A public corporation is an organization established by an Act of parliament to provide a specific essential service for the public. The law establishing the corporations may charge it with the provision of water electricity, transportation or waste disposal.
Unlike the civil service whose services are normally free, public corporations are required to charge for the services they provide to the public so as to cover their running expenses. The fees charged are usually below the market price of the service.
The reasons for the establishment of public corporations are economic, social, and political. They include the following:
1 – Provision of Goods and Services
Public corporations are established to provide goods and services at the least cost. They provide public goods which the private sector cannot supply either because of the high cost of providing the goods or because the production is not profitable.
Government sometimes intervenes in the economy by setting up public corporations in order to control natural monopolies, which may exploit the consumers. Government controls these industries in the public interest so that the society is not exploited for private or individual gain. The natural monopolies include gas, electricity and railway.
3 – Control of the Economy
Government may set up public corporations in order to control the economy. There are certain key industries that are strategic to the whole economy and it will be dangerous and irrational to leave them in private hands. These industries, often referred to as “the commanding heights of the economy”, include the petroleum industry in the case of Nigeria. The Oil industry is central to the development of the Nigerian economy as it contributes about 90 percent of total government revenue. This partly accounts for the establishment of the NNPC.
4 – Raising of Revenue
The purpose of establishing a public corporation may be to raise revenue. Public corporations are required to pay tax to government.
Because of the unwillingness of private companies to invest in certain industries, which may be unprofitable or involve huge capital outlay or risk; the government may establish public corporations to provide such essential services to the people.
Public corporations are sometimes established to provide employments and to maintain employment in private companies when they are folding up.
7 – Protection of Strategic Interests
Some enterprises are strategic to national development, others to national security while a few others are important to national image. The NNPC is, for example, important to national development. In the same vein, the Defence Industry Corporation of Nigeria (DICON), which produces light weapons, is strategic to the country’s security. No government would allow such strategic industries to be in private hands.
8 – Income Redistributions
Government may establish public corporations in areas, which are economically unviable so as to improve the economic situation of the people living there.
9 – Redress of Ethnic Imbalance
In multi-ethnic societies like Nigeria,public corporations may be established to redress ethnic imbalance or to redistribute national wealth equitably among the different ethnic nationalities. The Kaduna Refinery, for example, was established by government to supply petroleum products to the northern market after two other refineries had earlier on been established in Port Parcourt and Warri both in the southern part of the country. It is not politically wise to locate all the strategic industries in one part of the country.
Public corporations may be established for ideological reasons. For example, in Britain, whenever the Labour Party came to power it might nationalize some industries while the right-wing Conservative Party might denationalize and reduce the number of public corporations through privatization when it assumed office. There seems to be a convergence of policy between the two parties nowadays.