Nigerian Oil Reforms: The Journey to the Petroleum Industry Bill (PIB)

Abstract

The future potentials of Nigeria oil and gas economy is of great importance for both Nigeria’s economic

development as well as global energy sufficiency. Most daring is the continent of Africa . Nigeria is a

prominent Member of OPEC and the 6th largest crude oil producer in the world; with four state-owned

refineries, numerous subsidiary Oil Compan ies, and regulatory bodies. Nigerian oil and gas industry

remains an important source of government revenue through export earnings, and have about 1.2 trillion

barrel (tb) reserves of petroleum product s sufficiency and emergency plan. However, this study is to

examine the importance of the various reforms in the Nigerian oil and gas industry and how it has been in

relation to efficiency in the sector over decades. Inappropriately, the industry is confronted with

multifarious challenges that hamper on its quality of service delivery and refining out in the country.

Hence, this research intend s to scrutinize salient challenges of the sector that n ecessitated the

intervention of government via refo rm programs like the Petrole um Industry Bill (PIB) . When fully

implemented will be a legal framework that will harmonize the activities of the sector for optimal efficient

performance for the benefit of the country.

Keywords: Oil and Gas Reform Initiative in Nigeria and the Petroleum Industry Bill (PIB).

1.0. INTRODUCTION

Before the oil boom sag a of 1970, there have been various reforms put in place by the Nigerian

Government to reposition the entire economy which has been set a back by the Civil War of

1967, which ended in 1970. Among these reforms was the first, second, third and fourth

indigenization decree of 1970 who primary objectives was to allow Nigerians to partake in the

industrialization of the economic sector. Most sort for was the oil and gas industry. The

emergence of commercial quantities of crude oil marketing in 1956 exposed the economy to

global trade interference and subsequently putting the country as member of the global oil cartel

(OPEC) in 1976.

There was Indigenization Decree in 1970s, which was comprehensive and far-reaching economic

reform. The objective of the reform policy was to put and persuade Nigerian major player in the

economic growth Nigerian economy in the hands w ithin the context of nationalistic direct

control of wealth of the n ation. Rather than Nigerians, allowing foreign investors to own 100

percent of certain national economic ventures. That is, not more than 30 percent or 40 percent as

the case may be is allowed. It was in the process of implementing this policy that oil bec ame a

major revenue earner that changed the policy fundamentals of the industry.1

As crude oil revenue ball ooned in 1973/1974, the Nigeria Government embarked on white

elephant projects, which had little or no economic value to the GDP development. Bereaved of

concrete economic policy direction, that would impact positively on the development of

1 Oloruntegbe, K.O. & Akinsete, M.A. (2009), 50 Years of Oil Exploration in Nigeria: Physics -chemical Impacts and

Implication for Enviromental Accounting and Development.

entrepreneurial energy sector and the non -encouragement of Small and Medium Scale

Enterprises (SMEs) in the non -oil sector. Furthermore, the last quarter of 1978 experienced a, a

sharp decline in country’s crude oil earnings as crude oil prices dipped in the international

markets forcing major economic policy that introduced belt tightening project. Subsequently, in

1979, Nigeria government resolved and went to the international capital markets to raise external

loans (commonly referred to as the “jumbo loans”) to fund capital developmental projects that

were hard to place. The wake 1980 saw the emergency of three major economic policies initiated

and recommended by Onosode’s Commission on reduction of public servant pay structure. This

was adopted in 1981. Another economic reform initiative known as “ Economic Stabilization Act

of 1982 ” followed with a view to response to the dwindling oil earnings and m ajor external

sector imbalances experienced in the country and t he big wipe “ Structural Adjustment

Programme (SAP) of 1986-1988”, as influenced by World Bank to reduce spending.

A nation that was just coming of a very chronic civil war, determined to develop, and practically

just coming out of colonialism took first bold step on wide -range of reforms in almost all the

major sectors of the economy , guided by the quest for economic growth . Although, there were

limitations in its implementation, but, she recorded some significant gains for the first two years.

Each of these policies was reactive to developments in the international crude oil markets, which

was depressed for much of that period and had only occasional spikes.2

Petroleum Industry Policies Management of the 1990s and 2000 might be described as a period

of reversals and lost opportunities. The series of reforms and mal -administrative reversals of oil

and gas policies in the late 1980s took its toll on the real sector of the economy , which

subsequently had its negative impact on financial institutions, as most commercial banks were

liquidating due poor savings by citizens and hash government reform policies . In the same vain,

the country experienced crude oil windfall gains from the strong oil prices as a result of the

Coalition Forces between Kuwait and America war against Iraqi in 1990. The protracted

situation in the sector truncated the policy experimentation on deregulation and liberalization of

the petroleum industry in 1994 by the late Head of S tate, Gen. Sani Abacha. Up until June 2003,

there was no clear policy direction for the activities of the petroleum sector due to obsolete

institutional legal framework which thwarted the benefits that would have accrued from oil

earnings.3

Nigeria strong economic interest in ensur ing energy security and exports is obvious , thus, the

government policy on the r eduction on trade and investment barriers into the country . The

country also has a national energy and an economic interest in ensuring that Nigeria becomes a

key ally and top trade partner with neighboring countries in Africa that shares closer mile border,

and the globe in general. The Nigeria petroleum economy was once economically vibrant and

politically stable, until mid -1980 when its prospect beginning to decline due to mismanagement

of accrued export earnings, neglect in turn around maintenance of the four State own refineries,

and large quest for corruption.

