of
right and reason.
Government
has right to own property, so it has right to own Enterprises. We learn from
ancient history on Economic ideologies[10]
that Countries have always practiced socialism, capitalism or mixed economy. A
country is socialist when its Government controls all it means of production,
while it is capitalist when means of production are owned by individuals. Where
both elements of socialism and capitalism are in a Nations economy, that Nation
is said to be practicing mixed economy. Nigeria’s economy is a perfect example.
Therefore Government has right to own its own Enterprises.
Having
established that the state has right to establish and own Enterprises, the
following are reasons why a state may need or is obliged to own an Enterprise.
Firstly,
a state may need to own a Public Enterprise because of the necessity to provide
certain essential goods or services to its citizens. The State or Government
has duty to provide for its citizens some goods and services which are
essential to them. Services like the supply of electricity and pipe born water
can best be provided for by the state. Thus, corporations like the National
Electrical Power Authority [NEPA] and water boards and corporations are a must
for the state.
Secondly,
the state at times wades into the provision of certain goods and services in
order to break private monopoly. Certain economic factors may make it
impossible for a Private Enterprise to have a monopoly of the provision of
certain goods and services. Some consequences of monopoly have grave economic
defects. For instance, monopoly can lead to rise in price, the monopoly may
decide to be producing standard goods and services since there is no one
competing against him, a monopoly may be inefficient, it restricts the right of
the consumer to choose his goods and services from a list of options. So the
consumer suffers it all. It is this reason that at times forces or makes the
Government to venture into such Enterprises to break this monopoly for the
interest of the consumer. Yet experiences show us that at times the attempt of
Government to break private monopoly often result in public monopoly with the
same ugly consequences.
Again,
the cost-intensive nature of certain business organization makes it possible
for only Government to embark on it. A project may be so costly that individual
funds may be inadequate to face it. For example, the construction of a steel
industry, hydroelectricity generating plant or water scheme are some of such
capital-intensive projects.
Also
political considerations influence governmental involvement in the provision of
certain social and economic services. In many African countries, development is
closely associated with the provision of social services; consequently, the
performance of the Government, in many of these countries, is evaluated on the
basis of its ability to provide different types of public services in areas
where such services do not exist.
Another
reason for Governmental intervention in the provision and management of goods
and services in many parts of the world is the fact that no person should be
permanently deprived of the access to such facilities because of lack of
finances or by reason of geographical location.
Another
reason for Governmental intervention in the provision of certain goods and
services relates to the indivisibility that characterizes such services. Some
facilities, such as bridges, tunnels, roads, streetlights and waste disposal
facilities cannot be divided or partially provided for the benefit of everybody
in the community. Facilities of this type must therefore be provided publicly
and financed through taxation.
Another
is the consciousness of national security. Certain facilities, like the
National Port Authority [NPA], immunization program and the police, are too vital to be left at
the mercy of private citizens.
Furthermore,
where the state sees that too many actors in an industry may lead to an
unhealthy competition, it becomes necessary that only Government itself could
step in and stop the waste of resources that may result from duplication, for
example, construction of railway lines where built in absurdity, dangers of
avoidable accidents may become imminent. This necessitated the establishment of
the Nigerian Railway Corporation [NRC].
These
and many others are the reasons why states go into the business of Production
Enterprises.
REDIFINING THE ROLE OF THE STATE
Until
recently, the state’s scope of activities had no defined limits. In addition to
its sovereign functions,[11]
it was involved in economic life through direct control over the production and
distribution of many goods and services. In a number of countries, the state
was also responsible for managing financial institutions, as well as
controlling trade and capital flow between the national economy and the rest of
the world. This interventionist system, which was justified in various ways,
eventually ran out of steam. For whatever reason, the outcome was in most
cases, the establishment of a Government monopoly, which in time created
imperfection in the market for goods and services. Thus what starts as a
theoretical justification for public intervention, ended up in establishing a
replica of what is to be eliminated.[12].
