The narrative is alluring but few would have bet on that prospect in 2004 when the Bureau of Public Enterprises (BPE) set in motion the privatisatisation process for Indorama Eleme Fertiliser & Chemicals Limited (formerly Eleme Petrochemicals Company Limited). Today it’s a testimonial that privatisation is the way to go, writes AKINOLA AJIBADE
Eleme Petrochemicals Company Limited (EPCL), located in Port Harcourt, Rivers State, is a petrochemicals complex originally fully-owned by the Federal Government and commissioned in 1996. Although constructed to international standards, located to take advantage of Nigeria’s abundant supplies of natural gas, and designed to manufacture products for which there was consistently high demand, EPCL was never managed properly, at no time operated to its potential, and was a significant loss maker and drain on the state treasury.
The company operated for about nine years from 1996, never operated effectively, although it was technologically a state-of-the-art facility. Severe management problems and continuing financial losses led to the Federal Government’s decision to privatise it.
EPCL was one of the most challenging enterprises the BPE has privatised in terms of the impediments, which impinged the company’s ability to achieve near-full capacity and which led to consistent losses .The impediments proved to be enormous challenges, which BPE faced and had to surmount in the course of its quest to privatise EPCL.
According to Sunday Jonathan and Ehis Nzewuji of the Public Communications Unit of the Bureau of Public Enterprises, they involved colossal debt burden such as project finance debts: The major impediment to EPCL’s existence and privatisation was the huge project finance debt of $53 million owed to a consortium of international financial institutions. The repayment of the debts was tied to total proceeds from export sales of all the company’s outputs. The consent of the creditors was required before any transfer of ownership (via privatisation) could be effected on the company. This was because of the nature of the loan agreements, which Nigerian National Petroleum Corporation (NNPC) (as EPCL’s parent and guarantor) entered into with the various consortia.
To begin the privatisation, the BPE sought and obtained the approval of the National Council on Privatisation to constitute a Federal Government team. The team negotiated with the creditors to release EPCL from its loan repayment obligations, as these debts were part of Nigerian’s debt stock to the Paris Club. The team also obtained the creditor’s consent to privatise EPCL.
There was also the issue of trade debts and statutory debts. EPCL was also indebted to various trade creditors and the Federal Government. These liabilities totalled $259 million as at June 30, 2005. An analysis of the liabilities revealed that 63.6 per cent of the total debt was due to government agencies such as the Federal Inland Revenue Service (FIRS) and NNPC.
Other challenges included inadequate working capital caused by the restrictive clauses in the project finance loans, which denied the company access to export sales proceeds of its polyethylene and polypropylene products; and absence of the mandatory turn around maintenance (TAM). EPCL’s plants were terribly dilapidated because it had not carried out the mandatory two-year TAM on its plants since it commenced operations in 1995.
In 2006, EPCL was privatised by the sale of 75 per cent of its shares to a core investor through a competitive bidding process. Little international interest was attracted. The company was sold to Indorama Group for $225 million, without liabilities which were retained by the government. Much of the acquisition cost was financed with debt, with the International Finance Corporation (IFC) lending Indorama $150 million for the acquisition cost and the new Eleme borrowing $130 million for its turnaround programme and working capital.
It is interesting to note that the available report on EPCL stated that “the absence of the two-year TAM of the company’s plants and facilities made it impossible for the company to achieve profitability” and “the level of the company’s indebtedness also greatly hampered the company’s ability to achieve profitability”, whereas after four months of turnaround maintenance, the company was operating at a healthy profit; for the first full year of operation earned a net profit margin of 36.1 per cent after tax; and in the second full year of operation had increased its net profit margin to an astounding 43.4 per cent after tax. The company was able to pay its owners a dividend of N9.5 billion (approximately $74 million) after only one year of operation.
The Share Sale and Purchase Agreement (SSPA) between the BPE and Indorama International Finance was signed on February 27, 2006 and the company was handed over to the buyer on October 26, 2006. Following the hand over, the core investor was required to comply with all the covenants of the SSPA including some specific clauses as described in clauses 8.2, and 8.4 of Annexure 1 for a continuous period of five years after the handover date.
On March 14, 2014, Indorama Eleme Petrochemicals Limited’s management wrote to the BPE intimating her that the company had complied with all the covenants of the said SSPA, including its specific clauses 8.2, and 8.4 and that the company has completed five years monitoring period as at August 6, 2011 since the handover date of August 7, 2006.
The Post Privatisation Monitoring (PPM) Department of the BPE consistently carried out performance evaluation of the Strategic Business Plans and monitored compliances of EPCL’s covenants as contained in the SSPA within the five year lock- in- period. The verdict was that the compliance status of EPCL is “highly outstanding and commendable as the company exceeded the projected production targets from the first year of operation to date.”
For instance, from the SSPA in the first year, the purchaser was to produce 85,200 metric tonnes (MT) of polymers, that is, High Density Polyethylene (HDPE) and Polypropylene (PP) but produced 135,000 MT which exceeded what was contained in the Post Acquisition Plan (PAP). This was more than the sum total of what EPCL produced in its 10 years of operation before privatisation. The plants were fully revamped with the purchaser investing about $170 million for TAM. BPE’s conclusion was that “the company has therefore complied with all the covenants in the SSPA.”
It was that laudable achievement that made the acting President, Prof Yemi Osinbajo a guest of the company on July 27, when he presented a Certificate of Discharge to the Chairman of Indorama Group, Mr. Sri Prakash Lohia and the Managing Director, Mr. Manish Mundra, for successfully accomplishing the post purchase agreement entered into with the BPE on behalf of the Federal Government.
“Following the 2006 handover, the BPE carried out routine monitoring on the enterprise to ensure that the core investor adhered to and implemented the post-acquisition plan it had laid out for the company. Today is the culmination of that process of monitoring and oversight by the BPE. I am delighted that it is taking place on an inspiring and hopeful note, and that we are all here today celebrating a thriving and promising company. We should not take this state of affairs for granted,” he said.
According to Osinbajo, the company has turned out to be a huge success story. “I am glad that we’re here today to see one of the success stories of the Federal Government’s privatisation programme. We will continue to support Indorama Eleme Petrochemicals Limited’s expansion ambitions. Our commitment to the privatisation programme is equally assured, and we will continue to do everything to support investors to maximise the potential of their assets.”
