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Guidelines on Privatisation and Commercialisation
1. Introduction
The then Head
of State, Commander in Chief of the Armed Forces of the Federal Republic
of Nigeria, His Excellency, General Abdulsalami Alhaji Abubakar,
announced in his national broadcast on July 20, 1998 that Government
would privatise its investments in Telecommunications, Electricity,
Petroleum refineries, Petrochemicals, Coal and bitumen production, and
Tourism, in addition to spill-overs from the first phase of
privatisation. Under the programme, Government will retain 40% of the
equities of the affected enterprises whilst 40% will be alienated to
strategic investors with the right technical, financial and management
capabilities. The remaining 20% will be sold to the Nigerian public
through the Stock Exchange.
1.2 President Olusegun Obasanjo in
his Presidential order to the Vice President of the Federal Republic of
Nigeria dated 6th July 1999, directed that as the first step in the
phased implementation of the administration's privatisation programme,
action was to be initiated to enable the sale of shares listed on the
Lagos Stock Exchange and owned by the Federal Government and its
agencies in:-
- Commercial and Merchant Banks
- Cement Plants
- Petroleum Marketing Companies
The sales are to be completed by
December, 1999 and Core Investors are to be encouraged to buy into any
of the privatised enterprises which will be paid in foreign currencies.
1.3 The second phase will consist
of hotels and vehicles assembly plants, amongst others.
1.4 The third phase will involve
work on the companies currently being prepared for privatisation or
currently being audited, including NEPA, NITEL, NAFCON, Nigeria Airways,
Refineries, etc.
2.
Objectives of the Privatisation and Commercialisation Programme
The
objectives of the Privatisation and Commercialisation programme are:
i) to restructure and rationalise
the public sector in order to lessen the dominance of unproductive
investments in the sector;
ii) to re-orientate the
enterprises for privatisation and commercialisation towards a new
horizon of performance improvement, viability and over all efficiency;
iii) to raise funds for financing
socio-economic developments in such areas as health, education and
infrastructure;
iv) to ensure positive returns on
public sector investments in commercialised enterprises, through more
efficient management;
v) to check the present absolute
dependence on the Treasury for funding by otherwise commercially
oriented parastatals and so, encourage their approach to the Nigerian
Capital Market to meet their funding requirements;
vi) to initiate the process of
gradual cession to the private sector of such public enterprises which
are better operated by the private sector;
vii) to create more jobs, acquire
new knowledge and Technology and expose the country to international
competition.
3.
Legal Framework
The legal
framework, for the programme is the Public Enterprises (Privatisation
and Commercialistion) Act of 1999. It was promulgated by the previous
administration.
4.
Establishment and Functions of the National Council on Privatisation
The
establishment and functions of the National Council on Privatisation as
provided for in Sections 9(11) of the Privatisation Act are as follows:-
(1) There is hereby established
the National Council on Privatisation (in this Act referred to as
"the Council").
(2) The Council consists of:-
a) the Vice President, as
Chairman;
b) the Minister of Finance, as
Vice Chairman;
c) the Attorney-General of the
Federation and Minister of Justice;
d) the Minister of Industries;
e) the Secretary to the Government
of the Federation;
f) the Governor of the Central
Bank of Nigeria;
g) the Chief Economic Adviser to
the President;
h) four other members to be
appointed by the President; and
i) the Director-General of the
Bureau of Public Enterprises.
(3) Notwithstanding the provisions
of subsection (2) of this section, the Council may co-opt the
supervising Minister of an affected public enterprise to attend relevant
meetings of the Council.
B-Functions and Powers of the Council
(11) The
functions and powers of the Council are to:-
(a) determine the political,
economic and social objectives of privatisation and commercialisation of
public enterprises;
(b) approve policies on
privatisation and commercialisation;
(c) approve guidelines and
criteria for valuation of public enterprises for privatisation and
choice of strategic investors;
(d) approve public enterprises to
be privatised or commercialised;
(e) approve the legal and
regulatory framework for the public enterprises to be privatised;
(f) determine whether the shares
of a listed public enterprise should be by public or private issue or
otherwise and advise the Government of the Federation, accordingly;
(g) determine the time and when a
public enterprise is to be privatised;
(h) approve the prices for shares
or assets of public enterprises to be offered for sale;
(i) review, from time to time, the
socio-economic effects of the programme of privatisation and
commercialisation and decide on appropriate remedies;
(j) approve the appointment of
privatisation advisers and consultants and their remuneration;
(k) appoint as and when necessary
committees comprising persons from private and public sectors with
requisite technical competence to advise on the privatisation or
commercialisation of specific public enterprises;
(l) approve the budget of the
Council;
(m) approve the budget of the
Bureau;
(n) supervise the activities of
the Bureau and issue direction on the implementation of the
privatisation and commercialisation programme;
(o) receive and consider, for
approval, the audited accounts of the Bureau;
(p) submit to the President of the
Federal Republic of Nigeria, in each year a report on the activities of
the Council and the Bureau;
(q) receive regular and periodic
reports from the Bureau on programme implementation and give appropriate
directions; and
(r) perform such other functions
as may, from time to time be necessary to achieve its objectives.