2 NWAGBARA .N. (2011), The Story of Structural Adjustment Program in Nigeria.

3 Nmom .O. C. & Ignatius .A. (2013), Rivers of Crisis: Historical Paradox of The Niger Delta Region in Nigeria.

Over centuries, oi l and gas business has become a priority to the strengthening of bilateral

economic cooperation among nations. For example, Nigeria became prominent as giant of Africa

due to her oil and gas trading and foreign earnings, and sociopolitical and economic int egration

in the continent. but, over the years, due to high level corruption and turn around maintenance of

the four state own refineries, emergence of militant groups in the Niger Delta, inpunitive cross

boarder smuggling, pipeline vandalism, etc, brought the nation’s economic to her kneel with

other sector of the economy dwindled. Hence, at the emergence of President Olusegun Obasanjo

administration in 1999, the government was determined to reform the moribund oil and gas

industry in Nigerian. And this led to the formation of the Oil and Gas Implementation Committee

(OGIC) in 2000 for the immediate policy direction for the repositioning of the entire industry for

global competitiveness and efficiency.4

The proposed reforms when implemented, will open up petroleum sector to private investors to

generators economic growth ideas, create employment that will energized entrepreneurial estates

in the country. The reform will boost energy supply through gas supply to energy facilities for

efficient distribution and the supply and distribution of petroleum products will be determined by

price mechanism.5

1.1. Research Problems

This study intend to address some sali ent challenges confronting the oil and gas sector various

reforms initiatives in Nigeria with a view to providing effective and efficient policy direction for

the sector. Over decades, industry stakeholders, opinion molders and civil rights campaigners

have been very critical of deplorable states of the four state owe refineries, characterized by

corruption and efficiency. And, that various attempt by government to reposition the sector have

failed and proved abortive. Nigerian economy is monoculture in pri nciple, strongly midwife by

petroleum earnings through export derivation. This implies that the economy is a single digit

petroleum economy, whereby, any negative move on petroleum proceeds will have a serious

negative impact on the economy. This is the si tuation in Nigerian. Stakeholders and government

in the oil and gas industry vis -à-vis their commitment to economic benefits and policy

implementation, are seen and viewed by the citizenry as complaisant attitude towards better

service delivery, as they are more concerned with profiteering and personal wealth accumulation

rather the interest of the nation. This gave rise to numerous challenges which have been

identified as critical to the success of any resolution of the problems of oil and gas industry

reforms. These include:

• Ineffective policy direction and Implementation of government,
• Petroleum Products Price volatility as a result of inadequate supply and poor distribution

network system resulting to protracted queues at filling stations,

• Illegal bunkering and cross-border smuggling and hoarding of petroleum products;

4 ThisDay News Paper (2015),Reviving Moribund Nigeria’s Oil Industry.

5 Michael .R. (2015), Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United

States.

• Untapped natural gas potentials over decades.
• The sorry state of the four local refineries and disrepair of logistic facilities (pipelines,

depots and jetties) due to vandalism across Nigeria, and

• Primitive acquisition of state wealth (corruption).

The above are remote causes for the lingering, and intractable crisis associated with the

petroleum industry. These were predictable outcome of failed policy programmes.6

1.2. Objectives of Research

The objectives of this research is to examine current changes in the oil and gas industry reforms’

initiative by government, its economic benefits to the economy growth and development, and the

role of stakeholders and government in Petroleum Industry Bill (PIB) policy direction as it

regards oil and gas sector and wealth creation in Nigeria. The aforementioned objectives provide

us insights that will contribute in answering our research questions.

1.3. Research Methodology

This study examines the method, design and characteristics of the research procedure,

determination of data collection base on content analysis.

• Research Question

In order to effectively conclude this study, the following question below will give empirica l

analysis (answers) to the research questions as follows:

i. Is the oil and gas industry reform policy justified in terms of efficiency when

implemented?

ii. Is it a catalyst for industrialization of the country via the sector?

iii. What is government role in ensuring the realization of the policy?

• Research Propositions

To effectively carry out this study, the following propositions are made:

i. The oil and gas industry reforms in Nigeria have only made the government to

begin to re -think and appraise the activities of the industry with a view to better

its performance.

ii. To avoid duplications of functions by other government agencies in the oil and

gas sector in order to create a platform of efficiency. and,

iii. to nip corruption on the board, while creating an enabling environment for

economic growth and development.

6 NNPC (2011), Corruption at NNPC.

2.0. AN OVERVIEW OF NIGERIA OIL AND GAS REFORME

In 2007, the Federal Government of Nigeria approved a National Oil and Gas reform policy

framework. The main objective of the policy was a far reaching decision for dispensational

changes that will ensure a fundamental economic reform in Nigeria oil and gas sector , with a

view to bring at par with 21 st global oil and gas economic reality, that is, to align the Nigeria

1970 oil and gas legal and governanc e structures. Although the petroleum industry legal

framework has been amended in many instances , yet, the Petroleum Act of 1969 remains an

obsolete document that need to be reviewed . Likewise, the Act that established NNPC in 1977,

despite the various amendments, the Corporation is currently undergoing serious reform with its

piece of legislative framework being modernized to suit contemporary global business realities.

The supervising organ of the entire public petroleum industry (Ministry of Petroleum ), a core

public enterprise Structure, lacks the capability to conceive and strategically formulate required

policies that will pilot the a complex and sophisticated activities like the oil and gas sector. At

various dispensations of the oil and gas sector , reforms have been initiated to redefine and

reposition the country’s set goals and objectives, and a time, leads to the establishment of

regulatory bodies: the Department of Petroleum Resources (DPR) , was established in 1970s , to

ensure compliance with the terms of governing the award of oil licenses to companies engaged in

petroleum crude oil and gas exploration, exploitation refining and marketing . Other functions

include the following:

• Monitors the oil companies’ operations to ensure consistency with global standards.
• The regulator issues annual permit to companies, without which they would not be unable

to participate in the industry as stakeholders.

