ABSTRACT
The subject of this study “project” has been chosen because of its importance to the Nigerian economy, i.e. to examine the deregulation of petroleum industry (the downstream sector) and its economic implication. That oil is the determinant factor of welfare of individual and the corporate growth of the nation is an understatement. It is also discovered that there have been an epileptic supply and distribution of this fluid for people’s use due to many unimaginable and inexplicable reason over the years. This has led to hike in the price of petroleum product overtime and invariably, Nigerians cost of living has been on continuous increase. This is why the federal government proposed for the deregulation of the downstream petroleum industry so as to liberalize the industry by allowing the forces of demand and supply(market forces)to determine the prices in a competitive environment. Another objective may include examining the level and performance of NNPC in the marketing and distribution of petroleum products, to critically review refinery installed capacity supply and demand of petroleum products. This study also finds the way of reducing or solves the problem of fuel scarcity for Nigerian at a convenient and affordable price.
It is therefore pertinent to state that deregulation is ‘an ill wind that blows no one any good’. It has an adverse effect on people’s standard fo living in the short run especially when there is no corresponding provision of welfare amenities but in the long run, if sincerely undertaken it will benefit all and sundry.
TABLE OF CONTENT
Title page
Certification
Dedication
Acknowledgement
Table of content
List of table
Abstract
CHAPTER ONE
1.0 Background of the study
1.1 Statement of problem
1.2 Objective of the study
1.3 Justification of the study
1.4 Sources of data and Research methodology
1.5 Research questionnaire and Hypothesis analysis
1.6 Scope and limitation of the study
1.7 Plan of the study
1.8 Definition of basic terms
CHAPTER TWO
2.0 Introduction
2.1 History of Crude Oil in Nigeria
2.11 Petroleum industry in Nigeria
2.12 Contribution of the industry to the Economy
2.2 Oil Researve in Nigeria
2.3 Government participation in the Industry
2.4 Petroleum Policy in Nigeria
2.4.1 Regulatory Agency for the distribution and Marketing of petroleum product
2.4.2 Petroleum Products Pricing Regulatory Agency (PPPRA)
2.5 The Downstream Sector
2.5.1 Marketing and Distribution of Petroleum Product
2.5.2 Distribution Infrastructure
2.53 Product Distribution Pipeline and Depot
2.54 Marketing
2.55 Petroleum Product Marketing
2.6 Participation of Nigerian National Petroleum Corporation(NNPC)
2.61 Problem in the Industry
2.6.2 Major problems affecting the Storage and Distribution of Petroleum Product
2.7 Government Intervention in the Industry
2.8 Justification For and Against Subsidy
2.9 Argument for Deregulation
2.91 Argument Against Deregulation.
2.92 Summary.
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
3.2 Method of Data Collection
3.3 Sampling Design and Sample size
3.4 Restatement of Research question and Hypothesis.
3.5 Research Design
3.6 Characteristic of the study population.
3.7 Administration of the Data collection
3.8 Limitation of the Study.
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0 Introduction
4.1 The Analysis
4.2 Conclusion.
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION.
5.0 Summary of findings
5.1 Conclusion
5.2 Recommendation.
Bibliography
Appendix: Questionnaire
CHAPTER ONE
INTRODUCTION
Before the introduction of oil in Nigeria, agriculture was important in the Nigeria economy. In fact, about 70% of the entire population engaged in agriculture activities. But the discovery of oil in 1956 and the production which started immediately, increased rapidly, nevertheless, the tremendous influence of the oil sector as the prime mover of the Nigeria economy became apparent in the 70s.
By a combination of circumstances particularly the rise in Nigeria’s proven oil reserve, production, the dramatic rise of the Organization of Petroleum Exporting countries (OPEC). Nigeria suddenly became a wealthy country and her problem then was how to manage his sudden wealth to transform her economy and build an industrial structure with emphasis con self reliant economy. Apart from this, the abundant reserve of oil and gas gives her enormous flexibility for long term energy planning and development. Thus while other third world countries who import oil where saddled with balance of payment deficits, Nigeria was one of the few third world country that showed much promise for growth and development derived from her rich petroleum resources, vast and varied cultivable land, virile population and abundant foreign exchange earnings potentials.
