AN ASSESSMENT OF COST PERFORMANCE AND ACCOUNTABILITY IN PRIVATIZED PUBLIC ENTERPRISES IN NIGERIA (A STUDY OF OANDO (UNIPETROL) PLC)

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Privatization is the transfer of ownership and control of state-owned enterprises (SOEs) or public assets to private sector entities. The rationale for privatization includes improving efficiency, reducing fiscal burden (subsidies to loss-making SOEs), attracting private capital and expertise, promoting competition, broadening share ownership, and improving service delivery. Since the 1980s, privatization has been a major policy tool in both developed and developing economies, including Nigeria. The Nigerian government has privatized numerous public enterprises in sectors such as telecommunications (NITEL), banking (various banks), petrochemicals, refineries, and the downstream oil and gas sector. The expectation is that private ownership will lead to better cost performance (lower costs, higher efficiency) and greater accountability (transparency, profitability, stakeholder returns) (Megginson and Netter, 2001; Okonjo-Iweala, 2018).

Cost performance refers to the efficiency with which an enterprise manages its costs relative to output, revenue, or industry benchmarks. For a privatized enterprise, improved cost performance is expected to manifest as: (a) lower operating costs per unit of output, (b) reduced overhead and administrative expenses, (c) higher productivity (output per employee), (d) better inventory management, (e) improved procurement practices (lower material costs), (f) reduced waste and inefficiency, and (g) increased profitability. Accountability in the context of privatized enterprises refers to the obligation of management to answer to stakeholders (shareholders, creditors, regulators, employees, the public) for the use of resources, financial performance, and compliance with laws and regulations. In private enterprises, accountability is primarily enforced through market mechanisms (shareholder oversight, board of directors, external audit, financial reporting) rather than political oversight (legislative committees, Auditor-General) (Megginson and Netter, 2001; Okafor and Udeh, 2020).

The Nigerian privatization program has been implemented primarily by the Bureau of Public Enterprises (BPE) and the National Council on Privatization (NCP). Key privatizations include: (a) the telecommunications sector (NITEL, MTEL), (b) the banking sector (various banks through consolidation and intervention), (c) the petrochemical sector (Eleme Petrochemicals), (d) the downstream oil and gas sector (refineries and marketing companies), and (e) the power sector (generation and distribution companies). One of the notable privatizations in the oil and gas sector was the sale of Unipetrol Nigeria Plc (formerly a subsidiary of the state-owned Nigerian National Petroleum Corporation, NNPC) to Oando Plc. This privatization was part of the government’s broader effort to liberalize the downstream petroleum sector and reduce state control (BPE, 2020; Adebayo and Oyedokun, 2019).

Oando Plc is one of Nigeria’s largest integrated energy solutions providers, with operations spanning upstream exploration and production, downstream marketing (retail petroleum products), gas distribution, power generation, and trading. The company was formed through a series of acquisitions and mergers, including the acquisition of Unipetrol Nigeria Plc in 2002. Unipetrol was a state-owned petroleum marketing company with a network of retail service stations across Nigeria. The acquisition was a significant privatization transaction, transferring ownership of a major downstream asset from the government to private investors. Since the acquisition, Oando has rebranded, expanded, and diversified its operations (Oando Plc, 2023; Eze and Nwafor, 2020).

The theoretical rationale for privatization is based on several arguments. Property rights theory suggests that private ownership creates stronger incentives for cost control and efficiency because owners bear the residual risk and reap the residual returns. Agency theory suggests that private enterprises have stronger monitoring mechanisms (shareholders, board, external audit, market for corporate control) than public enterprises (which suffer from political interference, weak oversight, and diffuse ownership). Public choice theory suggests that public enterprises are subject to political pressures (e.g., employment for political supporters, uneconomic pricing) that undermine efficiency. Competition theory suggests that privatization combined with competition (or potential competition) is most effective. For Oando, privatization was expected to improve cost performance and accountability relative to its predecessor state-owned Unipetrol (Boycko, Shleifer, and Vishny, 1996; Megginson and Netter, 2001).

The expected benefits of privatization for cost performance include: (a) reduced labor costs – private firms are expected to rationalize overstaffing, a common problem in public enterprises, (b) better procurement – private firms are expected to source inputs at lower cost through competitive bidding, (c) reduced waste – private firms have stronger incentives to eliminate inefficiency, (d) improved inventory management – private firms hold less inventory, reducing carrying costs, (e) lower overhead – private firms have leaner administrative structures, and (f) higher capacity utilization – private firms use assets more intensively. For Oando, privatization was expected to lead to restructuring, cost rationalization, and improved operational efficiency (Megginson and Netter, 2001; Boubakri and Cosset, 1998).

