Avoiding a Disaster in Assets Sale



About this time in 1985, a huge debate was ranging all across Nigeria. It was the great IMF debate: to take or not to take the famous IMF loan. The military government under President Ibrahim Badamosi Babangida was grappling with a short term liquidity crisis at the time. Fast forward to 2016, about 31 years later and under a democratically elected government, another bout of recession envelops import-dependent Nigeria and the debate is whether to sell our national assets, the nation’s crown jewels to resolve a short term liquidity crisis whose origin is well known.

The collapse of crude oil prices in the past 18 months, the profligacy of the government of ex-President Goodluck Jonathan and the unconscionable corruption that characterised that government, the militancy of the Niger Delta Avengers resulting in the untold destruction of oil and gas pipelines in a proportion hitherto unknown in the annals of Nigerian history, a bungling Central Bank of Nigeria (CBN) colluding with Bureaux de Change (BDC) to wipe out Nigeria’s foreign reserves and the corruption in the budget process that pitted federal civil servants and the National Assembly on the corruption side against the federal government of President Muhammadu Buhari. The reasons for the recession are clear and it is simplistic to off-handedly suggest the sale of federal government investment in the Nigerian Liquified Natural Gas company (NLNG) and all of Nigerian National Petroleum Corporation (NNPC) as a solution to the short term liquidity crisis.

The argument has been made. The national economic council comprising of state governors and a motley of other public servants want the assets sold. Many state governors are ever eager to get easy money from Abuja and never propose solutions that will task their imagination. The Senate also took the subject serious and held a full plenary session on tackling the recession and came out with a set of watery prescriptions the most important of which is to sell federal oil and gas assets. The labour movement is against asset sale proposal. The history of privatisation in Nigeria is woeful. No one wants to use the word privatisation. It is expected by the CBN governor that asset sale would quickly bring in some $15 billion to the federal government. In 2006, it was these assets that produced the $12.4 billion that was applied to pay off the negotiated balance of the Nigerian foreign loans.

At present, the most sought after asset for sale is the NLNG; the most profitable and efficiently managed federal government investment in Nigeria and one that brings in billions of dollars in dividends and taxes to the federal government annually. Till date there is no worry about the quality of management of the NLNG. Then why sell the NLNG? It is not broken, then why fix it? The next set of assets for sale are those held by the NNPC. Yes; federal government holding in joint venture (JVs) operations through the NNPC can be reduced to aid efficiency and profitability in the JVs. In this way, the cash call palaver would end. But this is not the first time that the federal asset sale is being proposed.

In the first quarter of 2015 this argument was canvassed in London for these assets to be sold by the CBN governor and some oil moguls. The reason was unknown then and there was no recession. Apparently some interested parties definitely want these assets sold to them. Today we have enough problems with the Avengers over the oil assets in the Niger Delta; where land and territory were acquired by the federal government for overriding national interest. Now these resources are to be sold to outsiders and I wonder if Nigerians truly believe the militants in Niger Delta will accept this situation.

In discussing the sale of federal government oil assets under NNPC it would have made better sense if the Senate zeroed in on the passing of the Petroleum Industry Bill (PIB) which has been in the National Assembly for nearly seven years. The best contribution the Senate can make now to the economic health of this country is to have an understanding with the House of Representatives and quickly and urgently pass the PIB. The NNPC needs to be reformed. Pass the PIB and let the component parts be managed professionally. Pass the PIB and within the context of a reformed NNPC the federal government may undertake a systematic asset disposal programme.

The concern shown by the Senate in proposing measures to address the present recession is commendable but the senators ought to tell Nigerians how to stop 21 senators currently receiving pensions from government as ex-governors and ex-deputy governors and are also receiving their emoluments as senators. Even the salaries and allowances of the National Assembly members are shrouded in secrecy mainly because they are indefensible and totally preposterous. If the proceeds from federal assets sale are used to maintain the present life style of senators and state governors the asset disposal exercise would be a fiasco.

If we do not reform the nation’s present expenditure and consumption pattern, proceeds from the sale of federal assets will be wasted in the following ways: forex allocation to Nigerians to pay school fees in secondary schools and universities abroad, proceeds will be applied to pay mortgages and insurance premiums abroad, state governors will be able to buy newer jets, bullet proof vehicles, exotic cars and recruit more aides of doubtful value, proceeds will be used to import over valued raw materials and others that could have been produced locally, the CBN would allocate proceeds to BDCs to fund smugglers and gun runners and speculate on the naira, state governors will allocate foreign exchange for pilgrimages, import rice, and to import furniture items. The CBN governor recently revealed that $66 billion was wasted in forex allocations to BDCs by two past governors of the CBN – Professor Charles Soludo and the current Emir of Kano Sanusi Lamido Sanusi. Meanwhile the current CBN governor is also doing the same thing by allocating dollars that rightly belong to the CBN to BDCs.

