Tender Drama

Nigeria

Economic News

22 Jul 2010
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After nearly a decade of false starts in the sale of its state telecommunications company, Nigeria recently announced it had found a buyer. However, the privatisation appears to have hit a rocky patch, with a member of the winning consortium denying that its involvement had been finalised.



On February 16, Nigeria's Bureau of Public Enterprises (BPE) revealed that the preferred bidder for a 75% stake in Nigerian Telecommunications (Nitel) was the New Generation Consortium, composed of China Unicom, China's second-largest mobile carrier, as well as Dubai's Minerva Group and the local firm GiCell Wireless.



Following the deal's announcement, however, Unicom was forced to clarify its position, releasing a statement that its European office had “indicated its interest in the provision of technical and managerial support services in relation to the proposed privatisation,” but that no agreements had been signed.



The price of the stake – $2.5bn – also raises eyebrows. Nitel's market value is thought to be significantly less, and the second-highest bidder, Omen International, offered $956m. Nonetheless, the BPE “stands firmly by the results of the open and transparent bid process for Nitel,” according to a statement.



In October 2009, the BPE announced that it had 13 potential investors for Nitel, including South Africa's MTN Group, Emirates Telecommunications Corp, MTNL of India, a group including Spain's Telefonica, and Nigeria's Globacom. The final date for the bid process was originally set at the end of 2009, then pushed back several times, due in part to Nitel worker strikes over unpaid wages.



Nitel has effectively been for sale since 2001, when Nigeria's telecommunications market was opened. At that time, the company had an asking price of $1.3bn, but no bidders. In 2003, Nitel was sold for $685m to Dutch Pentascope, which managed the company until 2005 when its contract was cancelled due to corruption charges. Egypt's Orascom Telecom Holding subsequently offered $275m for Nitel but this was rejected by the government. Finally, the Nigerian conglomerate Transcorp bought a 51% stake in the company in 2006 for $500m, only to lose it in June 2009 due to a breach of contract.



In the intervening years, Nigeria's state telecoms company has lost some of its luster. Revenue has steadily fallen, and 4000 employee salaries have been in arrears for more than a year. The number of fixed-line phone subscriptions has dropped from a high of 500,000 in 2001 to 45,000 in 2009, as many Nigerians turned to mobile phones. The mobile penetration rate now stands at around 50% in the country, but Nitel's languishing mobile division, M-Tel, has just 90,000 subscribers.



However, Nitel does have a stake in the fibre-optic South Atlantic 3/West Africa Submarine Cable, West Africa's only internationally connected bandwidth cable, which gives the company control over all Nigeria's wired communications. The undersea cable may have been instrumental in driving up Nitel's value, with the New Generation Consortium betting on the growth potential of broadband data services in Nigeria.



"That asset is useful at the moment but it is very time-limited. In a few years there will be much more competition for international capacity," Daniel Jones, partner at local consultancy Onda Analytics, told an industry journal. Two other submarine cables, Glo-1 and Main One, are set to come on-line in 2010 and break Nitel's monopoly.



While the $2.5bn bid for Nitel appears steep, Nigeria is Africa's most populous country and has not only a low mobile penetration rate but a its telecommunications market that is increasingly attractive for investors. With better management, Nitel could well tap into the vast potential of the Nigerian market.

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