PRIVATIZATION AND COMMERCIALIZATION: CONCEPTUAL CLARIFICATIONS

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 hats^3.

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 casethat

“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 2^nd 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] 1^st 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 1^st 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-à-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 2^nd 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, 7^th 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