AN EVALUATION OF PRIVATIZATION PROGRAMME AS AN EFFECTIVE TOOLS FOR ENHANCING PRODUCTIVITY PUBLIC ENTERPRISE IN NIGERIA (A CASE STUDY OF POWER HOLDING COMPANY NIGERIA PLC)
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AN EVALUATION OF
PRIVATIZATION PROGRAMME AS AN EFFECTIVE TOOLS FOR ENHANCING PRODUCTIVITY PUBLIC
ENTERPRISE IN NIGERIA (A CASE STUDY OF POWER HOLDING COMPANY NIGERIA PLC)
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE
STUDY
Privatization of state-owned enterprises (SOEs) has become a
key component of the structural reform process and globalization strategy in
many economies. Several developing and transition economies have embarked on
extensive privatization and commercialization programmes in the last one and a
half decades or so, as a means of fostering economic growth, attaining
macroeconomic stability, and reducing public sector borrowing requirements
arising from corruption, subsidies and subventions to unprofitable SOEs. By the
end of 1996, all but five countries in Africa had divested some public
enterprises within the framework of macroeconomic reform and liberalization
(White and Bhatia, 1998).
In line with the trend worldwide, the spate of empirical
works on privatization has also increased, albeit with a microeconomic
orientation that emphasizes efficiency gains (La Porta and López-de-Silanes,
1997; D’Souza and Megginson, 1999; Boubakri and Cosset, 1998; Dewenter and
Malatesta, 2001). Yet despite the upsurge in research, our empirical knowledge
of the privatization programme in Africa is limited. Aside from theoretical
predictions, not much is known about the process and outcome of privatization
exercises in Africa in spite of the impressive level of activism in its implementation.
Current research is yet to provide useful insights into the
peculiar circumstances of Africa, such as the presence of embryonic financial
markets and weak regulatory institutions and the manner in which they influence
the pace and outcome of privatization efforts. Most objective observers agree,
however, that the high expectations of the 1980s about the “magical power” of
privatization bailing Africa out of its quagmire remain unrealized (Adam et
al., 1992; World Bank, 1995; Ariyo and Jerome, 1999; Jerome, 2005).
As in most developing countries, Nigeria until recently
witnessed the growing involvement of the state in economic activities. The
expansion of SOEs into diverse economic activities was viewed as an important
strategy for fostering rapid economic growth and development. This view was
reinforced by massive foreign exchange earnings from crude oil, which fuelled
unbridled Federal Government of Nigeria (FGN) investment in public enterprises.
Unfortunately, most of the enterprises were poorly conceived and economically
inefficient. They accumulated huge financial losses and absorbed a
disproportionate share of domestic credit. By l985, they had become an
unsustainable burden on the budget.
With the adoption of the structural adjustment programme
(SAP) in 1986, privatization of public enterprises came to the forefront as a
major component of Nigeria’s economic reform process at the behest of the World
Bank and other international organizations
1.1.1 HISTORICAL
BACKGROUND OF POWER HOLDING COMPANY
NIGERIA
A major energy product which has emerged from the development
of Nigeria’s energy resources is electricity. Although at independence in 1960
the country inherited a rudimentary electric power generation and distribution
system under the Electricity Corporation of Nigeria (ECN) and later changed to
NEPA.
Nigeria’s Electric Grid is being run on hydroelectric and
thermal plants. The former are predominantly utilized in the northern part of
Nigeria while the later which are fueled by petroleum appear to be largely
favoured in the southern parts. The disadvantages of these approaches become
evident in the harmattan seasons when the water level drops and in the chronic
spate of fuel scarcity.
Nigeria has about 5,900MW of installed electric generating
capacity consisting of 3 hydro-based stations and 5 thermal power plants.
Nigeria faces a serious energy crisis due to declining electricity generation
from the power plants. Power outages are frequent and the power sector operates
well below its capacity. NEPA is in charge of a sector which is grossly
inefficient.
The Nigerian government has set a 10,000MW target capacity
for electricity generation by 2007 as a way of increasing power supply which
has been epileptic over a long period.
When the present administration came on board in May of 1999
one of the first tasks it undertook was to charge the then Minister of Power
and Steel to put an end to power outages. The minister wasted no time in making
some necessary changes in the composition of NEPA. NEPA was reconstituted and
new appointments were made bringing a team of specialists and technocrats to
replace most of the politically appointed members of the management board. Yet
the country recorded no significant improvement in its power sector. Indeed
somewhat that the situation got much worse.
A new technical board directly answerable to Mr. President
under the chairmanship of senator Liyel Imoke was appointed in 2006 to oversee
the administration of NEPA and its eventual privatization. An improvement is
still yet to be seen.
On July, 1st 2006, NEPA was transformed to PHCN in line with
the on-going government power sector reform programme.
The Nigeria Electricity Regulatory Commission (NERC) was
thereby established under the Electric Power Sector Reforms Act 2005 to provide
regulatory oversight in electricity sector. PHCN was set up to have a life span
of one year after which successor companies owned by private operations would
take over from the firm. But, however, exactly a year after the company was
established and the exact date it was scheduled to cease to exist, nothing
happened.