Petroleum products marketing were started in Nigeria by Seconi oil company (now Mobil Oil) in the year 1907. the prospects in thee sector then attracted other major foreign oil marketing companies namely; Texaco in 1913; Shell Nigeria in 1927; Esso (now Oando) and total oil in 1956; British petrochemical (now African petroleum); Agip oil, in 1962 and ELF marketing 1963.
In 1956, shell discovered crude oil commercial quantities at Oloibiri. The production of crude oil that changed the fortune of Nigeria prompt the need to source petroleum products locally and the plan to build refineries. Prior to 1956 when the first refinery (Nigeria petroleum refining company) was commissioned at Alesa Eleme in port Harcourt; the marketers were importing petroleum products such as Premium Motor Spirit – PMS, Aviation Turbine Kerosene HTK, Household Kerosene HNK, Automotive |Gas AGO Liquefied Petroleum Gas LPG, Base oil, Paraffin wax, Grease and others. These products were stored as their deports and supplied to industrial consumers and various retail outlets spotted all over the country by rails and road in tankers.
Between 1965 and 1977 there was an arrangement where the marketers purchased crude oil from the government and sent if for refining at the privately owned refining for processing fee.
The first eight years witnessed a truly private sector participating in the industry whereby the prices of petroleum products were determined by the petroleum marketers with a business objective of making profits. This was a period of petroleum products price differential from one location to other. This is also the case when the federal government of Nigeria increased petroleum products prices from 34 naira to 41 in the space of eight months.
Then excess products where exported and shortfall in supply imported by the marketers on clearance from the government. In October 1973 however, the federal government introduced a uniform pricing of fuel through the establishment of the Petroleum Trust Fund (PTF) under decree No. 1075. This was the first signed from the government to take total control of the industry and infact the beginning of the policy to regulate petroleum products marketing activities.
Three reasons informed the government’s decision of this: the slow pace in developing the retail business vis-à-vis effective distribution network and enough outlets to meet the market demand which resulted to fuel shortage crisis in the mind seventies which led to exorbitant increase in its price, the clear implication of the important role in the oil industry is to play in the economic emancipation of Nigeria and in 1971, Nigeria became the 11th member of OPEC, an organization that encourages the principle of state participation in the oil industry. Consequently, laudable government policy backed with far reaching business development was put in place. In 1977 the Nigerian national petroleum corporation (NNPC) was formed under decree No. 33 which empowers the corporation to engage in the exploration and production, marketing and distribution of crude oil refined products, refining transportation by pipeline and ocean vessels, gas production and petrochemical.
1.1 STATEMENTS OF PROBLEMS
With the advent of crisis in the oil sector and the mono – cultural economy that Nigeria is practicing, the study seeks to investigate the effect of deregulation of the petroleum industry and its economic implications as the Nigerian economy.
The convincing issue that the nation could not continue to support the great financial losses and economic domestic consumption of the waste assets its has been argued that there should be efficient and national pricing for this Nigeria’s scarce resource especially irreplaceable natural endowments like crude oil.
The Nigerian petroleum industry is at present acclaimed the largest single contributor to the Nigeria economic development. Perhaps the most important contribution of via fiscal linkage i.e. contribution to government revenue and the rise of oil revenue in undertaking public expenditure. Whereas the industry accounted for only about 16% of government revenue in the 1960’s, this figure rose to 7% in 1972/73 and 75% in 1973/74.This is due largely to the rising volume of crude oil production and riding oil price in the Nigeria market although this contribution has decline in recent years as a result of oil glut in the Nigeria market. One important thing to note is that this increased government revenue, if wisely administered could boost up development in the petroleum sector of he economy and raise t6he level of standard of living. The total share of petroleum in Nigeria’s export is substantial in spite of the present oil glut in the world market. For instance, whole the crude oil product account for only 2.7% of Nigeria’s total export in 1960, the share of the product in the country’s export rose to 58.1%in 1973 and over 90% in 1976. The effective of this on the Nigeria’s balance of payment is salutary.
On the contrary, the problem is really a problem in the first instance. The petroleum scarcity today remains a major factor leading to chaos in the Nigeria economy. The scarcity of the commodity as really caused many their lives i.e. the vandalization of the petroleum pipelines and also endless queue in petroleum stations.
Furthermore, the failure to develop the Niger-Delta as also led to the numerous killings and kidnappings which led to the closure of many refineries. This has also affected business transactions in the sense that finish goods and services cannot be transported from the rural areas to the urban centers that in return has affected the price of goods in Nigeria. In view of the above problem statement, the study intends to review the rationale behind government participation in the sector.
