UPDATE 2-Nigeria reverses privatisation of phone company

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By Estelle Shirbon

LAGOS, Feb 17 (Reuters) - The Nigerian government has reversed the privatisation of fixed line and mobile telecoms firm Nitel because buyer Transcorp failed to turn it around, Information Minister John Odey told Reuters on Sunday.

Transcorp, a Nigerian conglomerate, bought 51 percent of Nitel in 2006 for $500 million, but Odey said the government was seeking a new controlling stakeholder.

"They have told us that they do not have further funds to invest in Nitel and unfortunately they are also having a management crisis," Odey said by telephone.

It was the second time President Umaru Yar'Adua's government has reversed a major privatisation carried out by his predecessor, Olusegun Obasanjo, who stepped down in May 2007.

Yar'Adua had cancelled the sale of two oil refineries to a consortium including Transcorp, among other business allies of Obasanjo, citing an absence of due process in the sale.

Odey said the privatisation agency would immediately start looking for a new core investor for Nitel with technical expertise and sufficient funds to revive its fortunes.

Nitel's infrastructure deteriorated during decades of corrupt and inefficient state management, to the point that its lines are constantly malfunctioning, its billing is erratic and staff go for months without being paid.

Transcorp had announced in August that U.S. firm Cisco (CSCO.O), British group Cable & Wireless (CW.L) and South Africa's Dimension Data (DDT.L)(DDTJ.J) would provide technical assistance to fix Nitel, but few details were made public. The current status of the agreement is unknown.

ALLEGATIONS OF CRONYISM

Asked whether the government would pay back the $500 million Transcorp had paid for Nitel, Odey said the exact terms of the reversal had yet to be worked out but Transcorp would probably keep about 10 percent of Nitel.

A spokesman for Transcorp could not immediately be reached.

The privatisation of Nitel and its mobile arm M-Tel was one of the flagship measures of Obasanjo's administration but it generated accusations of cronyism and conflict of interest.

Transcorp was set up with active support from Obasanjo by a group of his business allies. During the final months of Obasanjo's tenure, it snapped up state assets including a lucrative Hilton hotel in Abuja and the oil refinery stakes.

Since Obasanjo stepped down in May 2007, Transcorp's fortunes have flagged. In August, it announced that investors had bought only 36 percent of its initial public offering which had been supposed to raise money to pay back what Transcorp borrowed to buy Nitel and to invest in the firm.

Past experience suggests Nigeria would struggle to find new, credible investors in Nitel. The government started trying to sell the firm in 2001 and went through a series of near-misses and fiascos until it finally sold it to Transcorp in 2006.

In late 2005, it came close to selling Nitel to Egypt's Orascom Telecom (ORTE.CA)(ORTEq.L), which analysts said had experience of countries with infrastructure problems and would have been well-placed to revive Nitel's fortunes. But Nigeria rejected the $256.5 million offered by Orascom as too low. (Editing by Paul Bolding)