5.
Functions of the Bureau
The functions
of the Bureau are as provided for in sections 13 - 16 of the
Privatisation Act:-
(13) The functions of the Bureau
with respect to privatisation are to:-
(a) implement the Council's policy
on privatisation;
(b) prepare public enterprises
approved by the Council for privatisation;
(c) advise the Council on further
public enterprises that may be privatised;
(d) advise the Council on the
capital restructuring needs of the public enterprises to be privatised;
(e) carry out all activities
required for the successful issue of shares and sale of assets of the
public enterprises to be privatised;
(f) make recommendations to the
Council on the appointment of consultants, advisers, investment bankers,
issuing houses, stockbrokers, solicitors, trustees, accountants and
other professionals required for the purposes of privatisation;
(g) advise the Council on the
allotment pattern for the sale of the shares of the public enterprises
set out for privatisation;
(h) oversee the actual sale of
shares of the public enterprises to be privatised, by the issuing
houses, in accordance with the guidelines approved, from time to time,
by the Council;
(i) ensure the success of the
privatisation exercise taking into account the need for balance and
meaningful participation by Nigerians and foreigners in accordance with
the relevant laws of Nigeria; and
(j) perform such functions with
respect to privatisation as the Council may, from time to time, assign
to it.
(14) The functions of the Bureau
in respect of Commercialisation;
(a) implement the Council's policy
on commercialisation;
(b) prepare public enterprises
approved by Council for commercialisation;
(c) advise the Council on further
public enterprises that may be commercialised;
(d) ensure the updating of the
accounts of all commercialised enterprises to ensure financial
discipline;
(e) ensure the success of the
commercialisation exercise and monitor, on a continuous basis for such
period as may be considered necessary, for the operations of the public
enterprises after commercialisation;
(f) review the objectives for
which public enterprises were established in order to ensure that they
adapt to the changing needs of the economy;
(g) ensure that public enterprises
are managed in accordance with sound commercial principles and prudent
financial practices;
(h) interface with the public
enterprises, together with the supervising Ministries, in order to
ensure effective monitoring and safeguarding of the public enterprises'
managerial autonomy;
(i) ensure that the Board and
Management of each commercialised enterprise and the Government of the
Federation, keep to the terms and conditions of the Performance
Agreements, if any, between the public enterprise concerned and the
Government of the Federation;
(j) maintain and review on a
continuous basis, any Performance Agreement between a public enterprise
and the Government of Federation;
(k) evaluate and recommend to the
Council whether or not a public enterprise is eligible for funding
through grants, loans, subventions or equity; and
(l) perform such functions with
respect to commercialisation as the Council may, from time to time,
assign to it.
(15) The Bureau shall:-
(a) provide
secretariat support to the Council; and
(b) carry out such other duties
and responsibilities as may be assigned to it from time to time by the
Council.
(16) The
Bureau shall, subject to the overall supervision of the
Council, have powers to:-
(a) acquire, hold and manage
movable and immovable property;
(b) enter into contracts or
partnerships with any company, firm or person which in its opinion will
facilitate the discharge of its functions;
(c) request for and obtain from
any public enterprise statistical and other information including
reports, memoranda and audited accounts and other information relevant
to its functions under this Act; and
(d) liaise with relevant bodies or
institutions locally or overseas for effective performance of its
functions under this Act.
6.
Definitions
For the
purpose of this programme the following definitions will be used:
(a) Full Privatisation
Means divestment by the Federal
Government of all its ordinary shareholding in the designated
enterprise.
(b) Partial
Privatisation
Means divestment by the Federal
Government of part of its ordinary shareholding in the designated
enterprise.
(c) Full
Commercialisation
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 businesses.