1.2 OBJECTIVE OF THE STUDY
The study will center on the oil in Nigeria with particular reference to its impact on the economy by looking into the issues and problems in the petroleum marketing in Nigeria. The study will also review the rationale behind government participation in the sector. More so, it will examine the contribution of the oil sector, the issue of subsidies and its implications and nevertheless focus on the challenges and prospects of deregulation of petroleum product in developing countries with particular reference to Nigerian economy.
To critically examine the reason why independent marketers are advocating for deregulation and to justify its impact on the socio-economic conditions and welfare of the masses.
Finally, it critically assesses the future marketing prospects and provides suggestions and recommendations for the economic survival of Nigeria by diversifying oil earnings to better other sectors of the economy.
1.3 JUSTIFICATION OF THE STUDY
In view of every administration’s economic recovery programmmes, the pump price of fuel has subsequently been raised gradually between 1978 to date, given the need for finance projects aimed at ameliorating the pains of the government’s economic recovery program such as: National Economic Empowerment Development strategy. (NEEDS).
The study is aimed at justifying the need for the proper pricing of the petroleum products by looking at the challenges and the prospect of deregulating fuel marketing business in Nigeria not forgetting its economic implications.
1.4 SOURCES OF DATA AND RESEARCH METHOLOGY
The study uses primary data in its analyses. It is envisaged that the relevant data will be available. Most data are gotten through questionnaire and personal interview with independent marketers. Therefore, the cooperation of the personnel in the various departments will be an ultimate factor and determinant. The research methodology of this project is based on interviewing people in government, independent marketers and public.
Finally, questionnaires obtained from the topic under research will be set to sample the opinion of the people (consumers) the independent marketers and government parastatals (Public).
1.5 RESEARCH QUESTIONNAIRE AND HYPOTHESIS ANALYSIS
This study seeks to know if deregulation of petroleum industry will stop hoarding of fuel and queuing in our filling stations;
1. Will increase in petroleum pricing have any significant effect on the economy?
2. Is there anything called subsidy in petroleum products as been claimed by the federal government?
3. What is the economic benefit of repairing the various refineries in the country and carrying over own final refining rather than refining abroad?
4. Will the advent of crises in the oil sector and the premature economy that Nigeria is practicing, the study will like to know if diversification on the other sector will tends towards the economic growth and development which will better the welfare of all?
In verifying the truth and falsity on the research under focus, two notations under research hypothesis are the NULL HYPOTHESIS denoted as H1 and the ALTERNATIVE HYPOTHESIS denoted by H2. Based on this project, the hypotheses thereby are:
First hypothesis
H1: Deregulation of petroleum industry has no significant or positive effect on the economic development of the country.
H2: Deregulation of petroleum industry has a significant or positive effect on the economic development of the country.
Second hypothesis
H3: Deregulation of petroleum industry has no significant effect on standard of living of the masses.
H4: Deregulation of petroleum industry has a significant effect on the standard of living of the masses.
Third hypothesis
H5: Nigerians favour complete deregulation of the petroleum industry
H6: Nigerians do not support complete deregulation of the petroleum industry.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
This study is concern with the oil industry and its impact on Nigeria economy. The work covers a period that brought the issue of oil subsidy into limelight i.e. between 1978 to date. The study is a review of historical background of petroleum marking in Nigeria, while the government took over in October 1973 and why the cry for deregulation now. Moreso, the study examines the merit and demerit of oil deregulation benefit to ordinary citizen and if there was ever anything called subsidy in the price of fuel.
1.7 PLAN OF THE STUDY
This research work is carried out in five chapters. The first chapter gives a general introduction on, and an acquaintance with the subject. In the second chapter, the theoretical framework is developed and a review of past literature on the subject of the study is conducted. Chapter three examines the research methodology used in the research work.
Presentation and Analyses of the data obtained is carried out in chapter four while chapter five contains a brief summary of findings in the study and policy recommendation based on these conclusions.
1.8 DEFINITIONS OF BASIC TERMS
The various terms used in this project are:
OPEC: Organization of Petroleum Exporting Countries
NNPC: Nigeria National Petroleum Corporation
PPME: Pipeline and Product Marketing Company
NEEDS: National Economic Empowerment Development Scheme
PTF: Petroleum Trust Funds.