NASARAWA STATE UNIVERSITY KEFFI
DEPARTMENT OF POLITICAL SCIENCE
COURSE: PhD POLITICAL ECONOMY
SEMINAR PAPER:
FACTORS INFLUENCING MACROECONOMIC
RELATIONSHIP OF PETROLEUM PRODUCTS PRICING:
“DEREGULATION OF THE DOWN STREAM
SUBSECTOR AND GOVERNMENT POLITICAL
REFORM STRATEGIES THE NIGERIA
EXPERIENCE 1999-2006”
BY
STEPHEN LAZI AKHERE
(MAT. NO.NSU/SS/038/PHD/2006/2007)
SUPERVISOR: PROF. S. IBRAHIM
APRIL, 2008.
CHAPTER ONE
INTRODUCTION
1.0 The Problem
Nigeria seeks to grow oil reserve to 40 billion barrels by 2010 and
maintain her position as a global energy player, by opening up her
economy to window of in vestment most significantly in the oil and
gas sector. Hence, it is of no surprise that in 2000 the downstream
petroleum subsector was deregulation by President Olusegun
Obasanjo administration.
If we think oil is a p roblem now, we had better wait for the
next 20 years. It will be a nightmare. The world had already
consumed about 80 million barrels of Oil. Of the world’s total oil
reserve, estimated to have been some 2 trillion barrels in volume,
approximately 900 to 1 000 billion barrels has already been
consumed. A t present, production rates, and oil supplies are
predicted to last another 40 years.
According to a group of geologist:
Colin J. Campbell and Jean H. Laherrere claimed in
1998, within the next decade, the supply of conventional
oil would be unable to keep up with global demand, that
is, the world is going to experience decline in supply of
petroleum products.
These group of experts warned that conventional wisdom
erroneously assumes that the last bucket of oil can be pumped from
the ground just as quickly as the barrels of oil gushing from wells
today. The presiding notion is that, the rate at which any well or any
country can produce oil always rises to a maximum and then, when
about half the oil is gone, begins falling gradually back to zero. From
socio-economic point of view, when the world runs completely out
of oil is an indication of economy crises, as oil dictate globa l
economic trends.
Geologist Joseph Riva says that, “planed oil production
expansion is less than half that is needed to meet the 2010 World oil
demand projected by IEA (International Energy Agency). New 21st
Century Scientists warns; if production rate fa ll while demand
continue to rise, oil prices are likely to spike or fluctuate wildly,
raising the prospect of economic chaos, problems with transporting
food and other supplies and even war as country fight over what
little oil is available.1
1 INTERNATIONAL ENERGY OUTLOOK (2003) IEO, New Scientist Magazine, U.S.A.
Oil among oth er energy sources such as, Atomic energy,
Wind, Sun, Geothermal energy, Water, Hydrogen, Full -cell power,
coal, Bitumen, Paraffin wax and Sulphur among others was first
discovered in 1805. The search for mineral deposit such as
hydrocarbon was undertake n b y a German -Nigerian Bitumen
Company together with the British Colonial Petroleum Company in
- It all started at Okitipupa region, 55 miles east of Lagos (now
Ondo State). Between 1908 and 1914, some 15 wells were drilled
down dip of the oil seeps (oil that escape from the tapes through
cracks in the subsurface to the surface) down to depths ranging from
350 to 1300 feet.
However, this process was interrupted by World War 1, this
situation dragged until 1937 when shell/D’Arcy initiated
reconnaissance wor ks. In 1946, shell/D’Arcy started exploring in
the Niger Delta while there was similar reconnaissance summary in
the Sokoto basin by Mobil (then Socony Vacuum Company.)
Before the Colonial Mineral Ordinance of 1914, Petrole um
exploration was a very old pur suit, as the proceeding quotation
illustrates, the Bible contains many references to the use of pitch or
asphalt collected from the natural seepages with which the Middle
East abound. In 450B.C, Herodotus described Oil Seeps in Cartage
(Tunisia) and the is land of Greek (zactrynthus). He gave details of
oil extraction from wells near Ardericca in present Iran, although,
the well was shallow as fluid when extracted in a wineskin on the
end of a Long pole mounted on a fulcrum. Oil, salt and bitumen were
produced simultaneously. Through out the first millennium A.D, oil
and asphalt were gathered from natural seepages in many parts of
the world.
The only uses of oil were for medication, water proofing, and
warfare. Oil was applied externally for wounds and rheumatism and
administered internally as a laxative. From the time of Noah, pitch –
oil has been used to make boats watertight. For instance, when
Alexander the great invaded India in 326 B.C, he scattered the
Indian elephant corps by charging them with horsemen waving pots
of burning pitch, Nadir Shah employed a similar device,
impregnating the humps of camels with oil and setting them ablaze
against the Indian elephant corps in 1739. Also asphalt was used by
the Greek as a means of fine in 668 A.D. although, it s recipe is
unknown, but it is generally believed to have included quicklime,
sulphur, and naphtha and it ignited when wetted. It was a potent
weapon in Byzantine naval warfare.2
2 SELLEY, Richard C. (1985: 7): Element of Petroleum Geology, Publisher, W.H. Freeman and Company,
New York.
Up till the mid -nineteenth century, shallow pits, and hamol –
dug shafts were sources from which asphalt oil and their by products
were gotten. In 1745, the first well was sunk to search for oil (as
opposed to water or brime) appears to have been at Pechelbrom, in
France. 1847, James Young began the restoration of Oil shale from
the carboniferous shale’s at Torban, Scotland . Before oil
exploration, Cable -tool drilling was an established technique in
many parts of the world in the quest for water and brim, the first well
where oil was actually drilled and produced was at oil Creek,
Pennsylvania by Colonel Drako in 1859 followed by a rapid growth
in oil production. This led to oil the giant stride in the development
of internal combustion engine in 1870s an d 1880s leading to a
gradual demand for lighter Petroleum fractions that overtook the
demand for kerosene.
This major breakthrough led to industrial revolution from all
refined productions, from light Gases, via Petrol, Paraffin, Diesel
oil, Tar and Sulphur to the heavy residue. Demand for oil was on the
increase by the First World War in 1914 – 1918. Before the 1920s,
oil industry was dominated by seven major companies, termed the
“Seven Sisters” by Enrico Mattie3. These companies include:
3 Richard. C. Selley (1985) W. H. Freeman Company.
British Petroleum. European Based
Shell. “
Exxon (Formally Esso) American Based
Gulf “
Texaco “
Mobil “
Socal (or Chevron) “
British P etroleum and Shell found their o il reserves abroad
from their parent countries, principally in the Middle and Far East,
respectively. They were thus involved early in long distanc e
transport by measuring their o il by Seagoing tonne. While the
American Companies, by contrast, with shorter transportation
distance, using the barr el as their unit of mea surement, and began
overseas ventures, mainly in Central and South America, in the
1920s. In the 1930s the Arabian-American Oil Company (Aramco)
evolved from a consortium of Socal, Texaco, Mobil and Exxon.
