- Post 19 July 2007
- Last Updated on 23 April 2008
- By Michael Oluwagbemi
First, may I make it very clear that I am an apostle of capitalism; it is my sincere belief that government should not be in the business of running business. Government, especially those dominated by Nigerian politicians is bad business; there is no better argument to support capitalism than the corruption and inefficiency that have plagued government ran enterprises including but not limited to NITEL, NEPA(PHCN ati be be lo) and NNPC in Nigeria. For these reasons I have supported the privatization regime that begun first with the government owned banks under IBB which has recently seen the Hotels, Real Estate, Ports, Cement, Sugar and Telecom company changed hands.
The benefits of capitalism are best represented by the telecom revolution that was witnessed when private sector operators entered that space via GSM licenses issued by the government. Curiously though, the benefits of private sector efficiency and innovation did not come through privatization of NITEL. Rather, it came through liberalization of the sector by auctioning away the monopolistic rights of NITEL. This is especially true for an under explored market like telecommunication and will likely hold true for Power and Petroleum industries. This brings me to the crux of this piece which is monopoly and its dangers for the petroleum industries.
If you think government industries are dangerous then try monopoly! Monopoly is the wrong way to implement privatization. Monopoly residing with the government, where the actors at least change either by ballot or coup (God forbid), is more tolerable than transferring vast national assets on the cheap to Oligarchs and well connected businessmen who take total control of the national economy not by exercising the competitive and innovative strains of capitalism but by achieving domination through questionable methods. This is exactly what is going on between the government and Dangote Industries one of Nigeria’s largest if not the biggest sole proprietorship. Nothing destroys innovation and efficiency, which are the key benefits of capitalism, than a monopoly. Monopoly is an antithesis of capitalism and should be guarded against.
Note however, that Dangote is not the problem. Business for a few thrives in the absence of regulation simply because businessmen are opportunistic. If you were Aliko Dangote, what will you do? Assuming you were connected to the powers that be, won’t you at least try to obtain some favors? Hence, Dangote’s behavior while perfectly opportunistic and capitalistic should be curtailed by a society interested in capitalism and its twin which is competition. Note, that I have not used the word “banned”, or “stopped”, rather I used the word, “curtailed”. Our government is failing sorely in curtailing the activities of the Oligarchs by instituting minimum standards and regulations to encourage competition and discourage monopoly and collusion either in the disposal of public assets or after such assets are in the hands of the new generation Nigerian multi-trillionaires –Dangote, Otedola, Jimoh Ibrahim, Mike Adenuga (actually IBB) or Emeka Offor.
To avoid losing my readers, and to provide a concrete analogy as to when Dangote and his cohorts had double crossed Nigeria while the government has looked away, let us examine one of his more recent and controversial transactions. The sale of the oil refinery in Kaduna and PortHarcourt is a perfect case study of the privatization without regulation regime that has especially taken foothold under the Oligarchy backed regime of Olusegun Obasanjo and perhaps continue under his scion Umaru Yar’Adua if the people do not stand up immediately to call this government to order.
According to the Bureau of Public Enterprises, the agency charged with the sale of government owned business, Blue Star - a consortium made up of Dangote, Otedola and River State government -won the “competitive bidding” for these two prized national assets. First off, this is clearly not competitive as it has the hallmark of collusion and price fixing. Foremost, the make up of the consortium is questionable. Here we have Dangote teaming up with his strongest competitor to date (Otedola’s Zenon) to make a bid, thus eliminating any stronger competitor from the horizon in the absence of Mike Adenuga who is still on the run. In addition to this, acting in concert with the Rivers State government effectively neutralizes local agitation and assures government support especially since Odili (then Rivers State Governor) was the certified Prince of the PDP machinery in the South-South and given that Dangote to date is also the largest single contributor to the evil empire. Note that there is nothing illegal about any of these moves in the absence of regulation; in the presence of it however the consortium should have been disallowed from bidding solely on the ground of collusion and unfair advantage.
Furthermore, the BPE use of the term “competitive bidding” is highly questionable. For one, Blue Star Consortium never participated in the bidding process leading to the sale of the Kaduna Refinery. The shady process that led to its emergence is fraught with loopholes that any innovative businessman will exploit for unfair advantage which Dangote and Otedola clearly did. For example the China National Petroleum Corporation (CNPC), which was offered the right of first refusal in the KRPC, had offered $102 million for the firm. This, according to Chigbue (BPE Boss), could not match the reserve price. This in turn paved the way for Dangote to offer $160 million to buy the plant. The process was, however, not thrown open to a competitive process; the unsexy claim by Chigbue of synergy between owners of PHRC and KRPC makes her sound more like someone on the payroll of Blue Star than that of the Nigerian people for whom she should be seeking the most price for their property now on fire sale!
Is it not perfectly possible that Dangote had asked the Chinese to low ball so he can still get KRPC on the cheap? Could a case of price fixing be legitimately made against Blue Star? My answers to the above questions are a resounding yes! If the BPE had bothered to check, Blue Star revealed it had no prior experience managing refineries (on which count regulation should have disqualified this white knight) but instead proposed to hire Sinopec to do so, after China National Petroleum Corporation (CNPC) was out bided, even though both are majority owned by Chinese Government! Haba! This is a clear cut case of collusion, since managing that refinery is a low cost way for CNPC & Sinopec's owner to have access to prime Nigerian oil fields, involve in managing our refinery, reserving the right to purchase future ownership from Blue Star while fulfilling Chinese foreign policy of cornering more oil reserves and refined product especially in the Gulf of Guinea where she and the West is locked in a bitter battle still bubbling below the surface. Nigeria is being used!
There is no doubt in my mind that Alhaji Dangote is a smart businessman but it is the responsibility of the government to regulate business not to be in their pocket as the BPE clearly is. There is a right and wrong way to privatize Nigerian government owned businesses, and I have no doubt in my mind that no smart business man will pour $720m in scrap refineries as that loud mouthed Senator Obasanjo-Bello will want us to believe. The recent crying foul by Dangote and Otedola, asking for their money back because the refineries are worse than they thought, is also one smart business move to devalue the future sale of these assets if it (the transaction) is eventually rescinded as Nigerians are clamoring for. Should they not have done their homework? If it is that bad, how come they wanted it that bad? In the next article, I shall examine alternatives to properly privatizing the refineries while realizing the best value for the government treasury while encouraging competition in doing so even if Dangote and Otedola keep up their campaign of bad mouthing and double crossing the Nigerian people. They are smart, but not smarter than 140 million people!