The expected benefits of privatization for accountability include: (a) financial reporting – private firms are required to publish audited financial statements in accordance with IFRS, (b) shareholder oversight – private firms have boards of directors accountable to shareholders, (c) market discipline – poor performance leads to falling share prices, potential takeover, or delisting, (d) creditor oversight – lenders require regular financial reporting and covenants, (e) regulatory oversight – private firms in regulated sectors (e.g., petroleum marketing, upstream oil and gas) are subject to regulatory reporting and compliance, and (f) public disclosure – listed companies disclose financial results, executive compensation, and governance practices. For Oando, which is listed on the Nigerian Exchange Limited (NGX), accountability is enforced through multiple mechanisms (Oando Plc, 2023; Okafor and Udeh, 2021).

However, the outcomes of privatization in Nigeria and other developing countries have been mixed. Some privatized enterprises have shown significant improvements in cost performance and profitability, while others have struggled. Factors influencing success include: (a) competitive environment – privatization is more effective when the enterprise faces competition (domestic or international), (b) regulatory framework – effective regulation prevents abuse of market power, (c) investor quality – well-capitalized, experienced private operators are more likely to succeed, (d) labor restructuring – ability to rationalize overstaffing (often politically sensitive), (e) infrastructure – privatized enterprises in sectors with poor infrastructure (e.g., power, transport) may continue to struggle, (f) governance – quality of board and management post-privatization, and (g) macroeconomic stability – inflation, exchange rate, and interest rate stability affect performance (Megginson and Netter, 2001; Ogbeifun, 2019).

In the Nigerian downstream petroleum sector, privatized companies like Oando face specific challenges: (a) price regulation – petroleum product prices (petrol, diesel, kerosene) are subject to government regulation (sometimes subsidized), affecting margins, (b) subsidy regime – the government has subsidized petrol prices, leading to subsidy payments that are often delayed, creating cash flow problems for marketers, (c) foreign exchange – importation of refined products requires foreign exchange; scarcity and devaluation affect costs, (d) infrastructure – pipelines, depots, and jetties are in poor condition, increasing logistics costs, (e) theft and vandalism – product theft from pipelines and depots is a significant cost, (f) competition – the downstream sector is competitive, with multiple players (NIPCO, Total, Mobil, Conoil, Ardova). For Oando, these challenges affect cost performance regardless of ownership structure (CBN, 2021; Adebayo and Oyedokun, 2020).

The measurement of cost performance in privatized enterprises involves comparing pre- and post-privatization metrics. Key metrics include: (a) cost-to-revenue ratio (operating expenses divided by revenue), (b) profit margin (operating profit divided by revenue), (c) return on assets (ROA) , (d) return on equity (ROE) , (e) labor productivity (revenue per employee), (f) inventory turnover, (g) operating cash flow per employee, and (h) capital expenditure efficiency. For Oando, comparing these metrics before and after privatization (from the Unipetrol era to the Oando era) provides evidence of privatization’s impact. However, data for the pre-privatization period may be limited, and it is difficult to isolate the effect of privatization from other factors (e.g., changes in oil prices, government policy) (Megginson and Netter, 2001; Okafor and Udeh, 2020).

Accountability in privatized enterprises is assessed through: (a) timeliness and quality of financial reporting – are financial statements published on time? Are they audited by reputable firms? Do they comply with IFRS?, (b) board effectiveness – is the board independent? Does it oversee management effectively?, (c) external audit – does the external auditor issue a clean opinion? Are there significant audit findings?, (d) shareholder engagement – does the company hold annual general meetings? Does it respond to shareholder inquiries?, (e) regulatory compliance – does the company comply with Nigerian Exchange (NGX) listing rules, Securities and Exchange Commission (SEC) regulations, and sector-specific regulations?, and (f) transparency – does the company voluntarily disclose beyond minimum requirements (e.g., sustainability reports, governance reports)? For Oando, as a listed company, accountability is enforced through multiple mechanisms (Oando Plc, 2023; Okafor and Udeh, 2021).

The Nigerian Economic Sustainability Plan and other government policies have emphasized the role of the private sector in driving economic growth. Privatized enterprises like Oando are expected to contribute through: (a) efficient provision of petroleum products, (b) tax payments (corporate income tax, VAT, petroleum profit tax), (c) employment generation, (d) local content development, and (e) corporate social responsibility. However, the extent to which privatized enterprises have delivered on these expectations varies. For Oando, the company has faced challenges, including regulatory investigations (e.g., SEC investigation into governance issues), financial restatements, and debt pressures. These challenges raise questions about whether privatization has delivered the expected improvements in cost performance and accountability (CBN, 2021; Okonjo-Iweala, 2018).

The role of the Bureau of Public Enterprises (BPE) in monitoring post-privatization performance is important but often weak. BPE conducts post-privatization monitoring to assess whether privatized enterprises are meeting their obligations (e.g., maintaining employment levels, making agreed investments). However, monitoring is often under-resourced, and enforcement of compliance is weak. For Oando, BPE’s oversight of the Unipetrol privatization has been limited (BPE, 2020; Adebayo and Oyedokun, 2019).

