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 endeavour.

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.