2.1. Nigerian Investment Promotion Commission (NIPC)

The N igerian Investment Promotion Commission is responsible for the registration of foreign

businesses in Nigeria. NIPC also function as liaison agent between investors, government

institutional lenders and other institutions concerned with investments. Notable objectives of the

Commission include, the following:

• Enlargement of the modes of payment for foreign equity to include spare parts, raw

materials and other business assets acquire d without initial disburse ment of foreign

exchange from Nigeria

• Guarantees foreign investors the unrestricted transferability of dividends or profits (net of

tax) attributable to foreign investment in Nigeria and capital repatriation in the event of

liquidation. Dividend payments are subject to withholding tax at 10 percent as final tax.

2.2. National Maritime Administration and Safety Agency (NIMASA)

The Agency was established by Act of 2006, with the aim to monitor and promote the

development of indigenous and commercial shipping lines business in the international and

costal shipping trade. A regulator establ ished to regulate, promote maritime safety, security and

marine labor amongst other duties. NIMASA has and overs sight functions in regulating costal

shipment of petroleum products in the shore of Nigeria.

2.3. Nigerian Content Development & Monitoring Board (NCDMB)

The major functions of the NCDMB are to implement the provisions of the Nigerian Oil and Gas

Industry Content Development Act, 2010, with respect to supervising, coordinating,

administering, monitoring and managing the development of Nigerian Content in the industry.

The NCDMB is also to assist local contractors and Nigerian companies to develop their

capabilities and capacities. The key areas of focus of the NCDMB are as follows:

• Training and employment of Nigerians;
• Facilitate establishment of critical facilities such as pipe mills, docking and marine facilities,

pipe coating facilities;

• Promoting indigenous ownership of marine vessels, offshore drilling rigs, etc;
• Integration of indigen es and businesses residing in oil producing areas into mainstream of

industry economic activity;

• Promoting services which support industry activities such as banking, insurance, legal, etc.

2.4. Niger Delta Development Commission (NDDC)

The roles of the NDDC are to:

• Formulate policies and guidelines for the development of the Niger- Delta area.
• Conceive, plan and implement, in accordance with set rules and regulations, projects and

programs for the sustainable development of the Niger-Delta area in the field of transportation.

• Prepare master plans and schemes designed to promote the physical development of the Niger –

Delta area and the estimates of the costs of implementing such master plans and schemes;

• Implement all the measures approved f or the development of the Niger – Delta area by the FGN

and the member States of the Commission.

• Identify factors inhibiting the development of the Niger -Delta area and assist the member

States in the formulation and implementation of policies to ensure sound and efficient

management of the resources of the Niger-Delta area.

• Tackle ecological and environmental problems that arise from the exploration of oil mineral in

the Niger-Delta area and advise the FGN and the member States on the prevention and c ontrol of

oil spillages gas flaring and environmental pollution.

Legislation and Fiscal Provisions The key legislation and taxes applicable to companies

operating in this industry are summarized below:

The Petroleum Act (The Act) (and the Regulations issued pursuant to it) is the main legislation

governing matters relating to petroleum exploration and production in Nigeria. The Act amongst

others, vested the entire ownership and control of all petroleum activities in water, under or upon

any lands (including underwater) in the State.7

2.5. The Establishment of Petroleum Products Pricing Regulatory Agency (PPPRA)

The Petroleum Regulatory Agency (PPPRA), established in 2003 by the Acts of National

Assembly with the objectives to regulate, distribute, and monitor the supply and distribution of

petroleum products across the country, while ensuring moderation on Petroleum Products Pricing

volatility, as determined by established policy pricing template by government.8

2.6. The Establishment of Petroleum Equalization Fund (Management) Board (PEF (M) B)

Another organization is Petroleum Equalization Fund (Management) Board (PEF(M)B),

establish by Decree No 9 of 1975 as amended by Decree No. 32 of 1989, thus, now known as

Chapter 354 of the Law of the feder ation in 1990 with a main objective to, equalize the

haulaging of petroleum products differentials across the country, and enforce the codes of

conduct as it affects uniform pricing of petroleum products, while, ensuring compliance by

marketers regarding management of haulaging processes in the country.9

2.7. The Establishment of Petroleum Technology Development Fund (PTDF)

Furthermore, the Petroleum Technology Development Fund (PTDF) is an organ of government

established by Act No. 25 of 1973 with the obj ective to train , empower young Nigerians to

obtain professional knowledge or skill in relevant oil and gas technology. The Mandate of the

Fund is towards the realization and development of human capacities, tailored towards the

growth improve technology in Nigeria’s Oil and Gas activities through the development of

human capacities, institutional capacity development as well as the promotion research for

relevant technologies skills.10

2.8. The Establishment of Nigerian Content Development and Monitoring Board (NCDMB)

The Board was established into the law of the NC Act in 2010 with the following

responsibilities:

• to open up the oil and gas sector for indigenous participation;
• to develop competencies among the locals;
• to enable corporate integration that will energized economic growth; and

7KPMG Nigeria (2014), Nigeria’s Oil and Gas Industry Brief: Legal and Regulatory Framework of the Nigerian Oil

and Gas Industry.

8 Reginald .S.(2014), Petroleum Products Pricing Regulatory Agency.

9 PEF(M)B (2014), Our Mandate.

10 PTDF (2015), Petroleum Technological Development Fund.

• to enhance and encourage industry contributions that will forestall growth on our National

Gross Domestic Product.11

However, the most challenging of these public oil and gas industry is the Nigerian National

Petroleum Corporation (NNPC) . That is functioning as a huge amorphous cost center with little

or no sensitivity to the bottom -line corporate entities . Hence, the urgent need for far reaching

reforms of the entire petr oleum sector for efficiency and effectiveness. Prompted by the

Obasanjo administration in 1999 to establish the Oil and Gas Sector Reform Implementation

Committee (OGIC), inaugurated April 24th, 2000 and was headed by the former OPEC President

Railwanu Lukman, who also doubled as the Presidential Adviser on Petroleum and Energy.

