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‘Government must withdraw completely from private businesses’

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Austine Avuru

Austine Avuru, a co-founder of Seplat, was appointed Chief Executive Officer on May 1, 2010. Prior to joining Seplat, Avuru spent 12 years at the Nigerian National Petroleum Corporation (NNPC), beginning from 1980, where he held various positions including wellsite geologist, production seismologist and reservoir engineer.

In 1992, he joined Allied Energy Resources in Nigeria, a pioneer deepwater operator, where he worked for the next 10 years as exploration manager and technical manager.

In 2002, Avuru established Platform Petroleum Limited, and held the role of Managing Director until 2010, when he left to take up the CEO position at Seplat. In this interview with HELEN OJI, he spoke on how to revive the stock market, plans toward gas flare out from assets, and other sundry issues. Excerpts.

Since the 2007 to 2009 recession, only Seplat and one other company had approached the market for Initial Public Offer (IPO).  What inspired you come to the market at that time; especially as you recorded 100 per cent subscription at a period there was marked apathy in the market?

Our inspiration really was that we wanted to start on a regulatory platform that will impose on us the highest level of corporate governance, and that was why we did not only list in Lagos, we also went to list in London, which is truly difficult. 

In the U.K., they will not allow you list by introduction; probably we would have listed by introduction. You have to come in and raise funds. 

There has to be an IPO before you predetermine how much you want to raise, and you are unable to raise that kind of money, you pull the IPO and that is how stringent it is.

We set out to raise $500million. The full subscription was over $700million. 

Specifically to answer your question, our real motivation was to put the company on a platform that forced us to comply with international corporate government standards, and that is what we have done since 2015 we listed.

So you look at our governance standards, you look at our business reporting standards, disclosure standards, they are up to international standard; and in the past four years since we listed, as you can see, we have moved up to the premium bond in Nigeria Stock Exchange (PBE). 

There are seven companies in the PBE, and there is none of them that are less than 20 years old as a company.

Four years old after listing, and we are in the PBE not just because our market cap is higher than N200billion, which is one of the qualifications, but when you look at our governance standards we have been properly evaluated on these including all the directors taking written exams before we came into the premium bond.

What we have achieved today is exactly what we set out to achieve, to ensure that we build and run a company with the highest standards of corporate governance.

Were there some exclusive strategies that you adopted that gave you the 100 per cent subscription?

When enlisting particularly in the U.K., it is slightly different from here, because you are targeting mostly institutional investors.

But here in Nigeria, we targeted institutional investors and high net worth Individuals. 

So the key thing is how you market your prospectus, only that we did a road show around the world, in U.S., the entire Europe, South Africa, and in Nigeria.

We got a sizeable institutional investors and high net worth individuals that believe in our story, and our prospects, and at the end when we finished the road show and did the offer, we got about 40 per cent subscribers.

Seplat has been enjoying tax relief as a pioneer status from its six oil blocks since acquisition in July 2010.

It’s now eight years after, do you feel you still deserve such tax holiday, including an extension considering the amount of revenue being lost to government on account of this?

We do not. We had pioneer status for only three years, and after that, it expired. We had pioneer status from 2014 to 2017. 

We had it for three years, and it was not leading to any additional two years, so our pioneer status has since expired.

During the period that we enjoyed it, you can see what we did with the extra revenues.

Within that period of time, we built 375 million scores of gas processing capacity, and no other investor has put in more money in gas processing in that period of time than we have done in this industry.

Capital markets stakeholders talk about neglect of the nation’s capital market. Do you think the federal government is neglecting the bourse compared to other sectors?
 

What would they expect the federal government to do about the capital market? The capital market is really to be shielded from the federal government interference.

You have SEC as a regulator equivalent to UKLA in the U.K., and we have the NSE, and in fact the NSE operates almost like a coded company of its own, and runs its own accounting and so should be independent.

Now, what you really should strive is, two things: drive the size of a nation’s capital market, and size of the private sector in that country. Again, how much belief in corporate governance do the average private sector business people have? 

When you then look at those two things, you look at the size of the private sector.

Until 20 years ago, the private sector was a very tiny segment of the economy, and the government controlled everything from banks to even hotels.

But you see that the private sector since 1990, has been growing almost at the same pace as the federal government, and government is withdrawing from business.

Almost a good chunk of the private sector, as you know it today, developed out of the privatisation programme; as government was withdrawing, the private sector was coming in.

With the government withdrawing, we will succeed. Some have succeeded, and some have not succeeded.

