Ms. Bolanle Onagoruwa, Director General

Bureau of Public Enterprise

MANAGING INVESTMENT POLICY REFORMSIN TIMES OF POLITICAL TRANSITION

Perchstone & Graeys

5th Annual Law Series

5th May, 2011

OUTLINE Objective Of Investment Policy Reforms Investment Policy Reforms Philosophy Policy Reforms Enablers Managing Privatisation Programme In Times Of Political TransitionChallenges Of Managing Reforms In Times Of

Political TransitionExamples Of BPE Previous Reform Activities:

Enabling Laws & Management ApproachOutstanding Reforms & Pending Bills/Laws Other Country Experiences Conclusion

WHY Investment Policy Reforms?

Investment Policy Reform

Quality Investment Policy

Favourable Investment Climate

High Levels of Investment

Growth & Socioeconomic Development

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Investment Reforms Philosophy

Government should legislate, regulate and tax businesses, not to be an operator or compete with its citizens/private sector.

Government should forge partnerships with the private sector and other stakeholders in policy formulation and implementation

Reform is a non-linear, dynamic process and there are two main stages of reform, each with its own set of challenges and processes: Initiating and designing stage— This involves

identifying priorities for reform, getting reform onto the agenda, developing reform proposals, and building acceptance for reform; and

Implementing and sustaining reform— involves strengthening the incentives and capacity to implement reform and creating institutional mechanisms to monitor and sustain reform. 4

Non-linear Nature of Reform

“Linear analysis will get you a much changed caterpillar but it won’t get you a butterfly. For that you need a leap of imagination”

( Robert L. Hutchings)

Therefore for the purpose of this discussion, we shall focus on PRIVATISATION PROGRAMME (the main thrust

of the Federal Government socio-economic reform policy) and discuss how it is being managed in times of

political transition.

KEY ENABLERS OF MANAGING REFORM POLICY: a) Enabling law/strong political foundation

b) Stakeholder engagement & Transparent/dynamic project management approach

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Investment Policy Reform Enablers

Enabling Environmental PrerequisitesPolitical WillRobust LawsStakeholders’ buy-inStrong Independent Regulation Transparency/Integrity of ProcessStrong Project ManagementCost Effective ArbitrationExchange Rate StabilityGood Sovereign Credit Rating Policy Consistency

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Privatization Programme Enablers & Management Approach Robust Law - The Public Enterprises (Privatisation and

Commercialisation) Act No.28 of 1999 provides for:

National Council on Privatisation (NCP) as policy body

Vice-President as Chairman of NCP – strong political champion

Membership of NCP consisting of government (Ministers, relevant heads

of government parastatals), private sector and labour – Political

will/enabling institutional framework & stakeholder involvement

Bureau of Public Enterprises as implementing agency- institutional

structure

Establishment of Sectors Steering Committees with Ministers as

Chairmen of the Committees - enabling institutional structure

Clear Policy objectives

To improve efficiency & reduce waste in public sector

To diversify economy & strengthen private sector as engine of economic

growth

Privatisation Programme Enablers & Management Approach: cont DEVELOPMENT OF APPROPRIATE REGULATORY & INSTITUTIONAL ENVIRONMENT – in

accordance with the provision of 1999 Privatisation Act Appropriate policies, legislation and regulation that support and protect investments

are fundamental to private sector participation in any country ‘s reform programme.

The law also helps in the management of the reforms in times of political transition or otherwise since it guides the process and the participants.

Good example is the Nigerian telecommunications sector – the Telecoms Act 2003 opened up the sector and established NCC.

The Electric Power Sector Reform Act (EPSRA) 2005 is guiding the ongoing Power Sector Reform and established NERC

PUBLIC ENLIGHTENMENT AND STAKEHOLDER ENGAGEMENT Having the laws in place is not sufficient. It is important that the public & stakeholders are

educated, involved & engaged at the conception and implementation stage of reform programme.

