Global Insight Perspective | |
Significance | The privatisation of NITEL has apparently been cancelled after mounting criticism that in the 18 months since it was privatised, new owners Transcorp have failed to turn the underperforming operator around. |
Implications | During December 2007, the government agreed with Transcorp that both would sell off shares to make space for a new core investor to take a controlling 51% stake and management control of the incumbent. The government is now looking for a new core investor and had already received several serious offers last year for MTel. |
Outlook | The decision simply to cancel the privatisation leaves one burning question: NITEL's prize assets are its ownership of MTel and exclusivity over the Sat-3/WASC submarine cable in Nigeria, but would investors find the fixed-line business of NITEL an attractive proposition? |
Nigerian Minister of Information and Communications John Odey has said in a statement that the government is reversing the privatisation of NITEL, principally because of "the failure of Transcorp to achieve the objectives of the privatisation guidelines, thus making the federal government's new position on the sale tenable", reports Agence France-Presse (AFP). Official clarification of the next steps has yet to be released, in what could become another tortuous, drawn-out legal process.
The government finally privatised NITEL on the fourth attempt in July 2006 when the Transnational Corporation of Nigeria (Transcorp) made a bid of US$750 million for a 75% stake, and finally paid US$500 million for a 51% stake (see Nigeria: 15 November 2006: Transcorp Takes Formal Ownership of NITEL). Transcorp partnered with British Telecom (BT) as its technical partner and management contractor. Two BT executives were appointed in November 2006 as the chief executive officers of NITEL and mobile subsidiary MTel, but six months later BT withdrew from the deal (see Nigeria: 11 April 2007: BT Reportedly Looks to Withdraw from NITEL Management Venture).
Transcorp has responded to the Information Minister's statement by confirming that "Transcorp is now in receipt of a letter signed by the Honourable Minister of Information and Communications stating that the Federal Government has reversed the sale of both NITEL and Mtel", reports the Vanguard newspaper. However, the statement said that the company intends to fight the decision: "Ironically, the purported reversal comes at a very crucial period in the actualisation of Transcorp's efforts at revitalising both organisations. Among other initiatives, Transcorp had indeed identified and reached final stages in negotiation with potential technical partners."
Meanwhile, the chairman of the Senate Committee on Privatisation, Senator Avo Arise, said that the correct procedures in terms of the privatisation law must be followed. According to This Day newspaper, Arise said that this decision had come about even though a new agreement had been reached between the government and Transcorp in an attempt to resolve the crisis at NITEL: "I am surprised that the government chose this time to announce the revocation, despite the agreement it entered into about two months ago with the Transcorp and the Nigerian Communications Commission (NCC), which mandated Transcorp to turn around the fortunes of NITEL in six months."
Just last week it emerged that the government and Transcorp had resolved in December 2007 a new rescue plan for NITEL (see Nigeria: 13 February 2008: Government and Transcorp Plan to Sell Stake in NITEL). The government held a meeting at the end of the year in which it was decided that both the government and Transcorp would sell equity stakes in NITEL in order to secure a new core investor, according to the Leadership newspaper. Under this resolution, the government would sell 24% of its 49% stake and Transcorp would sell up to 27% of its 51% stake, giving the new core investor a 51% shareholding and thus majority ownership. The government then plans to sell its remaining 25% of shares through a listing on the Nigerian Stock Exchange.
Outlook and Implications
It is not clear at this stage what the mechanics of cancelling the privatisation will entail, or the repercussions of the decision. Previously, the government terminated the three-year management contract awarded to Pentascope, again citing performance issues, but in this case Transcorp has paid US$500 million for a 51% stake in the operator—Senator Avo Arise has said that the "government may be compelled to pay back the money Transcorp paid to acquire NITEL" (see Nigeria: 3 February 2005: Nigerian Government Reportedly Terminates NITEL Management Contract).
The decision simply to cancel the privatisation leaves one burning question: which new investors would find the fixed-line business of NITEL an attractive proposition, given that previous investors and management contractors have found it impossible to live up to the government's expectations for the operator? According to Minister of Information and Communications John Odey, four companies have expressed their interest in acquiring a stake in NITEL/M-Tel. The Daily Trust reports that a memo in January 2008 said that "a number of companies have approached the Ministry and BPE expressing interest in NITEL/M-TEL, should government decide to review its position in the company. Notable amongst those that have expressed interest are: Telkom South Africa, Orascom of Egypt, Vodacom, and France Telecom."
Certainly there will be strong interest in mobile operator MTel, as this would provide a highly sought after entry point into the lucrative Nigerian mobile market, which at the end of last year became the largest mobile market in Africa. Last year, Vodacom, Alheri Engineering Co, and Mubadala Development Corp reportedly made offers to buy a stake in M-Tel (see Nigeria: 17 May 2007: Vodacom and Alheri Engineering Make Rival Bids for M-Tel). Vodacom reportedly tabled a US$480-million offer for a majority stake of at least 51% in M-Tel. NITEL's other prize asset is the ownership and exclusivity of access to the Sat-3/WASC submarine cable running from Lagos.