Following the Second World War and the post-war economic boom,
the consortia principle became established over much of the free
world. Oil Companies risked the profits from one productive area to
explore from oil in new areas.
2.0 PRE- INDEPENDED ECONOMY
Nigeria is endowed with vast and largely untapped natural and
human resources. prominently are; crude oil, lime stone, tin,
columbite, kaolin, gold, silver, coal, lead, zinc, gypsum, clay, shale,
marble, granite, iron-ore, stone, zircon, natural gas and others.
Politically, the nation experienced civi lian rule from Independence
to January 1967, characterized by multifarious coup d’état from
1967 to January 1970, which lasted till October 1979. The military
staged a come back on 3 rd December 1983 till May 1999 when the
Abdusalami regime relinquished power to a democratically elected
President; Olusegun Obasanjo’s government.
Between 1962 and 1985, Nigeria implemented four national
‘Development Plans’. First Plan was 1962-68, second Plan 1970-74,
third Plan 1975-80, and fourth plan 1981 -85. There is also the first
National Rolling Plan 1980 -92 as part of macroeconomic plan.
These plans are woven around some specific objectives, including;
increase in real income of average citizens; a s well as a more
equitable distribution of income among individuals and socio –
economic groups; a reduction in the level of unemployment;
increased skilled man -power; increased sectoral and regional
balanced development; increased participation by Nigerian s in the
ownership and management of production and enterprises;
increased dependence on local resources in the development
process; and maintenance of macroeconomic stability.4
In the light of the foregoing, the nation is sti ll in the dark age of
Neolithic-era bedevilled by unprecedented poverty; high
concentration of wealth among smaller group of Nigerians (
businessmen, political elites and military elites); unfavourable
practices of mono -economic policy (total dependence on
petroleum); lack of executive capacity; and the massive importation
of goods and services.5
The oil boom of the 1970s brought with it fundamental changes in
the Nigerian economy and strengthened her diplomatic role in the
International Community. Prior to July 1986; Nigeria witn essed a
traumatic economic crisis, for example, there was heavy dependence
of the economy on crude petroleum export as the main source of
foreign exchange earnings and government revenue. By 1980 the oil
sector which account for 22% of the GDP provided 80% of
Government revenue and 96% of earnings. Also, the structure of
4 J.C. ANYANWU (1993), MONETARY ECONOMICE: Theory, Policy and Institutions.
5 DAILY TIMES, NIGERIA YEAR BOOK 1985, TIME PRESS LTD, LAGOS 1985
policy incentives and controls encouraged import oriented
production and consumption patter with little incentives for non-oil
export. This situation eroded the high competitiveness in the
agricultural sector in the world market due to over -valued naira
exchange rate; inadequate pricing policy; rural-urban migration and
colossal waste emanating from the wind-fall from oil.
Furthermore, the inappropriate and ineffective policy of the past
(such as the Economic Stabilization (1982) and Economic
Emergency Measures of 1985) and the depletion on oil prices
aggravated the economic quagmire giving corruption a sky -space
encouragement. In effect, these measures drastically reduced the
supply of raw materials and spare parts to the import dependent
industrial sector, forcing these sectors to liquidate, substantial drop
in capacity utilization and the down-sizing and right-sizing of huge
work force. Thus, at the end of mid 1980s, real per capita income
and consumption level fell simultaneously with the total elimination
of the middle -class structure, creating internal and external
imbalance in receipt payment, while external debt services rose to
about 45.07% (1985), and 60-70% in 1990s respectively.
The economic policies and practices of past administrators since
independence, particularly from the late 1980s, have cumulatively
brought the Nigerian economy down on its knees. The geneses of
the crises can be traced back to the structure and character o f the
pre-independence economy of the State.
Though the nation at independence inherited sophisticated
nationalists, politicians and statesmen, its economy was still
profoundly underdeveloped, based wholly on export -driven
primitive agriculture, petty trading on small -to-medium scale
manufacturing activities. These economic activities, which had been
encouraged by the colonial administration, were specifically
designed to generate agricultural produce such as cocoa, palm
kernel, cotton and groundnuts and to supply cheap raw materials to
industries in the United Kingdom and other parts of Europe. While,
the trade sector was dominated, in its entirety by a number of British
multi-nationals initially sponsored by the colonial authorities, which
engaged in buying and selling of finished goods from the Western
Countries.6
According to Robert Gilping, the political economy of the Nigerian
States could be viewed from three perspectives:
- The liberalist approach;
- The nationalist approach; and
- The Marxist approach.
6 (a) Hamilton, C [1989], “The Irrelevance of Economic liberalization in Third World” World Development
(b) NIGERIA A PEOPLE UNITED, A FUTURE ASSURED (2000), Vol. 1, A Compendium Edited by H.
I. Ajaegbu, B.J. St. Matthew-Daniel, and O.E. Uya.
Though all these three approaches deal with, as determined by the
nature of political economy, the interaction of the states and the
market, they see they relationship between politics and economy in
quite deferent lights. Therefore, for centuries the debate in the field
of political economy has focused on the nature and consequences of
the clash between the states and the market. Hence, this gap is being
gradually bridge by the theories of political economy and
macroeconomic indices as proposed by some school of thoughts:
- Liberal Economic Theory: committed to free market
economy with minimal State’s intervention. This approach is
committed to individual equality and liberty guaranteed for
the smooth operation in a free-market economy. The rationale
for a market system is that it increase economic efficiency,
maximizes economic growth and therefore improves human
welfare. Liberalism claims that market economy exhibits a
powerful tendency to ward equilibrium and inherent stability.
If a market is in a state of disequilibrium caused by some
external factors, the operation of price mechanism will return
it to a new state of equilibrium. In the liberal viewpoint, the
individual pursuit of self -interest in the market eventually
increases social -well-being because it leads to the
maximization of efficiency. Liberal economists see no
necessary connection between economic growth and political
development. They see political evil such as war a nd
imperialism as being cased primarily by pol itical factors.
Liberal economi st admits that, though under free exchange
everyone will be better off, while relative gain will differ.
- The Nationalist Economic Theory: the central idea of
nationalist approach to political economy is that economic
activities are and should be subordinated to the goal of State-
building and the interests of the State. All nationalist
emphasize the primacy of the State, its national security and
its military power in the international system. With this
purpose in mind, the nationalist regard the two goals of power
and wealth (politics and economics) as being complementary
rather than separate from each other as the liberals perceive
them. For several reasons, the utmost objective of nationalist
approach is industrialization . Thus: (i) t hat industr ies has
spill over effects throughout the economy and results in its
overall development, (ii) t hat industrialization brings about
economic self -sufficiency and political autonomy, (iii) t hat
industrialization is the basis for military power and, therefore,
is central to national security in the modern world.
