DEREGULATION OF DOWNSTREAM OIL SECTOR AND CHALLENGES OF NATIONAL DEVELOPMENT DEVELOPMENT, 1999-2012

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DEREGULATION OF DOWNSTREAM OIL SECTOR AND CHALLENGES OF NATIONAL DEVELOPMENT DEVELOPMENT, 1999-2012

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Historically, major petroleum marketing companies were the main sources of petroleum product’s supply. The companies transported and distributed the products relying on their distribution and retail outlets. This was an era of deregulation in which Nigerian paid market-determined prices for products. However, this arrangement was not sustainable given that it was dependent on the profit and market imperatives of the oil marketers. The country’s economic activities expanded in the seventies such that private companies could no longer cope with increase demand for products. This resulted in erratic supply of petrol and kerosene and ultimately acute scarcity of the product. The shortage was endemic and created social and economic dislocation in the country. This market failure made government to venture into petroleum products marketing and distribution.

The concern by government to overcome this lack of policy and total dependency on oil companies led to policy shift towards regulations. Government therefore introduced uniform pricing to satisfy domestic demand, strengthen self-reliance and avoid a situation in which the oil companies could hold the country to ransom. The nation witnessed adequate supply of petroleum products up till 2000. Thereafter, due to the sustained devaluation of the Naira on account of the implementation of the Structural Adjustment Programme (SAP) coupled with the non-maintenance of the refineries, domestic production was soon undermined making it imperative for demand to be met through imports.

The shortages of petroleum products escalated in spite of increases in prices of products since 1999. The Olusegun Obasanjo administration on coming on board decided to gradually withdraw the subsidy on petroleum products to allow the mechanics of market forces to take its full course. This again, resulted to frequency increase in petroleum products prices.

1.2 Statement of the Problem

Petroleum products supplies have always been problematic for successive Governments in Nigeria. With the new democratic dispensation, the supply and distribution of petroleum products improved but this was without a frequent price increase in petroleum products. With few months to the end of the Obasanjo’s regime, the ugly incidence of petroleum scarcity surfaced again and one begins to wonder if there is any panacea to this problem.

The contemporary passion and tension that usually characterize petroleum discourse is due to unquantifiable deprivations and sufferings it causes in Nigerians. As the 6th largest producer of petroleum, it is a contradiction that in the past decade, supply of all products has been changeable and on sharp decline. Ironically, as supply declined, products prices have been on the increase as successive governments searched for “appropriate pricing”. The combined impact of unreliable and inadequate supply and unending price increases have brought untold hardship to the citizenry and worse too, prevented economic recovery as promised by the present democratically elected government given that capacity utilization in the manufacturing sector nose-dives due to shortages of industrial products. Indeed many industries have been compelled to close due to non-availability of some of these products.

In the bid to solve the problem in many developing countries, structural reform of petroleum markets has become a critical component of macroeconomic liberalization policies. The role of the government in the petroleum sector is being redefined, and markets are being deregulated (i.e state interventions such as special treatments of state-owned oil companies, price controls and monopolies are being broken up). Increasingly, the private sector is participating in more competitive environment. But unexpectedly, the outcome of the deregulation has not been encouraging. There has been continuous increase in petroleum prices with persistent scarcity of petroleum products. It was expected that deregulation would give room for competition which would transform to price reduction and excellent supply and distribution network. This study is devoted on the evaluation of the deregulation exercise; critically appraising its impact on petroleum pricing, consumption and the general living standard of the people.

1.3 Objectives of the Study

The aim of this study is to appraise partial deregulation exercise that was carried out in the Nigerian downstream oil sector.

The specific objectives of this study are as follows:

i. To evaluate the pattern of petroleum products pricing in Nigeria;

ii. To examine the consumption pattern of petroleum products before and after the partial deregulation;

iii. To examine the impact of the deregulation of downstream oil sector on petroleum products pricing in Nigeria;

iv. To investigate the likely effect of the deregulation of the downstream oil sector on the living standard of the people.

1.4 Research Questions

The study would examine the following questions:

i. What is the pattern of petroleum products pricing in Nigeria over the years?

ii. How has the deregulation exercise impacted on the consumption pattern of petroleum products in Nigeria?

iii. To what extent does the deregulation effort of the downstream oil sector impacted on petroleum products pricing in Nigeria?

iv. Do you think that partial deregulation of the downstream oil sector in Nigeria will yield deserve economic recovery?

1.5 Formulation of Hypotheses

The following hypotheses were formulated based on the objective of the study:

Hi= alternative hypothesis

Ho= null hypothesis

Hypothesis One

Hi: The deregulation exercise has impacted on the consumption pattern of petroleum products in Nigeria.

Ho: The deregulation exercise has not impacted on the consumption pattern of petroleum products in Nigeria.

Hypothesis Two

Hi: The deregulation of the downstream oil sector has largely impacted on petroleum products pricing in Nigeria.

Ho: The deregulation of the downstream oil sector has not impacted on

petroleum products pricing in Nigeria.

Hypothesis Three

Hi: That the regulated downstream sector differs significantly from the deregulated era.

Ho: That the regulated downstream sector does not differ significantly from the deregulated era.

Hypothesis Four

Hi: That the partial deregulation of the downstream oil sector in Nigeria has yield deserve economic recovery of the country.

Ho: That the partial deregulation of the downstream oil sector in Nigeria has not yield deserve economic recovery of the country.

Hypothesis Five

Hi: Partial deregulation of the downstream oil sector in Nigeria will yield

more deserve economic recovery.

HO: partial deregulation of the downstream oil sector in Nigeria will yield

less deserve economic recovery.

1.6 Significance of the Study

This study shall be found useful by all citizens of the country as well as policy makers and individuals affected by the scourge of deregulation. It shall also be found valuable by ideologists and Governmental agencies as well as NGO’s saddled with the responsibility of national citizens’ orientations, ethnic nationalities, and scholars with interest in similar areas of study will equally find this report very useful. The study will also serve as a point of reference to students in higher institutions and as a point of reference for further studies.

1.7 Scope of the Study

This study shall analyze the Deregulation of the Downstream Oil Sector in Nigeria as a panacea to Economic Recovery of the Country. The study will foster citizens consciously or unconsciously betray patriotism by beating undeserving drums of support for public office holders in a bid to defend their territory, whether the supported person/action is worth condemning or not.

1.9 Definition of Terms

Deregulation: This is a process of freeing a trade, a business activity,

etc from rules and controls.

Downstream: This is a positive along a river which is nearer the sear.

Sector: A part of an area of activity, especially of a country’s economy.

Oil Subsidy: Money that is paid by a government to reduce the cost of services or of producing oil so that their prices can be kept low

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