(d) Partial
Commercialisation
Means that such enterprises so
designated will be expected to generate enough revenue to cover their
operating expenditures. The government may consider giving them capital
grants to finance their capital projects.
7. In both full and partial commercialisation no divestment of the
Federal Government's shareholding will be involved, and subject to the
general regulatory powers of the Federal Government the enterprises
shall:-
(i) Fix rate,
prices and charges for goods produced and services rendered;
(ii) Capitalise assets; and
(iii) Sue and be sued in their
corporate names.
8.
Implementation Arrangements
(a) Technical/Financial
Advisers
World class advisers comprising
investment banks, lawyers and other consulting firms shall be engaged to
undertake strategic review, restructuring and sale preparation in
respect of affected enterprises, based on an approved terms of
reference. However, only consultants that are registered by the Bureau
of Public Enterprises will be eligible for consideration.
(b) Committees and Sub
Committees
The National Council on
Privatisation (NCP) in accordance with the provisions of the Public
Enterprises (Privatisation and Commercialisation) Act of 1999 will from
time to time appoint committees and sub-committees comprising
knowledgeable individuals to tackle some of the preparatory works
necessary at enterprise level in order to ensure a speedy and smooth
privatisation/commercialisation exercise.
(c) Floatation Advisers
Public offer of shares through the
Stock Exchange will be the dominant method of privatisation to be used
in the sale of the 20% equity reserved for Nigerian investors under the
programme. In order to handle the floatation of the shares of affected
enterprises on the Stock Exchange, the National Council on
Privatisation (NCP) shall appoint professional advisers, in accordance
with powers conferred on it to do so by Section 13 (c) of the Public
Enterprises (Privatisation and Commericialisation) Act of 1999. The most
important professional advisers in each case are:-
i) The
Issuing House
ii) The Solicitor to the Issue
iii) The Reporting Accountant
iv) The Stockbroker to the Issue
v) Asset Valuers
These
professional advisers are responsible for gathering, analysing and
reporting on the operations of the affected enterprise, in such a way as
to enlighten the prospective investor on the activities of the
enterprise to be privatised and whose shares are being sold. The
responsibilities of these advisers are described briefly hereunder:-
(i) Issuing House
-
Preparation of information memorandum, prospectus, application to the
Securities and Exchange Commission (SEC) for the offer price and the
Stock Exchange for listing;
- Sale of shares and receiving
subscription funds;
- Preparation of the basis of
allotment;
- Representing the BPE and the
company before SEC and the Stock Exchange;
- Co-ordination of all-parties
meetings culminating in the Completion Board Meeting.
(ii) Reporting
Accountant
The Accountants are responsible
for providing accounting data and calculations for forecasts of the
Company's future profits. In expressing his opinion on forecasts, the
Reporting Accountant must consider the following:-
-
The general character and recent history of the company's business with
particular reference to its main products, markets, customers,
suppliers, labour force and trend of results.
- The accounting policies normally
adopted in preparing the Company's Annual Accounts and the fact that
those have been consistently applied in the preparation of profit
forecasts.
- Whether or not the preparation
of the forecast was consistent with the economic, commercial, marketing
and financial assumptions which the Directors have stated to be the
underlying bases.
- The Company's general procedures
in the preparation of forecast. In particular, the accountant would
ascertain whether forecasts are regularly prepared for management
purposes and if so, the degree of accuracy and reliability normally
achieved. He would also wish to discover the extent to which the
forecast results of the expired period are supported by reliable interim
accounts; and how the forecasts take account of any material exceptional
items;
- Matters of general interest
including the adequacy of provisions made for foreseable losses and
contingencies, and the adequacy of working capital as indicated by
properly prepared cash-flow forecasts.
All these are done to ensure that
ultimately, the new shareholders would be buying a good product.
(iii) Solicitors
to the Issue
The
Solicitor is expected to primarily advise on compliance with the law at
every stage of the exercise. He is expected to:-
- Examine the Company's Memorandum
and Articles of Association to ensure that those provisions which are
considered unnecessary in a public limited liability company are
deleted.
- Cause all the necessary
resolutions for the different stages of the floatation e.g.
restructuring of capital, creation of new shares etc., to be passed.
- Registration of all documents
and resolutions with the Corporate Affairs Commission and other
Regulatory agencies.
- Following up verifications with
the Land Registry etc., on the title deeds held by the company.
- Preparation of Management
Agreements, Sale and Purchase Agreements, Shareholders' Agreement etc.,
where necessary or reviewing same to ensure that the interest of the
company and country are safeguarded.