However, there are two basic positions proposed in the
overview of nationalist economics theory;
a. one is defensive or “begging” position, which considers the
safeguarding of national economic interests as the minimal
essential to the security and survival of the State.
b. the other position is the aggressive or “malevolent” position,
which regards the international economy as an a rena for
imperialist expansion and national aggrandizement. In all
ages, no matter what position they may take, the desire for
power and impendence has been the overriding concern of
economic nationalist.
- The Marxists Economic Theory:
The Marxian posited f our essential elements in determining
economic activities, elucidated as follows:
a. dialectical approach to society, Marxian sees the nature of
reality as dynamic and conflictual, hence, for Marxist, there is
no inherent social harmony. Instead, society is in a state of
disequilibrium caused by class struggle;
b. the materialist approach to history, sees the development
of productive forces and economic activities is central to
historical development;
c. the third element is some economic laws that governs the
capitalist mode of production and its destiny;
d. the fourth is a commitment to sociali sm, which Marxists
believe, will replace capitalism eventually. The first of
these economic laws is that there is an inherent
contradiction in capitalism between its capacity to produce
goods and the capacity of consumers to purchase these
goods. This una voidable disproportionality between
production and consumption will cause periodic
depressions and drastic economic fluctuations. The second
law is the inevitable concentration of capital as a result of
competition, which drive less efficient firms out of
business. The third law of capitalism is the falling rate of
profit. Marxist believes that all this three law determine the
eventual demise of capitalism.
Because these recurring economic crises, the increasing army of
unemployed, and the ‘immiserization’ of the proletariat will cause
the workers to rebel and destroy the capitalist economic system
sooner or later. But Marx mainly dealt with domestic economy. It is
Lenin who set himself the task of developing a theory of
international economy focusin g on i mperialism, the “highest state
of capitalism”. He argues that capitalism had escaped its three laws
of motion through overseas imperialism because the acquisition of
colonies had enabled the capitalist economy to dispose of its
unconsumed goods, to acquire cheap natural resources and to vent
its surplus capital. Thus, to the original three laws developed by
Marc, Lenin adds a fourth law that, as capitalist economy matures,
as capital accumulates, and as profit rate falls, the capitalist
economy is compelled to seize colonies as marketers, investment
outlets, and sources of raw materials. In accordance with their
relative strengths, the various capitalist countries divide to the
colonies in their competition with one another. And this imperialist
competition, according to Lenin, will trigger world war in which the
imperialist countries will destroy one another.
According to Gilpin, each of the three approaches has its
strong points and weak points. The greatest strength of economic
liberalism is its commitment to efficiency and the maximization of
total wealth. The major criticism against economic liberalism is that
its basic assumptions, such as rational economic actors, a
competitive market, are unrealistic. There are other criticism against
economic liberalism for its limitations, in understanding society and
its dynamics. This limitations are that economic liberalism
artificially separates the economy from other aspects of society, that
tens to disregard the justice or equality of outcome of activities, that
its analysis tends to be static, and that the reality is not always like
the assumption that exchange is always free and occurs in a
competitive market between equals who possess full information.
The greatest strength of economic nationalism is its emphasis
on the State as the prominent actor in international relations and as
an instrument of economic development. Strength is its emphasis on
the importance of national security. And a third strength is its stress
on the political frame work of economic activities. One weakness of
economic nationalism is its tendency to believe that international
economic relations are a zero -sum game, that is, one State’s gain
must be another’s loss. Another weakness is that it lacks a
satisfactory theory of domestic society, the State, and foreign policy.
One major strength of Marxist theory is that it correctly places
economic problems, (production and distribution of wealth), as the
centre of political life. Its emphasis on the nature and structure of
the division of labour at both the domestic and international levels,
it indicates a powerful impulse for capitalist States to expand
through trade and capital. This impulse explains, according to
Gilpin, that the nature of capitalism is international and i ts internal
dynamics encourage external expansionism. The major weakness of
Marxism as a theory of international political economy is its failure
to recognize the role of political and strategic factors in international
relations. Gilphin gives as an examp le the conflict between the
Soviet Union and China in which there is little economic
consideration.7
From the above concept, it is worthy to state that, there is no
conceptualized format / outline for the actualisation of macro
economic indices as implemen tation is based on the existing value
system of the people where its policy is carried out, that is,
implementation must respect the socio -political apparatus of the
society or else it will be confronted with resistance. It was in this
light that, Presiden t Olusegun Obasanjo in 1999, lamented on the
soaring state of the economy, hence, the need to reposition,
redirect and refocus the Nigerian economy structure, some of its
cardinal remarks were the reform of the civil service structure,
deregulation of the downstream petroleum sub-sector, banking
recapitalization and liberalization of some government
enterprises to private participation. These reforms were in
phases just like the Indigenization decree of 1970’s.
Prior to this period, the economy was hijacke d by socio –
mediocres, characterized by massive cor ruption in the Public
Sectors. low capacity utilization of the country’s refineries and
Petrochemical Plants, neglect and repeated vandalisation of
7 ROBER GILPING (1987) , The Political Economy of International Relationships, Princeton University Press, New
Jersey. AND Charles A. Wilber and Kenneth P.Jameson, “ paradigms of economic development and beyond,” in
directions in economic development. [Notre Dame, Ind.: university of Notre Dame press, 1975] pp.1-41
State-owe logistic facilities and oil movement infrastru cture
nationwide; the colossal waste and institutionalized corruption;
the disturbing emergence of a local mafia that controls and
coordinates the sales of oil blocs; illegal bunkering nationwide,
large-scale cross -border smuggling of petroleum products; a
non-commercial pricing environment and lack of resources to
maintain and manage the resources properly, engineering high
level of exploitations of Commercial Banks on their clients, total
collapse of the energy sector, poor primary health care services,
elimination of small scale enterprises through government
unattainable political policies, persistent strikes of our tertiary
educational sector and many more, have all accounted for the
dismal performance of the economy of decades.
This scenario Led to a mono-economic structure, i.e., a heavily
dependent market economy. The trickle effect was a sudden collapse
of the micro and macro -economic apparatus, hence, the need for
sectorial reform in 2003 by President, Olusegun Obasanjo.
