In this over One Hour Interview with Signature Ranking, Alex Okoh, A seasoned Technocrat and Harvard Business School Alumni who is the Director General of Nigeria’s Bureau for Public Enterprises talks through the Federal Government of Nigeria’s Plan to Privatize and Commercialize ailing State-Owned Entities for optimum performance.
Q:BPE was set up by government to privatize government entities, monitor government owned entities, in some cases make recommendations for commercialization of existing state-owned entities. It’s been 30 years, since Nigeria embarked on this journey of privatization, how well do you think we have fared in this regard?
A:Thank you very much. The whole idea of privatization given the version that we have also implemented in Nigeria which is a combination of privatization and commercialization, is essentially to bring efficiency to state state-owned enterprises and reduce the influence and participation of government in the economy so that the government focuses on its core area of mandate, which is governance. In the past 30 years, we have seen the privatization program produce amazing results, And in that period we have seen about 152 previously state-owned enterprises go through one form of reform be it a partial privatization, full privatization or commercialization. This program has covered almost all the sectors of the economy, Banking and finance, Pensions industry, Telecoms, Ports, Electricity sector, oil and gas, so variously about 152 companies have been reformed one way or the other. Privatization, commercialization, or just liberalizing the sector. We reckon that substantially, the program has been hugely successful.
Q: That will lead us into the privatization in the power sector where all the parties are complaining. How did we get it wrong with power privatization?
A: I’m sure that the remark should not be that we got it wrong with the power privatization program, it’s important to have some context of this whole transaction. Clearly, it’s the biggest privatization transaction in the whole of Africa, and when you have a transaction of that size or scale of magnitude it is conceivable that there will be certain gaps in the implementation of such a massive reform program. Some context also, between 1980 and 2004/2005 the federal government spent about US$2billion dollars in the power sector, with no visible impact under PHCN and NEPA and the outcome of that was that we were only producing about 1,700 megawatts of power, even with that massive injection of capital. It was important that we reform that entire sector, open it up for private sector participation and that was what happened in 2013 when the entire power industry was unbundled into the generation, transmission and distribution segments of the power value chain. In some sense I think that we took the right decision to privatize the power sector. I just shudder to think of what would have happened if that decision wasn’t taken by then. Having said that, of course some of the assumptions in privatizing the sector have not been met and that itself has created some of the gaps, some of the inefficiencies that we’ve seen in the Power sector now. One of them of course is the assumption that there will be a cost reflective tariff, which essentially should create some commercial viability around the sector. Now, the distribution companies are your last mile in that whole value chain, and they are the cash collection centers for the entire chain so they sell the electricity that is produced by the GENCOSs, collect therevenues, are supposed to push the revenue upstream to compensate the grid transmission companies, the SO and the MO and of course the GENCOs. However, because enough cash is not coming from that collection point, liquidity then becomes a problem for the entire sector and when there is illiquidity then of course there’s a constraint of investment so the ability for the GENCOs to invest in ramping up the capacities of the generation plants and also the ability of the Discos to invest in the distribution infrastructure so the transformers, the meters, the distribution lines and all of that infrastructure that makes power generation efficient has not been forthcoming. For me I don’t think that the problem was in privatizing the power sector, it’s in not implementing all of the elements and the assumptions that were incorporated into that program. But the Power sector recovery program designed by the federal government in collaboration with world Bank provides an excellent way to remedy the situation. Once the implementation of the Power sector recovery program kicks in I think that we should begin to see some relief as far as the power situation is concerned.
Q: Thank you. It would appear that Nigerians seem more interested in commercialization rather than sale of state-owned entities. What in your own opinion is the best way for Nigeria?
A: Interestingly, every economic policy has to take into context the culture of the society. Where culture attaches importance to ownership, you find families don’t sell their home even when they don’t have any need for the house any more or the houses are more or less run down. But that is really not what should be guiding our perception of what the values of privatization to the economy are and the values of government divesting from redundant assets. In other climes where this has been deliberately implemented as an economic reform, it has been done with a singular focus of government divesting ownership. That’s where privatization is different from commercialization. If you look at countries like Turkey, UK, Canada where they have deliberately embarked on privatization programs it was with a single focus on government wanting to hands off both ownership and management of those enterprises. In the UK when the Thatcher government introduced privatization of key utilities like you know transport companies, electricity companies, British Gas, British Rail, even British Airways, they were all fully privatized so no sentimental attachment to ownership.
If you factor their cultural view into that economic program then it’s a lot easier to handle. Our clime is slightly different, we attach emotional values to assets so that’s why you will look at an asset like the National Theatre in Lagos and you can see it being gradually degenerating but once you talk about exchanging ownership of that asset then it raises certain sentiment in the park because we believe that these are common patrimony, it belongs to the country and you know individuals shouldn’t own what the country collectively built. We have to manage those sentiments and that’s why our program in Nigeria is a bit unique, it’s a hybrid of both privatization and commercialization. Assets that are not so sensitive, we then submit them to full privatization, assets that we see that can be sensitive in the perception then you know commercialization which involves private sector participation in the management in the operations and then the funding of the enterprise or the asset without a change in ownership then becomes a viable strategy option to adopt for those assets. Sometimes we can also take a view that these assets are of national strategic importance it has security or other implications and then we decide that they may not be wise to transfer ownership but because you want to bring efficiencies into that asset then you admit private sector participation in its management, in its funding and in its operations while ownership still remains with the government. That approach is also used to manage the impression that government is involved in selling national jewels to its friends and cronies, which is not really the case.
Q: Considering the success that has been recorded so far in the Telecoms market in Nigeria, how can we leverage on this and implement it in other sectors (Power, Health, Education) of the economy?
A: When we talk about the revolution of the telecom sector in Nigeria, it’s important to note that the government did not do anything apart from just making a policy announcement, that’s all. It was not a privatization it was not a commercialization it was just a sector liberalization, it just needed a pronouncement that the telecom sector has been liberalized. In 2001 we had maybe a subscriber base of close to 450,000 lines. December last year 2018 we’re looking at a hundred and seventy-three million subscribers, it is phenomenal. All we did was to just say government no longer controls this space period, if you want to come in this is the price for the license and government just auctioned the license. How you build your base stations your switches your whatever was entirely your own investment decision. If you look at the multiplier impact that has had on the economy in terms of the ancillary services related to the key telecoms operators that has been enabled in the economy, it’s a phenomenon. If you look at the revenues in terms of taxes that has generated for the government, it is phenomenal. That’s what we are saying about liberalizing, capitalizing, commercializing the whole economic space. Government needs to pull out from that whole economic field of play and focus on governance and let the private sector lead in providing the necessary enablers for the economy.