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PROJECT TOPIC AND MATERIAL ON THE IMPACT OF PRIVATIZATION AND COMMERCIALIZATION OF PUBLIC ENTERPRISES IN NIGERIA (A CASE STUDY OF POWER
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- Name: THE IMPACT OF PRIVATIZATION AND COMMERCIALIZATION OF PUBLIC ENTERPRISES IN NIGERIA (A CASE STUDY OF POWER
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The focus of this study was on the impact of privatization and commercialization on the economy of Nigeria: with power sector as the Case Study. Its aim was to determine the extent to which the privatization and commercialization programme have had a positive impact on the operations of NEPA.
Ex-post facto research design was adopted for this study. Data gathered were analyzed and tested using the chi-square statistical method. The results show that the productivity of these parastatals has greatly improved since the implementation of the Privatization and Commercialization programmes.
The study consequently recommended for effective implementation these programmes and making sure that only trained and skilled personnels handle appropriate posts.
Keywords: Privatization, commercialization, economy, development, equity, GDP
1.1 BACKGROUND OF THE STUDY
Privatization (the transfer of government owned share-holding in publicenterprises to private shareholders) is one of the revolutionary innovationin economic policies of both developed and developing countries (Igbuzor2003: Chambers 2008).The ultimate goal of any credible and legitimategovernment is to ensure sustained improvement in the standard of living ofthe citizenry. Today, we are witnesses to sweeping changes that are takingplace in the economies of both developed and developing countries. Thesechanges relate to efforts to move away from government ownership, controlor participation in the economy towards free enterprise and increasedoperation of market forces. On the whole, the changes are making for thereduction in the role of government in the economy with a correspondingexpansion in private sector ownership control and participation. Despitethe numerous measures in form of economic policies consisting of severalincentives to promote industrial, agricultural, and other activities, theNigerian economy for example still exhibits very prominent features ofunderdevelopment and such features includes poor managerial skill, heavyreliance on a single commodity oil, which has failed to provide the muchneeded capital in huge sums as expected for the conscious implementation ofa single strategy of development.Public business enterprises creates a solution in which national funds thatwould have been better spent to guarantee new economic activity andemployment opportunities for the army of unemployed is being used tosubsidize deadwood that would neither grow nor change. Public enterprisesare enterprises that are controlled by the state, they are non-profitoriented enterprises.
The participation of the states in enterprises in Nigeria dated back to thecolonial era.( Abba,2008) The task of providing infrastructural facilitiessuch as railway, road, bridges, water, electricity and port facilities fellon the colonial government due to the absence of indigenous companies withthe required capital as well as the inability or unwillingness of foreigntrading companies to embark on this capital intensive projects. Thisinvolvement was expanded and consolidated by the colonial welfaredevelopment plan (1946 – 1956) that was formulated when the labour partycame to power in the United Kingdom. This trend continued afterindependence such that by 1999, it was estimated that successful Nigeriangovernments has invested up to 800 billion naira in public ownedcompanies.(Nwoye, 2003) The privatization and commercialization net ofthe 1988 and the Bureau of Public Enterprises Net of 1995 definedprivatization as the relinquishment of part or all of the equity and otherinterests held by the federal government or any of its agencies inenterprises whether wholly or partly owned by the federal government.Although the public enterprises have been subjected to criticisms, one topoor management and inefficient utilization of resource and mostly regardedto a dead wood that will neither grow nor change, it was these constructcriticism levied against them that led to the idea of privatization andcommercialization in which the exercise would enhance efficiency in theeconomy, rid firms of the crude and undue governmental interference whichhave been the bane of most public enterprise in Nigeria and otherdeveloping countries and also limit the drain by the public enterprise ongovernment resources but the basic objective of the exercise is to enhanceefficiency and profitability in the government owned industries.
