The Impact of privatization and commercialization in public Enterprises in Nigeria. (A study of Kaduna Electricity Distribution Company).

The Impact of privatization and commercialization in public Enterprises in Nigeria. (A study of Kaduna Electricity Distribution Company).

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The main purpose of his study was to determine the impact of privatization and commercialization of the public enterprise. The researcher has critically examined the privatization policy of the federal government with a view to assessing its congruence with the principles of distributive and social justice. The researcher has analyzed the problem from the support of social-economic mission of public enterprises.

The governing frame work of privatization and the level of explanation of the problems that threaten their real foundation is the basis of findings.

Consequently argued that the debilitating forces over organizational political environmental and structural which privatization is set to exacerbate such, worsen socio-economic inequalities in the country. And in view of the problems identified obstacle that deepened the failures of public enterprises in Nigeria which draws up roles towards the improvement and development of these infrastructure of power sector.



Title   Page-   -   -   -   -   -   -   -   -   -   i
Certification - -   -   -   -   -   -   -   -   -   ii
Dedication- -   -   -   -   -   -   -   -   -   iii
Acknowledgement-    -   -   -   -   -   -   -   -   iv
Abstract    -   -   -   -   -   -   -   -   -   v
Table of contents - -   -   -   -   -   -   -   -   vi
CHAPTER ONE:                                        
1.1 Introduction-   -   -   -   -   -   -   -   -   1-8
1.2 Problems statement- -   -   -   -   -   -   8
1.3 Research Questions-     -   -   -   -   -   -   8-9
1.4 Research objectives -   -   -   -   -   -   -   9
1.5 Scope of the study- -   -   -   -   -   -   -   9
1.6 Significant of the study-   -   -   -   -   -   -   10
1.7 Development of Hypothesis-  -   -   -   -   -   10-
1.8 Definition  of terms-   -   -   -   -   -   -   -   11-
1.8.1 List of abbreviations -   -   -   -   -   -   -   12
1.9 Chapterisation  -   -   -   -   -   -   -   -   12-
CHAPTER TWO:                                    
2.1 Background of the study -   -   -   -   -   -   14-
2.1.2 Some impediments of handover- -   -   -   -   18-
2.2 Organizational chart-   -   -   -   -   -   -   19-
2.3 Activities of the organization- -   -   -   -   -   20-
2.4 progress and achievements-  -   -   -   -   -   22-
2.5 Challenges facing the organization- -   -   -   -   23-
CHAPTER THREE:                                  
Literature Review   -   -   -   -   -   -   -   -   25
3.1 Introduction-   -   -   -   -   -   -   -   -   25
3.1.2 The concept of privatization and commercialization    -   26
3.1.3 Commercialization-    -   -   -   -   -   -   -   26-
3.1.4  Privatization-  -    -   -   -   -   -   -   -   27
3.1.5  Public Enterprises- -    -   -   -   -   -   -   28
3.2 Theoretical Framework-  -   -   -   -   -   -   28-
3.2.1 Public Good Theory -  -   -   -   -   -   -   30-
3.2.2 Failure of public sectors economics - -   -   -   32-
CHAPTER FOUR:                                   
4.1 Research design-    -   -   -   -   -   -   -   34
4.2 method data collection  -   -   -   -   -   -   34
4.2.1 Quality questionnaires-   -   -   -   -   -   -   34-
4.2.2 Interviews-   -   -   -   -   -   -   -   -   35
4.3 Instruments of data collection- -   -   -   -   -   35
4.4 Population  -   -   -   -   -   -   -   -   35
4.5 Sampling technique  -   -   -   -   -   -   -   35-
4.6 source of data- -   -   -   -   -   -   -   -   36
4.7 Method of Analysis- -   -   -   -   -   -   -   36
4.8 Instrument for data Analysis-   -   -   -   -   -   36
CHAPTER FIVE:                                   
5.1 Data Presentation and Analysis- -   -   -   -   37
5.1.1 Distribution of respondent by Age-    -   -   -   -   37
5.2 Distribution of Respondent by Gender Difference -   38
5.3 Distribution of respondent based on educational attainment-38-
5.4 Distribution Based on Marital Status    -   -   -   -   39
5.5 Distribution of respondent by positional rank-  -   -   39
5.6 Distribution of respondent  based on privatization process of
    Kaduna electric -   -   -   -   -   -   -   -   40
5.7 Distribution  of  respondents  based  on  the   role    of  Kaduna
    Electric in Jega B/Unit-    -   -   -   -   -   -   -
    -   40-41                               
5.8 Discussion on Findings- -   -   -   -   -   -   41-
CHAPTER SIX                                     
6.1 Summary-        -   -   -   -   -   -   -   -   44
6.2 Conclusion- -   -   -   -   -   -   -   -   44-
6.3 Recommendation- -   -   -   -   -   -   -   45
6.4 References- -   -   -   -   -   -   -   -   46-
6.5 Appendix-       -   -   -   -   -   -   -   -   48-



