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Why Do We Privatise? – Part II By Olatunde Kabiru Afuwape
What was done in Part I was to commence the foundation-laying process for the issue under consideration. This will continue in Part II.
LEGAL FRAMEWORK FOR PRIVATISATION IN NIGERIA
There are three major enactments that have guided the implementation of the privatisation and commercialisation programmes in Nigeria so far. These are:
a) Privatisation and Commercialisation Decree No. 25 of 1988 b) Bureau of Public Enterprises Decree No. 28 of 1993 c) Public Enterprises (Privatisation & Commercialisation) Act of 1999
We would undertake a very brief analysis of these laws as part of the legal review of the programme.
1. The Privatisation and Commercialisation Decree No. 25 of 1988
The Privatisation and Commercialisation Decree No. 25 was promulgated by the Federal Government of Nigeria in July 1988 to formally initiate the privatisation and commercialisation programme in Nigeria. The Decree established the Technical Committee on Privatisation under the Chairman of Late Dr. Hamza Rafindadi Zayyad. The Then Chief of General Staff and later Vice President of the Federal Republic of Nigeria, Retired Admiral Augustus Aikhomu, inaugurated the 11-member Committee on 27th July, 1988. Section 4 of the Decree[1] stipulated the following as the functions of the Committee:
a) advise on the capital restructuring needs of the public enterprises to be privatized or commercialized under the Decree in order to ensure good reception in the Stock Exchange Market for those to be privatized as well as to facilitate good management and independent access to the capital market; b) carry out all activities required for the successful public issues of the shares of enterprises to be privatized, including the appointment of issuing houses, stockbrokers; solicitors, trustees, accountants and other experts to the issues; c) approach, through the appointed Issuing Houses, the Securities and Exchange Commission for a fair price for each issue; d) advise the Federal Military Government, after consultation with the Securities and Exchange Commission and Nigerian Stock Exchange, on the allotment pattern for the sale of the shares of the enterprises concerned, in accordance with Section 7 of the Decree e) oversee the actual sale, by the Federal Government, of the shares of the enterprises concerned f) submit to the Federal Military Government from time to time, for the purpose of approval, proposals on the sale of Government shares in such designated enterprises with a view to ensuring a fair price and even spread of in the ownership of shares; g) ensure the success of the privatisation and commercialisation exercise taking into account the need to balance meaningful participation by Nigerians and foreign interests, in accordance with the relevant laws of Nigeria h) ensure the updating of the accounts of all commercialized enterprises, with a view to ensuring financial discipline.
It is most obvious from the functions of the TCPC highlighted above, that the Committee had an all-embracing mandate. We shall continue to examine how the TCPC executed its mandate from next part in the series.
2. Bureau of Public Enterprises Decree No. 78 of 1993
TCPC submitted its final report in 1993 and recommended the establishment of Bureau of Public Enterprises to continue the privatisation process. The Federal Government accepted the recommendation and promulgated the Bureau of Public Enterprises Decree No. 78 of 1993. The Decree repealed the TCPC Decree and transferred its function to the BPE. With the promulgation of the Decree which was gazetted in Government Notice No. 45B of 1st September, 1993 the members of the TCPC metamorphosed into the Management Board of the Bureau of Public Enterprises. The 11-member board was also under the Chairmanship of Late Dr. Hamza Rafindadi Zayyad. The following were the expanded functions of the Bureau as stipulated in Section 3 of the enabling Decree[2]:
a) Advise on public enterprises for further privatisation and commercialisation b) advise on the capital restructuring needs of the public enterprises to be privatized or commercialized under the Decree in order to ensure good reception in the Stock Exchange Market for those to be privatized as well as to facilitate good management and independent access to the capital market for both commercialized and privatized enterprises; c) carry out all activities required for the successful public issues of the shares of enterprises to be privatized, including the appointment of issuing houses, stockbrokers; solicitors, trustees, accountants and other experts to the issues; d) Liaise with the appointed Issuing Houses, the Nigerian Stock Exchange and the Securities and Exchange Commission for the determination of fair price for each issue; e) advise the Federal Military Government, after consultation with the Securities and Exchange Commission and Nigerian Stock Exchange, on the allotment pattern for the sale of the shares of the enterprises concerned, in accordance with Section 7 of the Decree f) oversee the actual sale, by the Federal Government, of the shares of the enterprises concerned g) submit to the Federal Military Government from time to time, for the purpose of approval, proposals on the sale of Government shares in such designated enterprises with a view to ensuring a fair price and even spread of in the ownership of shares; h) ensure the success of the privatisation and commercialisation exercise taking into account the need to balance meaningful participation by Nigerians and foreign interests, in accordance with the relevant laws of Nigeria i) ensure the updating of the accounts of all commercialized enterprises, with a view to ensuring financial discipline. j) Ensure the success of the commercialisation exercise and monitor, on a continuous