The terms of reference of OGIC was to make a far reaching recommendations that will energized

effective model for the restructuring of entire Nigerian Oil and Gas industry. The Co mmittee

composed of array of professional individuals who has vast knowledge of the activities of the

sector, sourced from both the public and private domains of the industry. The Committee, within

four years produced a comprehensive blue print national oi l and gas policy paper that will

reposition the core aspects of the industry for economic benefit: Upstream, Midstream,

Downstream, Gas, Petrochemicals and many other industry related structural issues.

The objective of the policy reform initiative was to ensure functional separatism in statutory

roles between the different public agencies in the oil and gas industry. Vita of this reform was of

significant concern to inject new approach to commercial orientation in all the relevant aspects of

the industry. The major concern by government and stakeholders is to impute sustainable

policies that will reposition the nation’s Oil and Gas sector with a view to be able coupe with

global contemporary challenges and in the domestic sphere. Nigerians saw this new pol icy as the

surest of maximizing the sector potentials for economic gains to national development, and

accepted the initiative by government.12

3.0. LITERATURE REVIEW

Various scholars have authored writ e ups on the subject matter. But, none has been definite and

precise in their summation. Thus, it becomes premature to assess the nitty-gritty of the Nigerian

oil and gas government reforms’ initiatives. According to Oluleye (2003), reforms are tools that

are employed to strengthen and reposition a fail ing or failed structure for viability and growth

This implies that, the entire oil and gas sector in Nigeria was gradual becoming comatose and no

longer of economic relevance to the government and its people. Hence, the government directive

to subject the sector to structural and operational reforms became imperative.13

11 NCDMB (2015), About Nigerian Content Development Management Board.

12 Emmanuel .E.O. (2013), Oil and Gas Sector Reforms in Nigeria: What You Should Know.

13 Oluleye .O. (2003), Liberalization of the Downstream Petroleum Sector: A Collection of Papers, Essays & Speeches on the

Reform Process.

However, in order to preliminary evaluate the initiatives of the government reform in tackling

the perinea problems of the industry, the OGIC and PIB audit reports on the petroleum industry

would appear to be enough pointer of the state of affairs in the sector. According to the Hart

Group, an independent auditors commissioned by the Nigeria Extractive Industry Transparency

Initiative (NEITI), based in United Kingdom, an institution involve in management of Nigeria’s

vast hydro -carbon resources discovered the deficiency in accounting procedures and control

which had created enabling environment for corruption in the oil and gas industry, weakness in

the oversight roles of regulatory a gencies, discrepancies in crude oil marketing department

figures used for financial audit and the Department of Petroleum Resources’ figures and other

associated abuses.14

Furthermore, the inability of the government to maintain and drive the state own refineries call to

question the genuine intention of government in tending to turning the fortune of the oil industry

around throughout right sales of the refineries . Obasanjo administration paid so much lip service

to transparency which did not exist as it were.

The Chairman of the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) while

testifying before the joint Senate Committees on Finance, Appropriation and National Planning

accused the government of floating three illegal accounts (Excess Petroleum Profit Tax, Export

Crude Oil, and Excess Royalty accounts ), from which, about $13.2 billion had been withdrawn.

However, apart from being illegal, they have no legal right by law to do so, hence, it becomes a

negation of Section 162(1), (2), (3) and (10) of The Nigerian Constitution.15

However, interventionist programs were introduced to ameliorate the existing challenges

confronting the oil and ga s industry in country and Nigerians, especially in oil -producing

communities. one major area the reform proposed to tackle is to adequately put in place policy

structure that will carter for both industry players and producing communities with a view to to

calm the ongoing restiveness in the country. This paved way the inauguration of the Council for

Socio-economic Development of the Niger Delta by President Olusegun Obasanjo .16 Thus, the

government gave a wide range of franchises both in the interim and in the long run, as palliatives

measures, cutting across employment creation, better public transportation system, quality

education structure, availability of primary healthcare system , quality and effective

telecommunication services, healthy environment, and agriculture revolution and portablr, clean

pipe born water supply. when the above mentioned social values are put in place, the reform

would indicate trust by Nigerians for Government..17

14 Diakolo .T. (2014), Goodluck Jonathan Presents N4.92 trillion 2013 Budget.

15 Sobowale .D. (2015), Nigeria in deep economic trouble: “FG, states, LGs share N518.5bn for June 2006”.

16 Lawal .Y. O. (2014), Subsidy Removal or Deregulation: Investment Challenge in Nigeria’s

Petroleum Industry.

17 Hassan .S; Ebele . A. & Raphael .O. (2013), Nigeria’s Reform Program: Issues and Challenges.

4.0. THEORITICAL FRAMEWORK

The Nigeria oil and gas policy essentially provided general guidelines for the emergence of the

new Oil and Gas industry as it where , due to past government system failure . Hence, this

theoretical approach of this study is based on system theory concepts, (David Easton 1 917).

Though, this theory has been proposed decades ago, yet, its relevance is attached to t he Nigerian

oil and gas structural failure. David also noted that the behavioral disposition of any society has a

lot to contribute to its systemic development or growth. These broad provisions were transferred

to the operational and administrative respons iveness of the Nigerian petroleum industry

negatively, that had led to a total collapse and moribund state the refineries it assumed today.

One key importance of the reform is to transform the sector into global compliance, practical and

concrete legal and institutional matrix for effective operational activities of Oil and Gas industry

to meet up with global standard an economic viability as envisaged by the policy.18

It is in this light that Government constituted the second Committee for the reform of the Oil and

Gas Sector Implementation Committee (OGIC) in 2007 inclusive of Gas Master Plan . some of

the objectives of the reform as it regards structural system failure that is to ensure an enabling

legislative framework that will entrenched regulatory, c ommercial research institute and

effective management of operations policies for the industry. Nigerian policy failure is systemic.

And surrounded by oil economy as one major economic determinant upon which other sector

rotates.