Examples of stakeholders engagement effort for the ongoing Power Sector Reform are as follows:

Mr. President launched the Road Map in August 2010; Held Presidential Retreat on Power in 2010; BPE hosted Investor Roadshow across the world in Jan & Feb. 2011; BPE is currently engaging Labour Unions to resolve contending issues and ensure successful

reform 8

Privatisation Programme Enablers: cont

FGN providing additional and ACCESSIBLE incentives to the private

sector (Duty waivers, Tax exemption etc) – Securitization - working with international institutions such as

the World Bank to provide a range of financial instruments to mitigate financial risks (e.g. the PRG that is being structured for the Power Sector Reform).

PUBLISHING & POPULARIZING ACHIEVEMENTS OF PAST REFORMS – This is to encourage & boost investors’ confidence in the ability of the country or its institutions in project or reform management.

CONTRACT ENFORCEMENT/EFFECTIVE ABRITRATION PROCESS: It is important that effective and efficient contract enforcement/adjudication process is institutionalized.  

POLICY CONSISTENCY

This is highly important to boost investors confidence. Private sector would be attracted/encouraged to invest in an economy or environment with low or no record of policy reversal.

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Challenges of Managing Privatisation Programme in times of Political Transition Notwithstanding the existence of enabling laws and

application of transparent/dynamic project management approach, privatization still faces some challenges:

Reform suffers loss of momentum It is always difficult to maintain momentum of reform

activities, plans and programme in times of political transition .

Project workplan and deliverables are usually distorted or prolonged

Reform Reversal

In recent past, some privatisation transactions suffered cancellation, reversal or suspension in times of political transition e.g.

• Lagos International Trade Fair Complex, National Theatre, Iganmu & Tafawa Balewa Square concessioning were delayed

• Airports Concession was cancelled

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Challenges of Managing Privatisation Programme in times of Political Transition contStakeholders & Political Opposition’s

Apathy/Resistance Political opposition and some stakeholders usually take

advantage of political transition to launch attacks and discredit reform programmes (e.g. the continuous unsuccessful campaign against Ports Reform)

Labour Resistance Labour usually exploits political transition to increase

agitation and resistance to reform programmes or policies (e.g. the 2007 labour resistance cum strike action to stop privatisation of refineries)

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Few examples of BPE Reform Activities: Enabling Laws & Management Approach

In spite of the challenges, these are few examples of BPE reform activities that have been sustained irrespective of political events

Telecoms Produced new National Telecoms Policy in 2002

Investor-friendly Telecoms Act enacted in 2003 Enabled issuance of GSM & Fixed Wireless Licenses Paved way for ‘telecom revolution’ in the country MTN, Glo & Airtel and other private network operators are

blossoming and doing good in their businesses Established NCC to regulate the sector

Solid Minerals New National Policy on Solid Minerals produced -2006 Mining and Minerals Act enacted -2007

Aimed at entrenching private sector led minerals sector development

Some of the Mining titles have been concessioned

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Examples of BPE Reform Activities: Enabling Laws & Sustainable Management Approach Adopted

The remaining Mining titles are to be concessioned in 2011 in collaboration with Ministry of Mines & Steel Development .

Power Sector Policy, 2001 Aimed at ensuring electricity supply that meets the needs of the economy by

involving private sector investment and managerial expertise

Investor friendly Power Sector Reform Act passed 2005 PHCN unbundled into six generating companies; eleven distribution

companies & one transmission company -2005 (6-1-11 configuration) These 18 successor companies have been corporatized and legal instrument

transferring assets, liabilities and employees of PHCN to the successor companies signed

Nigeria Electricity Regulatory Commission (NERC) established as independent regulator -2006

Development of competitive electricity market in progress Privatisation and concessioning of the Successor Companies are on course. Securitisation arrangement is ongoing to mitigate financial and regulatory

risks Bulk Trading Company Plc & NELMCO have been established and

corporatised.

