nerPostTitle">WAITING TO PAY FOR NITEL Written by furtune Business http://www.nigerianbestforum.com/blog/?author=25 http://www.nigerianbestforum.com/blog/?cat=13 Mar 2, 2010

Waiting to pay for NITEL
By Bassey Udo and Ejiro Gegere
March 2, 2010 07:46AM
http://www.nigerianbestforum.com/blog/wp-content/uploads/2010/03/dt.common.streams.StreamServer21.jpeg Christopher Anyanwu, Director General of the Bureau of Public Enterprises, vouchers for the transparency of NITEL transaction.

The fact that since 2001 all the previous winners in the privatisation of the Nigerian Telecommunications Limited (NITEL), have failed to meet up the payment deadlines, raises doubts about the ability of the new bid winner to raise the $2.5billion it is willing to pay for 75 per cent of the national carrier. New Generation Telecommunications Limited emerged the preferred bidder with $2.5billion, the highest offered for the purchase of NITEL, since the federal government through its privatisation agencies struggled unsuccessfully to sell off the telecoms giant and return it on the path of profitability.

Ability to raise the sum
Industry watchers believe the asset is not only over-priced, but also question the ability of New Generation to raise the fund. Lanre Opayemi, an Abuja-based finance analyst, noted, “If the U.K.-based IILL could not mobilise $1.3billion to pay for 51 percent stake in NITEL in 2001, what magic will an almost anonymous company like New Generation perform to be able to raise a whooping N350billion to pay for 75 percent equity in the company at a time the nation's economy is undergoing one of the worst security guarantee ratings on investments? “With the background of Minerva Group, which is touted as the lead financier of New Generation, it is still doubtful. From which Nigerian bank (or collection of banks) will the consortium raise the N350billion to pay for the bid within the next 60 days? Let's face the truth! We may be on our way back to square one. Nigerians will be happy if New Generation proves them wrong.”

Consortium is confident
But Usman Gumi, the Managing Director, GiCell Wireless Limited, which is a member of the consortium, in a response to NEXT email justified the offer, saying “If government sold just a GSM spectrum on a paper to Etisalat for $400million just few years ago, then how much would it cost to have NITEL that has a National Carrier license, with all the spectrum; already built up GSM network that was operational, a fixed line network, a SAT-3, a transmission network (both on fiber and digital microwave radio), a complete CDMA 2000x network and all the estates across the length and breadth of Nigeria that is free of all liabilities?” He said the consortium was fully conscious of NITEL's worth, based on the expert advice by its consultants, which has extensive prior knowledge of the company in its hey days, after an exhaustive consideration of all data room information available to it like all bidders.

NITEL is worth every cent
The Bureau of Public Entreprises' Deputy Director, Communications and Public Affairs, Joe Anichebe, disagrees that the $2.5billion offer was unrealistic and outrageous, as critics said. He told NEXT in a telephone chat that contrary to opinions, the valuation of NITEL's assets has to be higher than past valuations, despite alleged depreciation of assets over the years, because the company is being sold free of all liabilities. Prior to 2001, functional fixed lines on NITEL's system were about 600,000. Through the stumbles of the various attempts to find a new buyer, the figures have dropped significantly to about 45,000, while its workforce, which used to be one of the biggest in labour circles in the country, has declined to about 2,000 from about 12,000, apart from the company being currently mired in over $500million indebtedness. If the 2005 valuation by investment consultants for 100 percent of NITEL's equity ranged between $555million and $855million, and its assets value in 2006 ranged between $339million and $704million, is it realistic to rely on New Generation's valuation of the company at $2.5billion, considering the level of depreciation that may have set in between 2005 and 2010?

Dream too far?
Though most Nigerians agree the country would be the better for it if NITEL's sale would fetch $2.5billion to the coffers of government, there are others that still express worry that this dream may be farfetched. Last Thursday, the Technical Committee of the National Council on Privatisation (NCP) and the Bureau insisted on the integrity of the process that threw up little-known New Generation as the preferred bidder for NITEL. In the next couple of days, Nigerians expect the consortium, which made an unprecedented offer of $2.5billion (about N350billion) for 75 percent stake in the moribund national carrier, to move swiftly to redeem its bid in line with stipulated guidelines and move on to the more important business of executing the post-privatisation plan to turn NITEL around, which none of the past bid winners succeeded in doing.

Payment guidelines The bid guidelines provide that each individual financial proposal must mandatorily be accompanied by a bank draft of 30 percent of the bid amount as bid security, while the preferred bidder would be required to “wire 30 percent of the final purchase consideration, less the amount already paid as bid security, within 10 calendar days of receiving the notification of NCP's approval of their bid by electronic transfer, or a bank draft for same day value. “The balance, representing 70 percent of the purchase consideration, will be paid by electronic transfer or bank draft for same day value within 60 calendar days of NCP's approval,” the Bureau said. What this means is that New Generation Consortium's initial bid proposal of $335,333 (about N50.3million) should have been accompanied by a bank draft for 30 percent bid security of $100,600 (about N15.09million).

But there was no confirmation that this provision was met, as there was no physical display of the draft for participants to see during the bid round. If the NCP goes ahead to ratify the bid result and issue the consortium a letter formally confirming it as the preferred bidder, New Generation is expected to within 10 calendar days of the receipt of the confirmation, pay $750million, about N112.5billion) after deducting the initial payment for bid security. This translates to $749.81million, or N112.472billion, after which the balance of $1.75billion or N262.5billion would be expected to be wired to the relevant government account within 60 days. The series, which started on Sunday, ends tomorrow with what status of the bid at the Privatisation Council.