basis for such period of time as may be considered expedient, the operations of the enterprises after commercialisation with a view to ensuring that they operate in line with the guidelines and objectives of the reform k) Review from time to, the objectives for which public enterprises were established in order to ensure that they keep in tune with the changing needs of the economy l) Ensure that public enterprises are managed in accordance with sound commercial principles and prudent financial practices through the provision of guidance and budgeting, accounting and administrative procedure m) Co-ordinate and improve inter-organisaitonal policies and activities n) Ensure optimum use of resources by public enterprises o) Interface with public enterprises together with supervising ministries in order to ensure effective monitoring and safeguard of the public enterprises managerial autonomy; p) Ensure that the board and management of each commercialized enterprise and the Federal Government keep to the terms and conditions of the performance agreement signed on behalf of the enterprises with the Federal Government; q) Maintain and review on a continuous basis the Performance Agreement signed by the Enterprises and Federal Government. r) Request for and obtain from any enterprises statistical or other information relevant to the functions of the Bureau under this decree
The Decree also established the Public Enterprises Arbitration Panel to be appointed, as the need arises, by the Head of State. The panel is to undertake the following duties
a) arbitrate in dispute arising under the Performance Agreement in which all or any of the parties to a performance Agreement are involved; or b) arbitrate in disputes arising or questions as to the interpretation or application of any provisions of a performance agreement; or c) arbitrate in disputes on the performance or non-performance by any of the parties of its undertakings under a Performance Agreement.
3. Public Enterprises (Privatisation and Commercialisation) Act 1999
The Administration of General Abdulsalami Alhaji Abubakar promulgated the Public Enterprises (Privatisation and Commercialisation) Decree of 1998 into law. The Decree later became Public Enterprises (Privatisation and Commercialisation) Decree Act of 1999 following the inauguration of the democratic government in 1999. The Act repealed the BPE Decree 78 of 1993. The Act[3] created
a) The National Council on Privatisation The Act established the National Council on Privatisation under the Chairmanship of the Chief of General Staff. Other members of the Council are the Minister of Finance, as Vice Chairman; the Attorney-General of the Federation and Minister of Justice; the Minister of Industries; the Minister of National Planning; the Secretary to the Government of the Federation; the Governor of the Central Bank of Nigeria; the Special Adviser to the Head of State, Commander-in-Chief of the Armed Forces on Economic Affairs; four other members to be appointed by the Head of State, Commander-in-Chief of the Armed Forces; and the Director-General of the Bureau of Public Enterprises. It also empowers the Council to co-opt the supervising Minister of an affected public enterprise to attend relevant meetings of the Council.. Members of Council shall hold office for a term of four years in the first instance and may be re-appointed for a further term of four years and no more; and on such terms and conditions as may be specified in his letter of appointment. The following are the functions and powers of the Council under the Act: (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 the public enterprise to be offered for sale; (i) review, from time to time, the socio-economic effect 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 directions on the implementation of the privatisation and commercialisation programme; (o) received and consider, for approval, the audited accounts of the Bureau; (p) submit to the Head of State, Commander-in-Chief of the Armed Forces 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. (s) Public Enterprises Arbitration
b) Bureau Of Public Enterprises The Act also established the Bureau of Public Enterprises as a body corporate with perpetual succession and a common seal and may sue and be sued in its corporate name. The following are the functions and powers of the BPE under the Act: (a) implement the Council’s policy on privatisation; · prepare public enterprises approved by the Council for privatisation; · advise the Council on further public enterprises that may be privatised. · advise council on the capital restructuring needs of the public enterprises to be privatised; · carry out all activities required for the successful issue of shares and sale of assets of the public enterprises to be privatized; · make recommendations to the Council on the appointment of consultants, advisers, investment bankers, issuing houses, stock brokers, solicitors, trustees, accountants and other professionals required for the purposes of privatisation; · advise the Council on the allotment pattern for the sale of the shares of the public enterprises set out for privatisation; · 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; · 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 · perform such functions with respect to privatization as the Council may, from time to time, assign to it. (b) implement the Council’s policy on commercialisation; · prepare public enterprises approved by the Council for commercialisation; · advise the Council on further public enterprises that may be commercialised; · ensure the updating of the accounts of all commercialised enterprises to ensure financial discipline; · ensure the success of the commercialisation exercise and monitor, on a continuous basis for such period as may be considered necessary, the operations of the