Abstract

This research study assesses Consumers’ Perception of the Privatized Companies in Cameroon” case study ENEO. A total of 60 Questionnaires were used for the collection of data and a random sampling technique was used for administering the questionnaires.

The data was analyzed using percentages and the chi-square technique. Consumers’ perception on how privatization has affected cost of electricity, Quality of services provided and Reliability of the service provided were the specific objectives of the study. Based on the findings it was realized the privatization of the electricity sector has significantly affected cost of electricity in Cameroon as most of the respondents were of the opinion thatsince privatization, cost of electricity services had increased and this was not accompanied by a corresponding increase in service quality.

More so, based on the research findings the alternative hypothesis which states thus; Privatization has significantly affected cost of energy in Cameroon was accepted and the null which states otherwise was rejected.

These mishaps in the Electricity sector have negatively impacted industrialization in the economy and accounts as one of the reason for the low level of industrial development in Cameroon. It was therefore recommended that the state be involve in the sector so as to regulate prices to avoid the consumers from being charged exorbitant prices and also to review the monopoly power  right given to the electricity supply Company .

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

By the end of the 1970’s, many Sub-Sahara African countries were in serious economic difficulties with high rates of inflation, huge balances of payment deficits, increasing external debt. The gross domestic product in most of these countries grew at a rate below that of the increase in populations.

These difficulties have been attributed to excessive government intervention and control in their respective economies, lack of competition as a result of inadequate private sector participation in the economy.

It was during the late 1980 that these African economies which depended mostly on agricultural exports faced serious economic difficulties as the price of most exports fell considerately in the world market. Due to this most of the African economies landed into enormous debts and a more difficult economic situation.

To remedy these economic and financial difficulties, the IMF (International Monetary Fund) and World Bank recommended and sponsored massive reforms which have comprised a set of macro- economic measures coupled with structural changes within the domestic economy of these African countries.

During the past years, most of these African countries have undertaken structural adjustment programs (SAP s) of various forms and these include: i) currency devaluation ii) changes in the fiscal policy iii) legal regulatory administration reforms.

Changes in fiscal Financial and pricing policy included the elimination of subsidies and removal of tariffs while institutional reforms included privatization of government owned enterprises. The African countries initiated various measures to curb the economic crisis and to set their economies back on the growth track.

These measures included; the reduction in civil servants salaries, cut on government expenditure on social programs, reduction in subsidizing most State Corporation. However, all these measures to revamp their economies proved abortive and thus, they resorted to the SAPs recommended by the IMF and World Bank that is privatization of state owned enterprises with the motive of instilling competition. This competition was going to come as a result of the entry of the private sector into these businesses through privatization.

According to Megginson and Netter (2001), privatization was first brought to light by Britain under the leadership of Magerate Thatcher in the 1980’s and since then, it has greatly been adopted by many countries worldwide. Some countries such as China with great economic strength also engage in privatization program.

Theoretically and economically, privatization helps establish a freemarket and fosters competition which in turn gives the public greater choices at competitive price. Privatization does not benefit only the consumers of the privatized company’s product but, the society as a whole. Since, as the firm becomes more efficient, more people get employed. For example, Boles de Boer and Evans (1996) examined the impact of 1990 privatization of Telcom New Zealand, on the price and quality of telephone services. They found that privatization had greatly reduced cost of phone services and also increased services quality.

However, privatization is almost never painless and in some cases many result to failures, Li et al (2011). For instance, as a result of the privatization of state corporations in Poland between 1990 and 1996, the unemployment rate increased by 8%. Shelshinski and Calva (1999).

One of the recommendations of the IMF structural adjustment programs in most nations has remained the transfer of ownership of state owned corporation to private individuals. Privatization can be considered as the incidence or the process of transferring ownership of a business, enterprise or public service from the public sector (government) to the private sector (business). In a broader sense it refers to the transfer of government functions like tax collection and law enforcement to the private sector Chowdary (2006).

The privatization of state corporations has the following arguments for and against the move.

Privatisation of state corporations gives the private companies a profit making incentive and as such they tend to minimise cost and to be more efficient. This is due to the fact that some private corporation managers benefit from the increased profits. This increase in efficiency implies better quality and quantity goods to society. Tejvan Pettinger (2011).

Also, according to Vicker and Yarrow (1998), Wright (1994) privatization increases state revenue making more money of the disposed of the state and thus making the enforcement of major economic policies easy.