Finally, this study focuses on Oando (Unipetrol) Plc as a case study because it represents a significant privatization transaction in Nigeria’s downstream petroleum sector. By examining cost performance and accountability in Oando, the study can provide insights applicable to other privatized enterprises in Nigeria and other developing countries. The findings will contribute to the literature on privatization outcomes and provide evidence for policymakers, investors, and regulators (Yin, 2018; Creswell and Creswell, 2018).

1.2 Statement of the Problem

The privatization of Unipetrol Nigeria Plc (now Oando Plc) was expected to improve cost performance (lower costs, higher efficiency) and accountability (transparency, shareholder oversight, financial reporting) compared to its predecessor state-owned enterprise. However, evidence suggests that outcomes have been mixed. Oando has faced significant challenges: (a) high operating costs (relative to revenue), (b) debt pressures (high leverage), (c) regulatory investigations (SEC investigation into governance practices), (d) financial restatements (revised financial statements), (e) volatile profitability (influenced by oil price fluctuations, government subsidy policies), (f) cash flow constraints (delayed subsidy payments), and (g) corporate governance controversies. These challenges raise questions about whether privatization has delivered the expected cost performance and accountability benefits. It is unclear to what extent Oando’s cost performance has improved relative to the pre-privatization era (Unipetrol), relative to competitors, or relative to industry benchmarks. Similarly, it is unclear whether accountability mechanisms (board oversight, external audit, financial reporting, shareholder engagement) are effective. There is a lack of recent, systematic, empirical research that assesses cost performance and accountability in Oando as a privatized public enterprise. Therefore, this study is motivated to assess cost performance and accountability in Oando (Unipetrol) Plc, identify factors affecting performance, and propose recommendations for improvement.

1.3 Aim of the Study

The aim of this study is to assess cost performance and accountability in privatized public enterprises in Nigeria, using Oando (Unipetrol) Plc as a case study.

1.4 Objectives of the Study

The specific objectives of this study are to:

1. Examine the cost performance of Oando (Unipetrol) Plc using relevant metrics (cost-to-revenue ratio, profit margin, return on assets, labor productivity, inventory turnover) over the study period.
2. Assess the accountability mechanisms at Oando (financial reporting, board oversight, external audit, shareholder engagement, regulatory compliance).
3. Compare Oando’s cost performance and accountability with its predecessor state-owned enterprise (Unipetrol) and with industry benchmarks.
4. Identify the factors affecting cost performance and accountability in Oando (regulatory environment, competition, governance, macroeconomic conditions).
5. Propose recommendations for improving cost performance and accountability in Oando and other privatized public enterprises in Nigeria.

1.5 Research Questions

The following research questions guide this study:

1. What is the cost performance of Oando (Unipetrol) Plc (cost-to-revenue ratio, profit margin, return on assets, labor productivity, inventory turnover) over the study period?
2. What are the accountability mechanisms at Oando (financial reporting, board oversight, external audit, shareholder engagement, regulatory compliance)?
3. How does Oando’s cost performance and accountability compare with its predecessor state-owned enterprise (Unipetrol) and with industry benchmarks?
4. What factors (regulatory environment, competition, governance, macroeconomic conditions) affect cost performance and accountability in Oando?
5. What recommendations can be made to improve cost performance and accountability in Oando and other privatized public enterprises in Nigeria?

1.6 Research Hypotheses

The following hypotheses are formulated in null (H₀) and alternative (H₁) forms:

Hypothesis One

• H₀: Privatization has no significant effect on the cost performance (cost-to-revenue ratio, profit margin, return on assets) of Oando (Unipetrol) Plc.
• H₁: Privatization has a significant effect on the cost performance (cost-to-revenue ratio, profit margin, return on assets) of Oando (Unipetrol) Plc.

Hypothesis Two

• H₀: There is no significant difference in accountability (financial reporting quality, board effectiveness) between Oando and its predecessor state-owned enterprise (Unipetrol).
• H₁: There is a significant difference in accountability (financial reporting quality, board effectiveness) between Oando and its predecessor state-owned enterprise (Unipetrol).

Hypothesis Three

• H₀: Regulatory challenges (price regulation, subsidy delays, foreign exchange scarcity) do not significantly affect Oando’s cost performance.
• H₁: Regulatory challenges (price regulation, subsidy delays, foreign exchange scarcity) significantly affect Oando’s cost performance.

Hypothesis Four

• H₀: Corporate governance weaknesses (board independence, transparency) do not significantly affect accountability outcomes at Oando.
• H₁: Corporate governance weaknesses (board independence, transparency) significantly affect accountability outcomes at Oando.

