The Director Generals of the BPE were always in the news; they were more popular than many of Nigeria’s state governors. But under President Mohammadu Buhari, the BPE itself has become a completely obscure agency.”
The Bureau for Public Enterprises (BPE) is the Federal Government of Nigeria’s agency responsible for selling FGN-owned property. The Director Generals of the BPE were always in the news; they were more popular than many of Nigeria’s state governors. But under President Muhammadu Buhari, the BPE itself has become a completely obscure agency. Even business editors would be hard-pressed to name the current DG of the BPE.
The BPE has not become obscure because Nigeria no longer has valuable assets to privitise. Former governments, at least in theory, embraced a model of economic management rooted in the belief that the state drives growth more efficiently by enabling private entreprise. The Buhari administration in contrast does not share the consensus that Nigeria’s economic backwardness and political dysfunction are rooted in the overconcentration of economic resources in the hands of politicians and bureaucrats.
Hence, rather than sell badly managed state-owned entreprises, the Buhari regime has expanded government control of the economy. A source in the government informed Arbiterz that over 140 memoranda seeking presidential direction on critical privitisation issues were sent to Aso Rock in the first two years of President Buhari’s first term. Not a single one got a response. The Buhari government waited almost two years before appointing a DG for the BPE.
Buhari’s auction list
The government has suddenly announced a programme of asset sale. The list of assets to be sold includes Nigeria’s four moribund refineries. Other properties to be sold include NITEL/MTEL, Yola Electricity Distribution Company, Zungeru Hydro Power, NIPOST, Geregu Power, NIPP, Tafawa Balewa Square, Lagos International Trade Fair Complex, and the Transmission Company of Nigeria.
The sale strategy includes core investor sale, asset sale, concession, reform/restructuring, and commercialisation. The refineries are to be sold via core investor sale. That means that the core investor will acquire 51% of the entities. The assets are to be sold between January 2021 and November 2022.
Nigeria’s four refineries with combined 445,000 barrels per day refining capacity have operated at about 15% capacity for several years. The NNPC disclosed recently that it was seeking $1 billion to refurbish the Port Harcourt Refinery. Past investment in “turn around maintenance” over the last two decades has not achieved any durable improvement in capacity.
In 2007, the Port Harcourt refinery was sold to Blue Star, a consortium comprising Zenon Oil, Dangote Oil & Gas, and Transnational Corporation, in the days of the former President Obasanjo administration. The consortium paid $561 million to acquire 51% of the asset. The reversal of the sale was the first “economic policy” act of Obasanjo’s handpicked successor, the late President Umaru Yaradua.
It’s plainly a fire sale
The Buhari government is not proposing to sell assets as part of any programme of economic reform. It is just desperate for the cash. Nigeria’s finances have come under pressure due to huge debt and dwindling earnings. In 2020, Nigeria spent 83% of its revenue on servicing debt.
The N13.6 trillion 2021 budget allocated N3.12 trillion for debt servicing. The FGN will raise an additional N4.28 trillion in new borrowing to fund the budget.
The International Monetary Fund (IMF) recently advised Nigeria to do more to manage its debt more efficiently, citing the share of revenue spent on servicing debt as unsustainable. In its Country Focus released last week, the IMF stated that the current mix of debt to revenue ratio was leaving insufficient fiscal space for critical social and infrastructure spending and to cushion an economic downturn.
Who is bold enough to buy?
- Infrastructure asset investment or sale depends on the broader credibility of government economic policy because the sector is highly regulated.
- The Buhari government has very low policy credibility; it has crippled power sector reform by clinging to subsidies rather than allow the transition to an energy market based on prices that cover investor costs.
- Policy announcements to eliminate fuel subsidy and allow cost-reflective electricity tariffs have been characterized by flip-flops.
- The government has frittered opportunities to initiate policy reforms while it was popular; it may have become too unpopular to risk labour unrest.
- Only powerful Nigerian oligarchs who can negotiate the political risks involved in buying multimillion-dollar assets in the context of policy uncertain may offer to buy the assets.
- This may lead to a concentration in key markets.