THE IMPACT OF PRIVATIZATION ON GOVERNMENT OWNED INDUSTRIES (A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA, WARRI) CHAPTER ONE INTRODUCTION 1.1 Background of the study Prior to the enactment the Electric Power Sector Reform Act (EPSRA) in 2005, the federal government was responsible for policy formulation, operation and investment in the Nigerian power sector. Regulation of this sector was done through the federal ministry of power (FMP) with operations through the National Electric Power Authority (NEPA) which is wholly owned by the government which is responsible for power generation, operational and financial performance. The federal government of Nigeria amended the prevailing law (Electricity and NEPA Acts) in 1998 to remove NEPA’s monopoly and encourage private sector participation. The amendments however were not far reached. This informed federal government of Nigeria of the need to undertake legal and regulatory reform in 2001 which specified the reform agenda. While Electric Power Sector Reform Act (EPSRA) provides for the development of the sector, the federal government established the Power Holding Company (PHCN) the initial holding company and subsequently unbundled it into eighteen successful companies. The National Electric Power Authority (NEPA) policy of 2001 specified the reform agenda, while EPSRA provides the legal basis for the unbundling of NEPA. With the formation of successor companies and privatization for the former, EPSRA provided for the development of a competitive electricity market. Privatization is defined as the selling of government owned industries to private individuals who then obtain control over it. Privatization initiative opens a new chapter over the public and private balance. Private ownership is a way of reducing wastage of resources and maximizing the value of assets. Privatization of public enterprises will improve efficiency thereby eliminating wastage. Most Nigerians have not understood the meaning of privatization. The two major employers in pre – independence times in Nigeria were owned and managed by the government in order to provide the public with the needed essential service. For the objectives of the colonial masters to be achieved, they had to own and manage the strategy of the economy. A critical appraisal of privatization in Nigeria according to Muka (2008) was the immediate impact sector involvement of 18 successor companies of Power Holding Company of Nigeria (PHCN). Venom and Raymond (2004) emphasized on the role of the private sector as a principle of government policy in which a set of specific action or plan and laid out for the authorities to adopt. By privatization we mean the selling of an organization, industry or service that was wholly owned and controlled by the government to private firms. Before the privatization of industries in any country, the government has to ensure that industries have failed in order to satisfy the purpose they serve. It becomes necessary when it is obvious that it has failed, because efforts have been made by the state to improve the service of the industry without good result. Some scholars see privatization as something that causes public enterprises to behave like private firms. Success is measured by those objectives that motivate it and they are different from the factors that affect it. 1.2 Statement of the problem Bad management and inefficiency in most public organization today is generating serious tension in our Nigeria. If not checked, these insufficiencies and bad management will lead to poor attitude of employees towards work and this will create lapses and loopholes in the effectiveness of workers. It will also affect the management system which ultimately leads to low productivity in public corporations. According to Kofi (2005), he sees that poor performance of staff in a firm or organization is caused by bad management and this will reduce the output of the firm. Privatization is a vital tool of a country’s economic policy, most especially the developed countries like Nigeria. The problems facing privatization are as follows: Corruption Lack of transparency Lack of accountability Inconsistency Incredibility However, it is based on these problems that the basic propositions of the privatization program are being hindered. In trying to look into these discrepancies and proffer a way toward a positive state of privatization of public enterprises, this research emanated. 1.3 Purpose of the study This research is goal oriented and places emphasis on the positive negative impact that private has on public enterprises. The aims of this research are as follows: To determine whether privatization will improve access to more and better quality service at affordable price. To determine whether privatizing the provision of services is aimed at increasing effectiveness and productivity of the public enterprises To determine if clients of competitive privatized service have greater control over the service used and the means of delivery by choosing among the various available methods. To examine cost reduction strategies of government through privatization by reducing their financial involvement in the economy. 1.4 Research Questions In order to successfully carry out this project work, some relevant questions will be asked; which are as follows: What are the reasons why public enterprises have to be sold out despite the rationales for their establishment? What is the impact of privatization on employees? How far has the privatized enterprise gone in boosting its effectiveness and productivity to benefit Nigeria a whole? Who are the main beneficiaries of privatization in the economy? 1.5 Research Hypothesis Ho: (i) performance in government agencies improves when privatized. (ii) Privatization of government industries increase growth and development of a nation Ho: (i) Performance in government agencies does not improve when privatized (ii) Privatization of government industries does not increase growth and development of a nation 1.6 Significance of the Study This research work will be of great importance to different categories of people or groups in the economy. The private sector will benefit because the research is based on more client oriented services. Under the condition of competition, private services provide focus on the needs of their customers, as long as clients have rights to choose who will supply their service. The government department will benefit from this by downloading the responsibilities for direct precision of services to the hand of private agencies. The government’s staff will be able to focus on the core task including the setting of policies and standardized monitoring of private agencies and ensuring equality of access. There will be economic growth of business in the economy and provision of employment. There will be given opportunity for opening the market to private service provides that will widen the possibilities for new services or businesses and ultimately increase the number of employed people in the society, this will assist in stimulating national economic growth. 1.7 Scope and Limitation of the Study The area intended to be covered by the study is limited to the study of the impact privatization is having on the operation and performance of government owned enterprises in Delta State. This work will lead to the evolution of public enterprises in Nigeria and also examine why they will be sold. 1.8 Limitation of the Study In the course of this research the following problems were encountered, like short time frame, financial problems and scarcity of information or data e.t.c. this is due mainly to the wide scope of this study which encompasses a complex institution like PHCN. The consideration of the duration of the subject matter to study which dates from 1988 – 2010 concerning privatization and commercialization program of public enterprises in Nigeria was also a limitation. Another limitation of this research work was the lack of access to credible information and cost of gathering information. 1.9 Definition of Terms PUBLIC CORPORATION- Public Corporation can be seen as those corporations or enterprises built, owned and managed by government. They are corporation being financed with public funds (e.g taxation) and also operate on monopoly. PRIVATIZATION- this is the transfer of ownership and control of enterprises from the state to the private ownership in order to reduce the usual weight of public ownership or control / management. COMMERCIALIZATION- this is the act of making government enterprises profit oriented. It can be full or partial reinvestment of the federal government’s shareholding and is subject to the general regulatory power of the federal government. CAPITALISM- This simply means the economic system in which property is privately owned and goods and privately owned. It is the private ownership of business in a society with the freedom of ownership to use and sell their properties voluntarily.
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