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THIRD TIME LUCKY?

Posted by By Larry Claasen on 2006/02/06 | Views: 584 |

THIRD TIME LUCKY?


Telkom, Orascom said to be excluded from new round of bidding for troubled Nigerian operator

Telkom, Orascom said to be excluded from new round of bidding for troubled Nigerian operator

Nigeria has invited 18 companies, including Vodafone, BT Group and Orange, to bid for a majority stake in Nitel, the troubled state-owned telecommunications operator.

This follows its decision to reject a bid from Orascom, which failed to meet the reserve price set by Nigeria's National Privatisation Council. Orascom had bid US$256m for 51% of Nitel.

SA telecom operators Telkom and MTN, previously short-listed for the stake, are not among the 18 companies invited to tender, according to a report on Monday in Nigerian newspaper Business Day. Orascom has also been excluded from the new round.

The newspaper says that other than BT, Orange and Vodafone, companies that have been asked to bid include Saudi Oger (which is also the controlling shareholder in Cell C), Telekom Malaysia, France Telecom, Telecom Italia, Telia Sonera, Telenor and Millicom International Cellular.

Telkom withdrew from the previous bidding process late last year but its CEO, Papi Molotsane, has said previously that the SA fixed-line operator is still interested in Nitel, provided the Nigerian government addresses some "serious issues" bedevilling the company.

According to the Business Day report, the Nigerian government has invited 18 companies to bid for Nitel. This is the third attempt at partial privatisation of the operator. The first effort at a sale failed in 2002 when the successful bidder at the time, a consortium of Nigerian and foreign investors, failed to come up with the $1,3bn that it had bid.

In March 2003, the Nigerian government hired Pentascope, a Dutch management consultancy, to try to turn the troubled company around. But Pentascope failed and was fired with more than a year left of a three-year contract.

Nigeria's decision not to sell Nitel to Orascom follows pressure to call off the deal. Some Nigerian newspapers objected to what they perceived as a bid that was too low. Baba Tella, chairman of the Nigerian senate's committee on communications, also raised strong objections to the Orascom offer price.

The lower offer came despite the inclusion of M-Tel, Nitel's cellular subsidiary, and its exclusive access to Sat-3, the submarine cable that connects Nigeria with Europe.

Orascom's offer was the highest of only two bidders. The other bid was from a Nigerian consortium, Newtel, which offered only $155m for the stake.

Nigeria's Bureau of Public Enterprises was not happy with either offer. "The bid offer of $256m by Orascom is unacceptable," the bureau's director-general Irene Chigbue said last week.

Finding a bidder willing to pay a price acceptable to the bureau may be a tall order. Nitel has only 500 000 working fixed lines in a country of 134m people. M-Tel is the smallest of Nigeria's four cellphone operators and has only 340 000 customers in a market of 10m. Nitel is also carrying $450m of debt.

Any company taking control of Nitel would also have to deal with powerful trade unions and antiquated technology.

Chigbue admits Nitel is finding it difficult to hold its own in a competitive market. "Given the dynamics of the telecom sector, Nitel has not been able to compete," she says.

Could it be that the Nigerian government thinks Nitel is worth more than it actually is?

Some companies expressed an interest in Nitel only because they saw subsidiary M-Tel as a way into Nigeria's lucrative mobile market. Chigbue says some of the bidders wanted Nitel broken up into component parts but she says this was out of the question.

She admits that the process was not handled well. It was not made clear upfront whether access to Sat-3 would be included in a sale agreement. Chigbue says this negatively affected investor interest. It was decided to include Sat-3 access only at the last minute.

Chigbue notes that, besides their bidding for Nitel, investors were also exploring other opportunities in the telecom sector in Nigeria. SA's Vodacom, for example, is still hoping it will succeed in taking control of Vmobile, Nigeria's second-largest cellular operator.

Rapid deregulation of the Nigerian telecom sector may also have played a part in the bidders' offers not meeting government expectations.

Nigeria is seen as one of the last largely untapped telecom markets. With a large population and relatively low telephone penetration, the country is attractive to operators eager to expand in developing markets.

How the Nigerian government will make Nitel more attractive is not yet clear. There have been suggestions that it might try to float the company on the Nigerian Stock Exchange.

The partial privatisation of Nitel is part of an aggressive programme of the sell-off of state-owned assets by the Nigerian government.

Nigeria generated N43bn (R2bn) from the sale of 24 public enterprises in 2005 and a further 50 companies are set to be sold off this year.

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