AN APPRAISAL OF CAPITAL BUDGETING DECISIONS IN GOVERNMENT PARASTATALS

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CHAPTER ONE

1.1   INTRODUCTION:

Capital budgeting decision in the most government parastatals is statutory instrument used to take decision in most organization like          NNPC i.e. Nigerian National Petroleum Industry.  This government parastatals helps in exploration of crude oil and natural gas and refining or processing of crude oil and natural gas to produce petroleum and produces and others denatures both for domestic consumption and for export.  The expect of the corporations activities include transportation and distribution petroleum products throughout Nigeria and production of petrol-chemical to provide the needed raw material for rapid agricultural and industrial development of the country.  They are also responsible for the supervision of the country activities of oil companies.

Since the year 1996, most of the oil companies has grown considerably.  This is evident in its size and area of operation, which spanned through one length and breath of the country. The other subsidiaries of government department engaged in activities of capital budgeting are; (1) Engineering Company of Nigeria (ENCON). This is a joint venture enterprise between NNPC and Bethel, An American based multi national engineering and consulting company.

B. Nigerian Petroleum Development Company (NPDC):  This is petroleum producing company of a group.  It is wholly owned by Ngos.  It is involved in exploration and production of crude oil and gas. The mission of NNPC is to profitable operate and optimum size petroleum exploration and production. Nigeria has development company limited NGDC it is also under the NNPC, its mission is to efficiently gather treat, transmit and market Nigeria Natural Gas and its bye-products to major industries and utility gas distribution companies in Nigeria.  The other includes Integrated Data  Service Company Limited (IDSC).

1.2    STATEMENT OF THE STUDY:

This study which is an appraisal of capital budgeting in government parastatals, is to find out how the various appraistatals appraise as capital budgeting decisions.  For every organization, the usefulness of financial statement enhance decision making.  Information provided should be current and meaningful. The continuing inflation of recent year has led to an increasing awareness of some of the disadvantage of historical cost accounting.  The following problems associated against the capital budgeting decision in government parastatals.

i. The inability to provide current information for decision making.

ii.Limitation of capital evaluation models and appraising investment.

iii.Lack of infrastructure facilities militate the production and service of organization.

iv.Finally the monitoring/post auditing of all capital budgeting decision is important.  However this is costly and after ignored in practical. Management should under take this activities as it can contribute favourably to the firms over all returns risk and value.

1.3   OBJECTIVES OF THE STUDY:

The primary objective of the study is to determine how capital budgeting decisions are undertake by the Nigerian Government Parastatals like NNPC.  Its aims is to find out how investment decision are made, how accurate are the information presented to management useful in making investment decisions. It also tend to find out the particular capital budgeting technique the management of government parastatals use to evaluate the investments they want to used.

1.4     SIGNIFICANCE OF THE STUDY:

The importance of this research in its usefulness.   This study will be of immense interest to those responsible for apprasing capital budgeting decision in firms.  The study will also be of immense help to accounting on banking student interested in this area. It is hoped that the research findings will be primary importance to the management of the government parastatals.

1.6   OPERATIONAL DEFINITION OF TERMS:

Capital Investment:  This is an investment that yield returns during future periods that are relatively for removed from the time of the investment.

Capital Budgeting:  This is the process of decreasing resources is project whose cost and benefits are spread out several time periods.

Capital project:  These are real asset and the productive fixed assets of a company. 

Accounting information:  This takes the form of financial reports which are used not only to appraise the past performance of individuals and groups but also to design and make decision affecting the future.

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