Assessing the Technical Efficiency of Electricity Distribution Companies in Nigeria –The Deterministic DEA Approach
Abstract
Technical efficiency (TE) is key to the productivity and profitability of firms, there is, however, a dearth of empirical assessment of the TE of the Nigerian electricity distribution companies (DisCos), raising questions about their perceived dismal performance over time. From this standpoint, therefore, it is the aim of this study to assess the TE of Nigerian DisCos using the deterministic data envelopment analysis (DEA) approach and to identify the drivers, which is significant to tackling efficiency deviations. In doing this, panel data of the eleven DisCos from 2014-2021 were used. A two-stage deterministic DEA analysis was carried out; in the first stage, the benchmarking package of R software was used to obtain the TE and the pure technical efficiency (PTE). In the second stage, the censored and truncated regression methods were used to estimate the impact of the environmental variables on TE and PTE scores. The result showed that out of 78 decision-making units (DMUs), 21 (27%) were efficient under the constant returns to scale (CRS) assumption while 34 (44%) under variable returns to scale (VRS) were also efficient. The second stage result also showed that DisCos in the north have about a 9.1% likelihood of being more inefficient than those in the south while customer metering has a negative impact on TE. Besides, subsidy and customer density did not have any significant impact on TE. The study, therefore, makes the following recommendations: a merger among DisCos that have smaller size since the industry exhibited scale inefficiency most of the time to enjoy economies of scale; that government focuses on reducing the socio-economic problems of Nigerians especially poverty and insecurity to boost the people’s economic power thereby enabling them to settle their bills. It is also, recommended that government suspends the payment of subsidies on electricity to allow such funds to be used for the provision of infrastructure.
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