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)
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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