As in most developing cou ntries, this has not translated into an
improved economy for the country. Instead through inefficiencies,
corruption, abuse of natural monopoly powers, mismanagement,
smuggling, bureaucratic bottlenecks and excessive subsidizing of
refined crude oil (gas) in the country has virtually collapsed the
macro system of the economy as all economic indices revolves
round the oil including annual budget implementation.8
3.0 THE REASONS FOR DEREGULATION
Nigeria started operations in 1965 with a capacity of 38,000 barrels
per day (bpd). Since the first refinery was built in the country three
more refineries were built to cater for expanding domestic needs
over the last thirty years. In the 1990’s, with a f ast growing
population, the country was caught in the situation with domestic
demand for gas far outweighing supply, and with corruption,
smuggling and mismanagement, the refineries were operating at less
than optimal levels. Turn Around Maintenance (TAM) was done on
the refineries to improve capacity but this was not getting the desired
effect and NNPC (State Owned Enterprise) had to import heavily
from abroad thereby cutting actual revenue derived from oil exports.
International financial institutions started lending excessively to oil
producing countries and successive Nigerian governments in the
1980’s and 1990’s borrowed heavily to subsidize for rapidly
declining income from oil exports. Unfortunately because of some
periodical non-servicing of those loans by the then military regimes,
8 Schipke, Alfred (2001) Why do Governments Divest? : The Macroeconomics of Privatization: Berlin:
New York: Springer
Nigeria found itself in trouble and was heading for insolvency. By
1992 when Nigeria took its’ last loan things were looking bleak and
the country asked OPEC for a larger export quota so as to generate
more revenue.
President Olusegun Obasanjo assumption of office in 1999 found a
near comatose economy and a heavy debt burden. Funding
government expenditure in the last five years became a real issue
since a substantial part of the country’s revenue from oil exports is
used for debt servicing. The balance of which being used primarily
for recurrent budget needs of the government due to an over bloated
Civil and Public Service, leaving very little funds for capital budget
needs and investments in other critical areas of the economy such as
that of welfare, educational and healthcare needs.
Where international oil prices were rising and actual refined
production in the country was dropping. The government decided
that it could not afford the continued subsidies in the pump price of
the three white petroleum products (PMS, AGO and HHK) at the
pumps as it was buying refined gas at huge international prices only
to sell at a heavily subsidized rate. Currently, 1 litre of gas in Nigeria
is sold at the government rate of 70 Naira, which is 50 cents ($1 =
N140) and this is with price increases made by the current
government over the last five years. The government realized the
necessity to boost production levels of the refineries but at a huge
cost, and decided to invite local mark eters to apply for licenses to
build private refineries. This approach failed, as the marketers who
are solely driven by profit maximization were not interested while
government on the other hand was very much interested controlling
the pump price of gas. Government decided that it was necessary to
deregulate and privatize the downstream petroleum sector in the
country.
Nigerians believe that low gas prices are a given right and have
protested vigorously through strikes each time the price of gas
was increased in the last few years and are bitterly against the
privatization and deregulation of the downstream sector . As
noted by Khan above, these disruptions have widespread political
implications, for example there is a constant fear that the military
may use the opportunity to seize power again as it has done over the
decades since independence.9
The goal of the Nigerian government is to dismantle the natural
monopoly of the State owned enterprise by privatizing and
deregulating price controls. Creatio n of competition in all sectors
will trigger economic growth through healthy competitions in the
market, in the medium terms regulate prices, reduce the cost
government spends on subsidy, the sector which runs as high as $1.5
9 Khan, Sarah A. (1994), Nigeria: The Political Economy of Oil, Oxford University Press.
billion annually, and can cons equently used the resources freed up
to handle other socio – economic and welfare needs of the Nigerian
people, reduction in transportation costs of products and people and
boost in Foreign Direct Investment to the Nigerian economy.
The impact of government’s policies on any given economy cannot
be ignored. Every policy of government has a great impact on the
general economy. This impact could be positive or negative
depending on: the desirability of such policy in the economy; the
mode and extent of implem entation; the effects such policy has on
the general economy and the well -being of the populace. The
structure of the Nigerian economy, each having gaps of limited
sectoral coverage (some ignored social services like education and
health), scope (some deal t with only the effects of reforms on the
structure) or the data relied upon for the analyses were outdated.
The highlights of the structure of the Nigerian economy and changes
therein are as follows:
- Nigeria is the largest geographical unit in West Afr ica, with
land area of 923,768 square kilometers and estimated
population of 130 million, 50 % of whom are below 15 years
of age and another 3% aged 65 years and above. These give a
dependency ratio of 1:1 as against 1:3 or less in the advanced
economies.
- Agriculture dominates the Gross Domestic Product (GDP), but
its contribution has reduced drastically over the years since the
attainment of political independence in 1960. This ratio
dropped from 64.1% in 1960 to 28.35% in 2002, as detailed in
Table 1 below.
- Manufacturing improved in the early post -independence
years, but its contribution dipped in the 1990’s, from 4.8% in
1960 to 5.5% in 2002.
- Crude petroleum became prominent, contributed 0.3% to GDP
in 1960 and increased to 40.6% in 2002.
- Dualistic nature in which there is mix of formal (organized)
and informal (curb markets) systems. The latter is a huge
sector that is difficult to measure, as it owes its existence to
institutional weaknesses, policy inconsistencies and policy
implementation deficienc ies. Estimates often indicate it to
represent between 40% and 45% of economic activities in
Nigeria.
- Increasing inequalities in inter -personal incomes and a
widening gap between urban and rural incomes, especially
since 1986. Weak social and institutiona l structures in
education and health. Enrolment figures show improved
distribution in favour of secondary and tertiary education, but
there are concerns about the quality of education regarding the
dynamics of the work environment and its requirements. ( See
Table 2.)
- A vibrant financial system that has cycles of
stability/prosperity and distress, the latter pronounced in the
early to mid -1990. The improved enforcement of regulation
and increasing commitment to corporate governance
principles by the operators assure soundness of the financial
system going forward.
- External trade is dominated by oil, which accounted for 32.9%
of the total in 1970 and 64.63% in 2002. See the trend in Table
3.
- Raw materials and consumption goods in that order dominate
imports. The shift between 1970 and 1996 show that these two
gained over capital goods, further entrenching the Nigerian
economy as import dependent and reliant on crude petroleum
as the major export item. And the changes in the Nigeria policy
implementation.
Because of this multifacetedness in the system, de mands will be of
socio-wants; hence, the political system must push itself to either
decrementally or incrementally aggregating de vice interest groups
as posited by David Easton’s system theory, an approach that studies
and implement the device on ethnic groups in a country.
The early period of post -independence up until mid -1970s saw a
rapid growth of industrial capacity and output, as the contribution of
the manufacturing sector to GDP . This pattern changed when oil
suddenly became of strategic importance to the world economy
through its supply-price nexus, as shown in Table 1.
