NIGERIA Time for new expectations NATIONAL COUNCIL ON PRIVATIZATION Secretariat: BUREAU of PUBLIC ENTERPRISES Interview with: Mr. Nasir El-Rufai, Member / Secretary & Director general of BPE Contact: NDIC Building (1st floor), Plot 447/448 Constitution Avenue Central Business District, PMB 442 Garki, ABUJA Tel: 234 (9) 5237396-7, 234 (9) 6034005 E-Mail: bpegen@micro.com.ng Interview with Mr. Nasir El-Rufai, Member & Secretary of the National Council on Privatisation and Director General of the Bureau of Public Enterprises: Q1. I was told recently: "Nigerians have amazing skills, they are extremely well educated, work hard, have a vision but do not always know how to implement their vision. Very often, this is because they don't have the right man at the right place". So, Mr. El-Rufai, are you the right man at the right place ? A1. I honestly don't know whether I am the right man for this job. I told the people here when I came that I think that my only qualification to being appointed for this job is the fact that I was part of a small team that designed this program. A few of us virtually wrote the blue print of the previous document including the privatization program. We practically wrote the decree that was passed for this program. We wrote everything, so in a way it is my plan. Maybe it is God's way of punishing me, bring me back to implementing my plan because it was a very ambitious program ; we never thought we could pull it off. There was a lot of resistance. People are suspicious of privatization for various reasons. They are suspicious of public assets going to private hands whether they are foreign or local. This is because most rich people in Nigeria are rich because they stole public funds. This is the perception. So there is resentment whether you sell to a foreigner with his money or whether you sell to a Nigerian with stolen money. So, it was a dilemma and there was a lot of resistance even in the previous government to even passing the law. And we knew that unless we got a decree passed there was no chance in hell of this kind of bold program being passed by a civilian national assembly. I don't know whether I am the right person for the job, I think time will bear that out. I think in some ways I am prepared for the job. I am from the private sector, I am not here to make a career. I have never worked for the government in my life apart from part time advisory positions with more than one head of state. I've had the privilege of working with many top leaders of this country. I have been exposed to high level administration and economic management at a very early age. I am very lucky and I am passionate about this. I believe that privatization is the key to Nigeria's political stability as well as economic progress. I honestly believe that. I think that most of our instability is attributable to the fact that government is in everything, and has so much resources at its control so everybody wants to have a go. People go into politics, people plot coups in this country not because they are interested in public service but to have access to public resources really, most of the time. I think President Obasanjo is probably the first person that is going to be president ; the first time he was president it was by accident, the second time he was practically begged to run for president because when he was head of state he did a beautiful job. But most of the time people that want to run this country want to do so because they want to control 588 public enterprises, they want to appoint 4000 members of boards of directors, they want to control budgets in excess of 10 billion dollars every year. So this is what you are talking about, 10 billion dollars, which is more than the federal budget. If you take the budget of NNPC and NITEL, NNPC's budget alone is close to 3 billion dollars and when you take NITEL's budget and NEPA's budget and put that together, it is bigger than the federal government budget. So, we have a parastatal sector that is larger than the government, and that is the attraction for many people. And because of that attraction, there is so much struggle for power which has contributed to our political instability. I believe that if we have less public enterprises there will be less trouble regarding political power. I also believe that if we have a country where the electricity supply is stable and affordable, telephone services are available and affordable, petroleum products are available and affordable, this country will move forward. It will transform the economy of this country. So for these two reasons, political stability and economic progress, I strongly believe in privatization and I will do my best to implement it. Whether I am the right person for the job, I think you need to ask that two years from now. I don't know, and I accepted this job with a lot of trepidation. I was scared. Its just that the president and the vice president were so convincing and compelling that I had to do it. They felt I could do it. I just think I should reject it even though I am taking a salary cut of 90% of my previous pay. I will certainly do my best. That's all I can say, I don't know whether I am the right person for the job. Internally, I don't think so, I think there are probably one million better people but it is a challenge and I will try to live up to it. If I find out that I can't I will just walk out, I will go back to my business. Q2. What input do you intend to bring to the privatization process in terms of approach, methodology and mechanism ? A2. I think that, operationally, I will bring a complete private sector approach to its implementation. I think that you cannot get civil servants or someone with a civil service background to implement a privatization program, because he will be doing something that he is consciously against. I think someone like me with a private sector background