1.7 Significance of the Study

This study is significant for several stakeholders. First, Oando Plc’s management and board will benefit from a systematic assessment of cost performance and accountability, enabling them to identify weaknesses and implement improvements. Second, the Bureau of Public Enterprises (BPE) and the National Council on Privatization (NCP) will gain insights into post-privatization outcomes, informing future privatization design and monitoring. Third, the Nigerian Exchange Limited (NGX) and the Securities and Exchange Commission (SEC) will benefit from understanding governance and accountability challenges in privatized enterprises, informing regulatory oversight. Fourth, the Nigerian government (Ministry of Finance, Ministry of Petroleum Resources) will gain insights into the effectiveness of privatization in the downstream petroleum sector, informing policy (e.g., deregulation, privatization of refineries). Fifth, other privatized enterprises in Nigeria (and potential investors in future privatizations) can use the findings as a benchmark for evaluating performance and accountability. Sixth, academics and researchers in privatization, corporate governance, and public enterprise reform will benefit from the study’s contribution to the literature on privatization outcomes in developing economies. Seventh, investors and financial analysts will gain insights into the cost performance and governance of Oando, supporting investment decisions. Eighth, civil society organizations focused on governance and anti-corruption will gain evidence on accountability in privatized enterprises. Finally, the broader Nigerian public will benefit indirectly as improved cost performance and accountability in privatized enterprises leads to better services, lower prices, and more efficient use of resources.

1.8 Scope of the Study

This study focuses on the assessment of cost performance and accountability in privatized public enterprises in Nigeria, using Oando (Unipetrol) Plc as a case study. The company is a privatized entity (formerly Unipetrol Nigeria Plc, a state-owned petroleum marketing company) now operating as a publicly traded integrated energy company. Content-wise, the study examines the following areas: cost performance metrics (cost-to-revenue ratio, profit margin, return on assets, return on equity, labor productivity, inventory turnover, operating cash flow); accountability mechanisms (financial reporting quality and timeliness, board composition and independence, external audit quality and opinion, shareholder engagement, regulatory compliance); comparison with pre-privatization period (Unipetrol) and with industry peers; and factors affecting performance (regulatory environment, competition, corporate governance, macroeconomic conditions). The study targets Oando’s annual reports, financial statements, corporate governance reports, analyst reports, regulatory filings, and industry data. The time frame for data collection is the cross-sectional period of 2018-2023, with historical data (pre- and post-privatization) as available. The study does not cover other privatized enterprises (except for comparative context), nor does it cover Oando’s upstream operations in depth (focus on downstream marketing), nor does it cover non-financial aspects of privatization (e.g., employment impact, social welfare).

1.9 Definition of Terms

Privatization: The transfer of ownership and control of state-owned enterprises or public assets to private sector entities, typically through share sales, asset sales, or concessions.

Public Enterprise (State-Owned Enterprise, SOE): A business entity owned and controlled by the government (federal, state, or local) that engages in commercial activities.

Cost Performance: The efficiency with which an enterprise manages its costs relative to output, revenue, or industry benchmarks; measured by cost ratios, profit margins, productivity, and efficiency metrics.

Accountability: The obligation of management to answer to stakeholders (shareholders, creditors, regulators, the public) for the use of resources, financial performance, and compliance with laws and regulations.

Oando Plc: A Nigerian integrated energy company, formerly Oando Marketing (acquired Unipetrol Nigeria Plc in 2002), listed on the Nigerian Exchange Limited (NGX).

Unipetrol Nigeria Plc: A former state-owned petroleum marketing company, a subsidiary of the Nigerian National Petroleum Corporation (NNPC), privatized through sale to Oando.

Cost-to-Revenue Ratio: Operating expenses divided by revenue; lower ratios indicate better cost control.

Profit Margin: Operating profit or net profit divided by revenue; measures profitability.

Return on Assets (ROA): Net profit divided by total assets; measures how efficiently assets are used to generate profit.

Return on Equity (ROE): Net profit divided by shareholders’ equity; measures return on owners’ investment.

Labor Productivity: Revenue per employee or profit per employee; measures workforce efficiency.

Inventory Turnover: Cost of goods sold divided by average inventory; measures inventory management efficiency.

Financial Reporting Quality: The degree to which financial statements are accurate, complete, timely, and comply with accounting standards (IFRS).

Board Independence: The proportion of non-executive or independent directors on the board; higher independence is associated with better oversight.

External Audit: An independent examination of financial statements by an external auditor to express an opinion on whether they present a true and fair view.

Clean Audit Opinion (Unqualified): An audit opinion stating that the financial statements are fairly presented in accordance with accounting standards.

Qualified Audit Opinion: An audit opinion stating that except for a specific issue, the financial statements are fairly presented.

Adverse Audit Opinion: An audit opinion stating that the financial statements are not fairly presented.