Actors of the petroleum in dustry are classified as both private and public organizations. The

public actors represent government agencies such as; Department of Petroleum Resources

(DPR), the Nigerian National Petroleum Corporation (NNPC) and its subsidiaries, the Petroleum

Products Pricing Regulatory Agency (PPPRA), among others. The private actor consists of both

indigenous and foreign actors. The indigenous sector are local based marketers known as

Independent Marketers, who have being in operation since 1978 till date. The conc ept of

Independent petroleum products marketing was inconsonant to 1972 indigenization policy with

the objective to promote indigenous entrepreneurship platform for Nigerians industrialists to

strive neck to neck with the foreign counterpart in the petroleum industry.

However, shortly after the introduction of the scheme in 1979, the sector recorded about 20

additional independent petroleum marketers in the petroleum sector, and by 1993, it increased to

about 1000 indigenous marketers. Given status rise of about 8,948 members known as

Independent Petroleum Marketers Association of Nigeria (IPMAN). Accounting for about 45

percent volume of petroleum products supplied and distributed across the Nigeria, with a total of

about 8100 retail outlets across the country.19

Major Markets of petroleum products in Nigeria are the multination oil corporations who have

strong competitive financial base in Nigerian. They control about 55 percent of the petroleum

market volume, and own about 3418 retail outlets, large tan k farms and logistic facilities across

the country, while the government own retail outlets is currently about 20 mega filling stations in

18 Wikipedia (20014), David Easton System Theory.

19 Petroleum Product Pricing Regulatory Authority, (PPPR, 2010), The Role of the Independent Petroleum

Association of Nigeria (IPMAN) in the Petroleum Industry.

Nigeria. These local independent marketers are competing with the multinational oil marketers

known as the major oil marketers comprising: MRS Nigeria Plc, Mobil Oil Nigeria Plc, Con oil

Plc, Total Nigeria Plc, Oando Nigeria Plc, and African Petroleum Plc. These six multinationals

control about 60 percent of petroleum products supply, distribution, pricing and marketing

environment in Nigeria oil and gas sector, under an umbrella known as Major Oil Marketers

Association of Nigeria (MOMAN). 20

The Nigeria petroleum industry is categorised into three subsectors, Upstream Downstream and

Midstream. The Upstream Sector includ e: Geological activities, Seismic data acquisition,

Geodetic survey, Exploration and production, site surveys/preparation for drilling at locations,

Drilling operations, Crude petroleum logistic facilities and tank farms. The downstream

subsector of the pe troleum industry which forms the basis of this study is currently undergoing

reforms in the following activities: commercialization of refined petroleum products (marketing),

supply and distribution mechanism, pricing, retailing, gas treatment and conversi on, and

petroleum products equalization (through trucking) across the length and breadth of the country.

These activities falls under the control of both Major and Independent Marketer enterprises.

Upon which the deregulation policy programme is currently pursuing as petroleum industry bill

(PIB). It is of government policy interest that private investors participate in the supply and

distribution activities of petroleum products. Hence, government decided to divest a sizeable

share of her interest to the public in oil marketing business through the Technical Committee on

privatization and commercialization.21

However, over decades, the oil and gas industry has occupied strategic position in the economy

of Nigeria, accounting for about 80 percent of Gross Domestic Product and about 90 percent of

the country’s total foreign exchange earnings. In light of the foregoing, giving her strategic

importance in the economy, the government in year 2000 decided to completely overhaul the

entire petroleum industry with efficient performance objectives; maintain a self -sufficiency

policy direction in crude oil refining, ensure petroleum price stability, opening up of the entire

industry where market fundamentals will be determinant for healthy competition among

investors, ensure adequate return on investment, while ensuring a level playing grounds for

investors and It will enhance employment generation that will energise growth and development

of the economy.22

Petroleum products marketers are important players in channel of supply and distribution of

petroleum products as well as marketing mix. Kotler and Armstrong defined “product” as

anything that can be offered in a market for attention of price and acquisition, with the aim to

satisfy the end user or need is a product . Products include tangible object and intangible

objects.23 Consequently upon the aforementioned, crude oil and gas product can be categorised

as tangible products. Example of petroleum products are:

• PMS or Petro (Premium Motor Spirit);
• AGO, also known as Diesel (Automotive Gas Oil);

20 Lolade .O. (2015), Oil Marketers Raise Alarm Over Non-payment of N250bn Subsidy Claims.

21 Anotonio .B. (2015), Challenges and Solutions in an Upstream and Downstream Oil and Gas Operation.

22 Reginald .S. (2013), PPPRA lists benefits of deregulation in downstream sector.

23 Kotler .P. & Armstrong (2013), New Product Development-Problem of New Product Development.

• HHK (Household Kerosene);
• ATK, also known as Jet-Al is also known as Aviation Turbine Kerosene; and
• Various types of Industry Fuel: HPFO (High pour Fuel Oil), LPFO (Low pour Fuel Oil), LPG

(Liquefied Petroleum Gas), Base oil, and Bitumen.

For any established organization to be efficient and effective in what she does, managerial

decision become a core subject matter for marketing mix or segmented marketing and total

marketing approach about how to distribute o ut puts to ultimate consumers. Such important

decisions are made by skilled management because distribution decisions must be made in terms

of divergent objectives and strategies. It was under such scenario, that Kotler and Armstrong

posited that distribut ion decisions should be guided by three concepts: potential investor must

under study the Market coverage for her products or services before launching into the market,

being able to determine the size of the potential market needed to cover, having full c ontrol over

the product brand and, understanding components cost of crude oil refining.

The Nigerian Pipelines and Products Marketing Company (PPMC) controls the activities of

marketers in petroleum products supply, distribution and marketing in the coun try through an

elaborate network of about 5,000 kilometres stretch of pipelines that inter connects 21 depots

across the country. Petroleum products are sourced from the four different local refineries and

where there is supply short -fall induced by low ca pacity utilization from refineries, importation

of refined products is used to augment domestic demand. However, coastal shipments of

petroleum products are channelled through ferry to riverine areas and trucking by truck -tankers

are transported to norther region of the country.

