AN ASSESSMENT OF COST PERFORMANCE AND ACCOUNTABILITY IN PRIVATISED PUBLIC ENTERPRISES IN NIGERIA

Abstract

Despite an impressive level of privatization activity across Africa
and the upsurge in search of the operating performance of privatized
firms in both develop and developing economies, our empirical knowledge
of the privatization program in Africa is limited. The purpose of this
study is to appraise the post privatization cost and operating
performance as well as accountability of some privatized public
enterprises in Nigeria. A survey research design was adopted for the
study, sixty five internal audit and thirty five accounting. Totally one
hundred was randomly sampled and stratified among the staff of Oando
plc Enugu state. Three research questions and hypothesis tested at 0.05
percent level of significance guided the study. Frequencies,
percentages, mean and standard deviation were employed to answer the
research questions while Z-test statistics were used to test the
hypothesis. It was found that privatization of unipetrol has led to
efficient and improved cost performance, and proper accountability to
share holders. We conclude and recommend among others that effective
cost performance and proper accountability to share holders is very
necessary in privatized public enterprises and that government should
prive the entire necessary enabling environment for the privatized
company to carry out their activities without unnecessarily increasing
their cost.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study
Privatization of state-owned enterprises has become an important
phenomenon in both developed and developing countries. Over the last
decade, state-owned enterprises (SOEs) have been privatized at an
increasing rate, particularly in developing countries (DCs).
Privatization has become an important phenomenon in both developed and
developing countries. Over the past decade, privatization attempts have
been occurring at an increasing rate, especially in developing
countries. The compound annual average growth rate was around 10%
between 1990 and 2000, with global privatization revenues jumping from
$25 billion in 1990 to $200 billion in 2000. The number of countries
that have implemented privatization policies has exceeded 110, not to
mention that privatization has touched almost every aspect of economic
activity (Shadeh, 2002).
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 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, 1998). 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); Boubakri and Cosset, (2001); Dewenter and
Malatesta, (2001) D’Souza and Megginson, (2007). 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 institution 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. Consequently, a Technical Committee on
Privatization and Commercialization (TCPC) was set up in 1988 to oversee
the programme. In the course of its operations, the TCPC privatized 55
enterprises. Sufficient time has elapsed since the start of reforms to
allow an initial assessment of the extent to which privatization has
realized its intended economic and financial benefits, especially with
the commencement of the second phase of the programme. This is
particularly important in view of the lessons of experience revealing
interesting features that may alter earlier notions as to the most
appropriate way to implement privatization programmes (Nellis, 1999).
Concerns about globalization, in some transition economies (notably the
former Soviet Union and Czech Republic) and disappointment with
infrastructure privatization in developing countries are spawning new
critiques of privatization (Shirley and Walsh, 2000). Among the
pertinent issues to be addressed are: What is the extent and pattern of
cost performance and accountability of privatized firm? What have been
the results of these performance? Has privatization improved the cost
and accountability of firm? Finally, what policy lessons are to be
learned from the privatization experience so far? These are the issues
that come into focus in the study.

1.2 Statement of Problem

The issue of cost performance and accountability of privatized public
enterprise have been a serious subject of the debate and different
interest group that is the “stakeholders”. The post privatization effect
this enterprise have been the subject of public scrutiny and criticism
by the public and others alike. Majority are of the view that their
performance is not different from the way it was when they were under
public enterprise. In response to this in recent national assembly
committee, that was set up to look into this enterprise partially
supported public concern on their performance. It is against these
background that this research is carried out to determine or find out if
these view are true as the research is intended to look at this
research is intended to look at this privatized firms cost performance
and accountability.

Public enterprise before their recent privatization where perceived
to be bedeviled by numerous challenges ranging from political
interference, inefficiency in the management of resources, conflict of
objectives, overdependence on subvention for survival etc. these over
the years have been the main source of criticism of public enterprises
and the reason why they are poorly managed . is this issue the same
after the privatization o these enterprises? This study is intended to
establish it. 1.3 Research question:
Based on the problem statement and the objective of the study stated above the study will answer the following questions;
i) Has privatization improved the cost performance and accountability of this firm as anticipated?
ii) To what extent are privatized firms accountable to shareholders and other relevant stake holders?
iii) To what level has there been effective checks and balances in privatized enterprises in Nigeria.

