It has been widely accepted among developing nations
that economic development can be accelerated with active industrial sector. In
the same vein it is the power and energy sector that drives industrialization. Nigeria, as a
typical developing country that is anxious to grow has failed in the provision
of domestic energy to her citizenry and industries. In her recent efforts to
fulfill this obligation, Nigeria
chose to privatize her electricity supply unit in pursuit of greater market
efficiency. Unfortunately, the effort has not yielded the desired result.
Homes, government establishments and industries have suffered a great deal of
power outage. This has questioned the economic rationale behind the pursuit of
profit at the expense of very huge loss in welfare.
In this paper, an attempt has been made to estimate
the impact of privatizations on business development in Nigerian and to examine
the effect privatization has had on the pattern of private sectors and public
sectors. Privatization broadens and deepens the power sector resulting from
increased listings consumer size. Privatization has also provided opportunity
for risk diversification, enhanced professionalism and increased government
attention. The implementation of the first and second round privatization has
resulted in a tremendous boost to the total power supply, and consumer price
This paper posits that; in a primitive undeveloped
private sector, utilities such as energy and power cannot be privatized without
jeopardizing the development motives of the nation. Standard econometric
methods were used to show that the structure of supply of electrical energy is
different in the hands of undeveloped private sector and inimical to the
overall development of the nation. In
spite of the identified shortcomings, the privatization program has enhanced
the development of the Nigerian power sector.
TABLE OF CONTENT
1.1 Reasons why PHCN should be privatized
1.2 Statement of problem
1.3 Objective of study
1.4 Significance of the study
1.5 Research questions
1.7 Scope of the study
1.8 Definition of terms
2.1 Historical background on restructuring and privatization of the power holding
sectors in Nigeria
2.2 The concept of privatization
2.3 Evolution of privatization as a means of reform
2.4 Objectives of privatization programme
2.5 Objectives of privatization in Nigeria
2.6 Reason for privatization of power holding company
2.7 Benefits of privatization to the economy
2.8 Problems of privatization to business development
2.9 The role of financial sector on privatization of public sector in Nigeria economy
2.10 Options for privatization from commercialization
CHAPTER THREE: RESEARCH METHODOLOGY AND METHOD OF DATA COLLECTION
3.2 Research design
3.3 Nature of data collection
3.4 Study population
3.5 Sample size and procedure
3.6 Formation or re-statement of hypothesis
3.7 Instrument of analysis
3.8 Problems encountered on the field
PRESENTATION AND ANALYSIS
4.1 Presentation of Bio-Data
4.2 Presentation of Research Questions
4.3 Hypothesis Testing:
FIVE: SUMMARY AND CONCLUSION
5.2 Summary of findings
5.3 Limitation of the study
5.4 Suggestion for further studies
1.0 BACKGROUND TO THE STUDY
In recent years,
privatization of public enterprises has re-occupied policy analyst in search of
solution to improve the performance of government owned enterprises and profit
maximization from relying on government subvention and vote, several developing
countries, including African countries have embarked on extensive privatization
as a measure to revive their economy which is a most common programme in
capitalist nation, within the framework of macro-economic reform and
At the beginning of 1990,
few African countries had undertaken some form of privatization, and by 1993
the number had doubled, by the end of 1996 other but five countries had
divested some public enterprises.
However, the widespread
resort to privatization is formed by severed development, since the beginning
of the 1980’s; privatization of public enterprises has become a major policy
tool in both developed and developing countries following the apparent
successful privatization programme in Britain.
The urge for privatization
was further reinforced by the need to reduce government expenditure in the face
of burgeoning fiscal deficit and also in conformity with the resurgence of
‘Economic Liberalization’. In this development, the adoption of privatization
is a renewed interest in the private sector as the impetus for economic growth
despite an impressive level of privatization activity across Africa and
compelling evidence from other developed countries and developing countries
that privatization is viable and capable of injecting dynamism into previously
regulated economy, this evidence indicated that the anticipated benefit of
privatization are yet to be felt in African countries. Most study reveals that Africa privatization programmes are narrow in scope,
subject to policy reversals and extremely limited impact as measured by any
criteria. (Adam 1994, The high expectation of the 1980’s)
This gives the desirability
and even in viability of privatization as a major tool for meaningful and
sustainable economic reform. Against this background this study undertakes a
comparative analysis of the privatization experience with emphasis on Power
Holding Company of Nigeria (PHCN).
