Impact of Electricity Sector Reform on The Efficiency of Electricity Distribution Companies (Dis Cos) in Nigeria

Abstract

The essence of electricity sector reform is to improve the technical efficiencyof power utilities, thereby increasing access to reliable electricity and the productive use of electricity. In this light, this study examines the impact of electricity sector reform on the efficiency of distribution companies (DisCOs) in Nigeria. The study employs panel data from 11 DisCos between 2012 and 2020 and the Translog
Input Distance Function of Stochastic Frontier Analysis (SFA) with Maximum Likelihood (ML) random-effects time-varying model of technical inefficiencies. In terms of the distribution of the inefficiency term, the truncated normal distribution, which allows the use of a single-step procedure to examine the impact of exogenous factors (electricity sector reform) on the inefficiency of the DisCOs is employed. The paper finds that electricity sector reform has a significant relationship with the efficiency of DisCOs. The presence of regulation further decreases the sub-sector's efficiency; however, private sector involvement in the sub-sector improves the distribution companies' efficiency. The impact of competition on DisCOs' efficiency is inconclusive. The study finds DisCOsto be highly inefficient despite sector reforms, with an average efficiency of 23 percent, which is remarkably low for a privatized industry. The paper therefore concludesthat electricity sector reform did not result in the desired efficiency gains of the DisCos. The study therefore recommends that more private sector involving is needed to improve the efficiency of the distribution sub-sector, with government involvement limited to supervisory or regulatory role.