1.4 Objectives of the Study. The overriding objective of this study
is to evaluate the second wave of the Nigerian privatization programme
spanning 2008-2012. The specific objectives are as follows: (i) To
examine whether privatization has improved the cost performance and
accountability of privatized firm. (ii) To assess the extent to which
privatized firms are accountable to shareholders and other relevant
stakeholders. (iii) To determine if there are effective checks and
balances in privatized enterprises in Nigeria.

1.5 Statement of Hypothesis
Ho: Privatization has not led to efficient and improved cost
Performance.
Hi: Privatization has led to efficient and improved cost
Performance.

Ho: There have been no effective accountability to share holders and other relevant stake holders.
HI: There have been effective accountability to shareholders and other relevant stakeholders.
Ho: privatization has not led to effective checks and balances in privatized enterprises in Nigeria.
Hi: privatization has led to effective checks and balances in privatized enterprises in Nigeria.

1.6 Significance of the study

Giving the substantial number of enterprises that are yet to be
privatized, the study would provide insights into the desirability,
feasibility and sustainability of future reforms. It is envisaged that
the policy recommendations from the study would assist the National
Council on Privatization in correcting the pitfalls embedded in the
previous endeavor.

The study will assist students and fellow researchers generate
information on cost performance and accountability of firm particularly
if it is relevant to their studies. In the overall, it is envisaged that
the outcome of the study will assist international, multilateral and
donor agencies to identify the felt needs, thereby facilitating the
design of demand-driven policies and programmes to ensure the success of
privatization in Nigeria in particular and sub-Saharan Africa in
general.

1.7 Scope of the study

The scope of the study has been narrowed in order to look at the
impact of cost performance and accountability in the petroleum industry,
particularly in UNIPETROL (now called OANDO plc after privatization).
The study will cover a period of five(5) years ranging from (2008-2012).

1.8 Limitation of study

Like many other research study, this research is confronted with the following limitations:

1. Finance – The cost of running any research project is quite
expensive. It ranges from producing questionnaires to be distributed to
respondents, the cost of transporting to the areas where information
concerning the project is to be obtained etc, and this research is not
an exception.

2. Time- The time required to complete a research project is often
limited judging from the information required to complete a
comprehensive research work. This research is also affected by time.

3. Problem of confidentiality- The challenge of getting respondents
to fill the necessary research questionnaires is tasking despite the
confidence giving to keep all information obtained from them in utmost
confidence.

1.9 Definition of key Terms.

A. Accountability: It is rendering stewardship. It is also the act of
being able to Shoulder responsibilities and carry the correlative
burden of performance. In other words it means answerability,
blameworthiness, liability and the
Expectation of account-giving.
B. Asset sale: is the transfer of ownership of government assets,
commercial-type enterprises, or functions to the private sector. In
general, the government has no role in the financial support,
management, or oversight of a sold asset. However, if the asset is sold
to a company in an industry with monopolistic characteristics, the
government may regulate certain aspects of the business, such as utility
rates.
C. Competition: occurs when two or more parties independently attempt to
secure the business of a customer by offering the most favorable terms
or highest quality service or product. Competition in relation to
government activities is usually categorized in three ways: (1) public
versus private, in which private-sector to conduct public business; (2)
public versus public, in which public-sector organizations compete among
themselves to conduct public-sector business; and (3) private versus
private, in which private-sector organizations compete among themselves
to conduct public-sector business.

D. Cost: this is the sacrifice rendered for benefit derived. It is
seen in terms of opportunity cost that is the one associated with
alternative forgone. E. Divestiture: involves the sale of
government-owned assets. After divestiture, the government generally has
no role in the financial support, management, regulation, or oversight
of the divested activity F. Privatization: privatization implies
permanent transfer of control, as a consequence of transfer of ownership
of right, from the public to the private sector. This definition is
perhaps the most common usage of the term. G. Public enterprise: any
corporation or parastatal established by or any enactment in which the
government of the federation or it agencies has ownership or equity
interest. H. Public sector: that portion of an economy whose activities
(economic or non economic) are under the control and direction of the
state.