Disclaimer of Opinion: An audit opinion stating that the auditor is unable to express an opinion due to scope limitations.

Corporate Governance: The system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of shareholders and other stakeholders.

Nigerian Exchange Limited (NGX): The principal stock exchange of Nigeria, where Oando is listed.

Securities and Exchange Commission (SEC): The Nigerian regulatory agency overseeing capital markets and listed companies.

Bureau of Public Enterprises (BPE): The Nigerian agency responsible for implementing privatization and post-privatization monitoring.

Downstream Petroleum Sector: The segment of the oil and gas industry involved in refining, marketing, and distribution of petroleum products (petrol, diesel, kerosene, aviation fuel).

Subsidy: A government payment to reduce the price of petroleum products below market levels; in Nigeria, petrol has been subsidized, affecting marketer margins.

Petroleum Industry Act (PIA) 2021: Nigerian legislation reforming the governance, regulatory, and fiscal framework of the oil and gas industry.

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Framework

A conceptual framework is a structural representation of the key concepts or variables in a study and the hypothesized relationships among them. It serves as the analytical lens through which the researcher organizes the study, selects appropriate methodology, and interprets findings. In this study, the conceptual framework is built around two primary constructs: Privatization (the independent variable), and Cost Performance and Accountability (the dependent variables). Additionally, the framework identifies the specific dimensions of each construct and the moderating variables that influence the relationship (Miles, Huberman, and Saldaña, 2020).

2.1.1 Dependent Variables: Cost Performance and Accountability

The dependent variables in this study are Cost Performance and Accountability, representing the two key outcomes expected from privatization. Each is conceptualized along multiple dimensions relevant to a privatized public enterprise like Oando (Unipetrol) Plc (Megginson and Netter, 2001; Boubakri and Cosset, 1998).

Cost Performance refers to the efficiency with which an enterprise manages its costs relative to output, revenue, or industry benchmarks. For the purpose of this study, cost performance is conceptualized along six key dimensions: (a) cost-to-revenue ratio (operating expenses divided by revenue; lower ratios indicate better cost control), (b) profit margin (operating profit divided by revenue; higher margins indicate better cost performance after revenue), (c) return on assets (ROA) (net profit divided by total assets; measures how efficiently assets are used to generate profit), (d) return on equity (ROE) (net profit divided by shareholders’ equity; measures return on owners’ investment), (e) labor productivity (revenue or profit per employee; measures workforce efficiency), and (f) inventory turnover (cost of goods sold divided by average inventory; measures inventory management efficiency). Privatization is expected to improve all six dimensions through better management, cost rationalization, and efficiency incentives (Megginson and Netter, 2001; Okafor and Udeh, 2020).

Accountability refers to the obligation of management to answer to stakeholders for the use of resources, financial performance, and compliance with laws and regulations. For the purpose of this study, accountability is conceptualized along five key dimensions: (a) financial reporting quality (accuracy, completeness, timeliness, and compliance with IFRS), (b) board effectiveness (composition, independence, oversight of management), (c) external audit quality (independence, competence, audit opinion, audit findings), (d) shareholder engagement (AGMs, investor relations, responsiveness to shareholder concerns), and (e) regulatory compliance (adherence to NGX listing rules, SEC regulations, petroleum industry regulations). Privatization is expected to enhance accountability through market mechanisms (shareholder oversight, external audit, disclosure requirements) compared to public enterprises (which suffer from weak oversight and political interference) (Shleifer and Vishny, 1997; Okafor and Udeh, 2021).

2.1.2 Independent Variables: Privatization

Privatization, the independent variable in this study, refers to the transfer of ownership and control of state-owned enterprises (SOEs) to private sector entities. For the purpose of this study, the privatization of Unipetrol (now Oando) is conceptualized along five key dimensions that are expected to affect cost performance and accountability. Each dimension represents a mechanism through which privatization is hypothesized to improve outcomes (Boycko, Shleifer, and Vishny, 1996; Megginson and Netter, 2001).

The first dimension is ownership change. This refers to the transfer of ownership from the government (NNPC) to private investors (Oando and other shareholders). Private owners have stronger incentives to maximize profit and minimize costs because they bear residual risk and reap residual returns. Private owners are also more willing to restructure (lay off redundant workers, close unprofitable operations) than governments, which are sensitive to political pressure. For Oando, the change of ownership from state-owned Unipetrol to private Oando created new incentives for cost control and efficiency (Boycko et al., 1996; Megginson and Netter, 2001).

The second dimension is governance change. This refers to the replacement of political oversight (legislative committees, Auditor-General, ministry supervision) with private governance mechanisms (board of directors, audit committee, shareholder oversight). Private governance is expected to be more effective because directors are accountable to shareholders, not politicians. The board is expected to monitor management more rigorously, set performance targets, and replace underperforming management. For Oando, the transition from state-owned to publicly listed company introduced a board of directors (including independent directors), an audit committee, and shareholder oversight (Shleifer and Vishny, 1997; Okafor and Udeh, 2021).

