DEREGULATION OF THE DOWNSTREAM OIL SECTOR IN NIGERIA AS A PANACEA TO ECONOMIC RECOVERY OF THE COUNTRY

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 Pre- regulation 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 product 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 solution 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:

1. To evaluate the pattern of petroleum products pricing in Nigeria;
2. To examine the consumption pattern of petroleum products before and after the partial deregulation;
3. To examine the impact of the deregulation of downstream oil sector on petroleum products pricing in Nigeria;
4. To investigate the likely effect of the deregulation of the downstream oil sector on the living standard of the people; To examine the pre- and unrealistic deregulation era and make critical comparism;
    To explore the reasons why partial deregulation has not yielded the desired result in terms of prices and supply.

1.4 Research Questions

The study would examine the following questions:

1. What is the pattern of petroleum products pricing in Nigeria over the years?
2. How has the deregulation exercise impacted on the consumption pattern of petroleum products in Nigeria?
3. To what extent has the deregulation efforts of the downstream oil sector impacted on petroleum products pricing in Nigeria? 
4. How does the regulated downstream sector differ from the deregulated era?
5. 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.

H0: 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.

H0: That the regulated downstream sector does not differ  significantly from the deregulated era.

Hypothesis Four

•     That the partial deregulation of the downstream oil  sector in Nigeria has yield deserve economic recovery of the country.
•    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 and Limitations of the Study

          This study shall analyze the Deregulation of the Downstream Oil Sector in Nigeria as a Panecea to Economic Recovery of the Country: An Analysis Of 2010 -2015 Economic Programme by those in charge of the formulation of policy and its implementation. 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.

In the course of this research, the researcher encountered so many difficulties among which are:

[a]       Cost:        Inadequate fund have limit this work beyond my test,

lack of fund also affect not only the period of the research but also its quality. To exalt everything about analyzing deregulation and come out of legacy for the posterity one needed to travel far and near and be equipped on daily reading of newspapers, magazines and internet materials since it is the talk of the day. All this will cost the research a huge amount of money.

[b]      Time:       Time is as costly as money, it is even easier facing

financial problems than time, and time lost is hardly regained.  Financial markets do exist but time existed for time, with the school academic, the period for the research work is too short, putting other courses into the budget.

[c]    Reluctant to Cooperate:   The Management, scholars more

especially government agencies of some parastatals is too reluctant to disclose the required information and more so when it comes to disclosing or exposing the some government book record.  The idea equally affects the quality of facts given in the research work.

1.8     Organization of the Study

          This study shall contain five chapters. The first chapter shall contain the background of the study, the statement of the research problem, the objectives of the study, the research questions etc that would guide the study. Chapter two would present the literature review on the subject matter. The methodology to be adopted in the study would be stated in chapter three. Chapter four shall focus on the presentation and analysis of collected data. The last chapter – chapter five, would present the summary of the findings, conclusion and appropriate recommendations.

REFERENCES

Ojo, M. O. and Adebusuyi, B. S. (1996). “The State of the Nigerian

Petroleum   Industry: Performance, Problems and Outstanding Issues”, CBN Economic           and Financial Review Vol.34, September.

Ozumba, C. C. (1996). “Harnessing the potential of the Nigerian Oil and

Gas for Economic Development”, CBN Economic and Financial Review, December.