Power Holding Company of Nigeria is one
of the public enterprises which operate with government approval as monopoly
with the aim to maximize their benefit while unintended and undesirable
repercussions are minimized. In Nigeria
such monopolies are usually confirmed on these enterprises through legislative
act ordinance of decrees.
Public enterprises were
established to achieve certain objectives that is rendering service to the
people, but the reverse is the case in Nigeria, it has been observed that they
were unable to achieve these set objectives because of their non – performance.
Despite the non - performance, they still consumed a large proportion of the
government expenditure role in the public sector. It is the poor performance
coupled with the downturn in the economy of Nigeria that led General Ibrahim
Babangida’s regime in 1986 to adopt the Structural Adjustment Programs (SAP).
Since the introduction of
SAP in July 1986, various measures have been introduced, some with the aim of
gradually deregulating government control in certain section of the Nigerian
On 1st July, 1988,
SAP officially came to an end after being implemented for two years. However,
the Federal Government of Nigeria promulgated the privatization and
commercialization program, which remained one of the key ingredients in
Structural Adjustment Programs that has not been implemented accordingly.
The Technical Committee on
Privatization and Commercialization (TCPC) was set up in 1988 under
Privatization and Commercialization Act.
The TCPC was charged with the following responsibility:
1. Advising on the capital restructuring
needs of enterprises to be privatized on commercialization under this act, in
order to ensure a good reception in the Stock Exchange Market (SEM) for those
to be privatized as well as to facilitate good management and independence
across to the capital market.
2. Carrying out all activities required for
the successful public issues of shares of the enterprises to be privatized
including the appointment of issuing house, stock brokers, solicitors,
accountants and other experts to the issue.
3. Advising the Federal Government, after
consulting with the Securities and Exchange Commission (SEC) on the allotment
pattern for the sales of shares of the enterprises concerned in accordance with
4. Overseeing the actual sales of shares of
the enterprises concerned by the issuing houses on accordance with the act.
5. Submitting to the Federal Government for
approval from time to time proposal on the sales of government shares in such
designated enterprises with a view to ensure a fair price and even spread of the
ownership of the shares.
Originally, some 110
enterprises were agreed for privatization by end of 1991, of these was split
into sages and 18 were rescheduled before 1989, when the TCPC was established.
This left a total of 92 enterprises to be privatized under the TCPC
distinguishing it from partial privatization, however a total of 23 enterprises
using profitable activities such as mostly heavy industries, strategic
important as Steel, Mills, Cement Industries, Nigeria Airways, Nigeria
telecommunication, were slated for partial privatization. Another 67
enterprises using profitable activities such as Hotels, Textiles, Food and
Beverages, Banking and Insurance were scheduled for full privatization, meaning
that government equity was to be reduced to not more than 40% by March 1992;
TCPC has privatized 40 parastatals, adding the pre TCPC.
In September 2001, National
Council of privatization came up with three set of motion process which
involves a logical sequence of side by side policy formulation, legal and
regulatory framework designed to strengthen the sector, restructuring and
liberalization which will lead to the actual privatization transaction.
1.2 STATEMENT OF PROBLEM:
In spite of the huge
investment in public enterprises in Nigeria, their services could not
meet the demand aspiration of the populace.
In fact the report of the
Onosode Presidential Commission on public enterprises (1984) reveals that most
of the public enterprises were affected with some problems which are related
Defection capital structure resulting in heavy
dependence burden on national treasure.
Mismanagement of funds and operations.
Misuse of monopoly of power culminating in corruption.
Bureaucratic bottleneck within public
These problems according to
the Commission (1984) resulted in an all - conceived investment, political
interference in public enterprises, decision making processes and inefficient
use of scarce resources, growing budgetary burden, demanding of 10% in budget
approval by the Executive and diversion of credit and other resources meant for
the operation of this sectors.
Against this background and
the impact of the economic crisis of the 1980 in Nigeria, the country’s harsh micro
- economic environment become unaccommodating to the prolonged inefficiencies
of this sector. Hence there is need to privatize Public enterprises suffer from
fundamental problem of defective capital structure excessive bureaucratic
control of intervention, impropriate technology, gross incompetence, mis-use of
business organic function, wrong decision making, corruption and crippling
complacence with monopoly engenders, these shortcomings takes a heavy toll on
the national economy. It was estimated that the nation may have lost about 800
million US Dollars due to unreliable electricity circulation by PHCN.
