Risks and Benefits of Privatisation

Flash Essay Privatize the energy sector in the Africa’s most populous country, which has one of the lowest per capita national power supplies, may seem a smart policy and an opportunity for economic growth in Nigeria. Privatization of the sector could lead to improvements in efficiency, to the end of subsidizes, to access to capital markets and consequently access to better technology and knowledge. Furthermore, the Government could obtain a considerable amount of cash which would help to hide its crippling deficit. However, this may not happen once privatization brings some risks. In fact, the energy sector is a natural monopoly, meaning that the new owner of this key sector for economy won’t face competition. This can be explained by the huge sunk costs that are required to create specialized infrastructures for the business. If, for instance, the competition was doubled, having the large cost structure would lead to a big increase in the price of electricity for consumers in order to keep the same quality. So, this situation would never be efficient. Considered this, there is the risk of the natural monopolist potentially abuse or have unfair power market by increasing the price. It also could raise the prices to covering costs and consequently lead to a situation of inefficiency that was exactly the opposite purpose of privatizing the energy key sector. Moreover, the risk of corruption inside a company which provides a public service and the risk of consumers to be underrepresented and consequently pay higher taxes are possibilities as well.
Besides the risks associated with the privatization of a natural monopoly, if the Nigerian
Government follows good strategies those risks can be minimized. An important policy already adopted by the Government in order to start the privatization process with transparency and equality was when in December 2010 the state broke up the dysfunctional former National Electric Power Authority and put the