public enterprises after commercialisation; · review the objectives for which public enterprises were established in order to ensure that they adapt to the changing needs of the economy; · ensure that public enterprises are managed in accordance with sound commercial principles and prudent financial practices; · interface with the public enterprises, together with the supervising Ministries, in order to ensure effective monitoring and safeguarding of the public enterprises’ managerial autonomy; · 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; · maintain and review on a continuous basis, any Performance Agreement between a public enterprise and the Government of the Federation; and · evaluate and recommend to the Council whether or not a public enterprise is eligible for funding through grants, loans, subventions or equity; and · perform such functions with respect to commercialisation as the Council may, from time to time, assign to it. (c) provide secretarial support to the Council; and (d) carry out such other duties and responsibilities as may be assigned to it from time to time by the Council; (e) The Bureau shall, subject to the overall supervision of the Council, have power to - · acquire, hold and manage movable and immovable property; · enter into contracts or partnerships with any company, firm or person which in its opinion will facilitate the discharge of its functions; · 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 Decree; and · liaise with relevant bodies or institutions locally or overseas for effective performance of its functions under this Decree.
c) Public Enterprises Arbitration Panel Just like the BPE Decree, the Act re-established the Public Enterprises Arbitration Panel, an hoc body, to be responsible for effecting prompt settlement of any dispute arising between an enterprise and the Council or the Bureau. The enabling law made provision for 5-member who shall be persons of proven integrity one of whom shall be the Chairman. The Panel shall have power to arbitrate -
a) in any dispute raising questions as to the interpretation of any of the provisions of a Performance Agreement; o b) in any dispute on the performance or non-performance by any enterprise of its undertakings under a Performance Agreement c) A dispute on the performance or non-performance by any of the parties to the Performance Agreement shall, in the case of a commercialised enterprise, lie to that Panel providing that such reference may be made after all reasonable efforts to resolve the dispute have been made and have not been proved. d) The ruling of the Panel shall be binding on the parties and no appeal shall lie from a decision of the Panel to any court of law or tribunal. It is interesting to note that NCP would be responsible for the appointment of members of the Panel on such term and conditions as it may deem fit. The provisions of the Arbitration and Conciliation Decree 1988 or any other enactment or law relating to arbitration shall be applicable to any matter which is the subject of arbitration under this Decree, while other arbitration laws are not applicable. REVIEW OF THE LEGAL FRAMEWORK
You will realise that I quoted extensively from the laws. The intention is to put in proper focus the depth of the Legal instruments that have guide privatisation programme from inception to date. We will undertake a short analytical review of the three promulgations that have guided the privatisation programme implementation in Nigeria. Some of the reasons for the evolution of the privatised laws are evident in the functions of the privatisation agencies as espoused in the statutes.
TCPC Decree Vs BPE Decree
The functions of the BPE Management Board and the TCPC were essentially the same but for the following additions:
a) advise on public enterprises for further privatisation and commercialisation b) Ensure the success of the commercialisation exercise and monitor, on a continuous basis for such period of time as may be considered expedient, the operations of the enterprises after commercialisation with a view to ensuring that they operate in line with the guidelines and objectives of the reform c) Review from time to, the objectives for which public enterprises were established in order to ensure that they keep in tune with the changing needs of the economy d) Ensure that public enterprises are managed in accordance with sound commercial principles and prudent financial practices through the provision of guidance and budgeting, accounting and administrative procedure e) Co-ordinate and improve inter-organisational policies and activities f) Ensure optimum use of resources by public enterprises g) Interface with public enterprises together with supervising ministries in order to ensure effective monitoring and safeguard of the public enterprises managerial autonomy; h) Ensure that the board and management of each commercialised enterprise and the Federal Government keep to the terms and conditions of the performance agreement signed on behalf of the enterprises with the Federal Government; i) Maintain and review on a continuous basis the Performance Agreement signed by the Enterprises and Federal Government. j) Request for and obtain from any enterprises statistical or other information relevant to the functions of the Bureau under this decree k) The Decree also established the Public Enterprises Arbitration Panel
The aims of the additional provisions were to strengthen, BPE, the implementation agency to achieve the objectives of commercialisation and also embark on further privatisation in areas that were not affected by the TCPC implementation of the programme. The provisions for the establishment of Public Enterprises Arbitration Panel further reinforced this. Was the desired results achieved or not? Let us have a look at the evolution of BPE Decree into the Public Enterprises Act.