The state came to release the need to withdraw from the commercial sector and
devote more time and resources to the delivery of essential public services.
The tool for this is the Privatization of inefficient Public Enterprises. No
doubt, the private sector is far better equipped than the Government to manage
commercial activities effectively, because its decision making apparatus is
less unwieldy and its ability to adapt changes in the environment is
greater. The state’s central task
therefore becomes limited to liberalizing economic activities, promoting free
Enterprises and encouraging healthy competition among businesses while
eliminating economic rents and mechanisms that confer a dominant position on a
firm or economic agent. A framework for allowing market forces to determine
prices needs to be instituted. Such a framework would encourage competition among
businesses and suppress the distortions inherent in any system of administered
price control[13].
In the context of globalization, the private sector is the main engine for
growth. Accordingly, its operations must be free of heavy-handed and cumbersome
regulatory or bueaurocratic procedures that could show its expansions. To take
full advantage of the opportunities globalization offers, the private sector
needs high-quality human resources and managerial capabilities. The sector
itself must assume some responsibility for the education and training of the
workforce; enable workers to take advantage of potentials offered by new
information and communication technologies and to benefit from the relocation
of industrial businesses and services.
Instrumental
and easing the path of globalization and creating a business environment that
attracts and encourages private sector activities[14]
is regional integration.
THE IMPERATIVE FOR PRIVATIZATION
Before
the Public Enterprises [Privatization and Commercialization] Act Cap38 Laws of
the Federation of Nigeria, 2004[15]
was enacted, there were over one thousand [1000] state owned companies in
Nigeria and these companies were runned and funded from the Government
treasure. Any discussion on why the state of things in our public corporation
under the previous regime was
ineffective and in need of improvement,
must start and end with the fact that Government spend a lot and gained
nothing from companies that were virtually unprofitable.
12
years ago, President Olusegun Obasanjo told the nation that successive
Governments of Nigeria have invested up to Eight Hundred Billion Naira (N800,
000,000,000) in public owned Enterprises and that actual return on these huge
investments have been well below 10%.[16]
These
inefficiencies and, in many cases, huge losses are charged against public
treasure. The effect was that instead of spending its money on providing basic
amenities, Government was busy spending its fund on redundant Public
Enterprises from which it received no return. This was responsible for the low
standard of living expected in Nigeria.
Under
the previous regime, state enterprises suffered from fundamental problems of
detective capital structure, excessive bureaucratic control, political
intervention, inappropriate technology, gross incompetence and mismanagement,
blatant corruption and crippling complacency which monopoly brings about.
So,
as it were, these short comings posed serious barrier to the growth and
development of our national economy. It was these and other reasons that gave
birth to the necessity for Privatization and Commercialization.
SPECIFIC REASONS FOR THE INEFFICIENCY IN OUR PUBLIC
ENTERPRISES.
By
way of highlight, the specific reasons which informed the inefficiency and
dissatisfaction in our previous Public Enterprises regime, which are also what
I shall now regard as the mischief the Act has come to cure are as follows:-
i.
Divorce of
ownership from management: Our Public Enterprises are always managed by people
who are different from the owner. These managers often do not pay maximum
attention to the success of the enterprises because they have little or nothing
at stake. This is perhaps why S. 5(3) of
Act now mandates staff of the Public Enterprises to be privatized to own
not less than 1% of the shares to be offered for sale to Nigerians. According
to the subsection:- “Not less than I
percent of the shares to be offered for sale to Nigerians shall be reserved for
the staff of the Public Enterprise to be privatized and the shares shall be
held in trust by the Public Enterprise for its employees”
According to the
Act,[17]
the percentage of equity share holding offered to the Nigerian Public after
Privatization is 20%. It means that only 1% of 20% of its employees. This I
think is too insignificant to actually challenge the employees to be committed
to the company’s success. This disadvantage has not yet been corrected by the
Act.