Privatization in Nigeria started in 1986 as an integral part of StructuralAdjustment Programme (SAP) (F.G.N, 1986: Ndebbio, 1991). Prior to thisperiod, the Nigerian state has participated actively in public enterprises(Nwoye, 2003). This trend continued until 1988 when privatization programmewas officially launched (Anya, 2000; Igbuzor, 2003). The Federal Governmentprivatized 89 Public Enterprises (PEs) between 1988 and 1993 in the firstphase while 32 enterprises were privatized in the second phase which ranfrom 1999 to 2005 (Mkpuma, 2005). It was envisaged that privatisation wouldimprove operational efficiency of our inefficient public enterprises (PEs),reduce government expenditure, increase investment and employment as wellas ensure job security in Nigeria (Subair and Oke, 2008; Jerome, 2008).Surprisingly, since the official introduction of privatisation in 1988, thepolicy has been a subject of intensive debate and has remained highlycontroversial in Nigeria (Nwoye, 2010). Most Nigerians hold divergent viewson the contribution of the privatization programme to the Country’seconomic development in its two decades of existence in Nigeria. Thereforethis study attempts to convey the message on The Impact of Privatizationand Commercialization on the Power Sector in Nigeria.The power sector privatization process has led to greater collaborationbetween government agencies, such as the CBN, NNPC, and NERC who haverecently joined forces to tackle emergent and legacy issues in the sector.
Thus, to help resolve the gas supply impasse, the Central Bank of Nigeria(CBN) decided to lead the initiative that will provide a concessionaryfinancial package to ensure steady production and supply of gas toNigeria’s power sector. Thus, the essential factors to rapid and sustainedeconomic growth, employment generation, poverty reduction, and over allwell-being of the population in a country where most of the 160 millionpeople are poor and pro-poor which are widely recognized as substantialexpansion in quantity, quality and access to power infrastructure service. (Aboyade,1974) The fundamental normative question of “What ought to be done toestablish a sustainable and robust power industry characterized byacceptable international standards of service reliability, accessibility,and availability that will support sustainable human development inNigeria?” is tantamount to the persistent sub optional levels of powerinfrastructure capacity and service provision from both growth and welfaremaximization perspectives as stipulated by the President GoodluckEbeleJonathan Led Administration. Overcoming the power crisis and ensuringinternational standards in quantity, access, quality and reliability ofpower services in Nigeria is a prerequisite for achieving the desire of thegovernment that Nigeria be one of the top 20 economies in the world by2020. This defines the scale of policy challenges for power-change, powerinfrastructure investment and operations in Nigeria.The Azura-Edo independent power plant in Edo State was structured for localcommunities around the country who are hosts to several Federal, State, andeven private sector projects that have been mitigated by communitydisruptions, to recognize that in partnership, there is development and so,everyone is admonished to play their roles for power generation. Basically,the first phase of the Azura-Edo IPP is a 450 Megawatts Greenfield opencycle gas turbine power station, with a total capital cost of $735 million.It represents the first phase of a 1,500 Megawatts power plant facility.Moreover, it is the first fully financed private sector power plantproject. It is also the first power generation project to receive the WorldBank Partial Risk Guarantee and Multilateral Investment Guarantee Agency(MIGA) support. The IPP project, 450-Megawatts of new generation capacity,which is expected to be completed by early 2017, has attracted almost abillion dollars, mainly in foreign direct investment (FDI), into the powersector, comprised of $700 million in construction of the power plant, and$300 million in associated gas supply infrastructure. (Nwoye,1997).Invariably, in another example of power reforms leading to investmentBresson AS Nigeria Limited, a privately owned Nigerian company and one ofthe pioneer licensed independent power producers (IPPs) in Nigeria, brokeground in 2014 for its first power plant situated in Magboro, Ogun State.The power plan has the capacity to generate 90 Megawatts (MW) to boostpower generation and supply in Nigeria, and the company expectation is tocommission the plant configured on 2GE LM 6000 on the last quarter of2015. This turbine has not always been the case as Nigeria’s electricitysector which had actually been a drag on growth and development, beforeattempts were made to reform the sector the power sector.It is imperative that majority stakes were sold in 18 companies unbundledfrom the initial PHCN comprising of six Generation Companies (GENCOs), 11Distribution Companies (DISCOs), and a Transmission Company (TCN). Power output has more than doubled to over 4,000 Megawatts (MW) in 2015, fromless than 2000 MW in 2010. The private sector owners of the DISCOs andgeneration companies GENCOs paid approximately $3.3 billion for the PHCNassets with 90 per cent of the funds coming from Nigerian Banks andestimated $4.28 billion in immediate capital expenditure (CAPEX) andrehabilitation expenditure also likely to be financed by Nigerian Banks.Nigeria needs $10 billion a year, or up to $100 billion of new capitalinvestments over the next ten years to meet its power sector needs withprivatization expected to greatly improve service and output, and thegovernment targeting 18,000 MW output by 2016. (Nwoye, 2003).
