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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