will probably do a better job. On the implementation side, one of the main reasons why I think I was brought in, is to hasten the implementation of the program. The president and the vice president believe that I know enough about the design of the program, its objectives and implementation to immediately be up to speed in its implementation. They expect to see it move faster and more efficiently. Thirdly my previous relationship with the World Bank and the IMF will help in clearing some of the questions and obstacles because there used to be feelings among the multi-laterals that Nigeria is not really serious about doing this program ; but the multi laterals have worked long enough with me, with P.I.M.C.O,, members of my group to know that we wanted to do it, we were really serious about it, other agencies of government may not have been, but we were. I will also bring in my network of contacts, the international business community. I used to work for AT&T, at some point I worked for Motorola. I was at Harvard business school. I have many friends all over the world who will come in here because of me, at least will take a second look at it. So my network of contacts will help a bit in the program implementation. And since we came here, there have been some changes, I get far more queries, the World Bank is giving us 30 million dollars to finance consultancy services, advisory services and capacity building. We are negotiating a technical assistance programme between 30 and 40 million dollars, which I am sure we will get because now the World Bank more than before is convinced that the program is moving forward. They have already issued a cheque for 2 million dollars last week as a substantial base so that we can start the process. Q3. To which specific projects will this money be allocated ? A3. The 2 million dollars ? Most of it we are spending on paying consultants for the aviation, telecommunications and power sectors, advisory work on regulatory framework, on the restructuring and technical stages. Of course IFC has been engaged to do Nigeria Airways. Over the next few months we are going to engage advisers for telecoms and power sectors and that money will be applied to paying for them while we are negotiating the bigger, 30-40 million-dollar loan. Q4. A first privatization stage was implemented by the T.C.P.C ( Technical Committee on Privatization and Commercialization ) where 83 small and medium enterprises were privatized . What have you learnt from this experience ? A4. I think we learnt a lot from the first program, and we tried to incorporate the lessons in the second program. For example we learnt that when you undertake a privatization program and exclude foreigners you loose from it. It's very popular and attractive to say it's only for Nigerians. The first program was exclusively for Nigerians. Only Nigerians could buy shares, only Nigerian advisers were used. That was good in many ways because it got support for the program. It's no white people coming to buy up our assets. So, there was general support for the program, but we also lost because we lost foreign capital interest, we lost the infusion of management skills, technical know how that some of these enterprises needed. Some of them that were partly privatized in the first phase are now fully privatized based on a new approach. Now we want foreign investors to come in, we want them to come and be co-investors to provide leadership in the enterprises. The oil marketing companies, National Oil, African Petroleum, UniPetrol, WAPCO; we now want to hand over a huge stake plus management control to a technical partner, preferably foreign. This is because we feel that when you have good quality leadership, then you enjoy the benefits of globalization. You have fresh insight, additional resources of management; technical and financial. So that's what we are doing. That's one of the lessons that we learnt. The other lesson that we learnt, is that when you privatize without competition you achieve very little. In many sectors we privatized the sectors, but there was no framework for competition and deregulation. Therefore, what happened was that prices rose but the quality of services never improved and no net benefits went into the economy. This is why this time around, while we are privatizing certain monopolies, we want to take the first step of liberalization, deregulation, establishing a framework for competition. There are many other lessons but I think these are some of the very key lessons. The third lesson that we also learnt which is very important was, that for a privatization program to be sustained, you needed a political champion, on as high a level as possible. In the first program, the chairman of BPE was the privatization czar, but he was not a member of cabinet, he was not sitting in the ruling council. His ability to push the program depended entirely on whether the military head of state liked him or not. Babangida liked the chairman, Abacha didn't, so during Abacha's tenure privatization died because this man is not a member of cabinet or a member of the ruling council. He was no there to make a case for privatization, and this is why in this second program we have the vice president as the privatization czar. The vice president does not have extensively defined functions in the constitution. The vice president and the president constitute one office really. We thought in designing the program that if the vice president is in charge of privatization, he has enough time and he is high enough to drive it, and this is what has happened. If the vice president calls any minister to a meeting, he will come. If the chairman of BPE calls a minister to a meeting, he will tell him to take a walk because in terms of hierarchy a minister is senior to the chairman of the BPE. Therefore, in designing this program, we have a council, a cabinet