Some $2.2bn-worth of Nigerian energy contracts were awarded without a bidding process by the former president and his energy minister, officials say.
Olusegun Obasanjo is still influential in Nigeria's ruling party
One was to a company with less than $200 of base capital at the time, a witness told a parliamentary committee.
It is investigating why $16bn of investment in the energy sector during Olusegun Obasanjo's eight years in power failed to end power shortages.
Ex-President Abdulsalami Abubakar heads one of the firms, the committee heard.
He is chairman of Energo Nigeria Ltd, which received a $163m contract to build a power station by 2009.
According to a state official, only 5% of the work has so far been completed.
The BBC's Ahmed Idris in the capital, Abuja, says this week's parliamentary hearings, which are being aired on television, are causing a stir with their revelations.
He says many parts of the country go for days without electricity and businesses and many homes rely on their generators.
When President Umaru Yar'Adua came to power last year he announced he would declare a "state of emergency" on the country's energy crisis.
Nigeria currently has 10 power stations - they are all between 20 and 30 years old.
Last month, Vice-President Goodluck Jonathan said power cuts were an "embarrassment" to Nigeria - after black-outs affected a meeting he was attending.
The House of Representatives committee is investigating why six power stations - already paid for by the government - are yet to be completed years after they were begun.
Many businesses cannot rely on a regular electricity supply
It has called all the contractors to give testimony about their progress.
Two witnesses told the hearings, which began on Tuesday, that bushes from the the site where a South African company, Pivot, had been contracted to build a station in the oil-rich Niger Delta have yet to be cleared.
Pivot, which had a base capital of $200 at the time it received its contract, had received about 75% of the money for the project, government official James Olotu said.
Mr Olotu heads the National Integrated Power Projects, a government organisation set up by Mr Obasanjo to try to attract private investment into the energy sector.
He and another official said that Mr Obasanjo and former Energy Minister Liyel Imoke personally approved all the contracts.
"The staff in the Ministry of Energy was never involved," Mr Olotu told the committee.
President Yar'Adua is also expected to appear before the committee and it is likely that Mr Obasanjo himself will be called to give evidence.
The committee is expected to give its recommendations within a month.