1.3 OBJECTIVE OF STUDY
The public sector does not have
a basic responsibility to maximize profit. However, they operate below cost
irrespective of the amount of resources committed to their establishment. The
private enterprise on the other hand are more profit oriented, i. e. maximize
profit for its shareholders.
The need to privatize is to
reduce government heavy expenditure without equal revenue with the aim
To determine whether privatization have actually
achieved its aim in Nigeria Most especially in area of efficiency, effectiveness
Government interference and bureaucracy that lead to
inefficiency be eradicated.
Truly, to determine the extent of favor on what
privatization will do to our economy.
To put in shape the socio-economic political program
with the overall objective of achieving economic expenditure such that budget
deficits should not exceed 3-4% of the GDP. It could therefore allow Government
to shed off part its various expenditure items and provide a concrete base for
the attainment of its goals.
1.4 SIGNIFICANCE OF THE STUDY:
Moreover, privatization is
part of the process of Structural Adjustment Program introduced during the
Babangida regime disengaging the State from those activities which are best
done by the private sector with the overall objective of achieving economic
efficiency; it is first and foremost a political process, although it has to
carry out as an economic exercise.
Professional policy makers
and economic planners alike, tend to hold the view that, the privatization
policy (guided / unguided) can yield substantial benefits in terms of greater
efficiency, renewed investment, budgetary savings and the reservation of scarce
resources for the improvement of public finance (Obadan & Ayodele 1998).
Thus, the economic rationale for this policy in Nigeria derives broadly from three
main considerations, which touch on the nature and structure of the precarious
financial and monetary conditions in the country. The first macro economics in
nature, centre on the need for the restoration of fiscal balance in the light
of the inflationary impact of the country’s excessive budget deficits of which
public enterprises constituted a major part, in fact the SAP has place a rein
1.5 RESEARCH QUESTIONS
privatization of a national interest?
insisting on privatization of national utility (PHCN);
privatization a lasting solution?
for privatizing utility like PHCN;
Ø Are the
assets viable enough for privatization?
Ø The cost
and benefits expected from privatization option;
1.6 RESEARCH HYPOTHESES
HO: Privatization of government enterprises do
not lead to efficiency and profitability
H1: Privatization of government enterprises
will lead to efficiency and profitability
HO: Privatization does not make the cost of utilities
higher for customers/users.
H1: Privatization makes the cost of utilities
higher for customers/users.
HO: Privatization does not lead to accountability
H1: Privatization leads to accountability and
HO: Privatization of enterprises is not sensible
to purse, its cost outweigh its benefit.
H1: Privatization of enterprises is sensible to
purse, its cost outweigh its benefit.
1.7 SCOPE OF THE STUDY
Enterprises that are to be
oriented and within industrial, commercial and service, established either
fully or partially owned by the Federal Government for full privatization,
complete divestment and ownership of such controlled enterprises shall lease
selling 100% equity ownership to the privatize sector that include individuals.
For partial privatization,
art of the shares would be sold holding on a part of it’s equity enterprises or
parastatals in these categories are
public oriented services e.g. Bans, Rolling Mills, Media Houses, Oil Marketing
Companies. Subvention to these enterprises will cease due to the fact that the
capital market will have to be approaches by such enterprise to meet its
financial requirements though government could still legislate through
representation of Board Members.
While in full
commercialization enterprises, equity is retained by government excluding
subvention while some parastatals and enterprises are allowed to charge
economic tariffs for their products. Enterprises in this categories are NNPC,
NITEL probity must be given to their balance sheet, rising capital for capital
market on the basis of quality of operations, partial commercialization occurs
where government realizes such sectors need support in terms of operation cost
and future investment and also the nature of such goods. Such categories are
PHCN, NRC and NTA.
1.8 DEFINITION OF TERMS
Privatisation: Selling or
transferring of ownership and control of asset of public sector to private
sector for better economic results.
Federal Government: A central unit that control affairs of a nation.
State Government: Another centralized unit that control with local
boundary to identify territorial jurisdiction.
Equity: Share(s) holding in an enterprise.
Effectiveness: Ways of performing a task rightly.
Efficiency: Act of performing a task at the right time.
EFCC: Economic and Financial Crime Commission.
ICPC: Independent Corrupt practice Commission.