The third dimension is competitive environment. Privatization is often accompanied by liberalization (opening the sector to competition). In the downstream petroleum sector, privatization was part of broader deregulation efforts. Competition from other marketers (Total, Mobil, Conoil, NIPCO, Ardova) creates pressure for cost reduction and efficiency. A privatized monopoly may not perform better than a state-owned monopoly. For Oando, the downstream sector is competitive, with multiple players vying for market share, creating pressure for cost efficiency (Megginson and Netter, 2001; Boubakri and Cosset, 1998).

The fourth dimension is financial market discipline. As a publicly listed company, Oando is subject to capital market discipline. Poor performance leads to falling share prices, making the company vulnerable to takeover (market for corporate control). Analysts and institutional investors monitor performance and can pressure management. Access to capital (equity and debt) depends on financial performance and governance. For Oando, listing on the NGX subjects the company to market discipline, including quarterly reporting, analyst coverage, and investor scrutiny (Shleifer and Vishny, 1997; Okafor and Udeh, 2020).

The fifth dimension is regulatory framework. Privatized enterprises in regulated sectors (like downstream petroleum) operate within a regulatory framework that affects cost performance and accountability. In Nigeria, the Petroleum Industry Act (PIA) 2021 established new regulatory bodies (Nigerian Upstream Petroleum Regulatory Commission, Nigerian Midstream and Downstream Petroleum Regulatory Authority). Price regulation (petrol subsidy) affects margins; delayed subsidy payments affect cash flow. For Oando, the regulatory environment is a significant factor affecting cost performance, regardless of ownership (CBN, 2021; Adebayo and Oyedokun, 2020).

These five dimensions—ownership change, governance change, competition, market discipline, and regulation—interact to determine post-privatization outcomes. For Oando, the privatization of Unipetrol involved all five dimensions, but the effectiveness of each varies (Miles et al., 2020; Creswell and Creswell, 2018).

The conceptual framework posits a positive relationship between privatization (independent variable) and cost performance and accountability (dependent variables). Specifically, privatization through ownership change, governance change, competition, market discipline, and appropriate regulation is expected to improve cost-to-revenue ratios, profit margins, returns on assets and equity, labor productivity, inventory turnover, and accountability mechanisms (financial reporting, board effectiveness, external audit, shareholder engagement, regulatory compliance). However, this relationship is moderated by several factors, including the quality of regulation, the level of competition, the effectiveness of governance, and macroeconomic conditions, which are discussed in the theoretical framework (Megginson and Netter, 2001; Shleifer and Vishny, 1997).

2.2 Theoretical Framework

A theoretical framework is a collection of interrelated concepts, definitions, and propositions that present a systematic view of phenomena by specifying relationships among variables, with the purpose of explaining and predicting those phenomena. In this study, five major theories are adopted to explain the relationship between privatization and cost performance and accountability: the Property Rights Theory, the Agency Theory, the Public Choice Theory, the Stakeholder Theory, and the Regulatory Theory. These theories collectively provide a robust lens for understanding why privatization is expected to improve cost performance and accountability, why outcomes vary, and under what conditions privatization is most effective (Alchian, 1965; Jensen and Meckling, 1976; Buchanan and Tullock, 1962; Freeman, 1984; Stigler, 1971).

2.2.1 Property Rights Theory

Property Rights Theory, associated with Alchian (1965) and other economists, explains how the structure of property rights affects incentives for resource use. The theory distinguishes between state ownership (where property rights are held collectively by citizens, with government as agent) and private ownership (where property rights are held by specific individuals or entities who bear the costs and benefits of their decisions). Under state ownership, residual claims (profits) accrue to the state (general treasury), not to managers or employees. Managers lack strong incentives to maximize profit or minimize costs because they do not personally bear the costs of inefficiency or reap the rewards of efficiency. Under private ownership, owners have strong incentives because they bear residual risk and reap residual returns. The theory predicts that private ownership leads to more efficient resource use, lower costs, and higher profitability (Alchian, 1965; Boycko et al., 1996).

In the context of this study, Property Rights Theory explains why the privatization of Unipetrol (state-owned) to Oando (privately owned) was expected to improve cost performance. Under state ownership, Unipetrol managers had weak incentives to control costs; inefficiencies were absorbed by the state (subsidies). Under private ownership, Oando’s shareholders have strong incentives to ensure that management minimizes costs and maximizes profit. The theory predicts that Oando should have lower cost-to-revenue ratios, higher profit margins, and higher returns on assets and equity than Unipetrol. The theory also explains why privatization may fail if property rights are not well-defined or enforced (e.g., if the government retains significant control through regulation or golden shares) (Megginson and Netter, 2001; Okafor and Udeh, 2020).