Furthermore, Nigeria four refineries owned by the government is superintended upon by NNPC

who has the managerial and operating capacities to move petroleum products from tank farms,

jetties to retail outlets, is also responsible of for managing the activities of the six major oil

companies and the numerous independent marketers in the sector through the NNPC/PPMC

receiving depots in the country. From here, products are pumped to depots aided by booster

pump stations provided along pipelines routs, between two linked depots. This is boost

petroleum products availability in the country to avoid scarcity. The diameters of each of these

pipes are between 12”8 and 6”.24

5.0. GENRAL DISCUSSION

The Nigerian petroleum sector remains a dominant sector in the socioeconomic growth and

development of Nigerian Economy. The sector prowls remain one of Africa’s largest exporters of

crude oil and the seventh among OPEC Nations. With about 1.2 trillion bar rels (TB.) sufficiency

reserves for domestic consumption, while crude oil exports earnings constitute about 90 percent

of government revenue and expenditure profile, the sector has overtime energized other sectors

to growth, accounting for overall upward p ush to about 95 of total GDP of the country’s growth.

The country also derives about 42 percent of her Gross Domestic Product (GDP), and 89 percent

of the Federal Government collectable revenue (Frynas, 1998) from the oil industry.

Furthermore, before the second coming of Present, Olusegun Obasanjo, and the petroleum

24 Anthony .U. (2014), Nigeria Oil and Gas: Restoring Integrity to Pipelines.

industry was characterized by multifarious challenges that crippled economic activities in the

country. The negative impact was severe, due to the fact that Nigerian economy is

“monoculture” with the oil and gas as front liner of the economy. The sector suffered setbacks,

neglect and massive corruption to an extent that domestic consumption of petroleum products

was import substituted with the comatose state of the four indigenous refineries.

The Obasanjo administration made an attempt to resuscitate the moribund sector by assembly

groups of stakeholders and professionals to chart a positive course for the oil and gas industry.

This ingenuity of the federal government gave birth to the inaugura tion of a committee’s report

known as “ The Report of t he Special Committee on the Review of Petroleum Products Supply

and Distribution” in 2000, with the following term of reference:

• to review the entire activities of the petroleum sector , with special interest in

downstream subsector,

• to have a closer look at the channels of petroleum products supply and distribution;
• to tame the persistent tide in petroleum products price volatility;
• to understudy the activities of petroleum marketers, tr ansporters, station operators,

industrial converters and all those involve in the processes of making product available to

final consumers;

• Curtaining the excesses of monopolistic players (NNPC) in the sector, with a view to

allow healthy competitive environment; etc.

the committee subsequent recommended the immediate turn around maintenance of existing

refinery for efficiency purposes, the restructure the supply and distribution channel of products

across the Nation, and to reduce the influence of the NNP C on national economy, that is,

opening up of the entire system to competition.25

At end of the Committee assignment, a blue print indicating a new road map for the petroleum

sector was highlighted with a major recommendation for the establishment of a re gulatory body

that with midwife the activities of the midstream and downstream sector of the petroleum sector,

where passively inhabit serious challenges in the sector. This, gave rise to the esta blishment of a

regulatory organ known as Petroleum Products Pricing Regulatory Agency” (PPPRA) by the Act

of National Assembly in 2003. with the objectives to regulate the supply and distribution of

petroleum products across the country, to ensure a level playground for investor, while expecting

return on their inv estment, to tame petroleum existing prices volatility and to establish code of

conducts for operators.26

The above mentioned report captured, also, pre 1999 developments of the oil and gas industry

transformations which were engineered by the Obasanjo regime, emphasized on the role of local

and international player in the consequent reforms in the oil sector.

25 Report of the Special Committee on the Review of Petroleum Products Supply & Distr ibution (2000).

26 Petroleum Products Pricing Regulatory Agency (2015), History of PPPRA.

5.1. Issues and Challenges of Nigeria Oil & Gas Reform Program

The discovery of Nigeria oil and gas is way back in 1908. While, actual commercial production

commenced in 1956 with about 5,000 barrels of crude per day. By I960, production capacity rose

to about 18,000 barrels per day (bpd), leading to an increasing demand by local and international

market in the 1970s. Amazingly, there was increase in the activities of country’s exploring and

refining of petroleum products capacity to about 2.2 million barrels per day (b pd).27 This gave

room for economic growth and development in the 1970s to a level that the Naira was equating

the US Dollar. Unfortunately, the government and the Nigerian people were unable to manage

the huge success derived from the wealth of crude oil business and were so perplexed and unable

to reinvest such dividends accrued from oil earnings. Rather, exploited and corruptfully spread

amongst elites class. That was how trouble started with Nigerian excess wealth from oil.

Although, most of the durable i nfrastructures in the country today were built within these

periods, Nigeria at 50 years would have developed and her citizenry living comfortably.28

Then, came various successive military regimes in Nigeria that misplaced priority and diverted

the develo pmental agenda of the country towards infractural developmental project had a

different agenda as they looted the commonwealth of the country. Corruption was enthroned

during the periods of military regime from 1960 to 1980 and to the later 1990s. The emer gence

of military elites in governance led to purification of licenses for oil blacks, exploration,

marketing companies, and allotment appointment of directorship/employment of their cronies

who lack professionalism of the job. This scenario thrown caution to the wind, thereby,

hampering on the growth and development of the State own refineries activities and a leeway to

smuggling, pipeline vandalism, oil theft, and colossal waste of genuine skilled human resources

and a broad spectrum of corruption in the in the oil and gas industry. The bandwagon impact was

a total collapse of the economy and devolution of the Naira to other countries’ currencies.29