- Take such actions as are
considered necessary in a public floatation in accordance with the law.
(iv) The
Stockbrokers to the Issue
The
principal role of the Stockbroker is to introduce the Securities on the
trading floor of the Stock Exchange. Technically, shares of a publicly
quoted Company can only be traded on the floor of the Stock Exchange.
(ii) Asset
Valuers
Asset
Valuers undertake the professional valuation of the assets of the
affected enterprises to provide a guide on the current replacement value
of the Company.
9.
Marketing of Shares of Enterprises Designated for privatisation
9.1 In order
to ensure effective coverage of the country, the following arrangements
will apply:-
(a) Availability of
Application Forms:-
The maximum possible number of
people would be given the opportunity to apply for the shares of
privatised public enterprises. Therefore, application forms will be
printed in sufficient quantities and distributed to all local government
areas in the country.
Abridged prospectus outlining the
main features of the offer will be published in national newspapers.
(b) Minimum
Application
In order to ensure widespread
ownership of shares amongst the different classes in the society, the
minimum application for general allotment of shares shall be 100 shares
of 50k each. In this way low income earners and even students will be
able to participate in the privatisation exercise.
(c) Distribution
of Application Forms
Application forms will be
distributed through the branch network of the banking system,
stockbrokers, local government offices, State Investment companies, Post
Offices, Offices of Chambers of Commerce and Industy across the
country, State Ministries of Commerce and Industries, Nigerian Missions
abroad. Distribution of application forms to receiving agents will be
programmed to commence about one week before the opening of application
list to prevent late arrival of forms.
9.2 Applicable Prices
The application prices of shares
will be as determined by the National Council on Privatisation on the
recommendations of the Bureau of Public Enterprises.
9.3
In line with the Privatisation Act, shares will be made available for
participation by all interested investors subject to strict conformity
with the following guidelines:-
(a) Multiple applications will not
be allowed.
(b) Share of privatised
enterprises are to be allotted equally between Federal Constituencies.
Only residents of the Constituencies are expected to buy such shares.
(c) Fictitious names used in
applications will be rejected.
(d) Only Nigerian citizens aged 18
and above are eligible.
9.4 Funding of Share
Purchase
Government will provide the
enabling environment to facilitate access to capital credit for purchase
of shares by the general public. Employers of Labour in both the public
and private sectors are urged to extend financial assistance to their
employees to enable them purchase shares in privatised enterprises.
Commercial Banks in the country are enjoined to extend credit to their
adjudged customers against the security of share certificates to be
issued. In this way even those who do not have savings will be able to
participate in the programme.
10.
Debt conversion programme and privatisation
Participation
is open to owners of converted debts subject to allotment principles
guiding the privatisation programme.
11. COMMUNICATIONS
A co-ordinated
and integrated communications programme has been developed to ensure
that the concept of privatisation, the processes adopted and the
affected enterprises are marketed in such a way that all stakeholders
participate effectively in the programme. This is with a view to
building a better Nigerian society for the optimisation of the economic
resources. Extra effort will be made to mobilise and sensitise the
grassroots.
12.
Allotment of Shares
12.1
Allotment of shares in privatised enterprises will generally be guided
by government policy of "wide geographical spread of
ownership". All share allotments will be published in national
newspapers. The shares on offer to Nigerians would be sold on the basis
of equality of Federal Constituencies.
12.2 Staff Participation
A minimum of not less than 1% of
total shares on offer shall be reserved for the staff of any privatised
enterprise.
12.3 Limitation on Individual
Shareholding
No individual shall be allowed to
acquire more than 1% equity in any enterprise whose shares are offered
for sale under this programme and where applicants resort to multiple
applications, these will be rejected outright or cancelled if
subsequently discovered. In the event they will be refunded their
application money only.
12.4 General Allotment
The shares on offer to Nigerians
shall be sold on the basis of the equality of Federal Constituencies and
of the residents of the Federal Capital Territory, Abuja.
13.
Strategic Investors/Core-Groups
13.1 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 investment, the
enterprise is unhealthy. The major characteristics that distinguish
strategic/core group investors are:-
(a) They must posses the technical
know-how in relation to the activities of the enterprises they wish to
invest in. For example, a Core Investor into a Cement Company must have
access to cement production expertise with regards to optimal use of the
machinery, maintenance of such machinery and other technical aspects of
Cement Production such as procurement of raw materials, etc.