Property Rights Theory also explains the importance of residual claimancy. When managers have ownership stakes (e.g., share options), their incentives align with shareholders. For Oando, executive compensation includes share-based incentives, aligning management interests with shareholder interests. The theory predicts that companies with higher managerial ownership have better cost performance (Alchian, 1965; Boycko et al., 1996).

Empirical research has supported Property Rights Theory in privatization studies. Studies have found that privatized firms improve profitability, efficiency, and output compared to state-owned enterprises. For Oando, Property Rights Theory suggests that ownership change is a key driver of cost performance improvement (Megginson and Netter, 2001).

2.2.2 Agency Theory

Agency Theory, developed by Jensen and Meckling (1976), describes the relationship between principals (owners/shareholders) and agents (managers). In state-owned enterprises, the principals are citizens (or the government acting on their behalf), and the agents are managers. However, the chain of agency is long (citizens → politicians → civil servants → SOE managers), creating multiple agency problems. Politicians may pursue their own interests (e.g., employment for supporters) rather than efficiency. Civil servants may lack expertise or incentives to monitor SOE managers. The result is weak monitoring, high agency costs, and poor performance. In private enterprises, the chain is shorter (shareholders → board → managers), and shareholders have stronger incentives to monitor. The board acts as an agent of shareholders to oversee management. The external audit provides independent verification. The market for corporate control provides discipline (poorly managed firms are taken over). Agency Theory predicts that privatization reduces agency costs and improves performance (Jensen and Meckling, 1976; Shleifer and Vishny, 1997).

In the context of this study, Agency Theory explains why privatization improves accountability. Under state ownership, Unipetrol faced weak monitoring: the Auditor-General’s reports were often ignored; the legislature’s Public Accounts Committee lacked expertise; ministry oversight was weak. Under private ownership, Oando is monitored by: (a) a board of directors (including independent directors), (b) an audit committee, (c) external auditors (Big 4), (d) institutional investors, (e) financial analysts, and (f) regulators (SEC, NGX). These multiple monitors reduce information asymmetry and create stronger incentives for management to act in shareholder interests. The theory predicts that Oando should have higher-quality financial reporting, more effective board oversight, and better compliance with regulations than Unipetrol (Jensen and Meckling, 1976; Okafor and Udeh, 2021).

Agency Theory also explains the role of executive compensation. To align manager and shareholder interests, private firms use performance-based compensation (bonuses tied to profit, share options). For Oando, executive compensation includes bonuses based on financial performance, aligning manager incentives with shareholder interests. The theory predicts that such alignment improves cost performance (Shleifer and Vishny, 1997; Watts and Zimmerman, 1986).

Empirical research has found that privatized firms have stronger governance mechanisms and better financial reporting quality. For Oando, Agency Theory suggests that the privatization of Unipetrol reduced agency costs and improved accountability (Megginson and Netter, 2001; Boubakri and Cosset, 1998).

2.2.3 Public Choice Theory

Public Choice Theory, developed by Buchanan and Tullock (1962) and others, applies economic principles to political and public sector decision-making. The theory assumes that individuals (including politicians, bureaucrats, and interest groups) act in their own self-interest, not necessarily in the public interest. In the context of state-owned enterprises, Public Choice Theory explains why SOEs underperform. Politicians may use SOEs to reward political supporters (employment, contracts), even if inefficient (rent-seeking). Bureaucrats may seek to maximize their budgets, staff, and power rather than efficiency. Interest groups (unions, suppliers) may capture SOEs for their benefit. The result is cost inefficiency, overstaffing, poor service, and lack of accountability. Privatization removes SOEs from political control, reducing opportunities for rent-seeking and political interference (Buchanan and Tullock, 1962; Boycko et al., 1996).

In the context of this study, Public Choice Theory explains why Unipetrol (as a state-owned enterprise) likely suffered from political interference: (a) employment of political supporters (overstaffing), (b) uneconomic pricing (subsidized prices to win votes), (c) procurement contracts awarded to politically connected suppliers at inflated prices, (d) pressure to locate facilities based on political considerations rather than economic efficiency. Privatization (the sale to Oando) removed Unipetrol from direct political control, reducing these inefficiencies. The theory predicts that Oando should have lower employment (rationalized workforce), more efficient procurement, and better cost control than Unipetrol (Buchanan and Tullock, 1962; Megginson and Netter, 2001).

Public Choice Theory also explains why some privatizations fail if the government retains significant control (e.g., “golden shares,” price regulation, subsidy policies). In the downstream petroleum sector, the government continues to regulate petrol prices and provide subsidies, which can undermine the efficiency benefits of privatization. For Oando, the subsidy regime (delayed payments) creates cash flow problems, and price regulation affects profit margins. The theory predicts that privatization is most effective when political interference is minimized (Boycko et al., 1996; Adebayo and Oyedokun, 2020).