The negative impact of corruption also had its toes on the State owe Corporation, Nigerian

National Petroleu m Corporation (NNPC), experiencing serious setbacks due to efficiency and

ineffectiveness in oil and gas operations. While allowing multinationals to take over the activities

of exploration, exploitation and marketing of refined petroleum products domestic ally and at the

international market as the dictate the prevailing ex-deport price of refined petroleum products in

the country. this circumstances led to brain drain, and a period of ‘slave’ labour, where the

monetary value of an expatriate workers were higher, that is, thrice their Nigerian counterparts. a

situation where unskilled professionals are brought in as professionals and skilled personnel

become the order of the day. oth er regulatory Agencies like Department of Petroleum Resources

(DPR) and Petroleum Products Pricing Regulatory Agency (PPPRA), established to regulate the

Upstream, Midstream and Downstream activities of the petroleum industry has equally failed in

their various responsibilities due to sali ent challenges, corruption, lack of exper ience and

qualified personnel since itself was created by the government, until recently, when the Buhari

government gave a matching order for the reform of the NNPC and its subsidiaries in the

27 University of Ghana (2014), Economic Policy Management (EPM) Programme (EPM-Ghana), Department of

Economics.

28 The Guardian News Paper (2015), Challenges before Buhari’s administration in petroleum industry.

29 Olumide .I. (2015), Nigerian Oil Industry and Fuel Subsidy: Facts, Myths & Hidden Truth.

country. The corruption was at its peak that, the crude oil wi nd fall triggered by the 1990 Gulf

Crisis was not accounted for.30

However, little success has been achieved due to modern technology in well drilling, exploration

and refining of process. The years of mismanagement and embezzlement of funds meant for the

Turn Around Maintenance (TAM) of the industry brought the facility to a state of disrepair. The

country was, therefore, catapulted back to pre -colonial period of the 1960s, as the nation was

forcefully engaged in massive importation of refined petroleum pr oducts from other countries to

compliment domestic supply , following the epileptic state of the four refineries. Credence was

given to endless queues at retail outlets, price vitality, smuggling, and black market operators

cashing on profiteering opportuni ty, while the populaces are in serious discomfort and

impoverished. One major challenges of the sector before Nigerian government was how the

industry could catch up with global efficiency and hoe to reduce to barest minimum the

militancy oil -bearing encla ve of the Niger Delta. Yet, it is clear that the prospecting for oil

personifies the projection of man’s inhumanity to man and wickedness to his fellow man, as all

forms of devices were employed by prospecting companies and the state to drill for oil at th e

expense of man and his environment. One may be right to state that oil was given precedence

over human beings in Nigeria until recently.31

5.2. The Enabling Legal Framework for Oil and Gas Industry

One major challenges of oil and gas industry reform i mplementation committee was to translate

the existing provisions of National Oil and Gas Policy into a workable draft for legislativ e ascent

before passed into law. However, weigh the political impediment associated with the other pass

reforms, the current draft Petroleum Industry Bill by the Committee turned out to become

generally accepted by the populace and many compelling issues in the draft were subsequently

amended in order to come up with a comprehensively legal framework that will reposition the

industry. In the course of the amendment, the following were observed by the legislators:

• That half a century of the life of the sector has experienced inadequacy in policy

direction, lack of regulation ethics and commercial operations.

• Sequel from the above, an elaborate corporate interactive section of stakeholders be put

in place to forestall enduring concerns of all the key operators in the industry, within the

context overriding interest.

• The discovery of abundance of natural gas de posit in Nigeria should be advantageously

explored as alternative source to crude oil utility.

• The urgent need to have collective and harmonious legal framework at various phases of

the reforms into a comprehensive single draft document as Petroleum Industry Bill would

energize performance efficiency of the entire sector of the oil and gas industry. 32

30 Premium Time (2015), Buhari sacks heads of NNPC subsidiaries, appoints 4 new Group Executive Directors .

31 Aghalino . S.O. (2013), An Appraisal Of The Oil Sector Reforms.

32 Sani .S. & Abdel .R. M. (2014),The Nigerian Petroleum Industry Bill: An Evaluation of the Effect of the Proposed

Fiscal Terms on Investment in the Upstream Sector.

5.3. The Draft Petroleum Industry Bill (PIB)

The proposed oil and gas industry b ill (PIB), when passed, would be a comprehensive document

that will ensure a lasting solution to challenges currently confronting the sector. It will position

the industry to global competitiveness and efficiency. T he draft when passed will streamline all

relevant activities of public oil and gas companies into more viable and focused public sector on

as relating to oil and g as exploitation, exploration, refining, and marketing. Furthermore, the bill

takes care of the other matters, such as government participation and control, regulation, safety,

fiscal is sues, health an d environmental concerns . The proposed bill main objective is to vest

ownership petroleum resources in the hands of Nigeria State, which will enable government to

participation, acreage allocation, fiscal principles, health safety & environm ent, quality air

emission, and facilitate the development of indigenous local content.

The proposed PIB is draft bill is divided into strategic organs for efficiency. Upstream

Petroleum: include exploration, exploitation, Licenses, leases and contracts. Competitive

platform is created to others participants by government, through award p rocesses to exploration

by indigenous companies, marginal fields, t ermination and revocation of licenses and leases,

matters on fees, rents and royalties and the provisions on associated natural g as.33 While the

proposed reform on the downstream petroleum p roducts activities entails matters of licensing,

refining and marketing of petroleum products. Others captured by the draft include facility

management companies, transport Logistics Company, open access and non -discrimination,

depots and pipelines and issues relating to petroleum products pricing. The bill also provided for

Operating stocks and National Strategic Stocks reforms. On the Downstream Natural Gas reform

bill, it recognizes gas commercialization network code, gas supply license, third party access,

pipelines transportation license, customers’ protection, whole sale marketing, gas pricing regime,

and competitive market regulation.34

5.4. Regulatory Framework

Prior to reform bill in 2007, the industry had a legal framework that coordinates the activities of

the industry. Afterword, and due to global dynamism and advancement in technology, the

Nigerian legal framework became obsolete, rudimentary and had muddled up the entire activities

of the industry, thereby unable to fit into modern global realities of the oil and gas sector.

