Managing Investment Policy Reforms in times of Political Transition By Bolanle Onagoruwa (Ms)

1. Managing Investment Policy Reforms in times of Political Transition By BolanleOnagoruwa (Ms) Director General, BPE May 2011

2. OUTLINE • OBJECTIVE OF INVESTMENT POLICY REFORMS • INVESTMENT POLICY REFORMS PHILOSOPHY • POLICY REFORMS ENABLERS • MANAGING PRIVATISATION PROGRAMME IN TIMES OF POLITICAL TRANSITION • CHALLENGES OF MANAGING REFORMS IN TIMES OF POLITICAL TRANSITION • EXAMPLES OF BPE PREVIOUS REFORM ACTIVITIES: ENABLING LAWS & MANAGEMENT APPROACH • OUTSTANDING REFORMS & PENDING BILLS/LAWS • OTHER COUNTRY EXPERIENCES • CONCLUSION

3. WHY Investment Policy Reforms? Growth & Socioeconomic Development High Levels of Investment Favourable Investment Climate Quality Investment Policy Investment Policy Reform

4. 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.

5. 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: • Enabling law/strong political foundation • Stakeholder engagement & Transparent/dynamic project management approach

6. Investment Policy Reform Enablers • Enabling Environmental Prerequisites • Political Will • Robust Laws • Stakeholders’ buy-in • Strong Independent Regulation • Transparency/Integrity of Process • Strong Project Management • Cost Effective Arbitration • Exchange Rate Stability • Good Sovereign Credit Rating • Policy Consistency

7. 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

8. 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

9. 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.

10. 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

11. Challenges of Managing Privatisation Programme in times of Political Transition cont • Stakeholders & 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)

12. 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

13. 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.

14. Outstanding Reforms and Pending Bills

15. 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 sector • Gas Regulator Commission, Nigerian Gas Transportation Company, and Nigerian Gas Marketing Company • Awaiting 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 distortion • Open market downstream petroleum sector to encourage private sector investment • The bill has been diluted by some stakeholders with varying interests

16. 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 Concessions • Protects rights and interests of licensees, customers and other stakeholders • Provides basis for regulation by National Transport Commission • Awaiting FEC consideration

17. 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 consideration

18. 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 consideration

19. 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 (ComisiónPreventiva) and the Resolutory Commission (ComisiónResolutiva); and • The National Economic Prosecutor’s Office (FiscalíaNacionalEconómica)

20. 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

21. 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.

22. Thank you!