Government Policy on Privatization And Commercialization on Nigeria Economy



THE EFFECT OF GOVERNMENT POLICY ON PRIVATIZATION AND COMMERCIALIZATION ON NIGERIA ECONOMY (A CASE STUDY OF PHCN, EKWULOBIA)

EFFECT OF PRIVATIZATION AND COMMERCIALIZATION.

Just as defined earlier, privatization is the transfer of ownership and management of enterprises concern to private investors. While commercialization on the other hand has to do with changing the way government owned companies, operate to ensure that they are run commercially and that they make profit.

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This means that the commercialization programme will make public enterprises to operate on purely commercial basis by charging commercial prices for their output.

Methods of privatization could be through public sales of company shares, sale of assets, transfer of shares/assets, private placement, deferred public offer, management ortmployee Buy-out, leasing to mention but a few.

However, whichever angel one sees it, privatization and commercialization, they all have both positive and negative effects on the economy as well as on the individuals.

The positive effects of privatization according to Ugbo (2008: 197) are:

  1. Reducing or better still, removing the source of wastage of money. Money being spent on these enterprises will then be used in other areas that can improve the standard of living of the people.
  2. New and foreign investment and technology can be attracted to the country.

iii.    An efficient running of the enterprises will lead to expansion and growth of the enterprises.

  1. Money realized from the sale of the enterprises may be used for other developmental projects.

Negative effects of Privatization are:

  1. i) Job Loss: It is feared that the sale of public firms will aggravate unemployment problems.
  2. ii) Price Hike: The privatized enterprises in trying to operate like private companies will equate efficiency with

iii)    Foreign Domination: Privatization may make a country lose its political independence, especially if the ownership of the enterprise should go to the foreigners directly or indirectly.

  1. iv) Income Disparity: Privatization is capable of promoting inequality among the citizens because when viable government firms are sold; the profits go to enrich investors who tend to be wealthier than the average taxpayer.

 

The following include the positive effect of commercialization:

  1. i) It will bring about improvement in the managerial and general operational efficiency of the enterprises.
  2. ii) It will make commercialized enterprises to be insulated from dirty political maneuvering and unprogressive beaucratic constraints.

iii)    The philosophy of accountability will be enthroned in the running of the enterprises.

  1. iv) Possible reduction of waste of scarce resources through attention to adequate placing and execution of projects predicted on more reliable statistical data among others.

 

The negative effects of commercialization are:

  1. Operational and security sensibilities of some enterprises make it difficult to subject their activities to pure commercial principles. Examples are Radio/TV, Nitel, Airport etc.
  2. There is the possible escalation of inflationary problem and exploration of people through over pricing of goods and services because of the need to make profit.

iii.    Loss of government right and opportunity to use board appointment to achieve political balance in the country.

  1. Some labour – intensive enterprises may witness unprecedented escalation of retirement of workers as a result of the need to operate maximally.

 

2.2  PRIVATIZATION AND COMMERCIALIZATION IN OTHER COUNTRIES.

The privatization and commercialization of public enterprises like wind is blowing across the world dismantling old structures and ideas and creating new foundations in political economy. This programme offers safety nets to cash strapped economics.

In Poland for examples, the tennis shipyard in Gdanak, the birth place of solidarity, trade union is undergoing privatization. In England, Wales and Scotland, 17 electricity utilities have been privatized while others are facing privatization. In New Zealand, the New Zealand finance and Investment Company acquired the National carriers for £6000m. Also in Canada, the government finalized arrangement to fully privatize air Canada by selling off its remaining 57% of its share, which is expected to yield £500m.

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 2.3   PRIVATIZATION AND COMMERCIALIZATION IN NIGERIA.

According to Ozor in Ugbo (2008:209) the implementation of privatization in Nigeria when the then military government mapped out series of operations through which the policy of privatization and commercialization could be accomplished. Those operations were the Decree No 25 of 1998 which gave legal backing to the policy and the inauguration of committee known as the Technical Committee on Privatization and Commercialization (TCPC) on the 27th July, 1988 to take change of management of privatization and commercialization programme.