Different organs of government including the Ministry of Petroleum Resources, the Nigerian

National Oil Corporation (NNPC), the Directo rate of Petroleum Resources (DPR), and the

Petroleum Products Pricing Regulatory Agency (PPPRA) more recently have been engaged in

one form of regul ation activities . This made the entire regulatory processes in the industry

ineffective due to clarity of fu nctions. However, in the bid to chart a new roadmap for the

industry, certain universally regulatory benchmark was accepted and adopted by the Committee.

These are enumerated below:

33 Olaniwun Ajayi .L. P. (2015). Freshfield Bruckhus Deringer, Nigeria.

34 Stanley .O. (2014), Private sector, PIB issues affecting downstream funding.

• Clarity of the roles, functions and powers of the regulator was well spelt out in the

proposed draft.

• The regulator was empowered to enforce any breach of code of conducts.
• Limiting government roles to policy formulation and implementation.
• The draft structure the fund regime to be independent, subject to budgetary provision.
• Personnel sourcing rely heavily on the hands of the regulator to allow professionalism.

etc.35

5.5. Petroleum Products Regulatory Authority (PPRA)

The reform draft recommended the nomenclature the downstream regulatory body, Petroleum

Products Pricing Agency (PPPRA) to be changed to Petroleum Products Regulatory Authority

(PPRA), with additional functions. Inspite of government determination towards liberalization of

the downstream subsector of the industry, petroleum products supply and distribution still

remains a challenge. Hence, the PIB proposed a new regulator, known as the Petroleum Product

Regulatory Authority ( PPRA) to expand and streamline the current responsibilities being

performed by Petroleum Products Pricing and Regulatory Agency (PPPRA) to enable effective

performance as a downstream regulator in the oil and gas industry. The Authority shall among

other things be saddled with the following roles:

• Regulate the activities downstream sector of the industry.
• The current downstream responsibilities undertaken by PPPRA are to regulate the

subsector oil and gas activities.

• Setting of petroleum products pricing benchmarks on ex-depot, ex-refinery price formula

based on market fundamentals.

• Administering the common carrier oil and gas regime.
• Regulate and administer open access regime.
• Regulate the holding of petroleum products stocks, and Operating stocks while ens uring

operators compliance.

• Setting of template for tariff administration. and
• The regulation of refineries activities.

6.0. FUTURE SUGGESTIONS AND RECOMMENDATIONS

The petroleum industry remains strategic to the corporate and fiscal existence of Nigeria.

Stocking about 25 billion barrels of oil reserves and about 1.6 trillion cubic feet (tcf) proven gas

reserves which placed the country the 6th among the world’s top oil-producing nations. The sector

is bedevil with massive corruption and administrative neglect occasioned by systemic failure.

The decay in the industry got to a worrisome level that the government has to proposed the sales

of the four State own refineries. But, was s topped by organized labour movement in Nigeria, as

35 Egbogha .E. O. (2013), What You Should Know Oil And Gas Sector Reforms In Nigeria.

the situation continue to deteriorate, refineries were under refining , and this led to massive

petroleum products importation and total abuse in the allocation of oil blocs. it was obvious that

the entire sector needed to be repositioned.

6.1. Suggestions for Further Studies

Petroleum remains the greatest jewel of estimable value in both the local and international

treasure hunts for cheap energy source, resource generation and investment options the wor ld

over. The diverse business potential and investment opportunities supported with enabling

policy, appropriate control, financial prudence and rule of law shall stimulate and encourage

indigenous participation while at the same time attract more foreign investments, create job

opportunities and technology transfer in all the sectors of our hydrocarbon industry. It is

imperative to add that business in the sector shall continue to be relevant to life and lucrative

even beyond the estimated depletion dates of the proven hydrocarbon reserves of nation. Thus,

the study further suggest research be carried out on petroleum pricing tariff components and its

impact on final retail price.

6.2. Study Recommendations

Transnational Oil Companies (TOCs) and the Indigenous Operators in Nigeria have expressed

concern over the federal government’s intention to reform the entire oil and gas industry

including the fiscal terms for efficiency and to forestall corruption . Therefore, this study

recommends the evaluation of activities of the downstream, midstream and upstream petroleum

investment as it relates to International Oil Companies (IOC s) in Nigeria. Secondly, the

government should have political will to enforce and implement policy reforms that will

reposition the entire petroleum sector without necessarily being bureaucratic about it. Capacity

development for manpower development should be introduced to have skilled human resource

that will be capable to drive the sector effectively and efficiently. However, study show that even

though petroleum business remains a profitable venture under the proposed PIB, lack of fiscal

stability in the sector will negativel y affect investment opportunity. This study therefore

recommends policy makers, legislators, industry regulators and other stakeholders collaborate

with the government to drive the PIB policy for economic growth and development.

7.0. CONCLUSION

From the above scenario, it is obvious to note that government policies plays important role in

the overall development of Nigeria petroleum industry since their activities are controlled by

government: the matrix of production, refining, supply, marketing and other related economic

indices of the nation. In Nigeria, petroleum business is all compassing macro and microeconomic

dynamism such as supplying of gas to boost elasticity, annual budgetary provision, and other

issues. While the future of the oil industry appears promising, based on the current reforms going

on in the sector, all hands must be on deck to prevent its reoccurrence of the sector become none

economically viable. Furthermore, it has been noted, that, the oil and gas industry is the may stay

of the Nigeria economy. Hence, the need to ensure viable policy that will enable effectiveness in

efficiency of the sector, as a parameter to other economic growth.

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