THE IMPACT OF PRIVATIZATION AND COMMERCIALIZATION ON NIGERIA’S POWER SECTOR [A CASE STUDY ON POWER HOLDING COMPANY OF NIGERIA (PHCN)]
1.1 BACKGROUND TO THE STUDY
Privatization is the implementation of a decision to sell companies owned by the State to private individuals/ companies. Benefits of privatization are making the public sector commercial enterprise survive in competitive markets through better efficiency, higher productivity, improved product quality and customer service, and reduction of waste and leakages due to State ownership.
Prior to the enactment of EPSRA, 2005, FGN was responsible for policy formulation, regulation, operation, and investment in the Nigeria power sector. Regulation of the sector was done through the Federal Ministry of Power (FMP) with operations through the National Electric Power Authority (NEPA), a wholly owned SOE responsible for power generation, transmission and distribution. To address the twin issues of NEPA’s poor operational and financial performance, the FGN amended the then prevailing laws (Electricity and NEPA Acts) in 1998 to remove NEPA’s monopoly and encourage private sector participation. The amendments, however, were not far –reaching. This informed FGN of the need to undertake holistic policy, legal and regulatory reforms. The Electrical Power Policy, 2001, specifies the reform agenda, while EPSRA provides the legal bases for the unbundling of NEPA, the formation of successor companies and the privatization of the latter. Consequently, FGN established the Power Holding Company of Nigeria(PHCN-the initial holding company) and subsequently unbundled it into eighteen (18) successor companies. Strategically, the objectives of reform include (i) the transfer of management and financing of SC operations to organized private sector (ii) the establishment of an independent and effective regulatory commission to oversee and monitor the industry (iii) the FGN on policy formulation and long-term development of the industry. This will lead to (i) increased access to electrical services (ii) improved efficiency, affordability, reliability and quality of services (iii) greater investment into the sector to stimulate economic growth.
1.2 STATEMENT OF THE PROBLEM:
The reform strategies that have been advocated for public enterprises have taken a number of forms. First, there have been pressures to change to partial or complete private ownership, which is designed to lessen political intervention in the operations of public enterprises. If this has not been contemplated then arguments have been put forward to institute reforms to stimulate private sector operator while retaining the enterprise in public ownership (Berg.1982 : Ayub and hegstad1987: world bank1983). Second, and related to this, has been the pressure to reform or rehabilitate public enterprises on the basis of property rights arguments (agent- principal). Here it is suggested that a change in the structure of property rights, from complete government ownership to where management has a more direct stake in an enterprise’s future, will improve efficiency of operations (Furuboln and Pejoneh, 1972). A third element concerns the argument that public sector monopolies need to be broken up to improve productive efficiency. Finally a change in the structure of ownership either to full or partial private ownership, has been as desirable, since it will impose the discipline of capital markets on the enterprise to maximize profits and avoid take-over or bankruptcy. These arguments for...
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