Part of the efforts to realize this ambition is the on going
power plants construction in different parts of the country. Ten power stations
are in the pipeline. They include the 414MW Geregu power station in Kogi State,
335MW Omotosho Gas Turbine Power Station in Ondo State, 335MW Papalanto Thermal
Station in Ogun State, all these are at various stages of completion. Others
include the Mambilla Station in Taraba State, a 250MW in Calabar, a 500MW plant
in Eyaea, Edo State, a 270MW in Ikot Abasi, Akwa Ibom State, a 500MW in Sapele,
Delta State and a 230MW plant in Omoku, River State. The existing power
stations and their installed capacities are Egbin Thermal Statio, Lagos
(1320MW) Afam Thermal Station, Delta State (1020MW) Ijoro Thermal Plant, Lagos
(40MW), Kainji Hydro Station, Niger State (760MW), Jebba Hydro Station, Niger
State (578MW) and Shiroro Hydro, Niger State (600MW). But the actual power
capacity currently generating in the country is presumed to be below 4000MW.
The country’s power generating potential is said to be the
highest in Africa. This is attributed to her abundant natural resources. With
natural gas reserve of about 188 trillion cubic feet, the country has enough
associated gas potential to power the biggest thermal station in Africa. While
other countries are busy encouraging investment in nuclear power in addition to
the sources of energy. Nigeria is still struggling to meet the areas other
countries have left behind. South Africa for instance has hit a power
generating capacity of 26,000MW and is planning to construct additional 5,000MW
by 2010. 4000MW is not enough for the country and the projected target of
10,000MW of electricity in 2007 might be hampered. There is still over
dependence on the aged plants and obsolete equipment, and also the incessant
vandalization of election cables nationwide
POWER HOLDING COMPANY OF NIGERIA PLC DOKA BUSINESS UNIT
ORGANOGRAM OF THE BUSINESS UNIT
SOURCE: PHCN Brochure, 2008
1.2 STATEMENT OF
THE PROBLEM
The first problem recorded with the privatization programme
in Nigeria was lack of relevant fundamental economic environment needed before
taking off. Some public enterprises that were not ripe enough in terms of
competitiveness were privatized. Consideration was not given to capable buyers
but to political cronies who could not successfully manage their new
enterprises. This led to closure of some of these privatized firms. Lack of
transparency in the entire sales has shown up its negative repercaution.
It is reported that privatized firms in Nigeria are refusing
monitoring by Bureau of Public Enterprises. In this wise there has been no
substantial studies on the operational activities of the privatized firms. The
expected difference in the perception of efficiency after privatization could
not be proved. In all, it is therefore difficult to identify the performing and
non-performing privatized firms.
Among the pertinent
issues to be addressed are: What is the extent and pattern of privatization and
commercialization? What have been the results of privatization in Nigeria? Has
privatization and commercialization improved enterprise performance as
anticipated? Finally, what policy lessons are to be learned from the
privatization experience so far? These are the issues that come into focus in
the study.
1.3 OBJECTIVES OF
THE STUDY
The objective
of the study are
i. To assess the
effort of privatization in Nigeria, by examining the antecedent, pattern,
volume and status of privatization undertaken so far.
ii. Find out the
prospects and problems of the implementation of the privatization programme on
public enterprises.
iii. Find out to
what extend the programme can be able to get rid of ineffectiveness and
inefficiency of public enterprises.
iv. Find out its possibilities of
fostering development on the Nigeria economy.
v. Find out if
will improve the welfare and standard of public workers.
1.4
SIGNIFICANCE OF STUDY
Privatization has its expected benefits which prompted its
emergence all over the world. The
success level of the programme or failure level depends on the procedure
employed and sincerity of purpose attached from country to country. Therefore the following are the reasons
importance of this study.
When completed this study should be a good partner to the
privatized enterprises that will be used for performance analysis. It will
provide a mirror to the enterprises from where they can view themselves, the
way we see them from outside.
The reports and recommendations in this study should serve as
evidences of findings and suggestions to the government before privatizing and
commercializing other public enterprises
that are yet to be privatized or those partly privatized that will soon be
fully privatized.
It is expected that BPE will be interested in this study as
it can provide some guidelines into a better way of handling the programme. BPE
is expected to borrow a leaf from those countries that successfully implemented
the programme and got candid positive results.
Finally the project will be of immense importance to the
general public either for research work or just to increase their knowledge and
create more awareness on the concept of privatization and commercialization
programme as well as the problems and solution to the problems of Nigeria
public Nigeria.
1.5
HYPOTHESIS
The following hypotheses were made
Ho1: Privatization of
Public Enterprises has no significant effect on Nigeria economy.
Hi1: Privatization
of Public Enterprises have
significant impact on Nigeria economy.
1.7 SCOPE AND
LIMITATION OF THE STUDY
This study intends to cover assess the effort of
privatization and commercialization exercise on public enterprises in Nigeria.
Also the work will be limited to Power Holding Company of Nigeria Plc. It will
also measure the effect of the privatization on the national income, government
fiscal condition and capital market.
To undertake a study of this nature is not easy because it is
a wide field of study and thus has various limitation/problem.
The first limitation is for the success of any research work
depends on availability of fund. The fund is needed for buying of materials,
browsing etc.
In the case of primary data. The respondent may not be
granted the audience for interview another limitation is high cost place or
more current information on the net. A long the line, the administrative
bottleneck of the organization may jeopardize the effort of the researcher in union
case the management would refuse to disclose vital information as a matter of
policy.
1.7 DEFINITION OF
TERMS.
Commercialization: Transferring of Government control of an
enterprise to a new management for the purpose of cost effectiveness.
Management Contract: Contracting of a government firm to
private firm for management purpose.
Globalization: Cross boarder operations of economic
activities, production, investment, financing, technology utilization and
marketing.
Deregulation: Elimination or substantially reducing the
regulation/control of price and entry into domestic business activities.
Liberalization: Freeing the economic activities in order to
provide a conducive economic and business climate necessary for continuous
growth.
Shares: Part as portion of target amount which is
divided among general or among people or to which many people contribute.
Share Holders:
Owners of shares in Business Company.
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