The rationalization exercise was divided into three stages which are:

  1. Phase I: (To be completed by December, 1999) include commercial and merchant banks and cement plants that were already quoted on the Nigerian stock exchange.
  2. Phase II: To include hotels and motor/vehicle assembly plant. Others are fertilize, sugar, paper, steel, media and insurance companies.

iii.    Phase III: To include NEPA, NITEL, NAFCON, Nigeria Airways and Petroleum refineries.

 

The Technical Committee on Privatization and Commercialization (TCPC) was handed over one hundred and eleven (111) public enterprises to turn into the hands of private inventors – 43 for partial and 68 for full privatization. The task took the committee a total number of five years (1998 – 1993) to be completed. As at the submission of its final report to the government on the 4th of June, 1993, the TCPC claimed it had privatized 88 of the specific enterprises while 23 were yet to be sold.

The TCPC effectively privatized 55 enterprises – 35 by public offer, 8 by sale of assets, 7 by private placement, 4 by deferred public offer and one by management buy-out. In all however, 73 enterprises were sold, that is 55 by the TCPC and 18 by the government ministries before the TCPC was established. The Nigerian’s first privatization programme seemed to have stepped abruptly with the change in government of General Ibrahim Badamosi Babangida who initiated the programme to Late Gen. Sani Abacha who took over in 1993.

However, in 1998, an interim of government of Gen. Abdusalami Abubakar emerged and the interest in reactivating the privatization in Nigeria was renewed. Hence, the promulgation of the public enterprise privatization and commercialization Act in 1999. This Act, which actually took effect on 31st December 1998, provided the legal and institutional framework for the second phase of the reorganization exercise.

The Act provided for the establishment of the following:

  1. The National Council on Privatization (NCP) to be the highest decision making body on the matters of privatization and commercialization in Nigeria.
  2. The Public Enterprises Arbitration Panel responsible for effecting prompt settlement of any dispute arising between as enterprise and the NCP on privatization and commercialization or even the Bureau of Public Enterprises.

The three major phases of implementation were mapped out for the second phase which are:

  1. Phase I: (From December, 1999 to June 2000) include 14 enterprises already quoted on the Nigerian Stock Exchange. They are FSB International Bank Plc, Oil and Chemical Plc (NOLCHEM) Benue Cement Company Plc, NAL Merchant Bank Plc, (CCNN), Assurance Bank Ltd, Calabar Cement Company Ltd, Niger Cement Plc and Afri Bank Nigeria Plc.
  2. Phase II: (From February, 2000 to December, 2000) 40% equity of each of the affected enterprises – hotels, vehicle assemblies, fertilizer plants, sugar, paper, steel, media and insurance – to be sold to core investors only.
  3. Phase III (a): (From September, 2000 to December, 2000) sales to be made to core investors only and 40% equity of the affected enterprises – telecommunications, aviation, power, Aluminum, machine tools, downstream oil and gas.
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Phase III (b): (From January 2001 to December 2001) to involve set of cross – border initial public offer (IPO) of shares in hotels, vehicle assemblies, fertilizer, sugar, paper, steel, media insurance companies. After privatization of these enterprises, their shares are to be quoted and traded on the floor of the stock exchange.

 

2.5  OBJECTIVES OF PRIVATIZATION AND COMMERCIALIZATION PROGRAMMES.

       In Nigeria, governments plan to sell public enterprises to private investors was not without some objective. According to Ugbo (2008:183) the broad objectives of the Nigeria’s privatization and commercialization programmes are to:

  1. Restructure and rationalize the public sector in order to lessen the dominance of unproductive investments in the sector.
  2. Re-oriented the enterprises for privatization and commercialization towards a new horizon of improvement, viability and overall efficiency.
  • Ensure positive returns on public sector investments in commercialized enterprises.
  1. Check the present absolute dependence on the treasury for funding by otherwise commercially oriented parastatals and so encourage their approach to the capital market, and
  2. Initiate the process of gradual release to the private sector of such public enterprises, which by their nature and type of operations, are best performed by the private sector.

2.5  EFFECT OF SAP ON ELECTRICITY SUPPLY PROBLEMS

The national economy has been in a stage of structural adjustment since 1986. The foreign exchange market, the abolition of the marketing and the import licensing scheme, the deregulation of interest rates and wages and recently the privatization and the commercialization of public enterprises are the institutional framework of the structural adjustment programme. The impact of which are expected to bring about fundamental change in the operation of the national economy. The introduction of Foreign Exchange Market (FEM) has resulted in a consideration increase in the local currency requirement for imported equipment and material. This however, created additional difficulties in processing foreign manufactured material/equipment. The very low tariff being charged from electricity sales could not yield meaningful revenue to cover these capital overheads. The fall in value of naira make other currencies to increase in the cost of imported components use by PHCN.