Table.1. Nigeria: Sectoral Contribution to Gross Domestic
Product (GDP)
Sector 1960 1970 1980 1990 2000 2002 2004 2006
Agriculture 64.1% 47.6% 30.8% 39.0% 35.7% 28.35% 21.21% 15.54%
Manufacturing 4.8% 8.2% 8.1% 8.2% 3.4% 5.5% 8.89% 14.38%
Crude Petroleum 0.3% 7.1% 22.0% 12.8% 47.5% 40.6% 43.87% 47.41%
Others 30.8% 37.1% 39.1% 40.0% 13.4% 25.55% 48.71% 92.87%
Source: Central Bank of Nigeria, Changing Structure of the
Nigerian Economy (2000) and Annual Report & Statement of
Accounts (2002).
Table 2. Nigeria: Educational Enrolment
Level 1970 1990 1996 1998 2000 2006
Primary 90.4% 80.8% 76.5% 76.9% 77.30% 77.68%
Secondary 9.2% 17.2% 20.8% 19.8% 20.9% 22.02%
Tertiary 0.4% 1.9% 2.7% 3.3% 4.03% 4.92%
Source: Central Bank of Nigeria, Changing Structure of the Nigerian
Economy (2000).
Table.3. Nigeria: Visible Trade
Sector 1970 1996 1998 2000 2002 2004 2006
Oil 32.9% 77.3% 67.3% 72.9% 64.6% 59.24% 54.32%
Non-Oil 67.1% 22.7% 32.7% 27.1% 35.4% 46.24% 60.39%
Source: Central Bank of Nigeria, Changing Structure of the Nigerian
Economy (2000) and Annual Report & Statement of Accounts
(2002).
Table 4. Nigeria: Oil and the Structure of the Economy (2002)
Sector Export Earnings GDP FG Revenue Investments
Oil Sector 94.95% 40.58% 71.07% 93.33%
Non-Oil Sector 5.05% 59.42% 28.93% 6.67%
Source: Central Bank of Nigeria, Annual Report & Statement of
Accounts (2002).
Table 5: Historical Trend of Petroleum Products Prices:
YEAR PMS(N) ANNUAL
%
CHANGE
AGO (N) ANNUAL
%
CHANGE
DPK
(N)
ANNUAL
%
CHANGE
1980 0.15 0.00 0.11 0.00 0.11 0.00
1981 0.15 0.00 0.11 0.00 0.11 0.00
1982 0.2 33.33 0.11 0.00 0.11 0.00
1983 0.2 0.00 0.11 0.00 0.11 0.00
1984 0.2 0.00 0.11 0.00 0.11 0.00
1985 0.2 0.00 0.11 0.00 0.11 0..00
1986 0.4 100.00 0.3 172.73 0.11 0.00
1987 0.4 0.00 0.3 0.00 0.11 0.00
1988 0/42 5.00 0.3 0.00 0.11 0.00
1989 0.42 0.00 0.3 0.00 0.11 0.00
1990 0.6 42.86 0.35 16.67 0.15 36.36
1991 0.7 16.67 0.5 42.86 0.4 166.67
1992 0.7 0.00 0.5 0.00 0.4 0.00
1993 3.25 364.29 3 500.00 2.75 587.50
1994 11 238.46 9 200.00 6 118.18
1995 11 0.00 9 0.00 6 0.00
1996 11 0.00 9 0.00 6 0.00
1997 11 0.00 9 0.00 6 0.00
1998 20 81.82 19 111.11 17 183.33
1999 20 0.00 19 0.00 17 0.00
2000 22 10.00 21 10.53 17 0.00
2001 22 0.00 21 0.00 17 0.00
2002 26 18.18 26 23.81 24 41.18
2003(Jan-
Sept)
34 30.77 32 23.08 32 33.33
2003(Oct-
Dec.)
43 26.47 41.5 29.69 41.5 29.69
2004(Jan-
Sept)
43 0.00 45 8.43 45 8.43
2004(23
Sept)
52 20.93 61 33.56 63 40.00
2004(Nov
14)
49 5.77 48 21.31 48 32.81
2005(Jan-
April)
52 6.12 62 29.17 50 4.17
Source: Petroleum Products Pricing Regulatory Agency (PPPRA).
ANALYTICAL EXPLANATIONS ON THE ABOVE TABLES:
The above structural issues can be summarized as follows with
respect to the oil sector in the last three decades.
That is, the oil sector accounts for:
- Over 95% of export earnings (the lowest during the 1990’s
was 95.47% in 1998)
- About 40% of GDP
- About 70% of Federal Government revenue
- Above 90% of new investments
- There was heavy subsidy on petroleum products consumption
which led to no change in the prices of petroleum products
from 1980 to 1989 (see table 5), social i nfrastructures were
crippled, as evident in the decline of enrolment in the different
levels of education from 90.4% in 1970 to 80.8% in 1990 (see
table 2).
- A gradual removal of subsidies from 1990 to 2006 (see table
5) has increased the revenue available to government for
capital projects and other social infrastructures; again, this is
evident in the gradual increase in enrolment in primary,
secondary and tertiary institutions in the country.
4.0 MARKET THEORY
The interaction between the State and m arket economy
(fundamentals) is a function determined by the nature of socio –
economic and political policy of such State, hence in recent time, it
is quite difficult to separate economic theories from Political
Ideologies. Therefore, for centuries the deba te in the field of
political economy has focused on the nature and consequences of
the clash between the State and the Market.
Liberal economic theory is committed to free market and minimal
state intervention; and the liberal political theory committed t o
individual equality and liberty is the guarantee for the smooth
operation of free market economy (which is supposed to be the case
in a deregulated economy, but the reverse is the case). However, the
rationale for a market system is that it increases eco nomic
efficiency, maximizes economic growth and therefore improves
human welfare (raise to per capital income of the individual).
Liberalized market economy exhibits a powerful tendency towards
market equilibrium and inherent stability(although, theoretica lly
speaking, a free level – playing ground for operators is one of the
features of deregulation but in practices, there is no level playing
ground as the rationalist/Monopolists still wax stronger).
If in a macro economic environment, market is in a state of
disequilibrium caused by some e xternal factors (sectionalism,
religion, culture and political preferences), the operators of market
fundamentals will find the market economy very difficult to perform
i.e. the pursuit for individualism (self -interest) in the market will
eventually increase socio -struggle for the maximization of profit
efficiency.10
It was in the light of the above, that W.W.Rostow in 1961 advocated
five stages of economic growth and David Easton positing three
elements employed into functional system for political stability:
W.W.Rostow
- Traditional Society -that the fast take -off of any country’s
economy is bases on attitude and technology. If the work of
Isaac Newton ushered in change; He formulated the law of
gravity and the elements of differential calculus).By this, it
implies that obsolete, technology in the refining sectors should
take hold of modern technology and skill acquisition as an
economic base.