The summary of what I am saying is that we are going through a transition, and that is going to last for a long time during which the private sector will have to reinvent itself, create proper governance structure because that is what creates and sustains the life of any company or institution.

It is not about short-term profit. First of all, government must be committed to withdrawing from business.

They have done well so far, but there are still areas like petroleum refining, and a few other segments where government is still involved.

But when government completely withdraws, the private sector takes over, and then the next stage is for the private sector to reinvent itself in terms of proper governance and rule and as it is growing, it is such companies that will seek assistance from the stock market either to raise money or to create liquidity in their business. 

Those are the key reasons why we have to commit to proper governance; otherwise, you will not be listing a company.

There are still a lot of Nigerian entrepreneurs that will prefer to keep the power of the private company to themselves without all the hassles of a listed company in terms of reporting standards or governance standards because they are quite strenuous. 

To summarise, I would say that it is not about government doing anything; it is about if there is anything that government has to do, it is for the government to stimulate the growth of the private sector.

As the private sector grows, you will see entry of more private sector companies into the capital market.

In your own view, how do you think government regulators even at this time can attract more IPOs to the market?

Again like I said, all the government can do is to first of all stimulate the growth of the private sector, and they can only do that by withdrawing themselves completely from business and always come up with a fiscal regime – both tax terms, fiscal and monetary policies.
 
Those are the only two instruments that they have; fiscal and monetary policies that would stimulate growth in the private sector. 

For instance, what kind of customs salvage structures do you have? How much protection does it offer without offending WTO rules?

How much protection does it offer those who are doing business here?

When you look at the banking sector, how much credit is available to the private sector to expand, and at what cost when they are borrowing at 22 to 28 per cent? that cannot grow the private sector, where competing countries are borrowing at single-digit interest rate. 

Those are the key issues, and once those are tackled, then you will start seeing major growth in the private sector, and then you will see entry into the capital market.

How has your enlisting on the premium board impacted to shareholders?

When shareholders invest in any company, they are placing a bet on two things.

They are placing a bet on the competence and integrity of the board and management.

That is what they are placing a bet on when they invest, and so for us, listing the company is to further increase the confidence the investors will have in our level of governance. 

As I said, any investor in a business is placing a bet on the competence and integrity.

Integrity is about governance while competence will produce results that will be open to everybody in terms of the bottom-line.

What is our turnover? What is our revenue? Are we paying dividend? Are there capital appreciations on our stocks?

That comes with competent management, and then the integrity of the board and management, added to that competence is what every investor places a bet on. 

If you list a company, you are already telling potential investors that you are prepared to be scrutinised by investors, and the scrutiny that comes with enlisted companies, and that heightens their level of confidence on the integrity and competence of the board and management.

With all the tax benefits the company has enjoyed, do you think what it has ploughed back into the economy is commensurate enough?

We ploughed back more than we got from tax rebate, and I always tell people because people think the tax-free period, they do not think the multiplier effect.

Now will the tax-free period enable me to have enough free cash? In 2013 and 2014, we were drilling over 15 wells in each year.

We took our oil production from 18,000 to almost 70,000; we took gas production from near zero to 400 million, today, just the royalty we pay on those volumes of both gas and oil, if you calculate it, it is much more than the so-called tax relief that we enjoyed. 

It depends on the way to look at it, and it is not just about us, even in manufacturing and other sectors.

The best way to look at it is, would you rather be collecting tax on a very tiny production or would you give tax relief, which would enable a quantum leap in production?

Then further down the road, when you are collecting tax and royalties on the increased production is much bigger revenue to the government than to continue to collect tax and revenue on a small production. 

The point is, if we continue to pay tax on 18,000 barrels a day, versus royalty and tax that we are paying today on 65,000 barrels a day, which is more useful to government?

That is what tax relief is meant to achieve, but many people do not look at it in its full context. 

They look at it as money that is given out free of charge, and they can see what happened to us, a powerful increase in our production of both oil and gas.

What led to the revised commercial terms and exit from Belema Oil in OML 55, and has the $330m been repaid since working interest was supposed to have ended in June 2016?

What led to the exit was that the Nigerian company we partnered with insisted that they must be the operator of the block, and at the end, we reached some kind of settlement whereas all we wanted was the money we invested into the block. 

All we are targeting is, how much production do we require to give us back the money we spent? That is all we put in our books now. 

We do not put our share reserves in the book.

We just put our share of future productions, which is necessary to pay us back what we have, and that is revise commercial terms.

Really, the block belongs to Bellema now, and the only interest that we have there is the financial interest.

Was the $330 million repaid?

No, that is the exit figure, the repayment is ongoing; once that is repaid, then the exit.


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