(b) The Core Investors must also
posses the financial muscle, not only to pay competitive price for the
enterprise 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.
(c) The Core Investor must have
the management know-how to run a business profitably in a competitive
environment where market forces dictate the business environment.
13.2 Given the magnitude of
investment level in the utilities earmarked for privatisation, the lack
of absorptive capacity of the Nigerian Capital Market, our low
technological level among other reasons, it is quite obvious that there
is need to utilise the services of core investors in the new
dispensation.
13.3 In consonance with S(4) of
the Privatisation Act, privatised enterprise which requires
participation by Strategic Investors may be managed by the Strategic
Investors as from the effective date of privatisation on such terms and
conditions as may be agreed upon.
14.
Procedures for identifying strategic/core investors
14.1 There is
need to employ the services of World Class investment banks, lawyers and
other consultants (as privatisation advisers) in the identification and
selection of Core Investors. The starting point in the identification of
strategic/Core Investors is to place advertisements in Local and
International Journals and Magazines inviting strategic investors to
submit their expressions of interest to invest in the specified public
enterprises. They are then supplied with copies of laws and regulations
on privatisation of the country and an information memorandum on the
affected enterprise. At the same time, they are given a specific period
within which to undertake due diligence studies on the subject
enterprise and submit economic bids to the implementation agency for
evaluation. After submission of their bids interviews would be held with
the parties concerned to discuss their bid contents and the National
Council on Privatisation will select the Core Investors.
14.2 The Council intends to use
the Technical and Financial Advisers (Privatisation Advisers) as the
leading light in the identification and assessment of Core Investors.
Such advisers know fairly intimately who are the major actors in the
different industries and almost invariably they would have dealt with
them elsewhere in the world. A Committee of the Council, supported by
the Advisers will pre-qualify and later interview those adjudged
suitable for further negotiations culminating in recommendations to be
made to the Council for ultimate appointment as the Strategic/Core
Investor to acquire up to 40% of the equity capital of the affected
enterprise. Management and Shareholders Agreements will be signed to
protect the enterprise from undue interference in routine business
decisions by ministry officials post privatisation.
14.3 The critical areas of
interest in negotiations with the potential strategic/core investors
are:-
(a) The
price to be paid for the 40% equity to be acquired.
(b) The terms of payment.
(c) The role of the Strategic/Core
Investor in the future management of the public enterprise being
privatised.
(d) The level of participation by
Nigerian managers and technology transfer.
(e) The future development of the
public enterprise as perceived by the Strategic/Core Investor.
(f) The funding arrangements for
rehabilitation expansion or diversification of the enterprise post-privatisation.
(g) Staff welfare, retraining and
development.
14.4 The
entire process of identifying Strategic/Core Investors will be open and
transparent.
15.
Timing Of implementation
15.1 The
Council will draw up a detailed implementation time table covering the
entire list of enterprises to be privatised and prioritise the pace of
implementation. In the first batch, all those enterprises already listed
on the Stock Exchange will be privatised subject to the absorptive
capacity of the capital market. The other phases will be implemented as
outlined by Mr. President.
15.2 In respect of the 20% equity
reserved for Nigerian investors in NITEL, NEPA, NAFCON and others,
adequate time will be given to the Strategic investors to settle down
and add value to these organisations before arrangements are made to
offer the shares of the affected enterprises to the general investing
public through the Stock Exchange. This may take anything between two to
three years. It is also quite clear that due to the size of the offering
it would be necessary to stagger such offerings in tranches to accord
with the absorptive capacity of the Nigerian Capital Market.
16.
Issue of share certificates
Share
Certificates shall be issued within the usual time specified by
applicable regulations to enable successful allotees to exercise their
ownership rights in the affected enterprises. However, the Council in
collaboration with the SEC and the Stock Exchange will together
institute measures designed to outlaw nominal transfers post-privatisation,
so as to prevent irregular accumulation of privatised shares.
17.
Accounting to government in respect of completed privatisation
All proceeds
from completed sales shall be paid into the Consolidated Revenue Fund
and Federal Government will decided on the use of such funds. This will
include the use of the funds for productive investment and for the
improvement of education, agriculture, health and the settlement of
Nigeria's External Debts.
18.
For further information please contact:-
Director-General
Bureau of Public Enterprises
NDIC Building (First Floor)
Plot 447/448 Constitution Avenue
Central Business District
P. M. B. 442, Garki
Abuja, Nigeria.
Tel: 09-5237396-7, 6034005
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