One would have
expected the Act to come close to S.251
of the Companies & Allied Matters Act 1990 which allows the Article of
Association of a company to state the share qualification of its directors.
ii.
Excessive
Government Intervention: Experience shows us that instability in government
leads to undue interferences with Government Enterprises. One regime comes
after the other and demands to make radical changes in existing corporations. A
case study is the sitting of the Ajaokuta Steel Industry.
iii.
Ineffective
Funding:
No enterprise, private or public, small or large can function without money.
Most of the time due to dwindling or unstable Government resource, these
enterprises are not efficiently funded. The country is littered with abandoned
projects. This gives rise to need for Commercialization and Privatization.
iv.
Fraud and
Corruption:
If
there is a fraud charge over a Public Enterprise, that enterprise is gone. Its
profit will not be accounted for. Its employees will not be paid. Capital
projects will not be embarked upon, and good and efficient staff will not be
employed. This constitutes a major reason for the Nigerian History of
inefficiency in public enterprises.
v.
Policy
Instability:
Like we pointed out before, political instability is an albatross to Public
Enterprising. Every new Government that comes into power has something new,
good or bad, for the company. Most of these changes affect the fundamentals of
the company. It is not always the best for it.
vi.
Poor Management: If the wrong
person, I mean a person with insufficient skill, technique or experience, is
employed to do a job that requires skill, technique, or experience, obviously
that job must be poorly done. In Nigeria, people are appointed to do some jobs
like managing a company not because they have the requisite skill, technique,
experience or qualification, but simply because they are related or connected
to the authorities. This is one of the problems in our Public Enterprises.
vii.
Lack of Accountability: This is a
fall-out of corruption and fraud. Most managers of Public Enterprises only seek
money for Public Enterprises only for their pocket and not what to do to move
the company forward.
viii.
Unconducive Work
Environment:
Every employee of an enterprise needs a conducive work environment to put in
his best. If the facility is not available, the work environment will not be
conducive. And this spells doom for the company. These and lots more constitute
reasons why our Public Enterprises have to be privatized and commercialized.
THE OBJECTIVES OF PRIVATIZATION AND
COMMERCIALISATION
Having
seen so far that our enterprises had been a heavy burden on Government purse
and that even at that, these enterprises neither made profits for the
Government nor efficiently provided goods and services to the satisfaction of
the citizens for whom they were established by the Government, the Act has
designed the Privatization and Commercialization Program in such a way as to
remedy these disadvantages and achieve the following objectives, that is to
say:
i.
To
restructure and rationalize the public sector in order to lessen the dominance
of unproductive Government investment in the sector.
ii.
To
re-orientate the enterprises for Privatization and Commercialization towards a
new horizon of performance, improvement and overall efficiency.
iii.
To
ensure that if lesser amount of money is spent on Public Enterprises due to
decreased Government participation therein, fund would be raised for financing
socio-economic developments in such areas as health, Education and
infrastructure which the people need even more.
iv.
To
ensure positive return on public sector investments in commercialized
enterprises through more efficient management.
v.
To
check the present absolute dependence on the treasury for funding otherwise
commercially oriented parastatals and so, encourage their approach to the
Nigeria Capital Market to meet their funding requirements.
vi.
To
encourage the approach of our Public Enterprises to Nigerian Capital market to
meet their funding requirement.
vii.
To
imitate the process of gradual cession to the private sector of all such Public
Enterprises which are better operated by the private sector .This will have the
effect of creating health competition between these enterprises previously owned
by the Government and those that have always been private. It will lead to
stable prices and steady supply of goods to the consuming masses.
viii.
Privatization
and Commercialization will create more jobs; these privatized and
commercialized enterprises will be challenged to acquire new technology and
skilled staff, and then expose Nigerians to international competition.
ix.
Commercialization
and Privatization will attract more national and international investors to the
country. This has become evident already in the telecommunication industry.