Privatization of public enterprises in Nigeria by successive governments

failed to meet the yearnings and aspirations of governed. Various measures and

criteria put in place to address the imbroglio ended in fiasco because it

aggravated  rather  than  alleviate  the  problem  bedeviling  such  enterprises.

Previous  studies  revealed  that  inefficiency,  political  patronage  and  poor

productivity still became the dominant characteristics of government privatized

enterprises. This paper observed that non involvement of experts and relevant

stakeholders remain the cankerworm to successful privatization process. It

recommended that experienced and professional bodies should be involved in

future participation of public enterprises in Nigeria.

A central issue in the economies of sub-Saharan African Countries in the post independence period was the market failure argument which signaled massive government intervention in the country. In Nigeria, government role was dominant in the economy as reflected by the adoption development planning and massive proliferation of public enterprises (PEs), to stimulate economy growth and structural transformation. Before the introduction of privatization policy in Nigeria, the public sector constitutes huge drain on government scarce resources and liability to the national economy. The PEs sector for example, depended

largely on government for funding through Annual Budgetary allocations, Grants, Subventions Subsidies. For example, the government invested colossal amount of resources to the tune of US S323 in 2001 which represents (0.68 per cent of Gross Domestic Product) to oil and telecommunications sectors. It was estimated that between 1999 to 2006 a total number of 116 PEs were privatized by the Federal Government. As such the government has been finding it very difficult to cope with the financial burden of sustaining PEs. Moreover , various criticism have been labeled against their operations; PEs proved to be wasteful in terms of resource utilization ,made significant demands on domestic and foreign credits , are economically inefficient , constitute a burden on the banking system and retarded the growth of the private sector in Nigeria . Other problems of PEs include; Mismanagement of resources , inefficiency , gross under capitalization resulting in heavy reliance on government for financial operation , misuse of monopoly power leading to corruption , bureaucratic/administrative bottlenecks in their relations with supervising ministries , ethnicity and nepotism among others .

This dismal economic performance of PEs created a crisis of confidence which aggravated Nigeria‘s economic crisis of the 1980s. These crises led to the dwindling domestic and foreign exchange revenue thereby creating serious fiscal crisis in the economy .These criticisms led to serious calls for reforms to reposition and restructure them for better performance through the privatization option. Privatization is a mechanism for improving the performance and efficiency of PEs. This will go a long way in ensuring efficient use of resources and lessening the dependence of PEs on government, thereby making resources available to other competing sectors of economy. It is against this background that this research is conducting the investigation on how is the impact of these
privatization and commercialization of the power sector amongst other public enterprises in Nigeria.

Privatization in Nigeria was formally introduced by the commercialization Decree of 1988as part of structural Adjustment Program (SAP) of the Ibrahim Babangida Badamasi administration (1985 -1993). As McGrew was argued, SAP is

a   neo-liberal development strategy devised by international financial institutions to corporate national economics into the global market.

The vision of a “global market civilization “has been reinforced by the policies of the major institutions of the global economic government namely up to the mid 1990s., underlying them structural adjustment programs has been a new

–liberal development strategy –referred to as the washing of conscientious which prioritizes the opening up of national economics to global market forces and the requirement for limited government intervention in the management of economy.

One of the main objectives of SAP was to pursued deregulation and privatization leading to removal of subsidies, reduction of wage bills and the retrenchment of public sector ostensible to trim the state to size .The privatization and commercialization Decree of 1988 set up the Technical Committee on privatization and commercialization (TCPC) under the chairman of DR. Hamza Zayyad to privatize 111 public enterprises and commercialize 34 others. In 1993, TCPC concluded its assignment and submitted its report having privatized 88 out of the 111 enterprises listed to be in the Decree. Based on the recommendation of TCPC, the Federal Military Government promulgated the Bureau for public Enterprises Act in 1993 which repealed the 1998 Act and set up the Bureau of Public Enterprises (BPE) to implement the privatization program in

Nigeria. In 1999, the Federal Government enacted the Public Enterprise ( Privatization and Commercialization )Act 1999 which created the National Council on privatization under the chairmanship of the vice president .The functions of the council include the following:

Making policies on privatization and commercialization with the modalities for privatization and advising the government accordingly. Determining the privatization and timing of enterprises and approving the prices for shares and appointment of particular advisers, and ensuring that the commercialized public enterprises are managed in accordance with sound commercial principles and prudent financial practices.

