By Sanda Yakubu
Nigeria began a process of accelerated reform of the key sectors of the economy to align with its changing status from a military government to an emerging democracy in 1999. This was in the realization that political democracy without attendant economic democratization would not yield the desired growth. Accordingly, the National Council on Privatisation (NCP) through the Bureau of Public Enterprises (BPE) was charged by the Federal Government not only to privatize public enterprises, but also to carry out sector reforms and liberalization of key economic sectors especially the infrastructure sector.
This was in recognition of the fact that infrastructure services are critical in the provision of goods and services and also significantly affect the productivity, cost and competitiveness of any economy. Subsequently, policy decisions vis-à-vis their provision and sector development have ramifications throughout the economy.
Customarily, the reform and liberalization of any economy involves several major steps, some of which include: formulating new policies; establishing a new legal and regulatory framework; structural changes to the sector and the institutional operatives; and the privatisation or commercialisation.
One of the major obstacles that the NCP met when it commenced implementation of its mandate was the lack of well-articulated policies in key sectors of the Nigerian economy. Consequently, in 2000 the NCP established the following steering committees: Oil and Gas Sector Implementation Committee (OGIC); Telecommunications Sector Reform Implementation Committee; Transport Sector Implementation Committee; Aviation Sector Reform Implementation Committee; Electric Power Sector Implementation Committee; Agriculture and Water Resources Implementation Committee; Hospitality/Tourism Implementation Committee; Industry/Manufacturing Sector Implementation Committee; Insurance Sector Reform Implementation Committee; Basic Metals Sector Implementation Committee and Solid Minerals Sector Implementation Committee.
The core mandate of these committees included: Formulation of sector policies to promote competition, efficiency and transparency in the sector; Formulation of proposals for the attraction of private financing and investment in the sector; Overseeing the activities of the various government agencies, parastatals and operators in the sector; Formulation of proposals for the restructuring and liberalization of the sector; Protection of the rights and interests of service providers and consumers; and Recommend the legal and regulatory frameworks.
As the work of these committees advanced and also the implementation of the privatisation program by the BPE commenced, it became apparent that there were several cross-cutting issues in all the sectors that needed to be addressed. The most disturbing amongst them was the collapse of the pension system in the country which was compounded by inadequate legislation on pension. It also became glaring that to properly manage fiscal reforms, the absence of a proper mechanism for managing cross debts was a major hindrance. In addition, a liberalized economy would require legislation on competition.
In Nigeria, no such legislation existed, which meant that there existed a clear potential for unfair trade practices with full liberalization of the economy. Accordingly, the NCP set up the Steering Committee on Pension Reform; Steering Committee on Resolution and Determination of Cross Debts and Steering Committee on Competition and Anti-trust Reform. All the committees worked in accordance with their mandate and produced reports for the Federal Government. BPE also collaborated with all stakeholders – the Ministries, members of the National Assembly and the Organized Private Sector (OPS) in carrying out the reforms.
Telecommunications Sector Reform
The Telecommunications Sector Reform Implementation produced a National Policy on Telecommunications which was approved by the NCP and the Federal Executive Council in 2000. The policy formed the basis for the further liberalization of the telecommunications sector and the passage into law of the Nigerian Communications Commission Act, 2003. The 2003 Nigerian Communications Commission (NCC) Act repealed that of 1992, as amended. Under the 2003 legislation, the Nigerian Communications Commission (NCC) was reformed and strengthened as an independent regulatory body for the communications sub-sector. The Act also provided for the establishment of the National Frequency Management Council and the Universal Service Fund.
Prior to the liberalization, the Nigerian Telecommunications Plc (NITEL) was the only major player in the sector. It acted as a service provider and regulator. In 1999, the number of subscribers was approximated to be 450,000 fixed lines and analogue mobile lines but with the emergence of other operators like MTN, Airtel, Globacom and Etisalat (now 9Mobile) and other telecommunications service providers, Nigeria has achieved 100% Teledensity with over 192 million connected lines while over 146 million lines were active as at May 31, 2015.