With the commencement of Privatization, over four major mobile
telecommunication companies have procured licenses and started operation in
Nigeria. They includes, the MTN Nigeria, Globacom, Etisalat, Aitel and other companies
like Rainbow net have procured licenses to operate landline telecommunication.
x.
Government
most times pursue Privatization and Commercialization programs in other to
reduce the size of existing government, based on the idea that many Governments
have become too large and over-extended, consisting of unnecessary layers of
bureaucracy. Therefore, many countries require restricting in other to improve
efficiency, which can be achieved through Privatization and Commercialization.
According
to the Guidelines on Privatization published by the National Council on
Privatization, are stated to be:
i.
To
move substantial ownership, control and operation of some key enterprises from
the public to the private sector.
ii.
To
attract the private investment necessary as a catalyst for economic growth,
creating a more efficiently operating economy.
iii.
To
stop the dependence of what should be commercially oriented parastatals on
state funding, in the hope that they would turn more to the nation’s capital
market for their financing needs; and
iv.
To
stimulate more employment, attract new technology to Nigeria and expose the
commercial operators in the country to greater competition[18].
STAFFS INVOLVEMENT IN PRIVATIZED AND COMMERCIALIZED
ENTERPRISES.
The
National Council on Privatization mandates the staffs of the enterprises to be
privatized and commercialized to own shares in them so as to enable them mange
the enterprises more efficiently.[19] The council took this step from the
Act[20]
which provides that staffs of enterprises should hold 1% of its shares. The
reason behind this provision is to ensure that the staffs are committed to the
success of the enterprises.
They
will have a laisser-faire attitude towards its success if they see that they
stand to lose nothing if they fail, but they will act with zeal towards its
success if they perceive that they have a reasonable stake there at.
This
has long been identified by Lindley J. who held in Re North Australian
Territory co, Archers case that
“it
is to give him personal interest in the affairs of the company and to induce
him to attend to them in a way very different from what it would be if he had
no interest at all”
Similarly,
Pennington[21]
submitted that the need for this requirement is: “to ensure that they (the
directors) have a material at stake in its (the company) success and will
devote their best endeavor in its service, if only to preserve the value of
their own investment”.
In
as much as the objective of this provision under discussion is commendable, I
do not consider that a 1% stake on a company will make any staff or director to
pay his maximum attention to its affairs.
So
I recommend that whenever the legislators shall find the opportunity to amend
the Act, there should be an upward review of staff shareholding in a privatized
or commercialized enterprise.
This
will invariably increase the degree of attention he pays and his extent of
commitment to the affairs and success of the company.
It
is further recommended that such companies should be mandated to incorporate in
their Memorandum or Article of Association a clause or clauses specifying the
share qualification of not only their directors but also their other officers
and staffs.[22]
ENTERPRISES TO BE PRIVATIZED AND COMMERCIALIZED
This
section contains a catalogue of enterprises to be privatized or commercialized.
Since Privatization and Commercialization means different things, I shall split
the section into two “A” for Privatization and “B” for Commercialization.
PRIVATIZATION
S.1
(1) of the Act provides that the enterprises listed in Part 1 of the first schedule of the Act shall be partially
privatized in accordance with the provisions of the Act. Enterprises under this
schedule cover those in the telecommunications sectors, Petroleum sectors,
Fertilizer manufacturing companies, Machine tools, Gas, Steel and Aluminum
sector, Mining and Solid mineral sector, Media companies, Insurance companies,
Transport(Aviation) companies.
The
schedule provides that in any Enterprise under the sector above, the maximum
strategic investor participation as percentage after Privatization shall be
40%.
The
maximum Federal Government participation as percentage after Privatization
shall be 40%. And the Nigerian individual participation shall be 20% after
Privatization.