1.2 STATEMENT OF THE PROBLEM
The operational inefficiency of some privatized companies likeElectric Meter Company of Nigeria Zaria and National Electric PowerAuthority (NEPA) now Power Holding Company of Nigeria (PHCN) among othersis even more worrisome. The supply and distribution of electricity to consumers is stillgrossly inadequate. Most of the Problems facing most of the power sector can be traced tothe fact that they are government owned and this is why they are used forpolitical and other patronages; the managements are not given a free handto manage and the organizations do not care to collect their debts.Privatization will remove political interference and administrative redtape from public enterprises.
1.3 OBJECTIVE OF THE STUDY
- To examine the incessant interference of government and their agencies on these parastatals and establishing whether it contributes to their inefficiency.
- To ascertain the public assessment of the economic policy, using their perception of the services rendered by NEPA.
- To determine the extent to which the privatization and commercialization programme have had a positive impact on the operations of NEPA.
1.4 RESEARCH QUESTIONS
In other to identify the problems that are militating against theirperformance, the following research questions will be considered:
- What impact does the privatization and commercialization have on theNigerian power sector?
- Why did government embark on privatization and commercialization onthe Nigerian power sector
- What are the problems militating against the Nigerian power sector?
- HO. That NEPA have not attained higher productivity levels since implementation of privatization and commercialization.
- HO. That there has been no improvement in economic growth as indicated by increases in government income, per capita income and GDP since the implementation of the programme.
- HO. That there has not been marked improvement in the management efficiencies of NEPA since privatization and commercialization.
1.6 SIGNIFICANCES OF THE STUDY:
The research will be carried out to determine the impact of privatizationand commercialization on the Nigerian power sector This study tends tocreate awareness to citizens of developing countries and economic plannerson the implications of the privatization and commercialization of theNigerian power sector. The importance of this study will have boththeoretical, practical and policy values and will help in the assessment ofEnugu Electricity Distribution Company (EEDC). Again, the study will be of immense academic importance as it will givedirection to students of economics for further research into a new economicdevelopment. At the practical level, the study will help to keep Nigeriansand other developing countries abreast with the challenges in an area ofprivatization and commercialization on the power sector. This will help tomobilize not only their intellectuals but also the policy makers andadministrators to rise to the challenges of analyzing and integrating thisnew development in history.
1.7 SCOPE OF THE STUDY:
The scope of this research is limited to Enugu state. Focus will be on thePHCN formally owned by the federal government. This company is expected tomake profit while charging competitive prices. The scope of this study willalso be limited to the activities concerned with the impact ofprivatization and commercialization on the Nigerian power sector and otherdeveloping economies which was facilitated as a result of the failure andinefficiency surrounding its (PHCN) activities and program to the public.
1.7 DEFINITION OF SOME CONCEPT:
– Privatization: can be defined as narrowly as the transfer ofgovernment owned shareholding in the designed enterprise to privateshareholders, comprising of individuals and corporate bodies.
– Commercialization: on its own, means the re-organization of enterprisewholly or partly owned by the government in which such commercializedenterprises shall operate as profit making commercialized enterprises shalloperate as profit making commercialized ventures without subvention fromgovernment.
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