Outstanding Reforms and Pending Bills

Outstanding Reforms & Pending/Required Bills/Laws

Without the urgent passage of 7 critical sector reform Bills into law, the gains of the last several years and future reforms would be impossible and unsustainable. The Bills are as follows;

Gas Bill provides for:Separate legal and regulatory regime for the downstream

gas sectorGas Regulator Commission, Nigerian Gas Transportation

Company, and Nigerian Gas Marketing CompanyAwaiting Federal Executive Council (FEC) consideration for

onward passage to National Assembly for enactment into law

Petroleum Industry Reform Bill provides for:Legal and regulatory framework, market-based pricing,

elimination of regulatory distortionOpen market downstream petroleum sector to encourage

private sector investmentThe bill has been diluted by some stakeholders with varying

interests15

Reforms & Required Bills/Laws: cont

Ports and Harbour Authorities Bill - Repeals Nigerian Ports Authority Act No. 38, 1999 and provides for:The establishment of the Landlord Port Model, whereby the

Port Authorities will be landlords on behalf of the Federal Government

Private sector participation in the provision of ports services - drives efficiency, safety, accountability, competition, fairness, transparency

Awaiting FEC consideration Nigerian Railway Bill - Repeals Nigerian Railway Corporation

Act 1955:Limits role of Federal Government to procurement of railway

services and infrastructure through ConcessionsProtects rights and interests of licensees, customers and

other stakeholdersProvides basis for regulation by National Transport

CommissionAwaiting FEC consideration 16

Reforms & Required Bills/Laws: cont National Transport Commission Bill:

Provides economic regulatory framework for intermodal

industry

Provides for independent regulator (National Transport

Commission)

NTC will monitor compliance of government agencies and

service providers

Awaiting FEC consideration

Inland Waterways Bill - repeals National Inland Waterways Act No.

13 1997:

Framework for ownership, management, control, operation and

development of inland water ways

Creates conducive environment for private sector investment &

participation

Awaiting FEC consideration17

Reforms & Required Bills/Laws: cont. Federal Competition Commission Bill fosters growth, open

economy, puts ‘multiplier to work’

Prohibits price fixing, bid rigging, price discrimination,

fixing quotas

Prevents concentration of economic, political power,

ownership

Prohibits monopolies/Regulates mergers, takeovers and

acquisitions

Stimulates economic growth through competition,

efficiency, trade and commerce, promotes consumer

welfare

Liberal access drives increased participation in the

economy

Awaiting FEC consideration18

Other Country Experiences Reform policy and especially privatisation received its strongest

political foundation and support from the following world leaders: British Prime Minister, Margaret Thatcher ( from 1979–

1990) U.S. President, Ronald Reagan (1980–1988), and Chilean President, Augusto Pinochet (president from

1974–1990)

The political will and decisiveness of those leaders were supported with a robust legal environment/effective & dynamic institutional structures: Chile enacted Decree 211 (1973) which classifies any act tending to

impede free competition as an infraction The Decree also established three agencies in charge of defending and

promoting free competition: the two Antitrust Commissions known as the Preventive Commission (Comisión Preventiva) and the Resolutory Commission (Comisión Resolutiva); and

The National Economic Prosecutor’s Office (Fiscalía Nacional Económica) 19

Other countries experiences cont. In addition, the 3 countries enjoyed political stability – critical factor

to successful reform/socio -economic growth

India is one example of a developing nation where reform (privatisation) was implicitly implemented & politically managed No written privatisation policy or law – the Industrial policy

statement of July 24, 1991 was the policy umbrella under which privatisation was implemented. The policy allows these 3 reform elements:

Disinvestment of Public Sector Undertakings (PSUs) - privatisation

Closure of sick PSUs – privatisation Liberalization – reform (privatisation)

It was designed to disarm critics and prevent government from wasting time in defending privatisation rhetoric

It is also a calibrated policy move to assuage political opposition

As a result, Foreign Direct Investment (FDI) to India grew from $97million as at 1990/91 to $32.4bilion in 2007/2008

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Conclusion Reform is a non-linear dynamic process for economy diversification Reform objective is to also strengthen private sector as engine of

economic growth Government political will is the primary enabler for any reform Other supporting enablers are :

Robust Law Strong institutional structure Stakeholders' buy-in Effective arbitration process etc

Having a strong political foundation is not sufficient. Managing privatization (the main thrust of Federal Government reform policy) in times of political transition demands the following amongst others:

Coordinated application of a wide range of skills and expertise in project management;

Application of regulatory tools and incentive programs; and

Transparency and accountability in the contractual, regulatory and operational framework.

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Thank you!