The
Act therefore lists the following enterprises,
(1)
Nigerian Tele Communication PLC,
(2)
Nigerian Mobile Tele Communication
LTD
(3)
National Electric Power Authority
(4)
Port-Harcourt Refineries 1&2
(5)
Kaduna Refinery and Petrol-Chemicals
(6)
Warri Refinery &
Petrol-Chemicals
(7)
Eleme Petrol Chemicals Co. Ltd
(8)
Pipeline Product and Marketing Co.
Ltd
(9)
Nigerian Petroleum Development Co.
Ltd
(10)
Federal
Super phosphate Fertilizer Co. Ltd
(11)
National
Fertilizer Co. Ltd
(12)
Nigerian
Machine Tools Co. Ltd
(13)
Nigerian
Gas Co. Ltd
(14)
Jos
Steel Rolling Mill Co. Ltd
(15)
Kaduna
Steel Rolling Co. Ltd
(16)
Oshogbo
Steel Rolling Co. Ltd
(17)
Ajaokita
Steel Co. Ltd
(18)
Delta
Steel Co. Ltd
(19)
Aluminum
Smelter Co. Ltd
(20)
Nigerian
Coal Corporation and Subsidiaries
(21)
Nigerian
Mining Corporation and Subsidiaries
(22)
Nigerian
Uranium Co. Ltd
(23)
Nigerian
Iron Ore Mining Co. Ltd
(24)
Daily
Times of Nigerian PLC & Subsidiaries
(25)
New
Nigerian News Paper Ltd
(26)
Nicon
Insurance Co. PLC
(27)
Nigerian
Reinsurance PLC
(28)
Federal
Air Port Authority of Nigeria
(29)
Nigerian
Dock Ltd
(30)
Nigerian
Airways Authority
(31)
Nigerian
New Print Manufacturing Co. Ltd Oku Ibokun
(32)
Nigerian
National Paper Manufacturing Co. Ltd
(33)
Nigerian
Paper Mills
(34)
Sunti
Sugar Co. Ltd
(35)
Lafia
Sugar Company Bacita
On the other hand, S. (2) of the Act provides that all the
enterprises listed in part 11 of the
first schedule of the Act shall be fully privatized. Enterprises covered in
the list are those of infrastructure and utility companies such as cement
companies, commercial and merchant banks, Agro-allied sector, Motor Vehicles
and Truck Assembly Companies and Hotels. Before the Privatization Program,
Government participation in these companies ranges from 10% it held in Nigerian
Cement company Limited Nkalagu to the 100% Government ownership in FESTAC 77
Plc.
The
Schedule one provides that after Privatization, Government ownership of and
participation in these enterprises shall come to nil. Only strategic investors
and Nigerian individuals shall own and participate in them. The following is a
list of Commercialized Enterprises.
(1)
Unipetrol PLC
(2)
Nigerian Oil and Chemical Company
Ltd
(3)
African Petroleum Plc
(4)
Ashaka Cement Co. Plc
(5)
Benue Cement Co. Plc
(6)
Northern Nigerian Cement Co. Plc
(7)
Nigerian Cement Co. Ltd Nkalagu
(8)
Calabar Cement Co. Ltd
(9)
West African Portland Cement Plc
(10)
Afri
Bank Nigerian Plc
(11)
Assurance
Bank Plc
(12)
FSB
International Bank Plc
(13)
International
Merchant Bank Plc
(14)
NAL
Merchant Bank Plc
(15)
AYI-Eko
Oil Palm Co. Plc
(16)
Opobo
Boat Yard
(17)
Nigerian
Romania Wood Industries Ltd
(18)
Anambra
Motor Manufacturing Co. Ltd
(19)
Peugeot
Auto Mobile of Nigeria Ltd
(20)
Volkswagen
Nigerian Ltd
(21)
Leyland
Nigerian Ltd
(22)
Nigerian
Truck Manufacturing Co. Ltd
(23)
Steyr
Nigerian Ltd
(24)
Nigerian
Hotels Ltd and
(25)
Festac
77 Plc.
The
Council established by the Act is employed to alter, add, delete or amend these
lists from time to time by order published in Gazette[23].