- The Pre-condition Stage: for sustainable industrialization a
radical changes in three basic non -industrial sectors: (1)
increased transport investment to enlarge the market and
10Charles.A.Wilber and Kenneth P.Jameson, (1975)“Paradigms of Economic Development and beyond,
“in Directions in Economic Development. [Notre Dame, Ind.: University of Notre Dame press.
production specialization; (2) a revolution in agriculture, so
that a growing urban population can be fed; an d (3) an
expansion of imports, including capital, financed perhaps by
exporting some natural resources. These changes, including
capital formation, require political elite interested in economic
development. This interest may be instigated by a nationalist
reaction against foreign domination, or the desire to have a
higher standard of living (the role of multinational
corporations in the operations of downstream, domestic theory
and politics.
- The take -off stage: this period is a dramatic moment
movement towards the beginning of industrial revolution i.e. a
period of decisive expansion occurring over 20 to 30 yrs.
During this stage, barriers and steady growth are finally
overcome while forces making for wide spread economic
progress dominate the society, so t hat growth becomes the
normal condition. Applicable to the guided deregulation
policy in Nigeria which is characterized by multifarious crises
is only normal for regulatory bodies to submerge into
economic growth, another example is the Nigerian Oil Boom
of the 1970.Shortly after the civil War, Pre-Civil War railroad
and Manufacturing development in the united states, the
period after the 1848 revolution in Germany, the flow first
after the 1868 Meiji restoration in Japan, the rapid growth of
the rail roads, Coal, Iron and heavy -engineering industries in
the quarter century before the 1917 Russian Revolution and a
period starting within a decade of Indians independence
(19470 and the communist Victory in China 1949.
- The Drive to Maturity: after take-off there follows the drive
to maturity, a period of growth that is regular, expected, and
self-sustained. This stage is characterized by a labour force
that is predominantly and more bureaucratic and that looks
increasingly to the state to provide economic security.
The Age of High Mass Consumption : The symbols of this last
stage is reached when there is a level of State welfareism i.e. a
situation where there is decline in rural migration to Urban, stable
and socio -infrastructure of stable economic growth and political
stability.11
David Easton
For a nation to have political stability, she must observe these below
elements:
11 Waiter .W .Rosow (1961), The Stages of Economic Growth: A Non-Communist Manifestos (Cambridge
University).
12 David Easton (1967), The Political System
- Gate-keeping Mechanism; for the coexistence of any society,
there is the need for information censure, i.e., dissemination
and retardation of certain information to the public is
selective. However, political system could be brutish, nasty
and leads to crises legitimacy and distribution.
- Socio-cultural Mechanism; David Easton argued that if a
regime must be stable, the existing socio-cultural norms must
be understood, while the co -existence of various hegemours
groups is of importance, and conceptualise such that when
demand emerge from the society of micro and macro level the
political system should the impetus and capability to articulate
interest or aggregate interest to the extent that it reflects the
socio-complexities appraviory assumption is that the society
is heterogeneous and with a very small homogeneity.
- Communication Mechanism : Easton advanced the need of
flow of communication, i.e. the channel of communication
between the government ant the governed should be kept
clean and open to avoid communication distortions.
5.0 PETROLEUM PRICE REGIME
The determination to attain a better petroleum products’ price
regime has always occupy an important place in empirical and
analytical research programmes in macroeconomics, public
economics, industrial organisation a nd corporate finance. This has
therefore been driven by both theoretical concerns and policy
question.
Theoretical concerns focuses on debate over which model offers the
best explanation on macroeconomic behaviour, while policy driven
concerns relates to how chang es in monetary policy, leadership
style, and tax policy.
Studies focus on the relationship between macroeconomic indices
and petroleum product pricing in Nigeria. Maxwell M. Gidado, 1999
carried out research on petroleum development contracts with
multinational oil firms.12
Nigeria had the problem of not being on the core of global economic
activities but also of being subordinated to external economic forces,
which can be controlled or minimized, the regional apparatuses and
the tremendous economic resource s available to them were
formidable additional source and symbols of weakness.
12 INTERNATIONAL ENERGY OUTLOOK (2003) IEO, New Scientist Magazine, U.S.A.
The factors influencing Macro economic relationship to Petroleum
Products Prices in Nigeria is bedevilled with complex scenarios
emanating from her weak socio- economic and political policy vis-
à-vis the forces exacted by the Western bloc in order to perpetuate
their Neo-colonial economic policies through making developing
countries total dependant on them. Her weak economic strength,
wrong policy implementation and gross depend ence on foreign
powers for a wide variety of the necessary resources for
development and basic needs places us in continuous dependence
on western ideology.
This seminars paper therefore examines the criticalities, influence
and the salient economic indice s that have moderated the Nigerian
Down stream Oil Sub -sector for about five decades now. The
problem is, therefore, how Nigerian can attain and sustain her
political and socio-economic independence.
Some of the problems involved in analysing Nigerian’s Pe troleum
Sector (Downstream Sub sector) vis -à-vis its Price structure in
regard to the ongoing deregulation policy of President, Olusegun
Obasanjo’s reform programme, during the circumstances under
review can be discussed under problem of generalization and
administrative weakness associated with both past and present
leaders, that is, better policies but failed implementation.
Nigerian economic stand in the past has always been characterised
by politics, hence, downplaying relevant economic indices that
would have strengthened her on International platform. But due to
the short sightedness of ranks of leaders who either have ruled in the
past or currently have left our economic strengths in the hand of
various colonial tutelages in disguise of Transnational Corporations,
with the help of these Corporations, assisted by internal neo-colonist
drains the wealth of the nation with disrespect, thereby,
impoverishing the people in order to have firm control over the
activities of the economy
Often Problems arise from the attitude of Nigerian leaders, that is,
there is the problem of realism and distinguishing between the
declaratory and operational aspect of Nigerian leaders, attitudes
towards economic policy. According to Aluko 13, there are often
yawning gaps bet ween what an African leader says and what he
exactly does about his external and internal environments.
Macro economic relationship to Petroleum Products Prices, the
various conflicting changes associated to the deregulation policy
since its inception, var ious components associated to price
volatilities; Nigerian adoption of deregulation policy since 1999 was
- ALUKO & GARBA .J. (1979) The New Nigeria Foreign Policy Round Table, Quarterly Journal of
Administration Vol. II, No. 3, April. C.A. KOGBE, (1975), Geology of Nigeria, Published by Rock View
(Nigeria), Nigeria
a function of a change in the structure of her socio -economy and
subsequent straightening of her political and economic position in
the global polity, thus:
- There is a strong indication between the changes in economic
factors and the domestic political structure.