The process of reform has led to the licensing of over 40 telecoms operators in the country. Similarly, it is estimated that over a million direct and indirect jobs have been added to the economy. The ICT sub-sector has also witnessed phenomenal growth as a consequence of the reform driven by the BPE.
From a sole national carrier, there is now in existence two national carriers, nine unified licenses and several 3G licenses issued. 4G licenses were also issued and telecom companies are awaiting the approval of the widely debated 5G licence.
At the moment, the NCP is considering a draft National Postal Policy and a Postal Sector Reform Bill.
The objectives of the Bill include: The promotion and implementation of the National Postal Policy; the establishment of a regulatory framework for the postal sub-sector; encouragement of local and foreign participation in the provision of postal services; the promotion of competition in the sub-sector; and the provision of modern, universal, efficient, reliable, affordable and easily accessible postal services throughout the country.
Under the draft Bill, the Nigerian Postal Commission will be set up as the regulator for the sub-sector. When passed into law, the sub-sector will be unbundled and the emerging entities privatized by way of concession.
The Power Sector Reform
The Electric Power Sector Implementation Committee (EPIC) produced the National Policy on Electric Power and a draft Electric Power Sector Reform Bill. The two instruments were approved by the National Council on Privatisation (NCP) in 2002. The draft bill was forwarded to the National Assembly and passed in 2003. In 2005, a significant landmark that was to change the Nigerian Electricity Industry landscape was undertaken with the enactment of the Electric Power Sector Reform (EPSR) Act. The EPSR Act, 2005 gives legal authority and support to the reform activities i.e.
restructuring and eventual privatisation of the National Electric Power Authority (NEPA) which was re-designated Power Holding Company of Nigeria (PHCN) and incorporated as a public limited company, in line with the reform of the electricity industry. The EPSR Act 2005 also repealed all previous legislations (NEPA Act, Electricity Act and Utilities Charges Commission Act as applicable to NEPA).
The Federal Government power sector reform had three key components namely: Restructuring of existing utility; Liberalization and privatization; and Reinforcement of existing infrastructure through NIPP and other government intervention.
The electricity industry reform was/is aimed at improving the overall industry efficiency through restructuring, private sector participation, and competition. Competition which is a major driver of the industry’s efficiency, through additional power generation, improved customer satisfaction and reduced tariff, is introduced at the various levels of the market as it develops from stage to stage.
The reform process will be completed when full competition in all the competitive parts of the industry, namely generation and supply is attained.
The reform is a necessary tool to lay solid foundation for sustainable power generation and sector efficiency. It is a means to an end and not the end itself. It is therefore expected that the Federal Government will in the short-medium term, continue to provide funding support for the electric power sector, through yearly FGN’s appropriations so as to improve transmission, and distribution infrastructure which are key components of the energy value chain.
By 1999, the Nigerian electric power sector reached, perhaps, its lowest point in its 100 years history with the following statistics:
Of the 79 generation units in the country, only 19 units were operational. Average daily generation was 1,750 MW. No new electric power infrastructure was built between 1989 and 1999. The newest plant was completed in 1990 and the last transmission line built in 1987. An estimated 90 million people were without access to grid electricity. Accurate and reliable estimates of industry losses were unavailable, but were believed to be in excess of 50%.
Objective of the Reform
There are two key objectives for embarking on the Power sector reform. These are: the need for improvement in the efficiency of the distribution, generation and transmission network and the need to provide the people with the basic and affordable infrastructure to enable them create employment for themselves.
The NCP in 2000 inaugurated a steering committee to develop a National Transport Sector Policy. The resultant policy thrust focused on improving asset management and structural reform by redefining the role of government and the private sector. One of the key objectives for the reform in the Transport sector was to promote trade competitiveness of Nigeria through an effective and affordable integrated transport network. BPE championed the reforms of the nation’s seaports and carried out the concession of the various port terminals to the private sector. Before the reform, it was practically impossible to carry out meaningful business activities at the ports as it took months to clear goods. Ports operations were characterized by long waiting periods, diversion of Nigerian bound vessels to neighbouring countries and very high and duplicated charges to ports users.