MODE OF PRIVATIZATION
Subject
to the Provisions of S. 1(1) (F) (which
empowers the council to determine whether the shares of a listed Public
Enterprise should be by public or private issue…) an offer for the sale of the
shares of a Public Enterprise shall be by public issue or private placement as
the case may be[24].
S.4 provides that a private
enterprise is required to be managed by the strategic investors as from the
effective date of the Privatization on such terms and conditions as may be
agreed upon.
COMMERCIALIZATION
S. 6 (1) of the Act provides that
the enterprises listed in part 1 of the second
schedule to the Act shall be partially commercialized in accordance with
the provision of the Act.
The enterprises
covered in this schedule are:
1.
Nigerian
Railway Corporation
2.
Cross
River Basin Development Authority
3.
Hadejia-Jamaare
River Basin Development Authority
4.
Niger
River Basin Development Authority
5.
Lower
Benue River Development Authority
6.
Ogun-Osun
River Development Authority
7.
Upper
Benue River Development Authority
8.
Sokoto-Rima
River Basin Development Authority
9.
Anambra
–Imo River Basin Development Authority
10.
Benin-Owena
River Basin Development Authority
11.
Chad
River Basin Development Authority
12.
Kainji
Lake National Park
13.
Federal
Radio Corporation of Nigeria
14.
Nigerian
Television Authority
15.
News
Agency of Nigeria
16.
Nigerian
Film Corporation
17.
Nigerian
Postal Service
18.
Old
Oyo National Park
19.
Gashaka
Gumi National Park
20.
Chad
Basin National Park.
21.
Yankari
National Park.
22.
Cross
River National Park.
23.
Niger
Delta Basin Authority.
24.
Niger
Delta Development Authority.
S. 6 [2] of the Act on the other
hand, says that all the Enterprises listed in part 11 of the 2nd schedule to the Act shall be fully commercialized. The following
are in the list:
1.
Nigerian
National Petroleum Corporation
2.
Tafawa
Balewa Square Management committee.
3.
Nigeria
Ports Authority
4.
Federal
Mortgage Bank of Nigeria
5.
Nigerian
Industrial Development Bank LTD [NIDB]
6.
Nigerian
Bank for Commerce and Industry LTD
7.
Federal
Mortgage Finance Co. LTD.
8.
Federal
Housing Authority
9.
Nigerian
Social Insurance Trust Fund
The
council may from time to time by order published in the Gazette amend the second schedule to this Act[25]
so as to alter the category to which any Enterprise listed in that schedule
shall be classified. It is worthy of note that a Commercialized Enterprise
shall operate as a purely Commercial Enterprise and may subject to the general
regulatory power of the Government of the federation.
a.
Fix
the rates, prices and charges for its goods and services
b.
Capitalize
its assets
c.
Borrow
money and issue debenture stocks
d.
Sue
and be sued in its corporate name.
The
Public Enterprise (Privatization and Commercialization) Act Cap p. 38 LFN 2004
does not only make a catalogue enterprises to be commercialized, it goes
further to map out strategies meant to enhance the achievement of its
objectives under the scheme. This section is an exposition of these strategies
and other mechanism of enforcement.
Basic
among those strategies is the establishment of the National Council on
Privatization and Commercialization of the Bureau for Public Enterprises. The
Establishment, tenure of office, functions and power of the council and the
bureau are what I shall discuss in the next section.
[1]
Pius okigbo; op. cit. at p.35
[2]
Thus, public health and sanitation measures yield benefits to the community
generally.
[3]
Cap 38 LFN, 2004.
[4] No
35 of 1996.
[5]
5.836 of the Public Enterprise Act No 35, 1996
[6] 1st
schedule, Public Enterprises [Privatization and Commercialization] Act Cap 38
LFN, 2004.