- Nigerian’s adoption of deregulation policy is a radical position
that will strengthen industrialisation if its implementation
would recognise the values of the Nigerian people.
Socio-political expediency in Nigeria economy in the past has aided
these factors to contribute immensely to the hitherto scanty
empirical studies on Nige ria’s Petroleum Sector. It examines the
basic changes that took p lace in the Nigeria Petroleum Sector
showing the impact of such changes on the Petroleum down stream
sub-sector. It shows how the policy on deregulation is implemented,
crises associated with p rice volatilit y, the impact of stakeholders,
public perspectives concerning the non implementation of previous
government policies, removal of subsidies on petroleum p roducts,
the role of elite class in the reform initiative, influence of Western
bloc, Monopoly of Nigerian National Petroleum Corporation
(NNPC), Petro leum Pipelines Marketing Company (PPMC),
Petroleum Equalisation Fund (PEF) and other crises associated with
pricing policy.14
This situation was best explained by Stolper Wolfgang F.
(1996) “Planning without facts Lessons in Resources Allocation for
Nigeria’s Development”15.
But another changes that occurred was the change from military
regime to democratic governance in Nigeria ushered in 1999 has
started to change this pathetic situation for the better. For instance
Civil Service Reforms (Monetization) Bi ll, Deregulation Bill,
Privatisation Bill, Anti corruption Bill, and Banks Reforms
(Recapitalisation) Bill, just to mention a few of these social –
economy turn around were all passed by the National Assembly into
Law during this present and past legislative Assembly (2000-2007),
and Published for public Consumption, quarterly report of its
activities; including financial summaries. Similarly, the Federal
Ministry of Finance has also begun the monthly publication of
Federal Account Revenue Allocations to the three-ties of
Government in both National Newspapers and on official Internet
Websites.
14 Chakrovorty U. Fereidun Fesharaki and Shouying Zhore (2000). Domestic demand for Petroleum in
OPEC countries, OPEC Review, March (2006)
15 Stolper, Wolfgang F. (1966). “Planning without Facts”: Lesson in Resource Allocat ion for Nigeria’s
Development. Cambridge: Harvard University Press, 1966.
Furthermore, normal mechanisms of vertical and horizontal
accountability a nd transparency in the manageme nt and use of
revenue from Oil and Gas within the State were not available under
Military regimes. However, with the return to Democratic
Government in 1999, the Government under President, Olusegun
Obasanjo, has witness tremendous economic development
especially through activities for public scrutiny with Membership of
the newly formed United Kingdom’s initiative international
covenant for extractive industries known as Extractive Industries
Transparency Initiative (NEITI). The NEITI plans to cause the
publication of audition of accounts of the Nigerian national
petroleum cooperation (NNPC) for the past seven years (1999-2006)
as past of Federal Government efforts at entrenching transparency
in the Oil, Gas and Solid Minerals Sectors of the economy.
6.0 CONCLUSION
Methodologically, theoretical and empirical framework on this
seminar paper anchored extensively on the i ncorporation of
economic theories of politics and the use of political economy
framework are essential in understanding the Political, Social and
other dimensions of energy pricing reforms and ar e indeed,
necessary for any meaningful development of alternative structural
and institutional arrangements for the Sector. This approach makes
this study unique and stands out among other previous analysis on
the issues under consideration. It should be n oted that; ‘Economic
Reforms rest solemnly on Political Reforms.
The extremes have always been whether the Price should reflect
their economic opportunities cost. However, since the return to
democratic institutions in Nigeria in 1999, the policy thrust se ems
to favour Market -based approach of the Import Price Parity (IPP)
and Export Parity of Products, which has meant increase in Prices
of refined Products along with the rise in global Crude Prices.
But, over the years, the implementation of domestic Petro leum
Products Price Liberalisation and Deregulation Policies in the Sector
have invited general strikes; principally engineered and organised
under Coalition of Labour, Civil Society and Students’ Groups;
costing the economy incalculable losses of man -hours, growth
opportunities and losses of lives and properties.16
The bond of contention is that if Nigerian g overnment economic
reform policy under the democratic dispensation , favours market –
based pricing of domestic petroleum products, can market work in
political environment (polity) that may not tolerate the short -term
price volatility (with all the pains associated with it) that may bring
16 Many lives, public and Private properties and precious man-hours have been lost as a result of public
revolt, See, Posner, Richard. A. (1992): Economic Analysis of Law (4th edition).
the expected long -term efficiency in the economy. The counter –
intuition argument however is that, to the contrary, market
fundamentals competitive pricing (as opposed to administered
pricing regimes) will succeed in producing a ‘kaldor -hicks”
improvement (a change that increases social net benefits but does
not necessarily make everyone better off) over the long-run.
In addition, another bond of contention is that, the agency saddled
with the responsibilities to implement these reforms policies might
not be able to implement the desire market structure in the short-run
due to political expediencies. Therefore, the open unresolved
question is whether Nigeria will stay the course of deregulation and
liberalisation embarked upon since 1999 or return to the pre -1999
status quo; especially with the expected political leadership
succession by 200717.
Until very recently, development economics has been dominated by
the ideas of the Orthodox, traditional school whose major tools of
analysis have been borrowed from neo-classical. The prescription of
the traditional school appear to have failed to work in practically all
the countries which had adopted them and this failure accounts for
the continued existence of mass poverty in the developing countries
despite the great attention which has been paid to their problems
17 Abubakar Atiku Nuhu-Koko (2005), Political Economy of Petroleum Products Price reforms in Nigeria
(1999-2004)
over the last forty years. It is correct to state here that so me of the
developing countries, which adopted the strategies prescribed by the
Orthodox school, did achieve respectable growth in the 1960s and
1970s respectively. However, such ‘Success’ have been
insignificant in the context of traditional development ec onomics.
For each country which achieved a respectable growth rate. There
were many where the adoption of orthodox prescriptions failed to
improve the performance of the economy in terms of Gross domestic
product (GDP) growth rate. Even in countries where respectable
growth rate actualised, these would count for nothing when
evaluated in terms of the objective of eliminating mass poverty.
Indeed, in many instances, some of the strategies prescribed by
orthodox development economics might complicate the problems of
achieving meaningful economics development, as it did not put into
cognisance the valves of the people as posited by David Easton
system theory approach.
Both economists and policy makers have recognised the failure of
traditional development econo mics. The achievement of economic
growth without development in some developing countries during
the past three decades (1960s, 1970s and 1980s) has, since the
second half of the eighties, led to disenchantment with the received
theories of economic develo pment. The later part of the eighties
marked the end of optimism in Nigeria, especially political
economists and policy makers; it became clear that the problem of
the country (Nigeria) was not quiet understood as there was fragrant
neglect of macro economic features in policy implementation.