Interfacing with the public enterprises, together with the supervising ministries, in order to ensure effective monitoring and safeguard of the managerial autonomy of the public enterprises.

The Act also established the Bureau of Public Enterprises (BPE) as the secretariat of the National Council on privatization. The functions of the bureau include;

1.  Implementing the council’s policy on privatization and commercialization.

2.  Preparing the council’s policy on privatization and commercialization,

3.  Advising council on capital restructuring needs of the public enterprises to be privatized.

4.  Ensuring the update of accounts of all commercialized enterprises for financial discipline.

5.  Making recommendations to the council in the appointment of consultants, advisers and other professional bankers required for accounts houses,

stockbrokers, solicitors, trustees, accountants  and other professionals
required for the purpose of either privatization exercise through effective post transactional performance monitoring and evaluation.

6. Providing secretarial support to the council.

The roadmap indicates the government’s attention to divest from PHCN’S successor companies. Other than the Transmission Company of Nigeria which will continue to be responsible for the transmission of electricity, this is a natural monopoly for the state.

In furthering the progress and achievements the government went on with the following unbundling of the PHCN, and the 18 companies were incorporated. And they are as under listed below:

Privatization is the process of transferring an enterprise or industry from the public sector to the private sector. This public sector is the part of the economic system that is run by government agencies. Where as commercialization is the total withdrawal of government participation in terms of funding to the private sector. And the production and sales of these products will eventually determined by the owners of the company.

Prior to the enactment of the Economic Power Sector Regulatory Agency, (EPSRA) 2005, Federal Government of Nigeria was responsible for policy formulation regulation, operation, and investment in the Nigerian 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 sector of economic (SOE) responsible for power generation, transmission and distribution. To address the twin issues of National Electric Power Authority’s poor 0perational and financial performance ,the Federal Government of Nigeria amended the then

prevailing laws (Electricity and power Acts) in 1998 to remove NEPAS monopoly and encourage private sector participation.

The amendment, however, were not far –reaching .This informed FGN of the need to undertake holistic policy, legal and regulatory reforms. The National Electric Power Authority policy 2001, specifies the reform agenda, while EPSRA provides the legal basis for the unbundling of NEPA, the formulation of successor companies and the privatization of the latter ,EPSRA also provides for the development of a competitive electricity market, the establishment of a dedicated regulatory body and the establishment of a rural electrification agency.

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 the reform include;

(i) The transfer of management and financing of sector operations to the organized private sector.

(ii)    The establishment of an independent and effective regulatory commission to oversee and monitor the industry.

(iii)   Focusing on the FGN policy formulation and long term development of the industry. This will lead to ;

(a) Increased access to electricity service.

(b) Improved efficiency, affordability, reality and enhance quality of services.

(c) Greater investment into the sector to stimulate economic growth

The Federal Government owned electricity system now companies;

(1) Three hydro and Thermal generating stations with a total installed capacity of 6,852 with available capacity of 3,542mw (as of 31th July 2010). Each entity has been incorporated as a single –asset generating company.

(2) A radial transmission grid (330kv and 132kv ),owned and managed by the transmission company of Nigeria, with the responsibility of undertaking the system operation and market settlement functions, respectively, and

(3) Eleven distribution companies (33kv and below) that undertake the wires sales, billing collection and customer care functions within their area of geographical monopoly.

Competitive tender will be carried out to receive bids from core investor groups (inclusive of competent generation asset owner/operators) for a minimum of 51percent of equity in the following successor thermal generating companies;

(a) Afam Power Plc

(b) Sapele Power Plc

(c) Ughelli Power Plc

(d) Geregu Power Plc

And a separate concession process for the following successor of hydro generating companies;

(e) Shiroro Hydro Power Plc

(f) Kainji Hydro Power Plc

Privatization is the process of transferring an enterprise or industry from the public sector to the private sector. This public sector is the part of the economic system that is run by government agencies. Where as commercialization is the

total withdrawal of government participation in terms of funding to the private sector. And the production and sales of these products will eventually determined by the owners of the company.


It is general knowledge that public–owned enterprises are not performing creditably in Nigeria. To ensure developmental growth in the organization, it would go as far as; determining how the Federal Government could not found the monumental and inefficiencies of these public enterprises with problems such as ill-conceived investments, political interferences in decision making ,costly and inefficient use of public resources, and lastly, growing budgetary burdens.