[7]
amupitan J private placement method of privatization in Nigeria, in new vista
in law, vol2, 2002 pp 343-356
[8]
Federal Republic of Nigeria, report of the presidential commission on
parastatals, Lagos, Federal Government press, 1981, P.63.
[9]
Ake [1981]
[10]
cc. s. okeke Textbook on Economics 1st edition p.112
[11]
E.g; security, justice, education and health care.
[12]
See Pius Okigbo, A layman’s guide to privatization; modus international laws
and business quarterly vol2, No3, September, 1997 at P.35.
[13]
Seyni N’diaye; op. cit. at p. 19.
[14]
Through harmonization of rules and procedures, free circulation of goods,
people and capital and the elimination of customs barriers.
[15]
As decree No.29 of 1999
[16]
Statement of the president on the occasion of the inauguration of the national
council on privatization.
[17]
First schedule part 1 Cap 38,2004
[18]
Timi Austen-Peters, core investors vis-Ã -vis minor investors and Nigeria’s
privatization exercise, modus international law and business quarterly Vol.6 No
1, march, 2001 at p.34.
[19] The privatization handbook of the National
Council on Privatization 2nd Ed 200 P.43
[20] Public Enterprises (Privatization and
Commercialization) Act Cap 38 LFN 2004. S.5(3)
[21]
Pennington’s Company law, pennington R, 7th Ed.P.499
[22]
S.251 CAMA,199S
[23]
S.1(3) Public Enterprises (Privatization and Commercialization) Act Cap 38 LFN
2004
[24]
S. 2 (1) Public Enterprises (Privatization & Commercialization) Act Cap P.
38 L.G.N 2004
[25] S.6[3] Public Enterprises
[Privatization and Commercialization] Act Cap P. 38 LFN 2004
[1]
Pius okigbo; op. cit. at p.35
[2]
Thus, public health and sanitation measures yield benefits to the community
generally.
[3]
Cap 38 LFN, 2004.
[4] No
35 of 1996.
[5]
5.836 of the Public Enterprise Act No 35, 1996
[6] 1st
schedule, Public Enterprises [Privatization and Commercialization] Act Cap 38
LFN, 2004.
[7]
amupitan J private placement method of privatization in Nigeria, in new vista
in law, vol2, 2002 pp 343-356
[8]
Federal Republic of Nigeria, report of the presidential commission on
parastatals, Lagos, Federal Government press, 1981, P.63.
[9]
Ake [1981]
[10]
cc. s. okeke Textbook on Economics 1st edition p.112
[11]
E.g; security, justice, education and health care.
[12]
See Pius Okigbo, A layman’s guide to privatization; modus international laws
and business quarterly vol2, No3, September, 1997 at P.35.
[13]
Seyni N’diaye; op. cit. at p. 19.
[14]
Through harmonization of rules and procedures, free circulation of goods,
people and capital and the elimination of customs barriers.
[15]
As decree No.29 of 1999
[16]
Statement of the president on the occasion of the inauguration of the national
council on privatization.
[17]
First schedule part 1 Cap 38,2004
[18]
Timi Austen-Peters, core investors vis-Ã -vis minor investors and Nigeria’s
privatization exercise, modus international law and business quarterly Vol.6 No
1, march, 2001 at p.34.
[19] The privatization handbook of the National
Council on Privatization 2nd Ed 200 P.43
[20] Public Enterprises (Privatization and
Commercialization) Act Cap 38 LFN 2004. S.5(3)
[21]
Pennington’s Company law, pennington R, 7th Ed.P.499
[22]
S.251 CAMA,199S
[23]
S.1(3) Public Enterprises (Privatization and Commercialization) Act Cap 38 LFN
2004
[24]
S. 2 (1) Public Enterprises (Privatization & Commercialization) Act Cap P.
38 L.G.N 2004
[25] S.6[3] Public Enterprises
[Privatization and Commercialization] Act Cap P. 38 LFN 2004