Following the establishment of a regulatory agency (Petroleum
Product Pricing Regulatory Agency) in May, 2003.Saddled with the
responsibility to determine appropriate product pricing, supply and
distribution of product s across the country. But government
formulates and executes Policy on Petroleum in Nigeria, in order to
formulate beneficial policy that is defensible and tenable to citizenry
Govt output to have respect for macro economic features. The
reverse is the case as deregulation of downstream is more of politics
rather than economic theories.
In light of the above the Nigerian petroleum products pricing are
influenced by a number of factors which are embedded in Macro
economy principle these includes crude oil pr ice exchange rate,
freight rate, refining economics and the forces of demand and supply
which acts as a function of the automatic pricing mechanism capable
of triggering competition and efficiency which could drive prices
downward in the long run. It will also encourage new entrance into
the Supply Scheme using modern technologies in the industry,
eliminating cartel monopolists; diversify sources of supply of
products through the emergence of competitive retail outlets across
the country which will ensure a better full cost recovery to investors
within the sub -sector i n other to ensure efficient and effective
pricing mechanism.
Furthermore petroleum products pricing mechanism is a dynamic
tools for the reformation of any economy, hence movement of crude
oil and determined products prices considers the below factors:
- Economic factors
- Political factors
- Geographical factors
(i) Economic factors:
These factors cover areas of production and consumption levels,
which include refining economics, US crude and product stock
inventories, Un -precede, tend fast rate of industrialization in
developed countries such as Europe, America, Asian, China and
Indian. Shortage cost and availability insurance cost, Interest rate,
Inflation rate, Transportation cost, and market related factors.
(II) Political factors:
The formidable cartels and trade agreement between and outside the
industry, global invents of wars, embargo, social unrest in the
Middle-East and restiveness of the Niger -Delta, global political
instability are considered as social political factors. Tariffs
applicable, Taxation, Regulation, Legislation, and unfriendly retail
environment, all these influences price of crude oil.
(iii) Geographical factors:
By geographical factors we are referring to natural disasters
seasonality especially during cold weather in the Northern
hemisphere, localised weather reports pipelines vandalism
shipwreck all these induce p roducts and price of crude oil
fluctuations in the oil market.
The competitive nature of the market offers comparative factors
like preference shift as to the types of crude and product
specification, transaction cost for future and spot market, swap
option and hedging, freight rate, alternative commodity from coal
gas etc and the product yield from the type of crude, technological
advancement, refinery configuration, and the relative quality of
crude and product specification.
From the above therefore, a n efficient pricing mechanism would
have these other elements of internal control as modulation, Trans
shipment/ local freight, financing Nigerian Port Authority (NPA)
charges, Jetty-Deport through-put distribution margins and takes as
it is been referred in the previous Petroleum Products Pricing
Regulatory Agency (PPRA). Pricing template earlier enumerated in
the previous chapters.
In other to formulate beneficial policy that is defensible and tenable
Government requires accurate and up to date information on specific
numbers of barrels of refined c rude. Nigeria produces about 2.5
million barrel per day (mpd) at of which 2.1 Mb is exported leaving
only 445,000bbls supplied for domestic consumption per day. when
one considers the fraction of domestically c onsumed crude
(445,000b) to what is exported (2.1mb) and the budget price of crude
($50-55 pb) to the pre sent international selling price of about
($100.2 pb), the internal consumption of products should be
relatively cheap.
Hence some school of thoughts argued that the excess proceeds form
petroleum products should be use d to subsidize the pump price of
petroleum products. Others are of the opinion that the excess
proceeds should be shared among the three tiers of government
(Federal, state and Local) fo r infrastructural development. But the
capitalist school of thought are of the opinion that the removal of
subsidy is beneficial to the Nigerian economy as it will enable
government to re -direct the accrued wind fall to the federation
account for the purpo se of economic development. Implied i n the
proceeding argument is that no country in the world willing to
develop will continue to redirect accrued National Income
ostentations spending? Hence, the federal government of Nigeria
cannot continue to subsidize the petroleum sectors and still be
obliged to her social responsibilities.
In the light of the forgoing and for better macro -economic Policy
development, government must consider the following:
- have the databank of the total barrel of crude refined in t he
country, imported and exported;
- urgent need for government to dismantle every existing
bureaucratic barrier that would not encourage prospective
investors into the industry which would stimulate completion
in view for perfect pricing competition as cur rently been
experienced in the telecommunication sector;
- The consumption level of petroleum within the country must
accurately be ascertained and not assumed. Since petroleum is
the life wire of our economy;
- to ascertain in data figures Import Parity in comparism to the
locally Produced Product. This will help the government in
making precise and accurate p lanning in the area of Supply
and Distribution of Petroleum Products across the Country
especially during periods of products scarcity ;
- The non-full liberalisation of the downstream has not given a
very good room for serious competition by players in the
downstream sector as we observe that importation of products
is supposed to be embarked on by all marketers, but as being
solemnly carried out by NNPC. This si tuation negates the
primary tenets of deregulation policy;
- National Assembly should bring sanity into the downstream
oil sector through harmonisation of the regulatory activities of
the Department of Petroleum Resources (DPR), Petroleum
Products Pr icing Regulatory Agency (PPPRA), the federal
ministry of commerce and the standard organisation of Nigeria
(SON) to eliminate regulatory distortions as most of their
legitimate functions overlap.
- Government should encourage the development of domestic
gas market of the downstream sector to encourage the use of
gas and reduce reliance on premium motor spirit (PMS);
- Government should inject life into the existing refineries to
enable them operate optimum capacity pending when the
privately owned refineries would come on stream.
- Government should establish a “Petroleum Stabilisation
Fund” to cushion the effect of fluctuation in oil price at the
international market and that the fund, which should be a
fraction of the savings from the excess crude revenue, sh ould
be deployed only for downstream price stabilization purposes.
It should be made known at this junction that many developing
countries; structural reform of petroleum market has become a
critical component of macro economic liberalization policies. The
role of government in the petroleum sector should be redefined
while marketer should play by the ethics of business morals.
The government must also keep in mind that the Nigerian society
has diverse of socio -cultural heritage; which must be respected
while trying to formulate policy that will better their lots. Using a
better political platform desirable only if the aim is to better the
standard of living of the people. Hence, the outflow of petroleum
products across the country could be said to be at th e instance of
deregulation. There are little sacrifices to be made in order to attain
full economic development. We must not forget the experience of
the now known Asian Tigers, they were of no economic might in
early 70’s, but today because of socio -political discipline, they
determined world trade and lead political voice to global issues.
However, my argument is towards the benefits associated to a well
driven deregulated and liberalised economy in the long run, more
so, my reservation is our inability to maintain and sustain the policy
if not being politicised or hijacked by political elites.
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