Nations in financial difficulties sell non-core assets and borrow. Nigeria has a well-staffed Debt Management Office (DMO) and can borrow. The ratio of Nigeria’s debt to its GDP is still not much higher than 15%. Let the federal government borrow to fund its forex needs. Proceeds of asset sale and borrowed funds must be judiciously applied to facilitate recovery and eventual loan repayment. No nation sells its crown jewels. No nation sells its strategic assets. However, these assets can be leased out and upfront lease payments to cover five years or more can be structured. Businesses, households, and governments often encounter boom and bust cycles.

Financing business/government/ households is the reason banks exist. Local and international banks lend money to governments. In restructuring its finances, a government may genuinely want to dispose of some assets that have not been managed properly. The problem in Nigeria is a short term liquidity crisis in the foreign exchange market. There is a structural gap in funding the Nigerian economy. Nigeria’s huge market is ready to absorb its local production so it should be in recession. The forex availability is the problem. In addressing this economic challenge, the country must not create a near permanent damage that may be irreversible. Any sale of a strategic asset today will be a mistake.

Definitely let no one sell any portion of the government stake in the NLNG.
Because of the perception of a fire sale or distressed sale the government will not get commensurate value for the assets to be sold. Even if there is an expressly stated repurchase option in the sale agreement the repurchase price will dwarf whatever value the initial sale generated. Besides, once the current lack of financial discipline persists at the state and local government levels the share of these tiers of government arising from the asset sale would be simply wasted and the country will be worse for it. At the commencement of the Buhari government most of the state governments went to Abuja cap in hand asking for a bail-out which they got but so recklessly wasted.

However, governments, like businesses do engage in asset sale to shore up their finances. Does Nigeria have qualifying assets that can be disposed of to meet current challenges? Yes. Qualifying assets are those that are either a problem to manage or have been unprofitable. The major assets that fall into this category are the four refineries under the NNPC. The government should sell these refineries and the country will be better for it. The presidential air fleet has about 13 aircraft in its pool and during the 2015 presidential campaigns candidate Buhari promised to reduce the size of the fleet and dispose of the surplus aircraft. The presidential air fleet should not have more than four aircraft – two for the president and two for the vice-president.

Other personalities must fly business class in commercial airlines and save Nigerian the pains of false living. The surplus aircraft should be sold to airlines or to African governments. Similarly, the port complexes in Port Harcourt, Calabar, Warri and Koko should be privatised and the proceeds realised from their sale can help address the country’s financial problems. Even selected airports and highways can be concessioned or privatised and funds realised will help to uplift the nation’s forex resources. To stay afloat, the federal government must immediately stop the CBN from allocating dollars to BDCs because they constitute the problem source for the naira. The continued allocation of CBN dollars to the BDCs is tantamount to a crime against the Nigerian economy and it’s a waste of forex resources. Meanwhile proceeds from the sale of selected non-core assets will augment the foreign loans being sought by the federal government and boost the increased foreign exchange inflows from crude oil sales that has gained from the truce with the Avengers.

In itself the proposal to sell assets to raise forex liquidity to reflate the economy is not a strange phenomenon. But certain conditions must precede such asset disposal. The first, buyers of these assets must have demonstrated competence in the management of the specific type of business. Second, the assets must not be core assets. This means the NLNG must be kept off the table but a reduction of the government share in NNPC JVs may be a good idea. Third, a programme of internal self-discipline in financial management at all the tiers of government must be put in place. Fourth, areas of waste currently a major source of worry for this country like double salaries for many legislators and the size of their emoluments must be addressed. Fifth, a work programme, clearly stating the way and manner the proceeds from the asset sale would be deployed must be agreed prior to the commencement of such sale.

Sixth, a firm undertaking that proceeds from the asset sale shall only be deployed to fund infrastructural projects like roads, railways, hospitals, schools, mass housing etc. and to finance export. Seven, an overall federal programme implementation committee that will work with the various project implementation committees for the sub-projects would have to be set up. Eight, the CBN must stop using scarce foreign exchange to pay overseas school fees for Nigerian students. In 1988, to conserve foreign exchange the CBN actually stopped processing invisible transactions like school fees, business travel advance, personal travel advance and medical bills except when medical referrals were tendered.

We must help revamp Nigerian universities and encourage foreign universities to set up in Nigeria at temporary sites initially and later in their permanent sites as they have done in Dubai, Singapore, Malaysia and Indonesia. It must be noted that the maintenance of peace and quiet in the Niger Delta is critical for this asset sale programme to be effective. If refineries are sold there must be crude oil for their use. The federal government needs to go the whole distance to make peace with the Avengers and calm all the restive parties in the Niger Delta. And don’t ignore IPOB and MASSOB. Ultimately we must restructure Nigeria and promote fiscal federalism to have a peaceful future.

*Chief Omokhodion was MD/CEO of former Liberty Bank Plc