committee in charge of the program, in charge of the policy, while the BPE refers to the council in charge of implementation. I am a member of that council as well its secretary, but the vice president is the boss. It has been very successful, our meetings have been well attended, we now have better co-operation of ministers and public enterprises ,because when I am going to see a minister he knows that I am not talking to him as DG, but as the representative of the vice president. That helps, and now we have a political champion who will always talk for privatization at annual meetings. The vice president has no job more important today, than pushing and driving the privatization program. I think that is very useful. Q5. To what extent are the Indian and Malaysian privatization processes good examples for Nigeria ? A5. I think the Indian model is not real privatization. When you set up holding companies owned by the government, and now buy into public enterprises, it really doesn't apply to Nigeria's case. The Malaysians did minimal privatization. The government structure is still very strong but they did a lot of deregulation. We don't think we should stop there. We honestly believe, based on our experience, that government ownership of certain enterprises is evil. The president believes that government should not be in competition with citizens. It should make its citizens lead the growth in the economy. He said so in his budget speech. One of the objectives of the 2000 budget is to create an environment for private sector to lead growth. We don't think the government should be competing with its citizens and this is why we want to liberalize and deregulate as much as the Malaysians ; but, we also think that government should move out of everything, with time. We have enough people that are vibrant, resourceful, entrepreneurial to take charge. Q6. What would you say is the peculiarity of the Nigerian privatization process? A6. Tough question. I think in one word, we are pragmatic, we are not doing it for ideological reasons, we are not doing this because we are under pressure from any multi lateral institution, we are not under any pressure from the World Bank or the IMF to privatize because we don't really need the IMF resources that they are offering us. What they are offering us, a billion dollars for standby will hardly solve our problems. We are doing this because we have worked out on our own and we did so when I was in P.I.M.C.O ; it does not make sense to spend 2-3 billion dollars every year to support public enterprises that employ only 200,000 people. All the public enterprises in Nigeria employ about 200,000 people, the largest is NEPA that employs 30,000. NNPC employs about 20,000. They are all small. When you add them all up, you are talking about 200,000 people. It is unjust and unfair to spend 3 billion dollars to support such a small percentage of the work force and they don't function. It just doesn't make sense. No public enterprise in Nigeria functions well, not a signle one. We have worked this out for ourselves. So for me, that is what is unique about the Nigerian program. In some countries, public enterprises function well but they are being privatized for ideological reasons ; we want to move from a mixed economy to a market economy. We are not doing ours for any other reason except pragmatism. We feel that we can no longer sustain this unjust and inequitable situation. We are trying to be fair and just to our people. We want to put most of our resources in education, in health, in social welfare, in poverty alleviation. 70% of our people live below the poverty line. Why are you spending so much money so that 200,000 people will have jobs and waste so much of our resources on it but don't provide the goods and services they are supposed to ? Q7. NOLCHEM, WAPCO and ASHAKA CEMENT are relatively easy to privatize considering the level of foreign equity shareholders. Why haven't you started privatizing these ones ? A7. In offering these shares to the market, we have to be conscious of the fact that if you offer three cement companies, two or three cement companies at the same time to the market, the attraction of one may impact on the others. WAPCO is clearly the most attractive. If you offer WAPCO along side Ashaka - maybe Ashaka is not too bad. but let's say you offer WAPCO along side Benue Cement, nobody will buy Benue Cement. So we had to do some palmitation to ensure that this happens. Yes, you are absolutely right, these companies along with others, even Benue Cement has a co-investor although it is minimum. We looked at that very well. In the case of WAPCO and Ashaka we have Blue Circle. In WAPCO, they own about 40%, in Ashaka they own about 45%. The natural thing is to take Blue Circle as a co-investor, and give them more shares to have comfortable control. But we want to get good prices for this. If Blue Circle thinks we are not going to introduce any competition, they may give us bids for these shares that is not so good. So we have opened it up in the name of transparency, we have invited everybody, and if Cementier which is the partner in Benue Cement wishes to bid out Blue Circle, so much the better. We want to maximize revenues to the government, so that we can spend it on health and education and so on. So this is what we are doing. The natural thing is for these existing co-investors to continue, but we want to twist their arm for the best price. NOLCHEM is a unique case because Shell established NOLCHEM. It was a 100% company owned by Shell. Obasanjo's government actually forced them to sell, forced Shell to sell 40% and Shell decided to offer 60% to the government. The case of NOLCHEM is very unique. I studied it very closely. Naturally the shares should go to Shell but again they should go to Shell for a very good market determined price in competition. This is consistent