OLANIWUN AJAYI: Again FGN Resorts to Privatisation to Improve Liquidity

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Recently, the Federal Government of Nigeria FGN has demonstrated its preference for the adoption of privatisation as a way of managing its economic responsibilities to its citizens. With dwindling crude oil revenues and the ever increasing costs of governance, the Federal Government has again resorted to privatisation as a means of improving liquidity, reducing operating costs and improving the operational efficiency of certain government assets given the depth of resources and higher levels of expertise that is abound in the private sector. This was contained in its March Bulletin of a commercial law firm in Nigeria, Olaniwun Ajayi.

According to the law firm, the FGN intends to use the proceeds realized from the disposal of these assets to fund the 2021 budget. The assets cut across energy, industries, communications and infrastructure, and will be disposed of using different sale strategies. Some of the assets will be privatised using a ‘core investor sale’, which involves a sale of at least 51 of the shares of an entity while others will be privatised of by way of asset sales or more temporary arrangements such as commercialisation and concession.

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Available reports in the public domain have it that the assets for privatisation, commercialisation or outright sale are; the Yola Electricity Distribution Company, Mineral House, Lagos, Geregu Power, Zungeru Hydro Power Plant and Transmission Company of Nigeria (TCN). Other assets are Geregu II, Calabar II and Omotosho II power plants, the Kaduna, Warri, and Port-Harcourt refineries, Nigerian Postal Service (NIPOST), Nigerian Film Corporation, Abuja Environmental Protection Board (AEPB), Abuja Water Board, International Conference Centre, Abuja and River Basin Development Authority. In addition, the Tafawa Balewa Square, Lagos International Trade Fair Complex, Federal Mortgage Bank of Nigeria, Federal Housing Authority, Bank of Agriculture and the Nigeria Commodity Exchange.

However, none of the reports provide any exact or estimated figures as to the total sum of money the government expects to raise from the privatisation exercise. However, it is reported that in addition to the funds to be raised from the sale of the government assets, the FGN intends to also borrow $14.69 billion from local and international lenders. In the country’s 2021 budget, a statutory transfer of $1.3 billion and $8.65 billion was approved for debt servicing. From the foregoing, it is clear that the funds raised from the privatisation exercise will be used to shore up the country’s finances and keep the national debt at sustainable levels. It was stated.

The firm also emphasised that a number of the assets listed have been subjects of previous partial or total privatisation efforts in Nigeria, including the National Integrated Power Projects (NIPP) assets, which were subject of significant investor interest but was ultimately unsuccessful due to a number of technical issues. Also, Yola Electricity Distribution Company, was successfully privatised by the federal government in 2013 but the transaction was subsequently unwound, when the private sector investor exercised its ‘put option’ in respect of the shares acquired – on account of insecurity and related issues in the company’s coverage areas. For some of the others, it will be interesting to see the deal structure and terms that the federal government takes to the market in a bid to draw investors.

For instance, with assets such as the refineries, the changing competitive landscape will certainly make potential deals quite interesting. In particular, sector observers will be keen to see how the Dangote Refinery (due to come on-stream in 2022) and the proposed BUA Refinery (due to begin commercial operation in 2024), as well as the various modular refineries which the Department of Petroleum Resources (DPR) seems to be encouraging, will impact investor appetite for the assets.

The firm further affirmed that, it will also be interesting to see how the proposed concession of the Transmission Company of Nigeria’s assets will be undertaken, in view of the proposed establishment of an independent system operator (as distinct from the market operator, both functions currently undertaken by TCN), and bearing in mind the various issues with the now terminated operation and management arrangement with Manitoba Hydro.

Furthermore, as it relates to the assets slated for restructuring and/or recapitalisation (such as the Federal Mortgage Bank, Federal Housing Authority, and Bank of Agriculture), the law firm asserts that it is unclear what specific mechanisms the government intends to deploy to implement them. In view of some of the challenges with previous privatisation efforts in Nigeria, the law firm stated that it remains to be seen how this process will be implemented by the federal government.

For potential investors, it will be important to pay particular attention to the diligence, structuring and documentation aspects of the process for any deal – and perhaps, given the federal government’s apparent keenness to execute this process successfully. There may be more flexibility from the government, and scope for investors to propose some more creative solutions to challenges that may arise.

Ultimately, it was established in the bulletin that it will be critical to engage skilled and experienced advisers and partners to assist with navigating the complex and challenging, but ultimately rewarding, Nigerian market.

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