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,
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
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
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
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
iii. Find out to what extend the
programme can be able to get rid of ineffectiveness and inefficiency of
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
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.
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,
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.