Pension Reforms in Public Enterprises
The Pension Reform Committee was inaugurated in 2001. Membership of the committee cut cross all stakeholders in the public and private sectors. The committee was saddled with the following responsibilities amongst others; Review existing studies, reports and other background materials on the pension scheme, particularly in public enterprises of the public sector of the Nigerian economy; Review existing regimes, studies, reports and background materials on the implementation of pension systems in other countries, especially countries that share common economic characteristics with Nigeria; Determine the actual amount of unfunded pension liabilities in all Public Enterprises (PEs), particularly those slated for privatisation and commercialisation as of December 2000; Advise the Federal Government as to the best way forward for handling the matter in a manner that would not jeopardize the expectations of the gains of the privatisation programme and prepare draft legislation on the new pension system to be debated upon by all relevant stakeholders before presentation to the National Assembly for eventual enactment into law for implementation.
The work of the Committee led to the passage of the Pension Reform Act of 2004 and the establishment of the National Pension Commission (PenCom).
Prior to the enactment of the Pension Reform Act 2004, Nigeria operated a defined benefit scheme type of pensions whereby PEs habitually deducted pension contributions from their employees and lumped same with recurrent expenditure and spent it. That resulted in huge funding deficits in most of the PEs thereby creating serious social problems for retirees.
The strategy midwifed by BPE simply separated the agency that deducted pension contributions from the agencies that manage such contributions. The scheme is popularly referred to as the Chilean model or Contributory Scheme. With the establishment of the National Pension Commission and entrenchment of a stable pension policy in Nigeria, retirees are now guaranteed payment on retirement.
Impact of Pension Reform
The Pension reforms carried out by the Bureau has engendered the following positive impact: Over twenty Pension Fund Administrators (PFAs), seven Closed Pension Fund Administrators (CPFAs) and four Pension Fund Custodians (PFCs) have so far been licensed. Over 6.2 million contributors have been registered from 180,586 employers while 55,904 retirees, currently receive their monthly pensions as and when due. The total value of pension industry assets under the Contributory Pension Scheme is currently over N4.7 trillion and generates over N6.9 trillion annually.
Investment of long term assets in economic development, helping in increasing domestic savings and investments, while also helping in the development of the Capital Market by contributing to increase in the volume of intermediated funds, increase in level of trading, modernization and deepening of the capital market. Pension funds act as intermediaries to a lot of financial assets, including corporate equities, government bonds, and so on, while also providing long term financial intermediation to the real sector through corporate debt instruments and investment funds.
Pension funds serve as long term project finance for potential investors. The banking sector is yet to effectively and efficiently finance the real sector of the economy, bridge the infrastructural gap and provide affordable housing in Africa, due to the short term nature of its deposit liabilities and cost of funds.
Competition and Anti-Trust Committee
This Committee was inaugurated on the 18th of June 2001 with membership cutting across both the Public and Private sectors. The Committee was charged with the following responsibilities, amongst others:
Review of existing studies, reports and background material on monopoly and competition in Nigeria, including position papers, probe and panel reports and Government white papers where applicable.
Review of existing anti-trust regimes, studies, reports and background material on competition in other countries. Identification of all legislation, industry practices and customs that inhibit competition or in any way, confer monopoly/restrictive powers on any firm – whether public or private, in all economic sectors.
Preparation of draft legislation to completely eliminate monopolies, remove restrictive conduct and foster competition in all economic sectors. The legislation shall also establish a regulatory agency for each sector to ensure that detailed rules for corporate conduct are drawn up and enforced.
The Committee produced a draft Competition Policy for Nigeria and a draft Federal Competition Commission Bill. The Policy and Bill were approved by the NCP in 2004.
The proposed Federal Competition Commission Bill is designed to, among other things, prevent the concentration of economic and political powers in the hands of a few large organizations; promote maximization of consumer welfare using market principles and efficiency criteria; encourage local control of business and protect against the effects of labour dislocation; nurture small businesses, and create an economy characterized by many sellers competing with each other; ensure access to many more people previously denied an equal opportunity to participate in the economy; prevent restrictive practices and abuse of dominance, on account of ownership concentration.