Evolution of BPE Decree into the Public Enterprises (Privatisation & Commercialisation) Act
It is however ironic to note that in spite of these provisions, the implementation of the Performance Agreement was largely unsuccessful. What could be responsible for this? An evaluation of the situation showed that the BPE lacked the means to enforce the provisions set out in the law. The best it could do was to appeal, cajole, threatened and report erring enterprises to supervising authority. This situation was further aggravated by fact that the heads of the supervising ministries were political appointees, who were more interested in “empire-building” than allowing these enterprises to be governed by the provisions of the Performance Agreement (PA). They also see these enterprises as a ready avenue for influence peddling and of course, opportunities for self-enrichment. These managers are not willing to let go without a “bloody” battle. The Public Enterprises (PEs) on the other hand had developed insatiable appetite for public funding through subvention. They cherished the independence that came with commercialisation under the provisions of the Performance Agreements, but could not let g appeared they could not stand on their own. Most of them speedily implemented the benefits of commercialisation in terms of improved conditions of services, but ignored service delivery and performance targets. In the light of these, they were more than willing to sell their independence to the supervising ministries on the alter of subvention. However, whatever the supervising ministries scooped from Government, less than 50% got the enterprises. The Managers of the public enterprises were aware of the state of affairs, which perfectly suit their own purposes. They ended up spending less than 10% on the enterprises feeling secured on the knowledge that nobody would ask. It was more a case of “scratch by back, I scratch yours” or “partnership in the looting of public funds”. Ultimately, the Nigerian state is the looser. The combination of these factors resulted in the colossal failure of the performance agreements signed with the public enterprises and return to the status-quo-ante.
The National Council on Privatisation (NCP) was given enough powers to deal with the above problems and others. Part 1, Section 3 of the Act stipulates that:
The National Council on Privatisation (in this Decree referred to as "the Council") established under section 8 of this Decree may, from time to time, by order published in the Gazette alter, add, delete, or amend the provisions of the First Schedule to this Decree.
The above provision gives NCP sweeping powers to upgrade enterprises from commercialisation to privatisation, add or delete enterprises to the schedule in Act. In exercising this power, during the implementation of the 2nd Phase of privatisation programme, 10 enterprises were upgraded from commercialisation to privatisation. The Niger River Basin Development Authority was split into two authorities: Lower and Upper Niger River Basin Authorities for commercialisation. Did this provision give NCP the powers to make laws for the privatisation programme and implement it? This is a topic for another day.
CONCLUSION
In the second part of the series on “Why do we privatise?” we undertake a legal review of the privatisation programme in Nigeria. Relevant provisions of the Privatisation and Commercialisation Decree No. 25 of 1988; Bureau of Public Enterprises Decree No. 28 of 1993 and Public Enterprises (Privatisation & Commercialisation) Act of 1999 were presented. The differences between TCPC Decrees and BPE decrees were examine, while the evolution of BPE Decree into the Public Enterprises (Privatisation & Commercialisation) Act completes the legal review.
In the next part of the series, we would examine the enterprises privatised in the first phase of the privatisation programme, the justifications and condemnations of exercise.
OLATUNDE K. AFUWAPE TEMELE STREET WUSE ZONE 3 ABUJA
P.S. For the benefit of those who did not see the Part I of the series, it is reproduced at the end of the References.
REFERENCES
1. Public Enterprises (Privatisation & Commercialisation) Act 1999 2. Bureau of Public Enterprises Decree No. 78 of 1993 3. Ramamurti, R and R. Vernon et. al (1991), Privatisation and Control of State-Owned Enterprises, Economic Development Institute of the World Bank). 4. Ramanadham, V.V. et. al (1993), Privatisation: A Global Perspective, Routledge, London) 5. Final Report of the Technical Committee on Privatisation and Commercialisation 6. Privatisation and Commercialisation Decree of 1988 7. TCPC Third Annual Reports/Audited Account 1990/1991 8. BPE Annual Reports (1993-2000) 9. Approved Framework for Commercialisation (2001-2003)
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