Restructuring of ALSCON and Unending Legal Tango

Ayo Abelegbe

It was Aeschylus, the ancient Greek tragic dramatist who said ‘in war, truth is the first casualty’. To paraphrase the words in line with the tragic drama playing out in the attempt to restructure the Aluminum Smelter Company of Nigeria (ALSCON) today, one would say ‘in a precariously desperate move by a supposedly core investor to grab a state enterprise at all cost, objectivity is the first casualty’. It is so bad that all the efforts of an aspiring (foreign investor) could muster is nothing other than poising for legal technicalities that stand the factual tenets of the restructuring process (of ALSCON) on the head.

An ordinary commercial investment process is being twisted to blackmail the agency of the federal government that midwives the process – the Bureau of Public Enterprises (BPE). There seems to be a dearth of objectivity and moderation as the aspiring core investor for ALSCON seems poised to turn a commercial project to a criminal-laden court process.

It is important to take a snappy review of the privatisation of ALSCON. At about 2004, ALSCON shareholding had been 97.5 per cent owned by FGN and 7.5 per cent by Ferrostaal. The Core investor sale of ALSCON (the second in the series) took off in 2004 and crystalised into actual bidding in 2006. At the end of the bid pre-qualification process, BFI Group emerged the Preferred Bidder with a bid price of $410 million. However, through a letter dated 17th June, 2006, BFIG Group indicated its inability to meet a crucial threshold of the transaction as it could not pay the required 10 per cent of the bid price within 15 days as required by the guidelines of the bidding process.

BFI Group, had through a court action, countermanded an attempt by BPE to subsequently sign a Share Purchase Agreement (SPA) with RUSAL, the runners-up in the pre-qualification for the financial bidding stage. The suit sought to prevent BPE from negotiating the sale of ALSCON with any other entity. After losing at the Federal High Court and the Court of Appeal, BFI Group got a reprieve at the Supreme Court.

The apex court had, in a judgment of 6th July, 2012 ordered the BPE to provide the earlier SPA with the BFI Group for execution. BFI Group was required to pay 10 per cent of the bid price within 15 days and the 90 per cent balance within 90 calendar days. Through a letter dated 7th September, 2012; BPE affirmed BFI Group as the Preferred Bidder for ALSCON in strict compliance with the Supreme Court decision.

The process as ordered by the Supreme Court subsequently became ill-fated and could not be consummated as BFI Group insisted on new terms that were not part of the original SPA on which the judgment of the Apex Court was hinged. An application by the BFI Group to get the Supreme Court to compel the BPE to accept BFI Group’s unilateral position was struck out on 3rd December, 2013.

At that juncture, one would have thought that the BFI Group would respect the sacrosanct subsisting decision of the Supreme Court. Rather, it instituted a fresh suit at the Federal High Court holden at Abuja. The decision of the Court in suit No. FHC/ABJ/CS/901/2013 as held by Hon. Justice Abdu-Kafarati was inconsistent with the subsisting decision of the Supreme Court on the matter. A subsequent appeal by BPE was upheld in January, 2019 and the earlier Order of Justice Abdu-Kafarati was set aside. The Appellate Court ordered the execution of the May, 2004 SPA as earlier ordered by the Supreme Court of Nigeria. Surprisingly, once again, the BFI Group bungled the consummation of the bidding process by insisting on fresh terms that were not part of the original SPA. The BPE, however, insisted on perfecting the transaction strictly on the premise that is consistent with the subsisting decision of the Supreme Court. BFI Group would not accept anything of such. It once again approached the Federal High Court.

In its latest legal gymnastics, the BFI Group filed a contempt process seeking the committal of the Director-General of the BPE, Mr. Alex Okoh to prison. The BPE had filed a preliminary objection to the process on the legal premise (which include but not limited to the fact) that there was no leave of Court to commence the process thus making same grossly incompetent.

Surprisingly, the presiding Judge – Justice Chikere, in his considered decision of 17th December, 2019; upheld BFI Group’s submissions and held that Mr. Alex Okoh as DG, BPE was guilty of contempt of the Orders of the Court of Appeal and the Supreme Court and thus liable to be committed to prison for a period of one month.

The BPE had promptly filed a stay of execution of the said committal order of Court and had filed a Notice of Appeal to challenge the decision.

From an objective bystander point of view, it is hoped that the due process of law would be allowed to prevail in the circumstance. It is equally hoped that the BFI Group would genuinely and objectively seek the consummation of the core investor transaction in a commercial manner instead of engaging in a barrage of quasi-criminal proceedings that have no direct intrinsic value on the transaction at stake.

In the October World Economic Outlook, we described the global economy as in a synchronized slowdown, with escalating downside risks that could further derail growth. Since then, some risks have partially receded with the announcement of a US-China Phase I trade deal and lower likelihood of a no-deal Brexit. Monetary policy has continued to support growth and buoyant financial conditions. With these developments, there are now tentative signs that global growth may be stabilizing, though at subdued levels.

In this update to the World Economic Outlook, we project global growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India. The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels.

There are preliminary signs that the decline in manufacturing and trade may be bottoming out. This is partly from an improvement in the auto sector as disruptions from new emission standards start to fade. A US-China Phase I deal, if durable, is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020—from 0.8 percent to 0.5 percent.

The projected recovery remains uncertain.

The service sector remains in expansionary territory, with resilient consumer spending supported by sustained wage growth. The almost synchronised monetary easing across major economies has supported demand and contributed an estimated 0.5 percentage point to global growth in both 2019 and 2020. In advanced economies, growth is projected to slow slightly from 1.7 percent in 2019 to 1.6 percent in 2020 and 2021. Export dependent economies like Germany should benefit from improvements in external demand, while US growth is forecast to slow as fiscal stimulus fades.

For emerging market and developing economies, we forecast a pickup in growth from 3.7 percent in 2019 to 4.4 percent in 2020 and 4.6 percent in 2021, a downward revision of 0.2 percent for all years. The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the nonbank financial sector and weak rural income growth. China’s growth has been revised upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal with the United States.

The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico.

Risks retreating but still prominent

Overall, the risks to the global economy remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit. New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return. Such events alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth.

Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited. It is therefore essential that policymakers do no harm and further reduce policy uncertainty, both domestic and international. This will help to revive investment, which remains weak.

Policy priorities

Monetary policy should remain accommodative where inflation is still muted. With interest rates expected to stay low for long, macro-prudential tools should be proactively used to prevent the build-up of financial risks.

Given historically low interest rates alongside weak productivity growth, countries with fiscal space should invest in human capital and climate-friendly infrastructure to raise potential output. Economies with unsustainable debt levels will need to consolidate, including through effective revenue mobilization. To ensure a timely fiscal response if growth were to slow sharply, countries should prepare contingent measures in advance and enhance automatic stabilizers. A coordinated fiscal response may be needed to improve the effectiveness of individual measures. Across all economies, a key imperative is to undertake structural reforms, enhance inclusiveness, and ensure that safety nets protect the vulnerable.

Countries need to cooperate on multiple fronts to lift growth and spread prosperity. They need to reverse protectionist trade barriers and resolve the impasse over the World Trade Organization’s appellate court. They must adopt strategies to limit the rise in global temperatures and the severe consequences of weather-related natural disasters. A new international taxation regime is needed to adapt to the growing digital economy and to curtail tax avoidance and evasion, while ensuring that all countries receive their fair share of tax revenues.

To conclude, while there are signs of stabilisation, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all.