Privatisation also increases competition as it gives more private companies the chance to enter into the market. The entry into the market of many firms will instil competition which eventually leads to better quality goods and services to consumers at moderate prices.

Rees (1994) also suggested that privatisation is advantageous to the state as it reduces Public Sector Borrowing Requirements (PSBR). Due to the fact that most government business usually receive subsidies from the state which most at times comes from borrowing thus, theprivatisation of these corporations reduces aggravated government borrowing (debt).

However, privatisation of state owned corporations could be detrimental in the following ways;Firstly, privatization most often leads to natural monopoly. This refers to a situation where only a single firm is in charge of production in a given industry. In such a situation, the monopoly might seek to charge higher prices which exploit consumers.

Kikeri and Nellis (2004) expressed strong reservations about privatisation’s fairness and its impact. They attributed increased efficiency in some cases to competition and not change of ownership. Secondly, they suggested that privatisation may result to some workers being laid off and worsening in the labour conditions in the short run in the firms and to the country at large in the long run.

Clack(1994) argues that privatisation is perused by many countries for political reasons related to government troubled attempts to manage the economy and stay in power rather than for economic pursuits of efficiency in the countries concerned.

1.2. Problem Statement

In line with the Structural Adjustment Programme (SAP), many state corporations were privatized in Cameroon.  SONEL (National Electricity Corporation) was sold to Applied Energy System. Inc (AES) which is an American based Multinational Corporation (amongst the many companies privatized). SONEL was created from the merger of ENELCAM and EDC in 1974 and POWERCAM in 1975.

Until its privatization, the government owned 95% of SONEL and the French Development Agency, Caisse Francaise de Developpment owned 5% World Bank (1996).

The structure of the electricity sector, according to the electricity law of 1998 in divided into 4 sub-sectors (generation, transmission, distribution and retail sales) and companies ought to hold a concession right before operation.

On the contrary, concession rights have never been given to any other company apart from SONEL. Thus even after its privatisation it still has the sole right to operate in all 4 sub-sectors. According to the concession contract given to AES-SONEL, it has the right to operate in all the electricity subsectors ranging from generation to retail sales.

It has the effective control of the electricity sector in Cameroon with the exception of a few independent industrial self-generations like SOCAPALM, SOSUCAM.  According to a web document from the prime ministers website (www.spm.cm) the following were stipulated in the concession contract to AES-SONEL.

–           20 year concession of distribution and transmission services (article 33 and 1). The buyer of SONEL will have the right to provide distribution and transmission with obligation to maintain and develop the network.

–           5 years role as the system operator for the transmission network.

–           5-years exclusive sales right to all consumers. During the first 5 – years of the concession contract, SONEL will retain its, exclusive selling right to consumers of all voltage. After 5 years, this monopoly will only be protected for consumers using less than 1mega watts of power per month.

–           Accounting rules need to not to be enforced for a period specified in the concession contract. However, the duration for the close accounting period was never specified.

The electricity reform in Cameroon is particularly unique because it represents the only privatisation of the entire power sector in Africa till date Pierre -Oliverer- Pineau (2004).

AES SONEL is now known as ENEO (Energy of Cameroon) and management of the Company has been taken over by the British based company ACTIS with 56% shares while the state has 44%.

Objectives that were set for the privatization of the electricity sector by the government include;

1) To use private sector investments and to benefit from its expertise.

2) To improve service quality

3) To increase access to electricity by 49% in 2019 and to increase efficiency in the production, transmission and distribution of electricity.

4) To supply electricity at a competitive price.

However, most Cameroonians tend to conceive the privatization of SONEL in 2001 as devastating and to them the electricity sector has deteriorated as the company instead charges high prices for its services.This multinational corporation instead tend to concentrate on maximizing its profit in Cameroon. The electricity service quality deteriorated so much so that, the country’s growthrate reduces by 1% Massuyeau (2003).

The privatization of the Electricity sector was suppose to make the economy more competitive, better quality services, moderate prices and more employment opportunities for Cameroonians. However, this privatization move has come to be viewed ambivalently by consumers and an assessment of the consumers perception is what we intend to consider.

1.2.1. Research Questions

This research work however, is structured to provide answers to the following questions;

1. How do the consumers of this electricity perceive the quality of service provided?
2. To what extend has the privatization of the electricity affected cost of Energy in Cameroon?
3. To what extent can this electricity services be reliable?

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