Empirical research has found that privatized firms reduce employment (rationalize overstaffing) and improve procurement efficiency. For Oando, Public Choice Theory suggests that the removal of political interference was a key driver of cost performance improvement (Megginson and Netter, 2001).

2.2.4 Stakeholder Theory

Stakeholder Theory, developed by Freeman (1984), posits that organizations are not merely responsible to their shareholders but to a broader set of stakeholders who are affected by or can affect the achievement of the organization’s objectives. In the context of privatized enterprises, stakeholders include: shareholders, employees, customers, suppliers, creditors, regulators, local communities, and the public. Privatization changes the balance of stakeholder influence. In state-owned enterprises, political stakeholders (government, legislature, unions) have dominant influence. In private enterprises, shareholders have dominant influence, but other stakeholders still have legitimate claims (Freeman, 1984; Donaldson and Preston, 1995).

In the context of this study, Stakeholder Theory explains how privatization affects accountability to different stakeholders. Under state ownership, Unipetrol was accountable primarily to political stakeholders (ministries, legislature). Under private ownership, Oando is accountable to shareholders (through board, AGMs, financial reporting), creditors (through covenants), regulators (SEC, NGX, NUPRC), and customers (through market competition). The theory predicts that accountability to shareholders (financial performance) improves, but accountability to other stakeholders (employees, communities) may be weaker. For Oando, employee layoffs (rationalization) may have harmed employee stakeholder interests, while price deregulation may benefit customers. The theory suggests that effective privatization requires balancing multiple stakeholder interests (Freeman, 1984; Okafor and Udeh, 2021).

Stakeholder Theory also explains the importance of corporate social responsibility (CSR) in privatized enterprises. Private firms face pressure from communities, NGOs, and media to demonstrate social responsibility. For Oando, CSR programs (education, health, community development) are part of accountability to community stakeholders. The theory predicts that privatized firms that neglect stakeholder interests face reputational damage, regulatory sanctions, or consumer boycotts (Donaldson and Preston, 1995; Adebayo and Oyedokun, 2019).

Empirical research has found that privatized firms improve financial accountability to shareholders but may reduce social accountability (employment, community services). For Oando, Stakeholder Theory suggests that accountability is not unidirectional; privatization improved accountability to shareholders but may have reduced accountability to employees (layoffs) (Megginson and Netter, 2001).

2.2.5 Regulatory Theory

Regulatory Theory, associated with Stigler (1971) and others, explains the role of government regulation in shaping the behavior of privatized enterprises, particularly in natural monopolies or sectors with market failures. Regulation can be designed to protect consumers (price regulation, quality standards), promote competition (anti-trust), ensure safety (environmental, health), and achieve social objectives (universal service). However, regulation can also be captured by the regulated industry (regulatory capture), where regulators serve the interests of the industry rather than the public. Effective regulation is essential for privatization to achieve public benefits (Stigler, 1971; Laffont and Tirole, 1993).

In the context of this study, Regulatory Theory explains the role of government regulation in shaping Oando’s cost performance and accountability. The downstream petroleum sector in Nigeria is regulated by: (a) the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) under the PIA, (b) the Nigerian Exchange Limited (NGX) for listing rules, (c) the Securities and Exchange Commission (SEC) for capital market regulation, and (d) the Federal Competition and Consumer Protection Commission (FCCPC) for consumer protection. Key regulations affecting cost performance include: (a) price regulation – petrol prices have been regulated (with subsidy); this affects Oando’s margins, (b) subsidy regime – delayed subsidy payments affect Oando’s cash flow, (c) import regulations – licenses, quotas, and tariffs affect Oando’s import costs, (d) environmental regulations – spill prevention, waste disposal, emissions standards affect operating costs. The theory predicts that regulation can both help (protect consumers, ensure safety) and hinder (increase costs, create uncertainty) cost performance (Stigler, 1971; Laffont and Tirole, 1993).

Regulatory Theory also explains the risk of regulatory capture. If regulators are captured by the industry (e.g., through lobbying, campaign contributions, or future employment), regulations may favor incumbent firms at the expense of consumers and new entrants. For Oando, effective regulation requires independent, well-resourced regulatory bodies with clear mandates and accountability. The Petroleum Industry Act (PIA) 2021 created new regulatory bodies; their effectiveness remains to be seen (Adebayo and Oyedokun, 2020; CBN, 2021).

Empirical research has found that privatization combined with effective regulation leads to better outcomes than privatization without regulation (e.g., in unregulated monopolies). For Oando, Regulatory Theory suggests that the regulatory environment significantly affects cost performance and accountability, and that regulatory reform (including the PIA) is as important as ownership change (Megginson and Netter, 2001; Boycko et al., 1996).