Similarly, the continuous system failures as the result of weakness and obsolete power transformers at all generating stations which has proven total collapsed in the entire electricity supply thereby affecting the most of the economic activities of the country.

Based on this, it will be the focus as to finding out how the research shall investigate the privatization and commercialization will bring out solutions as impact and development and growth in the national economy.


The following questions would serve as the research question for this study;-

1.  Is privatization and commercialization the only answer to efficiency?

2.  Will privatization and commercialization bring development and growth of Nigerian economy?

3.  Will the privatization and commercialization of the power sector bring sustainable electricity supply?

4.  To what extent will privatization of the power sector contribute and strengthened the capacity of national economy?


1   To examine whether privatization and commercialization is answer to efficiency?

2.  To investigate whether privatization and commercialization bring development and growth of Nigeria economy.

3.  To examine of privatization of power sector bring sustainable electricity supply

4   To investigate how privatization of power sector contributes and strengthened the capacity of the national economy.


This research project tends to cover issues relating to privatization and commercialization and the impact of Nigeria enterprises .It also intends to examine the possible or probable problems the economy if the privatization and commercialization is fully adopted. And more specifically, studying the Jega Business Unit in Kaduna Electricity Distribution Company.

The study is by means exhaustive but a useful attempt is made to private sector into the core of an issue. However, the researcher confronts many conflicting problems.


This study is no doubt of great importance to the Government of Nigeria in the sense that it will help to enhance their policy inputs to the public enterprises especially the privatization and commercialization exercises that is currently on.

The outcome also will help the government to improve the public sector and examine its performance .The study will serve as a basis for solving ownership and economic problems and to control the various government agencies to understand the implications of their unhealthy management style.

The study could be used by students in their various researchers program as well as other authors who may wish to write on this important topic.


After examining the explicit and implicit objectives of the project aspect out in the introduction and purpose of the study of the hypothesis of the study can be put forward in the following manner;

H1. That Privatization and Commercialization is the answer to efficiency.

H2. That privatization and Commercialization bring development and growth of Nigerian economy.

H3. That privatization brings sustainable electricity supply.

H4. That privatization of power sector contributes and strengthened the capacity of National economy.


This section will aim at determining some of the technical terms used in the course of this project writing.

1.8.1 SUBVENTION: this is an amount of money that is given by the government to help or assist an organization.

1.8.2 VENTURES: this is defined as a business project or activity that transfers certain percentage of the organization asset to individual in form monetary bills as certificates to the buyer.

1.8.3 PRIVATIZATION; Refers to the transferring of Government equity holding to the private individual to manage for profit oriented.

1.8.4COMMERCIALIZATION: The re-organization of enterprises wholly or partly owned by the Federal Government such that those enterprises shall operate as profit making.

1.8.5 KAEDCO: Kaduna Electricity Distribution Company

1.8.6 PUBLIC ENTERPRISES: It means Government owned, companies meant to provides goods and services without mindful of profit making.

1.8.7 Generating power Companies: These refers to the companies that has the capacity to produce (generate) bulk Kilowatts ampere electricity energy for consumers usage both industrially and household.

1.8.8 Kainji Hydro Power Plc: These means the source of generating electricity bulk Kilowatts (Power) through water, which is situated at Kainji and Jebba in Niger State as public liability company.

1.8.9 Economic Power sector Regulatory Agency: This is a body empowered to oversee the general activity involve in the course of cost of provision of supply of electricity, pricing and some observables and disagreeable practices such as abnormal charges or otherwise from customers or and nonpayment.


This section further summarily, state chapter by chapter the content there in. in chapter one explained the introduction of the problem and detailed through the problem statement research question objective, scope of the study, significant of the study, development of hypothesis and definition of key terms. Similarly the next chapter two bring up the background of the study, some impediments of handover, the organizational chart, activities of the literature review, the concept of privatization and commercialization, commercialization, privatization, public enterprises, theoretical frame work, public good theory and failure of public sectors economics.

Adding to this chapter four which discuss on research design, collection, and sources of data, population, sampling technique, method of data analysis and instrument of data analysis. Furthermore data presentation and analysis, distribution of respondent by age, distribution of respondent by gender difference distribution of respondent based on educational attainment, distribution based on marital status distribution of respondent by positional rank, distribution of respondent based on privatization, respondent based on the role of Kaduna electric in Jega business unit and finally chapter six, sums it up with summary, conclusion and recommendations.

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