with the position of the government that everything must be transparent, must be competitive and open ; that's what we are trying to do. Of course Shell is there, it has 40% already, I don't think any co-investor will like to come in. Whoever comes in can only buy 40% anyway because that is what we have. With Shell having 40% and Exxon say 40% there is no core investor.. Surprisingly we have other offers from other companies other than Shell for the shares in NOLCHEM. Shell wants 20% so that they get back to like 60%. We have no problem with that providing they pay a very nice premium for the 20% and pay in US dollars, but I don't think that is a problem for Shell. So we are still talking to them and I believe that we will come to some understanding. AP is another interesting case because we nationalized it from the British by President Obasanjo incidentally. They now want to come back and we are too happy to give it back to them providing they give us a very good price because when we nationalized it, we compensated them. It wasn't nationalization without compensation. We paid some compensation, they may not consider it adequate, but we did. President Obasanjo thinks that it is only fair that BP takes it back but that they should pay a very good price, so I am talking to BP on that. Q8. To what extent has the delay in privatization reduced projected government gains ? A8. Maybe it has, if we are selling at the stock market price. The president believes that there is a conspiracy at the stock market since we announced our intention to sell these shares; there is a conspiracy to bring the prices down. Our target is to raise 15 to 20 billion for these shares. The current stock market price is at about 12-13 billion, but we are not selling to co-investors at stock market price. As you can see from the discussion, so far I want BP to come and buy anything up to 40% of AP at a very high premium because I am not just giving them shares in block, I am also giving them management control. Therefore they will have to pay for that. The price that they will pay will have no relation what so ever to the stock market price. I want them to pay me for potential future earnings. My president has just deregulated the market, margins will improve so I don't want AP valued at historical prices. Historical prices were bad because the margins were thin, and until last year the fixed price ensured that all marketing companies were not profitable. Now, they are, and they will be even more profitable in the future. What I want BP to do is to give me a price that reflects that future. So, I feel confident that I will raise more than that and indeed the delay may be to my advantage because now they are more desperate. Q9. How significantly have core strategic partners reacted to the privatization process ? A9. It has been quite positive. I would have wanted to see more applications from strategic investors; in some cases we have only one. I don't know what to do with only one bid. I would have to bring the Council's attention to that, because I don't want to deal with one bid. I would like to re-advertise and invite more bids, because some of the foreign investors have applied a few times; this program has been announced two or three times and some are beginning to think: are they serious ?I want to do these first three quickly so that people see, we mean business. WAPCO I have two bids at least, AP I have three or four, Unipetrol I have three or four, National Oil I have three or four bids as well. Q10. What is the proportion between Nigerians and foreign strategic partners ? A10. It is like 60% foreigners and 40% Nigerians. Q11. What nationality are these foreign strategic partners from ? A11/ Most of the investor applications we have had are European. They are a few Americans particularly in the financial services sector. But in oil marketing, in cement they are mostly Europeans. A few Asians but very few. Q12. What measures have you taken to increase awareness in the international arena about privatization opportunities in Nigeria? A12. We have tried to talk to journalists like you. My predecessor and I have spoken to at least 15 foreign journalists. We have been paying a lot of money for advertising the program. We are going to have our web site put up, and we are going to mail a lot of letters to all Fortune 500 companies. When we get the Forbes 400 we will write to them and try and draw attention to these opportunities. Nigeria has a lot of problems, but from my point of view Nigeria doesn't have problems, what it has, are opportunities. Whenever there is a power cut, it is an opportunity for someone to come in and provide that service. That is the sort of message we want to take. We try to attend every forum. At some point members of my Council are going to go around the world to speak to chambers of commerce because we have a little time before we come to the really important privatizations like NITEL, NEPA, the refineries, the Nigerian Gas and so on. Those are likely to start taking shape towards the end of year 2000. So, we have some time to really market Nigeria, but we want through this few ones to show that we mean business, to show that big companies like BP, like Shell are interested in Nigeria and they are buying into the country to send the right message. So we are going to do a lot of that, go round on a road show. We have the support of the World Bank to say that this is a transparent program; we are supporting it, we are participating in it, we are funding it to be able to attract the kind of quality investors that we want. Q13. In which areas would you particularly like to attract foreign investors ? A13. Telecommunications and power then down stream oil and gas. And then the mining sector, the Nigerian Mining Corporation, their subsidiaries are for sale ; their potentials are largely untapped. Q14. What about railways? A14/ Railways we are not privatizing for now; we are looking at the whole transport sector. Aviation of course is going, but we are looking at the whole transport sector including ports and the railways to prepare them for privatization. However, they are not included in the current program that will get rid of utilities. They are slated for commercialization as a first step to preparing them. But these four-five sectors are the most important. If we can get the AT&Ts, BTs, France Telecoms of this world to come into NITEL, and get Enron and all the big ones.We want more like that to come and buy into NEPA and get the refineries out of our hands into private sector management. The Nigerian Gas Company, Nigerian Mining Corporation, Nigerian Coal . We have some of the best quality coal in the world that has not been mined for many years. If we can get this five public enterprises operating out of government's hands, I think most other things will just fall into place. Q15. What would you say has been your most challenging and rewarding experience ? A15. I have not been here too long to have any rewarding experiences, but I guess the most rewarding experience has been in P.I.M.C.O. It has been to be a part of a team of six people that drew up the political program that led to democracy in this country. We did it, it wasn't perfect, but we did it. We wrote a program that said we will hand over on this date and we did. I think it is remarkable, because Nigerians are used to promises being broken. We also developed an economic blue print that has led the foundation for the future of this country. We removed many distortions, we eliminated the dual exchange rates, we took certain steps that led to agreement on a staff monitored program with the IMF- which is the first that this country agreed with the IMF in 15 years. We solved the fuel crisis. Many people like to think that the fuel crisis was solved by the current administration, but its not true. The fuel queues disappeared as far back as March last year, and we did by introducing limited doses of deregulation, by opening up the market for private sector imports to supplement the refineries that were operating sub-optimally. We did all that, and we got this privatization decree passed. I think it is a major achievement and many people do not understand the extent of opposition to privatization. And to have NEPA and NITEL, all the so called commanding heights of the economy included in the decree and actually passed. For me, that was the most rewarding periods of my life: to write a plan and see it implemented in a very short period of time, fairly successfully. Because we were all distressed by the extra budgetary spending towards the end of the regime and messed up the economy. On the whole, I think we did quite well and it left a sound basis for President Obasanjo to move forward. We had solved most of the knotty problems, we had eliminated the dual exchange rates, we had done the full deregulation of petroleum market products this year was just building up on what we did in November 1998 and that's probably the most rewarding time of my life ; I hope that my next few years will be even more rewarding. Q16. What final message would you address to our readers ? A16. I think Nigeria is changing for the better. It's a great country, wonderful people, prudent people and very resourceful individuals. We have had our problems, but I also think that we have not been fairly treated by the rest of the world. We have more than a hundred million inhabitants, one out of every black people anywhere in the world is Nigerian.When you have that kind of population, you are likely to have higher than normal percentage of crooks and credit card fraud stars. I think we are turning a new leaf ; I think our president is providing the leadership to prove to the world that most of us are hard working, transparent, honest people. We want the world to give us a chance. We want the world to come here. There are problems here, but they all equate to opportunities, we want the world to give us a chance. Come to Nigeria, come and work with us, come and see for yourself first, if you are not impressed fine; you can go back but come and work with us to move this country forward. Because if we don't in 25 years the population of this country will be over 200 hundred million and we could become a major problem to the rest of the world. But if we solve the problems, if we work together to grow this economy by 7-10% per annum, Nigerians will stay here, they will not come and be a problem to the West. They will find a way, you cant keep 250 million people subjugated especially when this people are very bright, very sharp, very gutsy. Nigerians are not like other Africans. Other Africans are timid. I have met with many Africans and they are slow and they are timid. Nigerians are vibrant, gutsy, they want to go out and do it whether it is right or wrong and they have absolutely no respect for authority whether the authority is Nigerian or American or French. You cant stop people like that, you can delay them but you cant stop them. I think that the world should understand this, and work with us to move this country forward. If Nigeria does well, Africa does well. I guess if Nigeria becomes okay it will be an example for other countries to follow, a model and I invite to the whole world give us a chance, work with us. We are turning a new leaf, we have a wonderful, decent man as president and the vice president is a very nice, brilliant, hardworking. Well they are all victims of the Nigerian problem and they want to see change, and I think that the world should give them a chance. Thank you Mr. El-Rufai for your comments.   Read on   © World INvestment NEws, 2000. This is the electronic edition of the special country report on Nigeria published in Forbes Global. June 12th 2000 Issue. Developed by AgenciaE.Tv