Others are to stimulate growth, innovation and expansion of economic opportunities; maintain and encourage competition and enhance economic efficiency in production, trade and commerce; prohibition of contracts or arrangements and restrictive practices (e.g. price fixing, bid rigging, price discrimination, fixing quotas, etc) that substantially lessen competition; regulates mergers, takeovers and acquisitions and prohibits monopolies.
The Solid Minerals Sector Steering Committee submitted its report to the NCP onMonday, December 13, 2005. After detailed deliberations, the NCP directed BPE to process the draft Mineral Sector Policy document for the attention of both the National Economic Council and the Federal Executive Council.
BPE also collaborated with the then Ministry of Solid Minerals Development to develop a new legislation for the sector. The draft bill was passed into law in 2007.
When an economy is liberalized, proper regulatory machinery must be put in place. In all the sectoral bills drafted, there are provisions for regulators. This is to ensure that the rights of all stakeholders, especially the consumers are protected. For instance the Nigerian Communications Commission (NCC) has been overseeing the telecommunications sector while the Nigerian Electricity Regulatory Commission (NERC) is in charge of the power sector.
One of the challenges envisaged in the post-privatization era is the regulation of the sectors. Hitherto, this was done by either Ministries or statutory bodies that performed both regulatory and operational functions. Some public enterprises were often organized to achieve political objectives not to solve market failures. Many have been tools of special interest groups and corrupt officials. There is a danger that such rent-seeking coalitions, aiming to avoid financial losses from privatisation and competition, will subvert the regulatory process.
Credible and stable regulation is required to achieve the benefits of privatizing and liberalizing infrastructure. A regulator should be coherent, independent, accountable, transparent, and predictable and have capacity to carry out its mandate. Thus, the institutional pre-requisite for regulation include:
a. Legal system that safeguards private property from state or regulatory seizure without fair compensation and relies on judicial review to protect against regulatory abuse of basic principles of fairness. In Nigerian, the Nigerian Investment Promotion Commission Act has addressed this.
b. Sound administrative procedures that provide broad access to the regulatory process and make it transparent.
c. Sufficient professional staff trained in relevant technical, economic, accounting and legal principles
d. Effective regulation requires that regulators be largely free from political influence, especially on a day-to-day or decision-by-decision basis though complete independence is not possible
e. A regulator’s independence should be reconciled with its accountability. Allowing a regulator to set prices and quality standard gives it enormous power to re-distribute rents. Without an accompanying obligation to respect previous decisions and the legal rights of all parties, a regulator has considerable leeway for opportunism.
f. Infrastructure is an important policy issue, and in a democracy, all citizens need transparent information about it to evaluate government performance. Thus all regulatory rules and agreements should be a matter of public record.
g. A regulatory agency’s responsibilities should match its financial and human resources. Lack of financial capacity is likely to be a genuine constraint. Similarly inadequate expertise is a much bigger challenge in many developing and transition economies. Well-developed economic, accounting, engineering and legal skills are required for regulatory functions such as monitoring industry performance, analyzing cost data, dealing with information asymmetries and analyzing the behaviour of regulated firms.
Status of Current Reform Initiatives
The current reform initiatives being undertaken by the NCP through its Secretariat, the Bureau of Public Enterprises (BPE) culminated in the approval of eight (8) draft reform bills by the Federal Executive Council on February 11, 2015. These bills have also been transmitted to the National Assembly for enactment.
The bills are: Railway Bill; Inland Waterways Bill; Ports and Harbour Bill; Federal Roads Authority Bill; National Roads Fund Bill; National Transport Commission Bill; Competition and Consumer Protection Bill and Postal Bill.
Enactment of these bills will impact positively on the infrastructure landscape of the country as they aim to liberalise the relevant sectors and create the enabling environment for the much needed private sector investments.
The bills generally seek to abrogate monopoly laws and ensure a conducive business climate to encourage private investment, promote competition and institute a sound legal and regulatory framework that would ensure independent regulation.
Furthermore, they seek to create an institutional framework that delineates and defines the roles of policy formulators, operators and regulators. This will ultimately lead to the creation of new agencies as contained in the bills and the merger of others. Six of these bills are in the transport sector.
––Yakubu, a Reform and Privatisation Specialist, writes from Lafia.