 

2.6  ELECTRICITY GENERATION AND TRANSMISSION CAPACITIES.

       The electricity industry is expanding at a very big rate and it is imperative that adequate attention be given to the industry by planning ahead, such a vision is relevant to the future of PHCN and socio economic development of Nigeria. The power demand of the nation has been fully met although there had been some problems in some load shedding system disturbance in the national economy.

Enormous investments are required to extend electricity supply to all part of Nigeria so as to enable large percentage of the people to enjoy this important amenity. This of course is a big challenge to the electricity corporation to ensure every development checks urban drift and reduce the utilization of firewood as a source of energy. Improvement in power generation and transmission is vital to PHCN if it is to provide services effectively to its customers.

 

 

ELECTRIC GENERATION

       One of the primary functions of PHCN is to generate adequate power for the use from its boast     7(seven) power stations made up principally of 4 (four) and 3 (three) hydro stations at different reliable power system optimization of plant maintenance, adequate spinning reserves are essential. With the present peak demand of 2362 Megawatts (MW) and a total installed maximum capacity of 5870MW, the nation power demand will be met for some years ahead with the existing generating plants.

In an effort to increase the electricity generation, PHCN commission the following power stations in the year 2006.

  1. Abuja 90mv Oil/gas turbine to serve as captive plants for the federal territory
  2. Genegu 300Mv gas turbine located at Ajaokuta steel plant.
  • Zungeru 950Mv hydro-detailed design specification and preliminary works in progress.
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Finally, PHCN is now trying to rehabilitate Sapele power station as well as some units at Afam station and general overhead of the thermal station at Egbin.

 

ELECTRICITY TRANSMISSION

       All the power stations are interconnected through a web of networks known as the national Grid. The delivery of power through the national grid to the Primary Point of distribution is referred to as transmission line nationwide supported by steel towers. One of the major problems facing PHCN is its transmission of electricity i.e. vandalization. Many towers collapse as a result of vandalization of transmission line. Although, many of such lines are being reinstated however, electricity consumers do suffer incaclulatable loss as a result of the vandalization. The corporation has tried to liaise with the Nigeria police in order to arrest vandals.

In addition, the management of PHCN has appealed to its staff to continue to patrol along the transmission lines so as to dictate the vandal and report them to the police. How far this arrangement has gone in securing transmission lines is still an issue of general concern.

Furthermore, in order to boost rehabilitation of power supply, PHCN has undergone rehabilitation work in 1992 in the following areas:

  1. The reconstruction of the fifteen (15) 132Kv transmission line towers which collapsed as a result of vandalization.
  2. The successful rehabilitation of four detective 330Kv circuit breakers at new heaven, Alaoji and Onitsha.
  • The restoration of five Scada master stations at the national control center.
  1. Improvement of Agbara substations and Idumogbo substation projects already proposed for execution and the 330Kv line plus associated substations for Enugu, Markurdi, Gombe, Maiduguri, Benin.

Three 330Kv transmission lines are out of services, 13 tower transformers are overloaded, five reactions have failed and 24 high voltage breakers are not operational. The failure of this equipment affects the rehabilitation of electricity supply of PHCN.

As at February 1992, when the assessment team of World Bank/UNDP was still in the country to find out problem facing electricity. At Kaiji hydro-station, only 4 out of 8 units were functional. One of the failed units was due to electricity current, while three others required rewinding. In Nebba, one unit is under maintenance work while the remaining five was functioning. The Shioro hydro-station was also not in great bad condition at the time of the visit. Also Sapele was not left out in the problem.

Another 220 MW units were down with a high bearing temperature problem. The team also discovered that the house keeping at Egbin was not satisfactory. After some other discoveries, it therefore advised PHCN to carry out the long delayed overhaul of the plant. The above analysis shows that one of the problems PHCN undergoes is failure of equipment due to old age and the use of unserviced equipment.

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